United Kingdom
The LDF – If you want to sleep easy, disclose early - Fiona Fernie
Plus ça change – plus c’est la même chose
Two and a half years ago the Liechtenstein Disclosure Facility was launched to encourage those with undisclosed offshore income and gains to make voluntary disclosures to HMRC and regularise their UK tax affairs.
At the time it was first announced it was intended that all those who wished to avail themselves of the facility should register by 31 March 2015, with taxpayers having either 7 or 10 months to complete a full disclosure from the date of registration, depending on what tax treatment needed to be adopted.
This week the Treasury and HMRC have announced that the period available in which to register has been extended by a year: to 31 March 2016.
I believe there are a number of reasons for the extension:-
- As Dave Hartnett, Permanent Secretary for Tax, said in yesterday’s press release, the response to the facility has been far stronger that HMRC expected, with the same number of registrations in the first two and a half years as were envisaged in the entire period initially announced. It is therefore not unreasonable to assume that there are still significant numbers who might wish to avail themselves of the opportunity but are still dithering over whether to come forward.
- The Financial Intermediaries in Liechtenstein have also discovered that the task of “auditing” their clientele to identify those with UK addresses and writing to them to ask for proof of UK tax compliance is a much larger undertaking than they anticipated. This may be because there are actually significantly more such individuals than originally believed.
- On a more general note there is also the global financial crisis and the Government’s need for money to fund the budget deficit. Raising taxes on the ordinary individual is always politically unpopular but the pursuit of tax evaders is seen in a much more favourable light by the general public.
- In addition, this shortage of Government funds inevitably has an impact on HMRC resources. The use of voluntary disclosure facilities is clearly a cost effective way of collecting revenue since much less investigation work is needed to reach the concluding settlement.
The extension is a positive step but I do not believe that those with disclosures to make shouldn’t wait until the last minute.
Clearly the level of benefit derived from the terms of the MOU governing the Liechtenstein Disclosure Facility decreases as time passes since the period over which back duty will be sought is extending and the number of years in which the penalty will be limited to 10% is remaining static meaning that both the tax bill and the penalty will only get higher the longer a taxpayer waits to come forward.
Moreover, it is unmistakably the case that the net draws ever closer around tax evaders. This is a result of both the increased information exchange between different tax jurisdictions and also the apparent ease with which information can now be “removed” from financial institutions and passed on to the authorities.
Thus the extension to the LDF, whilst welcome, doesn’t change the message to those with undisclosed tax irregularities: if you want to sleep easy, disclose – and the sooner the better!
9 February 2012
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