THE LIECHTENSTEIN Disclosure Facility (LDF) is beginning to generate significant amounts; recent figures obtained by Accountancy Age show that the average disclosure yields £300,000.
At what is, relatively speaking, an early stage of the process, it is not surprising that these figures have prompted debate as to whether HMRC is on course to exceed its original target of £1bn or indeed reach the £3bn target referred to in recent media reports.
A number of factors will need to come into play for this to be achieved but the advisor community can certainly play a key role by communicating the benefits of the LDF to its appropriate clients.
A continuing focus for HMRC is raising awareness about the LDF among the advisor community, particularly small and medium-sized outfits, for which the LDF might not seem appropriate for their clients.
Indeed, it is most likely that a handful of larger firms are handling the majority of these disclosures (BDO included); there does seem to be a misconception that the LDF is only appropriate for the big money and sophisticated tax evaders.
The LDF can be used by anyone with offshore assets who has a historical tax problem. For example, it is a very helpful process to settle the liabilities of a deceased estate where the executors discover an issue. It can also be used by offshore companies and trusts.
Many people who were born outside the UK need advice about their domicile status, particularly in light of the changes in the non-domicile rules from April 2008. The LDF can be used to review domicile status and deal with any tax issues because of the new rules.
For some smaller advisors who have represented the same clients and families for many years, the idea of them having undeclared offshore funds is often not considered, or is understandably a difficult topic to address.
However, it is often inherited assets or people with a family nest-egg that need advice about making a voluntary approach to HMRC. Larger advisors can often step in to assist as a one off project without disturbing the ongoing relationship with the smaller accountant.
Likewise, some advisors might still think, “how will HMRC ever find out”, leaving their clients to stick their head back in the sand. It is important to consider that HMRC now has a huge network of Tax Information Exchange Agreements. Most people would be amazed at the volume of data that is flowing between countries around the world, not only within Europe.
Another key grey area has arisen because of a pending agreement between Switzerland and UK. Does this mean it is best to advise a wait–and-see approach? Our advice is to come forward now to use the LDF because any deal with Switzerland will not be more beneficial.
A wait-and-see approach is dangerous even for those with Swiss assets because HMRC could find out about the situation and open an investigation.
An investigation will be more expensive and more intrusive. Take, for example, the data stolen from offshore banks that HMRC has used to open tax fraud investigations. These people are then prevented from using the LDF. It is important that all accountants take into account the new enforcement changes when advising clients on disclosure. This includes the generally harsher new penalty regime, additional penalties of up to 200% for errors relating to offshore assets and publishing the names of tax defaulters.
The LDF is a defined process that is private and confidential and reaches a civil settlement with HMRC. There is immunity from prosecution once registered under LDF, unlike many of the recent campaigns for voluntary disclosure that HMRC has launched.
Fiona Fernie is partner in the tax investigations team at BDO LLP
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