The Liechtenstein Disclosure Facility – are you on track?
The Liechtenstein Disclosure Facility is now closed to new applications – but inTAX can still help.
Applying to potentially anyone, the Liechtenstein Disclosure Facility (LDF) was announced on 11 August 2009 as a result of an historic agreement between the UK and Liechtenstein. HM Revenue & Customs (HMRC) offers some potentially significant benefits to those who want to regularise their tax* affairs. Registration for the LDF closed on 31 December 2015, and all paperwork should have been submitted by 31 October 2016. Some cases have rolled on under a different Code of Practice – Perhaps Code of Practice 8 or Code of Practice 9 (Contractual Disclosure Facility (CDF)). If you think you’re not getting the right service or advice from your current adviser or if you have any urgent tax problem that you need to resolve quickly, contact our expert advisors now for a confidential, no obligation meeting.
The Liechtenstein Disclosure Facility – How can we Help?
At inTAX we are highly experienced in dealing with LDF cases, and dealt with this facility since its inception, and others prior to and post LDF, such as the Digital Disclosure Service and the Worldwide Disclosure Facility (WDF). We are qualified tax advisers specialising in voluntary disclosures and tax investigations.
The Liechtenstein Disclosure Facility – What you needed to know.
The LDF is now finished, but the following tells you how it operated.
Who can participate? The LDF offers significant benefits (set out below) to many people. Not all of them can gain the full benefits if they don’t meet certain criteria. To ensure the full benefits of the LDF are afforded to you, you must
- Have held an offshore asset as at 1st September 2009 (an asset can be land, property, a bank account or similar)
- Not previously have had a tax investigation and failed to make a full disclosure or
- Not have been previously contacted by HMRC in relation to a previous disclosure facility
- Acquired the offshore asset through a UK branch or agency.
If you don’t meet all of these criteria, you can probably still take part, the terms just aren’t as good.
Those who cannot take part are:
- Those under criminal investigation.
- Those under investigation under the Contractual Disclosure Facility (CDF), also known as Code of Practice 9 (suspected serious tax fraud).
What are the benefits?
In cases where the full benefits apply, the benefits are as follows:
- A guarantee of no prosecution for tax offences. There is no such guarantee under the other facilities, or the Swiss-UK agreement.
- In normal circumstances where HMRC believes the client has deliberately underpaid their tax, HMRC can go back 20 years. So on 5 April 2015, it can collect tax going back to 1994/95. Under the LDF, the earliest year that tax is payable is one commencing after 1 April 1999. Not only does this save tax and penalties, but also interest in a period when rates were quite high.
- If there was no previous deliberate behaviour, HMRC will accept a disclosure for either four or six years depending on whether the error was as a result of careless or reasonable behaviour.
- The penalties payable are limited to 10% of the duties up to and including 2008/9 and 20% thereafter for 2009/10, followed by the usual penalties under the new regime. Compare this to a maximum rate of between 100% and 200%.
- The possibility of the composite rate option – a potentially beneficial way of taxing undeclared income (see below).
Where the full benefits don’t apply:
- If there has been a previous investigation.
- If there is a current investigation and it is more than three months old.
- If more than 80% of the undeclared income was derived in the UK.
- Although the full benefits won’t apply, there is still a guarantee of non-prosecution for tax offences.
How does it work?
If you meet the criteria as set out above, you need an asset in Liechtenstein. If you don’t already have one you can, for example, open a bank account in Liechtenstein. Although we can’t give you financial advice, we can put you in touch with Liechtenstein bankers. You then need to register for the LDF, and once accepted there is a stipulated time frame in which to make your disclosure to HMRC setting out the amount of tax owing. Payment of the amounts owing (tax, interest and penalties) are required at the time the disclosure is made, unless other agreements are reached.
Composite Rate Option
The composite rate option (CRO) is a rate of 40% which can be applied ‘in lieu of all taxes’ for years up to and including 2008/9. Cases in point where this can prove particularly beneficial are, for example, inheritance tax or an overdrawn director’s loan account. Where it is applied, reliefs and exemptions are lost, but it can still provide a hearty financial saving.
Once accepted, you have 10 months to submit the disclosure and pay the liabilities. The time limit is shortened to seven months if you elect to use the composite rate option.
I’m not sure I’m getting the right advice
If you’re unsure whether your accountant is progressing your LDF submission correctly, we would advise talking to a specialist advisor. It is possible under the LDF, unlike other facilities, to have a discussion with HMRC on a no-names basis. At inTAX we can do this on your behalf. *Throughout this document we refer to ‘tax: this covers, tax and NIC and any other duties that might be payable.