Advisers face final chance to use the LDF

Advisers have been warned that time is running out to utilise the Liechtenstein Disclosure Facility (LDF) before it is replaced by a stricter system at the end of the year.

The agreement between Liechtenstein and HM Revenue & Customs, which offers clients with undeclared offshore assets an opportunity of anonymously regularise their tax affairs without criminal prosecution, will be withdrawn on 31 December.

Tax advice provider TridentTax said advisers now have “one last opportunity” to take advantage of the facility, as HMRC have announced that its terms will not be repeated and will instead be replaced by a more limited facility.

“The next few months are advisers’ last opportunity to ensure that their clients’ personal and business affairs are in order, and where necessary, to use the LDF to regularise the,” it said.

“It is very easy to make a mistake, overlook, or even forget to do something which will come to HMRC’s attention at some point. It is essential that all clients understand the UK tax position in relation to offshore investments or structures in which they have an interest in advance of information being reported about them.”

The LDF was originally due to be closed in April 2016, but was brought forward by the UK Government in March’s budget to make way for a tougher facility which will remain open between 2016 and 2017 in advance of the receipt of tax data under the new Common Reporting Standard in 2017.

The news came as a blow to the facility, which, as of last December had raised little over a third of its target £3bn yield, as set by HMRC.

Time is running out

Peter Carnell, independent financial marketing consultant, said the LDF, which offers a penalty of just 10% on undeclared tax, is not currently generating enough revenue to meet HMRC’s target, and will therefore need to see a large increase in high level declarations throughout the remainder of its running time.

He said that it could be argued that the facility has not been advertised and marketed to clients properly by advisers and HMRC, meaning many are unaware of the generous settlement terms it offers.

“While it would be difficult for advisers to go up to every single client and ask them if they have anything to declare, there are certainly more effective ways of raising awareness among clients, such as notices, website announcements, and blanket emails,” he said.

He added that there will be an “atomic bomb” at the end of the year when HMRC introduces a new system for declaring offshore assets.

“A new facility will open, but the Revenue has already confirmed that it will be on far stricter terms,” he said. “Alongside this, the Revenue will really start to come down much harder on those who have kept their money offshore. The message will very much be, ‘we gave you your chance to sort this, and you still haven’t’.

“There are a few months left for advisers to alert their clients to the LDF and the generous terms it offers as an amnesty before the opportunity disappears, time is running out.”

Atomic bomb

Frank Strachan, partner, tax at Edwin Coe, said: “Anyone considering the merits of the LDF needs to move swiftly to understand its benefits.

“Once the early closure of the LDF process has passed, the replacement disclosure process will be considerably more punitive for those who chose not to take advantage of the LD – in simple terms, settlements with HMRC will be significantly higher than would be reached under the LDF.

“In 2017, when HMRC receive vast swathes of data under CRS and no further disclosure processes are available, in HMRC’s words, ‘The gloves will come off’.

“The LDF is the most palatable settlement process HMRC have ever and will ever offer – if taxpayers don’t take advantage now they will likely come to regret that decision when settling with HMRC for higher figures in due course.”