Time running out to own up to tax avoidance
A useful – and legal – scheme for people who haven’t paid their dues to the taxman is being restricted, reports Alison Steed
Expats who have failed to pay their taxes may find the attractive option of using the Liechtenstein Disclosure Facility (LDF) blocked, thanks to changes made to it recently.
In a move aimed at stopping abuse of the system by tax evaders, HM Revenue & Customs (HMRC) has restricted access to it.
The LDF is an agreement on tax reached in 2009 between the United Kingdom and Liechtenstein. Contrary to what its name suggests, however, it can cover assets hidden anywhere offshore.
Under its terms there is a guarantee that those who come forward and make a voluntary tax disclosure will not be prosecuted. Instead they can make financial restitution at a reduced price.
The arrangement’s favourable terms also include the ability to discuss the disclosure with HMRC on a “no names” basis and limiting the tax liability to the 10 years from 1999 to 2009 as opposed to the normal 20 year rule.
HMRC believes that the LDF was being abused by employers who used employee benefit trusts to avoid tax, and so it has now restricted access to the some of the favourable terms that were on offer.
It announced last month that if someone enters the LDF to settle liabilities that HMRC is already aware of, access to the special terms will be blocked.
Access will also be blocked where the issue being disclosed has already been subject to an intervention that started more than three months before the date of the application to sign up to the LDF.
And there will be no access to the LDF where there is no substantial connection between the liabilities being disclosed and the offshore asset held by the relevant person, as at Sept 1 2009.
Dawn Register, partner at BDO Tax Dispute Resolution, said: “The LDF was originally designed to encourage offshore tax evaders to come forward voluntarily and, to this end, it has been a huge success in terms of the amount of cash collected for the Treasury and the number of voluntary disclosures.
“However, it now appears that many HMRC inspectors are unhappy that it allowed taxpayers with existing enquiries to benefit by moving their case into LDF.
“This move prevents ongoing enquiry cases benefiting from the special terms of the LDF and restricts access for people with only UK-related tax problems.”
She added: “It is worth noting that HMRC is still offering beneficial treatment to those who make voluntary disclosures. With the net closing in on tax evasion we would advise that voluntary disclosure may be the best solution for many tax payers.”
Gary Ashford, who represents the Chartered Institute of Taxation on HMRC’s compliance reform forum, said the LDF had provided opportunities for some employers to settle tax liabilities in a way that was not intended, but that these new restrictions “will now ensure a more level playing field”.
He added: “The LDF is primarily focused on those with overseas tax liabilities, mainly those with undeclared assets. These changes now mean that taxpayers who reported under the Disclosure of Tax Avoidance Scheme (DOTAS) rules, or any situations where HMRC have been making enquiries for more than three months, will be unable to take advantage of the LDF. This means that users of many UK tax avoidance schemes who wish to settle their tax affairs will not be able to use this route.
“Ultimately, this is a statement of intent by HMRC to let people know that the LDF is available but there is a necessary tightening up of who is entitled to its provisions.”
