Information Exchange and settlement agreements

Liechtenstein Disclosure Facility (LDF)

The LDF is a bespoke service offered by HMRC to support reviews being carried out by financial intermediaries in Liechtenstein to identify those who may have liability to UK tax. If a taxpayer fails to come forward and report liabilities arising from Liechtenstein assets, HMRC could charge them up to 100% of the value of the assets in penalties. In the most serious cases, there is a significant risk that criminal proceedings for tax fraud will be instigated or that HMRC will publish the name and address of the taxpayer along with details of the offence.

The LDF has been running from 1 September 2009 until 5 April 2016 and allows people with unpaid tax liabilities linked to investments or assets in Liechtenstein to settle their tax liability under extremely favorable terms.

The main highlights of the LDF are as follows:

  • Any tax liability arising for any period starting before 1 April 1999 will not need to be reported to HMRC, whereas if no disclosure is made, HMRC could investigate any outstanding tax liability for the last 20 years.
  • A fixed penalty of 10% will be charged for years up to and including 5 April 2009. Penalties levied for subsequent years will be based on general principles but HMRC has indicated that the minimum level will be applied. The minimum level of penalty chargeable for later years is likely to be 20%, and possibly higher.
  • HMRC's assurance that there will be no criminal tax investigation, and no publication of the identity of the taxpayer or details of the tax offence, as long as a full disclosure is made to HMRC and the underlying funds were not obtained from criminal activity (other than tax evasion).
  • Disclosure to be made within ten months of registration, or seven months if the 'composite rate' is applied.
  • The final date for submission of a disclosure is 5 April 2016
  • Enhanced exchange of information. For a certain number of cases each year HMRC may require information about accounts held in Switzerland by individuals who are identified to the Swiss tax authorities.

For those tax payers with outstanding tax liabilities, we can assist with the voluntary disclosure of those liabilities to HMRC using the favourable terms available under the Liechtenstein Disclosure Facility, and thereby regularise the taxpayer's tax affairs without the risk of a criminal investigation.

Since August 2014 HMRC has restricted the availability of the full favourable terms and each case requires careful analysis.

The Swiss Agreement

Legislation was introduced in the Finance Bill 2012, and came into effect on 1st January 2013, providing for bilateral co-operation between the UK and Switzerland to ensure effective taxation in the UK of individuals with financial assets in Switzerland. The effect of the legislation is to exchange information about such individuals on an automatic basis.

The legislation is in four parts:

  • Regularisation of the past. The agreement provides for a one-off levy to be applied on financial assets held in Switzerland which are identified as being beneficially owned by a UK resident individual, unless authority is given to disclose those assets to HMRC. Subject to certain exclusions and limitations, the individual will cease to be liable to UK income tax, capital gains tax, inheritance tax and value added tax in respect of the assets to which the levy is applied.
  • New withholding tax for periods from 1 January 2013. A levy will be applied to income and gains arising on the financial assets in Switzerland unless disclosure is made. The levy will satisfy liability to UK income tax and capital gains tax on those income and gains.
  • The levy applied to the financial assets in Switzerland for an account holder who dies on or after 1 January 2013 (unless disclosure is made) will satisfy liability to UK inheritance tax on those assets.

Isle of Man Disclosure Facility

The Isle of Man disclosure facility has been runnning from 1 April 2013 until 30 September 2016.

To qualify for the disclosure facility you must have an Isle of Man asset (which could include shares in an Isle of Man listed company) before 31 December 2013, and you will also need to be a UK resident taxpayer.

The highlights of the Isle of Man Disclosure Facility are:

  • Liabilities only have to be calculated from 1 April 1999 to the end of the last tax year.
  • Guaranteed penalty level of 10% of the tax due for years to 5 April 2008 and 20% for years after this date.

There are exceptions to this and the beneficial terms do not apply if you opened an offshore bank account via a UK branch of a bank.

If you have been subject to a tax investigation in the past or you have been contacted by HMRC as part of one of the previous tax disclosure arrangements then although you may be eligible to participate in the Isle of Man Disclosure Facility the beneficial terms above will not be available.

HMRC expect that payments on account are made during the disclosure process and if payments are not made HMRC can withdraw the benefits of the Isle of Man Disclosure Facility from the participant. The Isle of Man Disclosure Facility must be a full disclosure of all by the participant and needs, in most instances, to be completed within 6 months of HMRC accepting someone into the Isle of Man Disclosure Facility.

The Jersey Disclosure Facility

The Jersey Disclosure Facility has been running from 1 April 2013 until 30 September 2016.

To qualify for the Disclosure Facility you must have a Jersey asset (which could include shares in a Jersey listed company) before 31 December 2013, and you will also need to be a UK resident taxpayer.

The highlights of the Jersey Disclosure Facility are:

  • Liabilities only have to be calculated from 1 April 1999 to the end of the last tax year.
  • Guaranteed penalty level of 10% of the tax due for years to 5 April 2008 and 20% for years after this date.

There are exceptions to this and the beneficial terms do not apply if you opened an offshore bank account via a UK branch of a bank.

If you have been subject to a tax investigation in the past or you have been contacted by HMRC as part of one of the previous tax disclosure arrangements then although you may be eligible to participate in the Jersey Disclosure Facility and the beneficial terms above will not be available.

HMRC expect that payments on account are made during the disclosure process and if payments are not made HMRC can withdraw the benefits of the Jersey Disclosure Facility from the participant. The Jersey Disclosure Facility must be a full disclosure of all by the participant and needs, in most instances, to be completed within six months of HMRC accepting someone into the Jersey Disclosure Facility.

Guernsey Disclosure Facility

The Guernsey Disclosure Facility has been running from 1 April 2013 until 30 September 2016.

To qualify for the Disclosure Facility you must have a Guernsey asset (which could include shares in a Guernsey listed company) before 31 December 2013, and you will also need to be a UK resident taxpayer.

The highlights of the Guernsey Disclosure Facility are:

  • Liabilities only have to be calculated from 1 April 1999 to the end of the last tax year.
  • Guaranteed penalty level of 10% of the tax due for years to 5 April 2008 and 20% for years after this date.

There are exceptions to this and the beneficial terms do not apply if you opened an offshore bank account via a UK branch of a bank.

If you have been subject to a tax investigation in the past or you have been contacted by HMRC as part of one of the previous tax disclosure arrangements then although you may be eligible to participate in the Guernsey Facility the beneficial terms above will not be available.

HMRC expect that payments on account are made during the disclosure process and if payments are not made HMRC can withdraw the benefits of the Guernsey Disclosure Facility from the taxpayer. The Guernsey Disclosure Facility must be a full disclosure of all by the participant and needs, in most instances, to be completed within 6 months of HMRC accepting someone into the Guernsey Disclosure Facility.

Contractual Disclosure Facility

HMRC's policy is to deal with fraud through the cost effective civil investigation of fraud (CIF) procedures wherever appropriate. Civil investigations are conducted in accordance with the principles set out in Code of Practice 8 and Code of Practice 9 (formerly Hansard). Criminal investigation is reserved for cases where HMRC needs to send a strong deterrent message or where the conduct is such that only a criminal sanction is appropriate. However, HMRC reserves complete discretion to conduct a criminal investigation in any case and across a range of offences and in all of the areas for which the Commissioners of HMRC have responsibility.

HMRC use the Contractual Disclosure Facility (CDF) in circumstances where they suspect serious tax fraud, but where they don't think that a criminal investigation is necessary or appropriate.  Under the CDF, HMRC offers not to pursue a criminal investigation into any tax fraud which the taxpayer may disclose, provided that the taxpayer admits fraudulent conduct and makes a full disclosure of all irregularities in their affairs and the affairs of any entities for which they are responsible.

HMRC conduct an investigation under Code of Practice 9 with a view to the imposition of a civil penalty for fraudulent conduct if their suspicions are confirmed. The purpose of the enquiry is to determine the outstanding tax liabilities and interest and HMRC will impose civil penalties for fraudulent conduct if appropriate. HMRC will undertake the investigation with or without the taxpayer's voluntary co-operation. If the taxpayer decides to cooperate with HMRC, the investigation will proceed more quickly, efficiently and advantageously for both parties.

How we can help

We have extensive experience of helping taxpayers in Code of Practice 9 enquiries to regularise their tax affairs with HMRC on a civil basis.  We support and guide the taxpayer through what is a stressful investigation with minimum disruption to their lives.  We will prepare the outline disclosure on your behalf and work with accountancy firms to ensure full disclosure and that your tax affairs are regularised as expeditiously as possible.

Withers' tax investigation team has advised clients in relation to those investigations as well as Criminal Investigations appertaining to both direct and indirect tax investigations.

Our experience in this area includes:

  • Acting for a number of high net worth tax payers who are FCA regulated, arising from HMRC's investigation into the Montpelier group.
  • Advising professional intermediaries arising from HMRC's investigation into Blackstar.
  • Advising a legal professional who had failed to disclose overseas bank accounts to HMRC.
  • Numerous other individuals who have used the process to avoid a criminal investigation.

Tax investigations

1