Tax Factor
17 November 2009
New disclosure opportunity
The NDO allows errant taxpayers to register their intention to make
a clean breast of things with HMRC, and then to follow up that
registration by a detailed calculation of the tax that should have been
paid but hasn't, plus interest and a limited level of penalties. The
time limit for registration is quite limited; it runs from 1 September
to 30 November 2009.
Notification can be done on paper only during September. From 1 October
there will be an online facility. After the taxpayer (or their agent)
has made the initial notification, HMRC will allocate a unique
Disclosure Reference Number.
Disclosure can be made any time from 1 September 2009 provided
notification has been done first. The final deadline for disclosure is
12 March 2010, if this is done electronically. For disclosures made on
paper, the deadline is earlier, 31 January 2010.
Unlike the disclosure opportunity given a few years ago (the "ODF"),
which allowed taxpayers to regularise their position on UK and overseas
matters, the NDO is focussed on assets and income overseas (that is,
anyone who has purely UK irregularities cannot use the NDO to
regularise their affairs).
However, for the NDO to apply, all tax
irregularities have to be dealt with, not just those affecting overseas
items; this means that a taxpayer who has, for example, undeclared UK
capital gains or income will need to ensure these are disclosed at the
same time that they bring their overseas affairs up to date with HMRC.
There are two tiers of penalties: 10% of the tax lost for anyone who
was not covered by the ODF, but where the ODF applied (broadly, where
HMRC wrote to the taxpayer advising them that their bank had made a
bulk disclosure), the penalty level is set at 20%. We understand that
HMRC have put in place screening processes to ensure that the
"appropriate" level of penalty is used.
Pour encourager les autres, HMRC have made it clear that anyone who
could have used the NDO but decides not to will face a minimum level of
penalty of 30% if they are caught, and there will be a higher risk of
criminal prosecution.
For very small levels of tax loss, no penalty will be charged. HMRC have set the de minimis at £1,000.
The general rule for payment of the tax, penalty and interest is
that this must be made with the disclosure. However, HMRC have said
that they will consider agreeing a "time to pay" arrangement if the
taxpayer requests this within the disclosure window.
HMRC have not made any promises that they will not bring criminal
prosecutions against errant taxpayers who use the NDO. However, unless
serious crime is involved, it seems unlikely that any prosecution would
follow for a taxpayer who brings all their tax affairs up to date using
the NDO.
Liechtenstein Disclosure Facility
The UK and Liechtenstein authorities reached an agreement in August
2009 under which Liechtenstein will provide tax information to HMRC -
essentially ensuring that details of bank accounts in Liechtenstein
operated by UK residents are disclosed to the UK tax authorities.
The agreement provides for two additional arrangements: a disclosure
facility so that those UK taxpayers who are affected by this can "come
clean" under very favourable conditions and (b) new rules in
Liechtenstein that will mean that any UK resident who cannot provide a
certificate of tax compliance by the end of the disclosure window (31
March 2015) will have their accounts closed.
The disclosure facility runs in tandem with the NDO, but gives much
more generous terms to those taxpayers who avail themselves of it:
- The penalty level is set at 10%, irrespective of whether the ODF applied or not.
- HMRC has guaranteed that no criminal investigation will be undertaken in respect of liabilities disclosed in this way.
- Income must be declared and tax paid in relation to tax years starting on or after 1 April 1999. No such time limit applies under NDO.
- There is an optional single composite rate of tax, which will cover all tax, NIC and duty, including VAT and SDLT. This is 40%. Under NDO the actual rates of tax must be used. Those declaring under LDF can use actual rates of tax if they prefer.
When the LDF was announced, some commentators suggested that anyone with tax irregularities could simply move illicit funds to Liechtenstein and use the LDF to bring matters up to date in a very favourable way. Sadly, as with most cunning plans, this will not work.
The latest documentation issued by HMRC makes it quite clear that the LDF only applies to funds that were within a relevant Liechtenstein account at the time, and not to monies subsequently transferred in after the LDF was announced.
