Settling undeclared tax liabilities under favourable terms
QUESTION: I've recently approached an accountancy firm to discuss a disclosure of income that I need to make to HMRC. The disclosure relates to overseas bank interest, undeclared income dating back to the 1980s and capital gains tax on the disposal of a property in Dublin in 2000. My accountant advised me that HMRC can go back 20 years to review my tax affairs. I am concerned that I may not have the funds to pay any settlement reached with HMRC. I have read about the Liechtenstein Disclosure Facility, is this an option for me?
ANSWER: The Liechtenstein Disclosure Facility (LDF) allows an individual to make a disclosure to HMRC of undeclared sources of income and settle all unpaid tax liabilities for income tax, capital gains tax, inheritance tax, VAT, PAYE and corporation tax under very favourable terms.
Should you approach HMRC to make a voluntary disclosure of undisclosed income, your disclosure would cover the period from 1995/1996 to the present time. Any undeclared tax liabilities identified would be subject to interest and penalties could be in the region of 70 per cent up to a maximum penalty of 200 per cent (in cases of offshore assets) of the undeclared tax. There is no guarantee that HMRC would not pursue a criminal investigation and your name could be published on the tax defaulters list.
Under the terms of the LDF, a taxpayer is required to only disclose income from April 1999 and the penalties are substantially reduced, ie 10 per cent for the period between April 1999 to April 2009 and 20 per cent thereafter. Also, there is an assurance of no criminal prosecution (providing no criminal activity occurred), no publication of your name on the tax defaulters list and no obligation to meet HMRC to discuss the disclosure. Interest would still be charged on any unpaid tax liability, however, significant savings could still be achieved, as the LDF would only cover the last 17 years as opposed to the last 20 years and there is also the possibility of a substantially reduced penalty.
In order to qualify for the LDF the individual must have held an offshore asset at September 1 2009 (for example, an offshore bank account in your case) and the individual must hold monies in Liechtenstein. There are various methods to move monies to Liechtenstein which need to be considered but this can be relatively straight forward. Once the taxpayer can prove that they hold monies in Liechtenstein, they can register with HMRC to make a disclosure under the LDF.
The process from registration to submission of the disclosure and payment of tax under the LDF is much more straightforward compared to the timely, invasive and costly process of making a voluntary disclosure to HMRC.
Initially the LDF disclosure was due to expire on March 31 past, but it has been extended until December 31. If you wish to make a voluntary disclosure to HMRC, you need to act fast to avail of the LDF. There is no benefit of waiting until December to register under the scheme and there is always a risk that HMRC could investigate your tax affairs at anytime. Any investigation by HMRC could exclude you from using the LDF.
The LDF has very favourable terms for anyone wishing to settle previous tax liabilities and comply with future tax liabilities. It is important that you seek professional advice on the use of the LDF.
:: Janette Burns (j.burns@pkffpm. com) is associate director at PKF-FPM (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.