Practice Note; Disclosure of offshore assets

In cases of tax irregularities it is very important that a disclosure is made to HMRC. The below is intended as a helpful guide but professional advice should always be sought.

The Liechtenstein Disclosure Facility
Liechtenstein disclosure facility (LDF)	This is an agreement between Liechtenstein (L) and the UK under which L banks are required to identify ‘relevant persons’ with UK addresses who may have UK tax liability. The LDF goes on until September 2016. The idea is that the UK taxpayer must satisfy the L Bank that he is UK tax compliant and if he does not, either by showing he has declared his L account in his returns or has registered for the LDF, the L Bank will force him to close his account.
What does LDF do?	Enables UK taxpayers with undeclared investments in L to declare them and also all their non-disclosed assets, wherever they are in the world.
Lower rates?	UK taxapyers get favourable treatment namely: 10 per cent fixed penalty on underpaid liabilities on periods up to and including 2007/08; 20 per cent penalty for 2008/09 onwards; Possibly higher penalties for 2011/12 onwards; Assessment period limited to those on or after 1 April 1999; Option to use a single composite rate of 40 per cent or to calculate liability on an annual basis.
Assurance about criminal prosecution?	The LDF provides guaranteed immunity from prosecution provided a full and accurate disclosure is made.
No names?	Taxpayers can contact HMRC’s L helpdesk on a no names basis initially.
Registration?	With the L Helpdesk.
Connection to L?	The LDF can be used by any UK taxpayer, even with no existing connection to L, provided they hold or acquire relevant property, which basically means a bank account, trust etc. The connection must, however, be ‘meaningful’ which is basically 20% of the offshore assets that are being disclosed and a minimum deposit which is generally around £50,000.
How far back can HMRC go?	Liabilities are calculated from 1999/2000 onwards.
Time limits	Ten months from the date of registering under the LDF. If using the composite rate option the time is reduced to seven months.
Who is disqualified?	The LDF cannot be used if: Taxpayer under investigation for a criminal tax matter that has led to an arrest or a formal caution; Taxpayer under COP 9 investigation which has not, as yet, concluded.
	Guernsey, Jersey and the Isle of Man (“GJI”)
The GJI facilities	These are agreements with Guernsey, Jersey and the Isle of Man under which there will be automatic disclosure of information about offshore accounts held by UK residents. The idea is that those with irregularities in their tax affairs can then make a tax disclosure in advance of any such information being revealed. As for the LDF, GJI goes on until September 2016.
What does GJI do?	Enables individuals who have been tax resident in the UK between 6 April 1999 and 31 December 2013 with undeclared investments to declare them and also their non-disclosed assets wherever they are in the world.
Lower rates?	UK taxpayers get favourable treatment namely: 10% penalty for tax years up to and including 2007/08; 20% penalty for 2008/09 onwards; Possibly higher penalties for 2011/12 onwards; The favourable treatment is, however, not available under certain circumstances, if the taxpayer has been subject to a criminal or ‘in depth’ investigation that concluded before 6 April 2013, or began after 6 April 2013, or has previously participated in any other disclosure facility, or is covered by the UK/Swiss tax agreement.
Assurance about criminal prosecution?	There is no guaranteed immunity from prosecution although HMRC do say that they will not start a criminal investigation if full and accurate disclosure is made and the source of the funds is not from criminal activity, excluding tax evasion.
No names?	Taxpayers can contact HMRC on a no names basis initially.
Registration?	Taxpayer completes and returns to HMRC an application to participateform. HMRC then provide an application to participate number.
Connection to GJI?	The GJI can be used by taxpayers even if they have no existing connection if they acquire assets in the jurisdiction. There is no minimum investment required.
How far back can HMRC go?	Assessment period calculated from April 1999 onwards unless there is an offshore bank account, (not opened in GJI), opened through a UK branch or agency in which case the period is 20 years.
Time limits	An outline disclosure must be made when applying to register under GJI and a final disclosure within six months thereafter.
Who is disqualified?	Taxpayer cannot use the GJI if: Under criminal investigation or non criminal ‘in depth’ investigation on 6 April 2013; Under criminal investigation after applying to join GJI;

The Contractual Disclosure Facility (“CDF”) issued under Code of Practice 9 (“COP 9”)
The CDF and COP 9	The CDF is the opportunity for the taxpayer to disclose to HMRC about any tax fraud in which he has been involved.
What does the CDF and COP 9 do?	The CDF, which is issued under COP 9, may be initiated either by HMRC or a taxpayer. If HMRC write to the taxpayer because they suspect he has committed a tax fraud, the letter will offer a CDF contract and will include: an acceptance letter a rejection letter a disclosure form a copy of COP9 Under CDF, the taxpayer has two options: own up to bringing about a loss of tax through his deliberate conduct by accepting the offer of CDF reject the offer of CDF
Lower rates?	No
Assurance about criminal investigation?	Yes, provided a full and accurate disclosure of tax irregularities is made.
No names?	Taxpayers can contact the CDF helpline on a no names basis initially
Registration	Taxpayer completed form CDF 1.
How far back can HMRC go?	Twenty years
Time limits	The taxpayer has 60 days to decide whether he wishes to accept or reject HMRC’s offer of CDF. The 60 day period will run for 60 calendar days after the CDF letter is received. If the taxpayer rejects the CDF, HMRC may begin a criminal investigation.Generally, thereafter, the taxpayer’s advisers must prepare a Formal Disclosure report under an agreed timetable with HMRC. The time needed will depend on the circumstances of the case and this will vary according to THE complexity of the case.
Who is disqualified?	No one, but there are some categories of cases where, because the suspected tax fraud is very serious, HMRC may opt instead for a criminal investigation.

So which one should I use?

If HMRC invite the taxpayer to make a disclosure under the CDF then the CDF route must be used;
If the taxpayer is concerned that HMRC may have information that there are significant tax irregularities then the best choice is between the LDF and COP 9. Professional advice must be taken here as there are a number of factors to take into consideration;
If there are no concerns that HMRC have such information then the choice is between the LDF and GJI;
The LDF requires significantly more investment that the GJI but offers immunity from prosecution and may generally, therefore, be the preferred choice.

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