Tax Expert At Irwin Mitchell Says End Of The Facility Will Create A Void In Taxpayer Options

A leading tax expert at national law firm Irwin Mitchell has warned that it is only seventeen months before the high profile Liechtenstein Disclosure Facility (LDF) closes to new registrations. Taxpayers with unpaid taxes seeking to regularise their tax position should get their affairs in order to take advantage of the scheme before it closes on 5 April 2016.

Phil Berwick, Partner* and Head of Contentious Tax of Irwin Mitchell also commented that the deadline for the LDF has been extended from its original date of 31 March 2015, and it was unlikely to be extended again – “The end of the LDF will create a void in the options available to taxpayers to regularise their affairs”.

Moreover, HMRC does not look likely to meet its target of raising £3 billion for the Treasury’s coffers, as announced by Dave Hartnett in 2012, given the level of yield to date.

The LDF was launched in August 2009, primarily with the aim of allowing taxpayers with undisclosed UK tax liabilities arising from investments or assets in Liechtenstein to come forward and settle their tax liabilities on preferential terms. Immunity from prosecution is a key advantage to using the LDF. In addition, in most circumstances, disclosure under the LDF is on favourable terms, compared to the normal rules. Many taxpayers benefit from the amnesty that the LDF can provide, and don’t end up paying the full amount of tax that would otherwise be due. A beneficial penalty rate for earlier years is among the other financial advantages on offer to those who qualify. To the end of September 2014, 5,982 people had registered for the scheme, resulting in 5,408 disclosures.

However, by the end of September the scheme had given HMRC a yield of only £890 million on cases settled in the five years it has been in existence, which equates to approximately £14.6 million per month. “You can analyse the yield figures in numerous ways, but, at this rate, HMRC are not going to reach its target of raising £3billion through the facility”, said Berwick. “I suspect that the eventual yield will fall woefully short of that target, and, based on figures to date, is likely to be in the region of £1.3 billion. Further changes to the scheme are likely to make this figure worse rather than better”, he continued.
 
In August of this year, HMRC reviewed the LDF and made a number of significant changes. Certain classes of taxpayer are now excluded from the full favourable terms of the process (and which could, HMRC argued, have led to a reduction in the amount paid). This may further dent the yield that HMRC will secure through the process. Although the LDF has changed significantly since it was introduced, the process still offers non-financial advantages to those with a disclosure to make, even if the full favourable terms don’t apply.

Berwick added, “The recent changes to the LDF are likely to have a negative impact on the yield, as taxpayers may be dissuaded from coming forward”. Berwick also commented, “Further reviews or revisions to the LDF cannot be ruled out, so taxpayers with a disclosure to make should take specialist advice before HMRC changes the rules yet again”.

*Non Lawyer