HMRC regards the offshore disclosure facility it offered to holders of offshore bank accounts in 2007 to have been a success and has launched the ‘new disclosure opportunity’ (NDO) and the Liechtenstein New Disclosure Opportunity (LDF) to expand the exercise.
Although the registration period for the NDO has closed, in certain circumstances, the LDF still offers individuals, companies and trustees the chance to come forward and disclose previously undeclared income and pay back taxes without suffering large tax penalties.
We can guide you through any tax investigation or disclosure process for offshore income and negotiate directly with HMRC to ensure that the tax, interest charges and any tax penalty are minimised.
Contact us now for a FREE initial consultation.
Download our NDO briefing podcast where Tax Partner John Cassidy and Tax Director Matt Coward discuss the new disclosure facility.
Quick guide to the new disclosure opportunity
What is the New Disclosure Opportunity?
The New Disclosure Opportunity is a concessionary scheme that HMRC is to offer this year to allow people who have failed to declare overseas income to bring their tax affairs up to date without facing huge penalties. It is not a true amnesty as tax and interest have to be paid on arrears, but penalties will be limited to 10% of the tax due for most people.
Back to the top
Why is it being offered?
If you are resident in the UK, you must pay UK tax on all your income and gains unless you are a foreign national who is not domiciled in the UK. HMRC is now stepping up its tax enquiry work against UK residents who have not declared their offshore income, whether from offshore accounts or other sources, and their offshore gains.
Over the past few months, HMRC has started to obtain the offshore account details of thousands of individuals from hundreds of financial institutions offering accounts outside the UK to UK residents. It is determined to collect any UK tax due on funds held in or paid into these accounts. However, raising individual tax investigations into all these individuals would take time and money. By offering the new disclosure facility, HMRC expects to collect most of the tax outstanding (for relatively little effort) even though it means collecting less in penalties from each taxpayer.
Back to the top
Who can use it?
Any UK resident individual, company or trustee who has failed to declare overseas income and/or gains that are taxable in the UK can use the new disclosure opportunity. You do not need to have an offshore bank account. Even if you declined the chance to use the previous offshore disclosure facility, you can still use the new disclosure opportunity – although the terms may not be as favourable for you and you should take advice on your specific circumstances.
It is possible to voluntarily disclose wholly UK tax irregularities to your local tax office. In most cases of voluntary disclosure, it is possible to secure low penalty rates but this cannot be guaranteed. If you wish to put right wholly UK tax irregularities, please contact us to discuss your options and the likely overall cost.
Back to the top
What is covered?
Individuals, companies and trustees who use the new disclosure opportunity must report all matters wrongfully omitted from their tax returns in the prior 20 tax years (if the irregularity goes back that far). This includes any UK or overseas income not reported and all taxes, including PAYE and VAT, must be encompassed within the disclosure. The disclosure must cover all legal persons with a liability, with separate scheme numbers and disclosures for the individual and any company or trust controlled by the individual.
Back to the top
Are Liechtenstein investments any different?
In short, yes. The Government has announced a special deal with the Liechtenstein authorities which is in many ways quite different to the NDO. One major difference is that any disclosure is restricted to a maximum of only 10 years, unlike the 20 years of the NDO. There are various other differences which also need to be considered before making a disclosure.
Further information on the Liechtenstein Disclosure Facility.
Back to the top
What’s in it for me?
You can own up to past tax inaccuracies and put them right at relatively low cost. Getting up to date now means that you will not have the worry and cost of a detailed tax investigation at some future date. As ever, with tax arrears, the sooner you put things right and the more you cooperate with HMRC, the less it costs. Penalties under the new disclosure opportunity will be as low as 10% but, if HMRC catches you at a later date, it could charge penalties of up to 100% of the tax due – so you could end up paying twice what you would have originally, plus interest. Also, if you use the new disclosure facility, it is much less likely that HMRC will prosecute you for fraud (see below) or use its new powers to ‘name and shame’ you for tax fraud.
This is not really a tax amnesty, you will still need to pay the tax and interest charges for paying it late. However, HMRC is offering:
- a standard penalty of 20% of the tax due if you received a letter from HMRC or your bank regarding the previous offshore disclosure facility but chose not to disclose
- a standard penalty of 10% of the tax due (if you did not receive such a letter)
- no penalty where the disclosable liability is less than £1,000
- no penalty on pre-death liabilities of a deceased taxpayer.
The new disclosure opportunity can be used were tax is underpaid as a result of an innocent error by the taxpayer. In such circumstances, taxpayers must provide evidence of the error to a local tax office and HMRC will consider whether or not penalties should be applied. However, it is vital to take advice before taking such action.
Back to the top
Is there an alternative?
In certain circumstances, it may be possible to use the Liechtenstein disclosure facility (LDF) - even if you do not yet have any assets in Liechtenstein. Click here for more details of the LDF.
Medical professionals may wish to use the Tax Health Plan (THP) to disclose previously unreported medical income but the 10% penalty rate offered by the THP is not available for tax arising from offshore accounts. Click here for more details of the THP.
Back to the top
Will I have to go to court?
HMRC is not prepared to guarantee immunity from prosecution to anyone who uses the new disclosure opportunity. However, you are far less likely to be prosecuted if you do use it to bring your tax affairs up to date rather than if you just wait for HMRC to catch up with you. Using the new disclosure opportunity means following a prescriptive paperwork process (see below), so that HMRC can process large numbers of cases easily and cheaply. Although some individuals will be chosen for a more detailed investigation, if HMRC follows the pattern of the previous offshore disclosure facility, it is likely that most disclosures will be accepted and the matter regarded as closed. In such circumstances, there is no need to go to court.
Back to the top
How will it work?
The new disclosure opportunity will be a three stage process like the previous offshore disclosure facility. Firstly you will have to apply for a registration number from HMRC .
The second stage is to complete and submit the disclosure pack to HMRC. This will involve disclosing the income and gains you have not previously declared on your tax returns over the last 20 years, calculating the tax due and then calculating the amounts of tax, interest and penalties payable. In most cases, you will be expected to send a cheque for the full amount due when the disclosure pack is submitted to HMRC.
The third stage involves HMRC reviewing your disclosure. If you are regarded as a low risk case and your calculations are considered correct and complete, HMRC will send an acceptance letter to you and this is expected to happen within four months of the relevant submission deadline.
Back to the top
When will the deadline run out?
The extended registration period ended on 4 January 2010. If you missed the deadline contact us here for a free initial consultation on what your options are now.
The completed disclosure pack must be submitted to HMRC by 31 January 2010 or 12 March 2010 if submitted online.
Back to the top
What happens if I don’t use the NDO?
HMRC may already have obtained details of your offshore assets from your financial institution (it already has rulings against a number of financial institutions requiring them to supply specific details for all UK based account holders and others are expected to follow suit). These standard details are likely to be sufficient to enable HMRC to launch an investigation into your affairs – leading to large penalties on top of any tax you are found to owe.
The only sensible option for individuals, companies or trustees who have not fully declared their income in the past is to make a full voluntary disclosure to HMRC now. But anyone contemplating this approach should seek expert advice on how to do it in a way that keeps penalties and risks to a minimum whilst reducing exposure to further investigation and potential prosecution.
Back to the top
Where can I get more help?
If you want to bring your tax affairs up-to-date, contact us for a FREE initial consultation to assess your position and how we can help you.
Further FAQs are available here.
Back to the top | |