On 14th August 2014 HMRC announced a number of significant
changes to the Liechtenstein Disclosure Facility (LDF) which have
removed some of the advantages available to those individuals who
still have undisclosed tax liabilities to HMRC. The original
purpose of the LDF when it was launched back in 2009 was to allow
individuals with assets in Liechtenstein and undisclosed tax
liabilities to settle those liabilities with HMRC on exceptionally
advantageous terms.
Since 2009, individuals with experienced representation have been
able to avail themselves of the favourable terms available under
the LDF by acquiring an asset in Liechtenstein and making a
disclosure to HMRC of their outstanding tax liabilities arising not
only from assets held in Liechtenstein but also from undisclosed
assets held elsewhere in the world.
However, under these amendments to the LDF, HMRC has significantly
narrowed the availability of some of the most advantageous terms of
the LDF. Now, in cases where there is no substantial connection
between the liabilities being disclosed and the offshore asset held
by the taxpayer on 1st September 2009, or where the matter being
disclosed was the subject of an enquiry that began more than three
months before the LDF application or in circumstances where there
has been no disclosure to HMRC of new information, the advantageous
settlement terms under the LDF will not be available to the
taxpayer. Furthermore it can’t be ruled out that there
won’t be further revisions to the access criteria or terms
before the LDF disclosure facility ends on 5th April 2016. The only
good news is that, provided the disclosure is handled properly, a
full amnesty from criminal investigation is still available.
In a further development, HMRC has also confirmed that taxpayers
who have participated in tax planning involving Employee Benefit
Trusts (EBTs) can no longer avail themselves of the LDF. The
disguised remuneration rules mean that EBTs, which were used as
compensation tools and often hold significant assets offshore,
cannot be accessed by the taxpayer beneficiary without incurring
large PAYE and NICs liabilities. EBTs have been a bone of
contention between taxpayer beneficiaries and HMRC since HMRC
issued Spotlight 5, which confirmed that, in HMRC’s view, EBT
tax planning did not work. This is an issue which has been the
subject of prolonged and high profile litigation between the Murray
Group and HMRC (the Rangers case), which resulted in a major defeat
for HMRC when the Upper Tier Tax Tribunal ruled against HMRC,
causing the latter collateral damage to their high profile EBT
settlement opportunity (EBTSO).
HMRC has come back fighting, however, by recently announcing that
it is to appeal the decision of the Upper Tier Tribunal in the
Rangers case and also by announcing that the EBTSO which was
launched in April 2011 is to close on 31 March 2015, with an
expectation that the settlement process will be concluded by 31
July 2015. This may not give taxpayers time to await the final
verdict in the Rangers case before deciding whether to pursue the
EBTSO.
The changing of the LDF criteria ‘goal posts’ and the
prolonged litigation in the tax tribunals is very confusing to the
ordinary taxpayer, who believes that the payment or non-payment of
tax should be a simple question of applying the tax legislation.
One thing is certain, however; in this climate a mistake in
navigating the tax legislation can be very costly to taxpayers, and
it is crucial therefore that the taxpayer obtains expert legal
advice before further opportunities are lost.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
