There has been considerable press coverage recently about two schemes which allow UK tax payers opportunities to disclose previously undeclared income to UK authorities. Both schemes offer an opportunity to settle unpaid tax on undeclared income while offering favourable penalty rates for overdue tax.  Anyone who may be concerned by either of these opportunities is advised to contact us for more information or for a confidential, no obligation assessment.

The schemes running are the New Disclosure Opportunity (NDO)  which covers worldwide tax  and the Liechtenstein Disclosure Facility  (LDF) which applies only to accounts and assets held in Liechtenstein.

Essential facts and key differences about each of the schemes are:

The New Disclosure Opportunity (NDO) 

For more information please read our comprehensive guide to the HMRC New Disclosure Opportunity.

• Launched on 1st September 2009 as an opportunity for UK taxpayers to declare income held in offshore accounts which has not been previously declared for income tax
• Applies to individuals, trustees and companies as well as personal representatives of deceased individuals
• With the exception of Liechtenstein, accounts held anywhere throughout the world can be declared
• Disclosures must include all unpaid tax liabilities whether or not they relate to offshore accounts and assets
• HMRC maynot permit taxpayers to move funds to Liechtenstein simply to benefit from the potentially more favourable LDF

KEY DATES:

• 1 September 2009- NDO scheme to disclose income to the HMRC is launched
• 1 October 2009- Online notification facility opens
• 30 November 2009- Final date for all notifications of intention including online (extended to 4 January 2010)
• 31 January 2010- Deadline for completing the disclosure and settling any unpaid tax
• 12 March 2010- Deadline for completing the disclosure and settling any unpaid tax  for disclosures made online 

The reduced penalties through the NDO scheme only apply to offshore accounts. The rates of penalty are:

Total unpaid liability disclosed is less than £1,000 - no penalty
The underpayment arose from innocent error  - no penalty
Defaults by now deceased taxpayers (up to the date of death) - no penalty
For most other liabilities under NDO, the penalty will be 10% but will increase to 20% if the taxpayer was previously contacted regarding the original disclosure opportunity in 2007

Disclosures that are found to be materially incorrect or incomplete when checked by HMRC, may be excluded from the benefits of the NDO. In addition, access to the scheme will be not be permitted if  the tax payer is already under investigation for their affairs by the HMRC. In this case, liabilities should be disclosed to whomever is conducting the enquiry.  A full and early disclosure will influence the amount of penalty requested by the HMRC. 

If the HMRC believe the money arose from the proceeds of Serious Organised Crime (SOC), disclosure under the scheme will not be allowed and there is no assurance that criminal proceedings will not result. However, a full and accurate disclosure may make this less likely. Disclosures under SOC include VAT Missing Trader fraud, VAT Bogus Registration fraud or Organised Tax Credit fraud and assets which are subject to an ongoing criminal investigation. 

Liechtenstein Disclosure Facility (LDF)

• Available only to those holding accounts or assets in Liechtenstein
• Financial intermediaries in Liechtenstein will identify and notify persons who may have UK tax liability. The person so identified will need to provide evidence of tax compliance
• Anyone holding an account in Liechtenstein can pre-empt their notification and make an early disclosure
• HMRC will provide a 5 year special disclosure facility running until 31 March 2015
• Following the period of disclosure, clients holding accounts in Liechtenstein who cannot prove that they are tax compliant will have their accounts closed ie: account holders will need to provide a certificate from the HMRC confirming that all income and assets have been declared and relevant tax due has been paid

The key differences between the schemes are :

• For the LDF scheme, income must be declared and all tax paid in relation to financial years starting on or after 1 April 1999. No such time limit applies under NDO.
• When  declaring under the LDF, there are two options  for calculating tax due; the actual rates of tax or when permitted, a composite rate of tax, which will cover all tax, NIC and duty, including VAT and SDLT. The composite rate is fixed at 40%. Under NDO, the actual rates of tax must be used.
• Aside from innocent error, the penalty rate for LDF is 10% and interest will be due on any liabilities declared in the same way as for the NDO.  
• The LDF disclosure is primarily aimed at accounts held in Liechtenstein so it may not be possible to close another offshore account and move the funds to Liechtenstein in order to switch from NDO to LDF.
• Criminal investigations will not result from any disclosure under the  LDF opportunity.