If fear of HMRC gets you down, cut a deal now
THE Revenue net is closing in,” warns DLA Piper partner Simon Airey. “They’re creating a little bit of fear, which is what the HMRC like to do.”
Sensing a public mood that is increasingly hostile to those who don’t pay UK taxes, treasury secretary Danny Alexander recently earmarked £900m for investigations into offshore tax evasion. But the stick is not without a carrot: tax evaders are also being given what is supposedly one last chance to bring their money into the UK with a minimal penalty.
The amnesty is aimed at saving the revenue service millions of pounds in money spent investigating and prosecuting tax fraud. It means that, for a limited time only, tax evaders can bring their cash onshore for only a 10 per cent penalty – plus interest and the 40 per cent tax owed. This is dramatically less the maximum potential penalty an evader pays if caught (see table below), which is due to rise to 200 per cent of the tax owed on funds in April 2012.
In addition, evaders are promised immunity from prosecution, they get to avoid being “named and shamed” in British newspapers and HMRC will only dig up information about their tax affairs during the last 10 years, as opposed to the standard 20-year “look-back” period. So if you evaded tax before April 1999, it would be considered water under the bridge. The deal is known as the Liechtenstein Disclosure Facility (LDF) and stems from a lucrative agreement signed between the UK and Liechtenstein governments.
Ashley Crossley, partner at Baker MacKenzie, which advised the principality of Liechtenstein on the treaty, says that with the Organisation for Economic Cooperation and Development (OECD) piling the pressure onto tax havens, Liechtenstein pre-empted the changes by approaching the UK to make a deal.
In order to compensate Liechtenstein for agreeing to make its banks audit all their accounts, those moving onshore have to establish a “meaningful relationship” with the principality in order to qualify for the deal. What that means exactly has yet to be established, but DLA Piper’s Airey imagines that it means the transfer of a six-figure sum (or equivalent investment) into a Liechtenstein bank account. Once Liechtenstein has accepted your connection, a special HMRC hotline is ready for your mea culpa.
But why should the treasury offer such a discount to people who have been evading taxes for years? Crossley says: “It’s a way of encouraging evading taxpayers to come out of the cold.” And it saves the HMRC millions in investigation costs.
Despite the combination of threats and low penalties, only 419 people registered for the LDF during its first six months (numbers for the most recent six months have yet to be released, but are apparently more than double this figure). Airey thinks this is because HMRC has not yet sufficiently publicised the scheme.
But even if the number of people coming onshore might not be huge, the tax take will probably be substantial. Airey says that among those his firm advises, the average amount is around £1m-£2m, and he has heard of cases where the HMRC has bagged £20m from one individual. This compares to the revenue service’s last attempt to crack down two years ago, which involved scouring the accounts of 400,000 people (obtained via legal threats to UK banks) and gaining just £400m – £1,000 per person.
The LDF offer is open until 2015 – but there is a catch. If HMRC gets on your case before you sign up, it’s game over. So if those offshore funds have been burning a hole in your pocket, now is a good time for an impromptu donation to Her Majesty’s coffers.