HM Revenue and Customs' new disclosure processes

We are writing to all our clients to make them aware of two new ‘disclosure facilities’ that HM Revenue and Customs (HMRC) has introduced. We do not expect that they will be relevant, but we thought it appropriate to bring them to our clients' attention.

HMRC has introduced the New Disclosure Opportunity (NDO) for taxpayers (including individuals, partnerships and companies) who have an unassessed UK tax liability connected to an offshore account or asset (for example, a rental property, or a property funded by undisclosed income or capital gains). Those taxpayers who come forward and make a disclosure will be charged a fixed penalty of, usually, 10%. The disclosure must cover the last 20 years, and include all irregularities (not just those connected to the offshore account or asset).

HMRC has recently won the right to obtain a substantial amount of information in relation to offshore accounts from 308 banks and building societies which have an operation in the UK. In time, HMRC will compare this information with those taxpayers who use the NDO process. Any taxpayer who is found not to have made a disclosure when they have unassessed liabilities will face, at best, a much higher level of penalty.

HMRC has also introduced the Liechtenstein Disclosure Facility (LDF), for taxpayers with undisclosed tax liabilities connected to assets or interests in assets in that principality. Taxpayers making a disclosure using this facility will also pay a fixed penalty (usually of 10%), but their disclosure, in relation to the Liechtenstein account or asset, is restricted to ten years. There are exceptions and variations to these general provisions, but the LDF offers far more favourable terms to taxpayers than the NDO. There is the ability, in certain circumstances, to bring a disclosure, or part of a disclosure, under the LDF terms rather than those of the NDO, providing action is taken by 31 October 2009.

Our advice to clients with any concerns about their tax affairs is to speak with us, so that we can clarify the position and advise on the options available to them. A person's residence and domicile status can change their tax position.

We wish to reassure our clients that it is perfectly legal to operate a bank account offshore, providing the interest arising is declared to HMRC and the underlying funds, if from a taxable source, are also declared.