HMRC generally expect taxpayers who have engaged in a tax avoidance scheme to obtain detailed advice from an experienced professional. Even if HMRC does not consider that the scheme was illegal, it may nevertheless seek substantial penalties on any tax due. If the scheme involves offshore jurisdictions, the penalties could be as high as 200 per cent of the tax.
The CPS is giving a clear message: taxpayers with undeclared income or gains should approach HMRC before the inspector comes after them.
Taxpayers with irregularities currently have one option of guaranteeing immunity from prosecution for tax offences. The Liechtenstein disclosure facility was introduced in August 2009. Primarily intended for taxpayers with ‘hidden’ assets in Liechtenstein, the procedure is also available to taxpayers without an existing connection to that jurisdiction. The facility offers various benefits, depending on the taxpayer’s circumstances. A key benefit available to every taxpayer who qualifies for the facility is immunity from prosecution for tax offences. Immunity will apply unless the taxpayer is involved in wider criminality, such as bribery or perjury.
Taxpayers can voluntarily approach HMRC for immunity from criminal investigation under the contractual disclosure facility. HMRC does not guarantee that it will grant such a request, and taxpayers would particularly be at risk of not being offered the contractual disclosure facility where, for example, they were in a position of trust or responsibility, or had committed previous offences. The Liechtenstein disclosure facility does not provide any such restrictions.
For those individuals who have undisclosed tax liabilities, time is running out in more ways than one. HMRC now has extensive information sources. It has been very successful in gaining access to data on Swiss and other banks, so may already have numerous individuals in their sights. And, importantly, the Liechtenstein disclosure facility is due to end on 5 April 2016, with the result that HMRC will be able to apply the full range of sanctions that are significantly reduced under that process. But taxpayers cannot sit and wait until 2016 before taking action.
Key to being able to use the Liechtenstein disclosure facility is to register for that process before HMRC approaches the taxpayer. Taxpayers who have been arrested, or have been contacted under the contractual disclosure facility, will not be allowed to use the Liechtenstein disclosure facility.
The process of establishing the necessary connection with Liechtenstein (if the taxpayer does not have one) is straightforward. Taxpayers with irregularities, particularly significant ones, should take action. And do so now, before it is too late.
Phil Berwick and Ray McCann are Partners (non-lawyers) at Pinsent Masons
HMRC’s policy provides examples of circumstances in which it will generally consider commencing a criminal investigation. These include: