LDF Update

At a high level conference yesterday attended by Andy Cole (“AC”), Deputy Director of HMRC Specialist Investigations, who is in overall charge of the LDF project. AC’s presentation and explanations, together with an update of HMRC’s FAQ’s on 17 February, has brought together some important practical points for advisors who might be considering the advantages of LDF for their clients.

1.   AC advised that they are working on a second joint declaration (ie an amendment) of the LDF and hope to announce this in April or May. This will clarify some of the numerous grey areas, but in my opinion may result in a slightly less generous outcome. The lesson is: if you are thinking of registering a client, don’t delay.

2.   HMRC are working on some further information to explain why UK irregularities cannot be included unless there is an offence relating to offshore income. My guess is that this will need to be part of the amended declaration.

3.  Characterization of offshore “trust” structures can be a problem where they do not directly correspond to a UK trust equivalent. Different types of trust attract different tax treatments, so the issue can be very important. HMRC’s current view is that most structures in Liechtenstein are bare trusts (or alternatively shams!). This is an area where specialist advice should be taken unless you are very sure of your ground.

4.   In the case of non-doms, AC advised that HMRC will be taxing all remittances as income unless it can be proved that they were from capital. No surprise here, but it does emphasize the need for thorough work on the evidential side of the report.

5.  AC also emphasized that it is vital that reports are submitted within the specified timescales (7 months if Composite Tax Option used, 10 months all other cases) or an extension of time agreed. Failure to submit on time without having agreed an extension could result in HMRC advising Liechtenstein that the client has withdrawn co-operation, with all the ensuing dire consequences (for details see HMRC FAQ 8). This is a very important point for advisors. Ten months may sound like a long time, but with all the potential issues involved, from establishing and proving the facts, through to obtaining specialist advice if needed, that time will fly by. If you are not absolutely sure that you can deliver on time, get help . We are set up to do this and have dedicated resources which enables us to work intensively on these types of projects. That’s why we don’t do any compliance work.

6.  AC also confirmed the point I have warned about in previous emails; that if you are advising or assisting the client in regard to transferring money into Liechtenstein, you need to comply with the Money Laundering Regulations in S327-340 PoCA 2002. Failure to do this could land you a 14 year jail stretch. If you don’t know what I’m talking about, you need advice. On the positive side, however, HMRC has confirmed that they will not use information in any such reports to initiate a criminal or COP9 investigation of the client, to prevent the client benefitting from LDF ( see FAQs 11-12).

So, as expected, the LDF is evolving as the nitty-gritty of real life situations has to be faced. But it still remains a great offer and should be grabbed with both hands by anyone who has a qualifying problem. Remember, clients don’t have to have historic assets in Liechtenstein to qualify. Acquisition of relevant property anytime up to 31 March 2015 will do. But for clients with serious irregularities delay could be fatal, as you cannot join the LDF if a serious fraud investigation has formally begun. For some clients this may mean the difference between a generous financial settlement or a prison sentence.

Remember also that if you have clients who have missed out on the NDO deadline, they may still qualify under LDF as long as the offshore account wasn’t opened through a UK branch or agency.

To discuss LDF, or any aspect of offshore or UK tax investigations, please give us a call.

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