The UK’s HM Revenue & Customs (HMRC) has tweaked the terms of the Liechtenstein Disclosure Facility (LDF) amid concerns that employers have been misusing it to avoid more tax.
The LDF allows those with UK tax irregularities to make a disclosure to HMRC on a voluntary basis in return for a reduced penalty in most years.
HMRC believes the facility has been increasingly abused by employers who use Employee Benefit Trusts (EBT) as a means of avoiding tax.
The changes have been made to the LDF so that users of EBTs caught by the disclosure of tax avoidance scheme (Dotas) rules cannot take full advantage of the facility.
The change in the terms of the LDF means the full favourable terms of the LDF will now only be available to the extent that the disclosures are "substantially linked" to an offshore asset held at 1 September 2009.
The full benefit of the LDF will also only apply to irregularities of which HMRC was not previously aware and where the liability is linked to a significant enquiry by HMRC, that enquiry must be less than three months old.
Under the full favourable terms, successful LDF applicants pay a 10% fixed penalty on the underpaid liabilities for periods to 5 April 2009. In addition, assessment is limited to accounting periods or tax years from 1 April 1999 and there is an option to choose a single composite rate of 40% rather than calculate actual liability on an annual basis.
Originally due to end to end in March 2015, strong demand for the scheme saw it extended until 5 April 2016.