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Investigations and Code of Practice 9 Update

HMRC has recently commenced a number of investigations into holders of Swiss bank accounts, having acquired data which was originally stolen from HSBC in Switzerland. Whether or not a government department should be using stolen data in the first place is at the very least open to question, but any questions in this regard would presumably be met with a comment on the lines that “the end justifies the means”, and from HMRC’s point of view, it probably does!

Letters have been sent to a number of taxpayers informing them that HMRC has information which indicates that the taxpayer has a direct interest in a Swiss bank account. Some of these letters actually name the bank with whom the account is held and even state the title of the account. This is a significant departure from the usual tactic of leaving the field open in order to extract a more wide-ranging disclosure from the taxpayer, rather than merely focus on one specific source.  

The letter from HMRC invites the taxpayer to complete one of three certificates which are enclosed with the letter: 

Certificate A 

Effectively a certificate of disclosure to the effect that all income and gains has already been disclosed on tax returns and there is nothing else to be disclosed. If this certificate is completed a full enquiry, probably conducted by the Civil Investigation of Fraud team(CIF) will ensue. 

Certificate B 

A statement that the taxpayer intends to use the Lichtenstein Disclosure Facility(LDF) to disclose Swiss bank accounts and investments as well as any other offshore bank accounts or investments. The taxpayers LDF reference number has to be entered on this certificate. The big advantage of using LDF is that the penalty will only be 10% and only the period from 1st April 1999 onwards has to be considered.

 Certificate C 

Intention to make a full disclosure but not under the LDF. HMRC to then contact the taxpayer/agent to arrange for submission of the disclosure. There are no pre-set penalties as this does not constitute an amnesty, so the normal rules will apply of HMRC starting off with a penalty loading of 100%(in most cases)and mitigating to take into account disclosure, cooperation and size/gravity of the offence. Clearly, if a disclosure has been prompted by a letter from HMRC, and either interest credited to the account has not been declared, amounts are significant or undeclared income has funded the account in the first place, penalties are likely to be somewhat higher than 10%.HMRC will also look back up to 20 years rather than just to 1999 as with LDF. 

It is relatively easy to open a Lichtenstein bank account (if you know the right people!) and an account can be opened within 24 hours. Speed is of the essence as HMRC could instigate an enquiry under CIF at any time, so anyone who delays using LDF could have the option removed. A new Swiss disclosure facility is due to kick off shortly but its proposed terms are not a favourable as LDF.