LDF tax yield ‘could be less than half £3bn target’
The revenue the UK Government will see in its coffers as a result of the Liechtenstein Disclosure Facility amnesty scheme “is likely to fall significantly short of its £3bn target”, a UK law firm has predicted.
With just two years left to run, the number of new LDF registrations each month fell to an average of 94 in the 12 months to the end of February 2014, down from an average of 102 registrations per month over the life of the scheme, according to Irwin Mitchell, a UK law firm originally founded in Sheffield.
There is “unlikely to be a significant surge in the number of new cases”, the law firm noted, in a press statement today. The disclosure facility is due to end on 5 April 2016.
In its statement, Irwin Mitchell added: “The original yield target for [the] LDF was set at £1bn, and although this was later increased by HMRC to £3bn, the revenue generated by LDF cases stands at only £914m (as at February 2014, latest figures available).
“Based on HMRC’s figures, and the likely number of new registrations, [we predict] that the LDF yield may be less than £1.4bn by the time it closes to new cases on 5 April 2016.”
Once the reducing number of recent registrations is taken into account, the law firm says that the final figure could be even lower.
The LDF was conceived in 2009 by HM Revenue & Customs, in cooperation with Liechtenstein’s government, to encourage UK taxpayers with undisclosed offshore accounts to formally declare them, in exchange for a relatively less severe penalty than if they came forward in the UK or if they were found out by HMRC.
The scheme was formally launched in 2010, although it was changed along the way. For example, there were several changes to the amount of their offshore assets that those UK taxpayers making a Liechtenstein disclosure were required to deposit in a Liechtenstein institution. The current amount is at least a fifth of their assets, or CHF3m (£2m, $3.4m, €2.4m).
Individuals who opt for an LDF disclosure are able to settle their outstanding liability with HMRC while avoiding a criminal investigation. In most circumstances, they are able to do this on highly favourable terms, compared to other modes of disclosure, those familiar with the LDF workings say.
Phil Berwick, a non-lawyer partner at Irwin Mitchell and head of its contentious tax operations, said that, as had been the case with another tax “amnesty” scheme involving undisclosed Swiss bank accounts held by UK taxpayers, “the figures suggest that there has been a significant over-estimating of the likely yield”.
“In the case of the UK-Swiss agreement, the tax yield target was set at £3.2bn,” Berwick added. “However, the final take was [just] £800m.
“The Government will want to avoid another dismal yield, but, as things stand, it is not looking good.”
John Cassidy, a partner at Crowe Clark Whitehill and another expert on the LDF, said he was “not surprised” at the figures, and noted that it was always going to be a difficult yield to gauge accurately at the outset, since “no one really knew at that stage who held what assets in such places as Liechtenstein and Switzerland”.
Both Berwick and Cassidy stressed that those who are ignoring the LDF and hoping that their undisclosed accounts will remain hidden are, in Cassidy’s words, “seriously misguided”.
Berwick said HMRC might boost its haul during the LDF’s last two years if it were to engage in “a final big burst of publicity aimed at professionals and their clients”.