Scope of the NDODetails of the UK Government’s latest ‘tax amnesty’, known as the New Disclosure Opportunity (‘NDO’), were confirmed yesterday by the UK tax authority (‘HMRC’).
In 2007, HMRC obtained orders against five major UK banks requiring them to provide HMRC with information on their UK customers who held offshore accounts. Following receipt of this information, HMRC launched a ‘disclosure facility’ with a fixed penalty of 10% and also directly contacted those taxpayers which HMRC expected to make a disclosure. This raised about £400m, but fell well short of HMRC’s expectations.
The UK Government announced in its 2009 Budget that it would give the holders of offshore accounts a second and final opportunity to disclose to HMRC any unpaid tax or duties and to settle debts. HMRC is now seeking information from hundreds of banks, building societies and other financial institutions in the UK and has already obtained orders against several institutions.
Scope of the NDO
The NDO offers taxpayers the opportunity to make full disclosure and payment of any undeclared taxes, interest and a fixed penalty on the unpaid taxes. HMRC has stated that it will be the last opportunity of its kind.
Terms of the NDO
*A penalty of 10% will be applied where the taxpayer did not have an opportunity to disclose under the previous disclosure facility in 2007. Those taxpayers who had the opportunity to disclose previously (i.e. those taxpayers to whom HMRC wrote in 2007 offering the 10% rate, but who did not complete the disclosure procedure) will suffer a penalty of 20%.
HMRC states that any taxpayer who does not make use of the NDO will face a penalty of 30% (rising to 100%), and/or possibly criminal prosecution. Furthermore, in its 2009 Budget, the UK Government announced plans to publish (on the internet) a list of taxpayers who have deliberately understated their tax liability and have not taken advantage of an opportunity to make a voluntary disclosure.
The NDO will run from 1 September 2009 to 31 January 2010 for taxpayers submitting paper disclosures and from 1 October 2009 to 12 March 2010 for taxpayers submitting disclosures online. Those wishing to make paper disclosures must notify HMRC of their intention to do so between 1 September 2009 and 30 November 2009. Those wishing to submit disclosures online must notify HMRC of their intention to do so between 1 October 2009 and 30 November 2009.
Legal professional privilege (‘LPP’)
Communications to and from legal advisers and certain other related communications are privileged from production in an English Court. LPP is a fundamental right which protects communications (both written and oral) between a lawyer in his professional capacity and his client, provided that they are confidential and for the purpose of giving or obtaining legal advice or assistance for the client. LPP applies whether such documents are held by the taxpayer himself or other parties on his behalf.
Where confidential communications between a lawyer and the client are effected via third parties, whether as an agent of the lawyer or of the client, LPP will still be available provided the third party is an agent of the lawyer or the client. For example, provided the legal adviser instructs accountants in connection with a disclosure and receives their advice, both the instructions and the advice will be immune from production in an English court (both criminal and civil courts) and cannot therefore be used against the taxpayer by HMRC.
We would be happy to coordinate an approach to HMRC and the responses to any queries posed by them in conjunction with clients’ UK accountants or other professional advisers, thereby ensuring that the collation of the information and evidence needed to deal with HMRC is carried out in a manner which preserves LPP to the fullest extent possible.