My client has received one of the letters that HMRC recently sent to Swiss account holders, pursuant to the information it has received from the Swiss authorities. This has come as rather a shock, as he had previously given no indication that he held any assets in Switzerland. In the circumstances, I would appreciate some guidance as to how to handle this.
HMRC has, so far, received details of 18,000 accounts under the UK/Swiss agreement, and has already written to over half of the account holders. The letters are being sent in batches giving a six-week deadline for a response to reach HMRC. It is important to note that HMRC has made no attempt to check whether any of these account holders has already made a disclosure, either by reporting details in their tax return or by using a disclosure facility such as the Liechtenstein disclosure facility (LDF). The same letters have been sent to taxpayers regardless of their domicile status, so recipients will include non-UK domiciled individuals who have elected for the remittance basis, paid the remittance basis charge and in respect of whom no further UK tax liability arises.
In many cases, therefore, a full disclosure will already have been made or there will be no further tax liability. Thus, it may only be necessary to sign and return to HMRC either certificate A attached to the letter, confirming that there is no outstanding UK tax liability, or certificate B, confirming that the individual has used, or intends to use, the LDF to disclose all UK tax irregularities. Certificate C should only be used for a person who has outstanding liabilities to disclose but who is not using the LDF; they may, for example, be making a disclosure to HMRC’s Offshore Coordination Unit or be the subject of a Code of Practice 8 or 9 investigation.
In your client’s case, as you knew of no Swiss assets and have had no contact with another adviser, I assume that no disclosure has been made to date. However, many individuals have used a different adviser to make such disclosures, so it is worth asking your client whether they have done so. Every recipient of these HMRC letters needs to reply, so certificate B or C would have to be signed and returned, even if a disclosure was underway (or indeed completed).
Equally, you will know whether your client, if non-domiciled, has elected for the remittance basis, declared his remittances (if there were any) for all tax years and paid the remittance basis charge in years post April 2008, as appropriate. In this case, there may not have been any need to inform you of Swiss income or gains, or report these to HMRC. It would then simply be a matter of returning certificate A to HMRC, unless your client incorrectly failed to declare the source of the money held in the Swiss account. If the latter is the case, then your client needs to take specialist advice on making a disclosure and on which form should be completed. However, remittances are now notoriously complex and your client may not have identified them all. It may be helpful to undertake a remittance review to be sure.
Turning to the more serious possibility that your client does have some undeclared remittances, Swiss income and/or gains, it appears that when account holders were sent details of their options under the UK/Swiss agreement by their Swiss agent, many ticked the ‘voluntary disclosure’ option, without reading the small print or realising what was involved. Such account holders may therefore not have started a disclosure process and, if your client falls into this category, it is essential to take specialist advice so that this can begin immediately. Care should be taken to ascertain whether there are any other matters to disclose, as a full disclosure must be made on all issues; if HMRC discovers that a disclosure is incomplete, it will seriously consider prosecution.
Clearly, with 2012/13 tax returns due for submission by 31 January 2014, the position also needs to be considered carefully before any further tax returns are filed.
Fortunately, the LDF is still open for the disclosure of UK tax irregularities, and if your client does have undeclared Swiss income or gains (and an offshore asset at 1 September 2009), this is likely to be the best option. If your client does not already have a Liechtenstein connection, the first step will be to obtain one as soon as possible, in order to be able to benefit from the LDF terms.
If your client had hoped to move funds from Switzerland to another location, without making a disclosure, this was also likely to fail, as the UK/Swiss agreement requires the Swiss government to provide the UK with details of the top ten most popular destinations for funds moved out of Switzerland before the agreement came into force, and the numbers of UK residents who moved assets to those destinations, by the end of May 2014.
HMRC states that if it does not receive a reply from anyone who has undisclosed income or gains, then it will assume that they made a conscious decision not to tell HMRC. This is likely to trigger an investigation and HMRC will consider issuing formal information notices to obtain the documents it needs. It is also able under the UK/Swiss agreement to obtain documents from the Swiss bank. If HMRC opens an investigation, then it may lead to criminal proceedings or a civil settlement involving higher tax-geared penalties, as the discount for voluntary disclosure will be lost.
Whatever course of action is necessary, the first priority is to talk to your client to understand the facts regarding their Swiss accounts, so that you can identify whether your client needs to make a disclosure. If one needs to be made, then specialist advice should be sought from an adviser who is familiar with such cases to determine the way forward and whether form B or C should be used when replying to HMRC’s letter.
