Overseas tax 'amnesty' not what it seems

HM Revenue & Customs' decision to offer an 'Offshore Disclosure Facility' rather than an 'overseas tax amnesty' will ring warning bells for those business owners with money held overseas, warns PKF Accountants & business advisers.

Following several rulings by the tax tribunals, the high street banks and other financial institutions have been supplying vast amounts of data to HMRC covering the overwhelming majority of their UK-based customers with offshore accounts. HMRC is offering the facility to help them clear as many of these cases from their files as possible.

John Cassidy, tax investigations partner at PKF, warns, "The 'facility' is far less generous than it might at first appear and leads to two immediate conclusions - this is not an amnesty nor is it restricted only to offshore income. The disclosure must cover all UK and offshore matters over the last 20 years, which could be problematic given the relatively short timeframe for reporting. A parallel scheme for purely onshore disclosures requires the same level of detail."

HMRC has said it will restrict penalties to 10% of the unpaid tax on the interest rather than the maximum of 100% where the taxpayer does not 'come clean'. However, in reality, penalties are rarely anything like 100% so this may not be such a big 'carrot' especially as making a disclosure will provide no immunity from prosecution by the tax authorities where answers 'cannot' be given. Other prosecuting authorities may also have an interest in the matter.

John continues, "The new facility may be ideal for many individuals and companies. However, if there is anything to disclose, it should be carefully managed after proper consideration of all the options, not simply reliance on a partial amnesty."

"As part of the disclosure HMRC will want to know about the original source of the capital that has generated this income. It may not have been obtained illegally but, if capital has been moved abroad or other overseas income not repatriated to avoid UK tax being paid, HMRC may be 'less understanding' than usual."

"The only sensible option for business owners and individuals who have not fully declared their income in the past is to make a full voluntary disclosure to HMRC. But anyone contemplating this approach should not rely solely on the 'amnesty' but should seek expert advice on how to do it in a way that keeps penalties and risks to a minimum while reducing exposure to further investigation and potential prosecution.

For more information from PKF on the overseas tax 'amnesty' click here