Offshore tax amnesty - time is running out to comply

Following on from our recent story which detailed the HMRC tax amnesty on offshore bank accounts, there are only a few weeks left before the "amnesty" expires.

Taxpayers who fail to notify the taxman that they have previously undeclared income or capital gains by 22 June can expect to come under the spotlight.

Business advisers, Tenon, have provided some more background to the amnesty below:

In April HMRC introduced the Offshore Disclosure Facility aimed at taxpayers with an offshore account connected with a loss of UK tax. A parallel process was announced for those with tax irregularities but without a connected offshore account.

There is concern that not all taxpayers are aware of the new process. HMRC have not conducted a publicity campaign, the process meriting only a mention on their website. Instead, the Revenue has been relying on the banks (who provided the information which led to the “amnesty” and have written to their customers) and the accountancy profession to highlight the process. Taxpayers should be aware that there is no guarantee that they will not be prosecuted, even if they come forward voluntarily. Professional advice is essential before approaching HMRC to notify them of a disclosure.

Taxpayers who do not voluntarily approach the Revenue can expect to come under the spotlight. Where HMRC holds information, but the taxpayer does not come forward, they will conduct their own enquiry. In appropriate circumstances this may include criminal proceedings. At the very least taxpayers will suffer a higher penalty (under the Offshore Disclosure Facility taxpayers are required to pay tax, interest and a penalty calculated as 10% of the tax due).

Taxpayers should not underestimate the Revenue’s intent. HMRC have stated that they will target holders of offshore bank accounts who do not disclose under the Offshore Disclosure Facility. They will target these account holders after 22 June 2007 in the following ways:

• by comparing information in their possession with taxpayers’ UK tax histories;
• by making enquiries where there are discrepancies. Where additional tax is payable, they will seek higher penalties, of between 30% and 100% of the tax payable;
• by continuing to pursue the disclosure of detailed information about offshore accounts held by UK residents (this will be achieved by using their formal powers against other banks, building societies and financial institutions);
• by undertaking criminal investigations in line with their Criminal Investigation Policy (this will only occur in “exceptional circumstances”).

“Taxpayers have only a few weeks to come forward under the disclosure process. Those who choose not to do so are taking a very big risk, as the Revenue is already holding a substantial amount of information. The taxman will be seeking a higher penalty than if they come forward voluntarily, and, in a limited number of cases, will be instigating criminal proceedings.”

Background

H M Revenue and Customs (HMRC) introduced the Offshore Disclosure Facility on 17 April 2007. This followed HMRC’s success in obtaining details of tens of thousands of offshore bank accounts using their formal powers. With insufficient resources to process this vast mountain of information HMRC introduced the new procedure to maximise the yield at minimum cost.

Under the process, holders of an offshore bank account connected to an under declaration of UK tax have until 22 June 2007 to notify their intention to make a disclosure. They then have until 26 November 2007 to quantify the untaxed income or gains they have received and to pay the tax due. Investors will have to pay interest and a penalty, calculated at 10% of the tax. All duties (including VAT, Capital Gains Tax, National Insurance Contributions, Corporation Tax and Inheritance Tax) are covered by the process. Taxpayers are required to work out their liability for, up to, a 20 year period.

The same terms can be obtained where there is a disclosure to be made but the taxpayer does not have a connected offshore bank account providing the above timetable, including that for payment, is met.