1 – You have nothing to worry about if you've been honest
As long as you have fully disclosed on your tax returns all of your taxable income and gains you have nothing to worry about. However, the NDO is especially relevant for anyone who has omitted to disclose any of the following:
- rent due on overseas properties;
- interest on offshore accounts;
- investment income on overseas investments:
- capital gains arising in the UK or overseas;
- trading income and profits that were deposited or invested overseas.
Anyone who has chosen not to declare taxable income or gains can take this 'final' opportunity to come clean with the taxman. HMRC are adamant that the NDO will not be repeated. HMRC are in the process of obtaining chapter and verse about offshore bank accounts held by or on behalf of UK residents. And HMRC also make clear that this is not an amnesty as all taxes will have to be paid. Interest will also be charged on the late payments of tax.
In normal circumstances HMRC would also charge penalties if someone had failed to declare taxable income or gains on time. Such penalties could be as high as 100% of the late paid tax.
Under the NDO however the penalty will be limited to just 10% of the late paid tax. And if the tax you owe is less than £1,000 the penalties will be waived.
3 - You could be in trouble if you missed out in 2007
In 2007 HMRC offered similar beneficial terms to anyone disclosing tax liabilities related to offshore bank accounts. HMRC didn't publicise this very widely and their focus in 2007 was only on the five main high-street banks in the UK with offshore subsidiaries.
The NDO is now targeting UK residents who have offshore accounts operated by over 300 banks and other financial institutions which also have an onshore presence in the UK. As indicated above the penalty this time round is being set at 10%. However if you ignored HMRC's invitation to 'come clean' in 2007 the penalty this time round will be 20%.
4 – There is nothing wrong in having an offshore bank account or investment
UK taxpayers can hold money in bank accounts wherever in the world they choose. It is not illegal, immoral or wrong to have offshore assets. Equally you can own property anywhere you like. The problem arises if the funds used to acquire the property or deposited in the offshore account were liable to tax and you failed to tell the taxman about them. And a further problem arises if you don't tell the taxman about the interest or rent you earn offshore.
5 - You may benefit from taking professional advice
HMRC's website contains plenty of guidance to assist you in complying with the NDO.
If you think there could be lots of tax at stake you may benefit from taking professional advice beforehand. There are seven reasons for this:
- You need to ensure that you make a full disclosure so that further penalties are not charged at a later date - at which point a criminal prosecution could be in prospect;
- You will want to avoid paying more tax, interest and penalties than is strictly necessary - an objective review can help here;
- If your affairs are complex you will want to limit the prospect of HMRC prying any further into them - experienced professional tax advice can help here;
- You have previously been investigated by HMRC and kept this income hidden at the time;
- You inherited the account(s) or you are only one of the joint holders of the account(s);
- The account is in the name of your company or business and it would be disruptive if HMRC investigated further into the company/business affairs;
- You are non UK domiciled and you have any doubt as to whether the interest could be taxable here.