Tuesday, January 5, 2010

What now for undisclosed offshore bank accounts?

The deadline for admitting the existence of previously undisclosed monies in offshore bank accounts expired on 4 January. Early indications are that the number of reports made to HMRC under the 'New Disclosure Opportunity' were much lower than the taxman had hoped.

If true this will be disappointing for the taxman and for the Chancellor.

What does the future hold for those who were unaware of or chose to ignore the deadline?

HMRC will, at some stage, write to offshore account holders who are resident in the UK and who are not recorded as paying tax on the interest. Such letters could start to appear as early as next month, later this year or at any time in the next few years.

Anyone receiving such letters would be well advised to take professional advice from tax investigation specialists to assist them in negotiating the best possible settlement - or indeed to make HMRC go away if there really is no undeclared taxable income.

The prospective penalties if HMRC identify unpaid taxes will now be at least 35% of the late paid tax. This will be payable in addition to the unpaid tax and interest charges by reference to when the tax should have been paid. The interest can really mount up if the tax liability has been unpaid for some years.

And the 35% penalty is simply the lowest possible charge going forwards. The maximum penalty payable at the moment is 100% of the unpaid tax. And beware: As part of his Pre-Budget report the Chancellor published a consultation document: "Modernising Powers, Deterrents and Safeguards: Tackling Offshore Tax Evasion". This included a note that:
"For periods prior to April 2009, HMRC will view non-compliance involving an offshore element as conduct of the utmost gravity, and will seek penalties accordingly. The maximum penalty prior to the introduction of the new FA 2008 penalties is 100 per cent"
The Document also suggests that:
"a taxpayer seeking to evade tax by failing to declare the existence of an overseas account or the interest arising from it could be subject to two separate tax-geared penalties. In the most serious cases of tax evasion, the sum of these two penalties could reach 200 per cent of the tax evaded."
These new rules could come into effect next year. The deadline for responding to the consultation is 3 March 2010.

The 'New Disclosure Opportunity' (NDO) was the second so-called tax amnesty operated by HMRC in recent years. The previous 'Offshore Disclosure Facility' (ODF) in 2007 raised more than £400m in revenue when offshore account holders with five major UK banks were given the opportunity to put their tax affairs in order. Now HMRC has access to information from more than 300 banks and has assured us that there will be further such tax 'amnesty' as some misleading reports describe the Disclosure Facilities. To an extent the NDO was required as the ODF had insufficient publicity; a mistake HMRC has attempted to avoid this time around.

And just a word about the separate Liechtenstein Disclosure Facility (LDF) which some very wealthy tax avoiders are hoping will allow them to come clean whilst paying less tax. Er, no. The tax and interest charges will be the same as ever. The penalty charges MAY be lower than normal but only if HMRC are satisfied that the undisclosed funds fully satisfy the terms of that Facility.

Previous blog posts on this subject:

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