Tax dodgers have been given a "last chance" to pay tax on money hidden in offshore bank accounts, as HM Revenue and Customs (HMRC) announced a new tax amnesty.
HMRC regards the offshore disclosure facility it offered to holders of offshore bank accounts in 2007 to have been a success and has launched the ‘new disclosure opportunity’ (NDO) to repeat it. HMRC will shortly offer individuals, companies and trustees the chance to come forward and disclose previously undeclared income and pay back taxes without suffering large tax penalties.
NDO allows people who come forward between September 2009 and March 12, 2010 to be fined just 10 per cent of the unpaid tax, instead of 100 per cent.
Why is it being offered?
If you are resident in the UK, you must pay UK tax on all your income and gains unless you are a foreign national who is not domiciled in the UK. HMRC is now stepping up its tax enquiry work against UK residents who have not declared their offshore income, whether from offshore accounts or other sources, and their offshore gains.
Over the past few months, HMRC has started to obtain the offshore account details of thousands of individuals from hundreds of financial institutions offering accounts outside the UK to UK residents. It is determined to collect any UK tax due on funds held in or paid into these accounts. However, raising individual tax investigations into all these individuals would take time and money. By offering the new disclosure facility, HMRC expects to collect most of the tax outstanding (for relatively little effort) even though it means collecting less in penalties from each taxpayer.
Who can use it?
Any UK resident individual, company or trustee who has failed to declare overseas income and/or gains that are taxable in the UK can use the new disclosure opportunity. You do not need to have an offshore bank account. Even if you declined the chance to use the previous offshore disclosure facility, you can still use the new disclosure opportunity – although the terms may not be as favourable for you and you should take advice on your specific circumstances.
It is possible to voluntarily disclose wholly UK tax irregularities to your local tax office. In most cases of voluntary disclosure, it is possible to secure low penalty rates but this cannot be guaranteed. If you wish to put right wholly UK tax irregularities, please contact mr to discuss your options and the likely overall cost.
Any UK resident individual, company or trustee who has failed to declare overseas income and/or gains that are taxable in the UK can use the new disclosure opportunity. You do not need to have an offshore bank account. Even if you declined the chance to use the previous offshore disclosure facility, you can still use the new disclosure opportunity – although the terms may not be as favourable for you and you should take advice on your specific circumstances.
It is possible to voluntarily disclose wholly UK tax irregularities to your local tax office. In most cases of voluntary disclosure, it is possible to secure low penalty rates but this cannot be guaranteed. If you wish to put right wholly UK tax irregularities, please contact mr to discuss your options and the likely overall cost.
Anyone with a UK address who has an offshore account could come under scrutiny
This time HMRC are targeting UK residents with offshore accounts operated by 308 banks and other financial institutions with a presence in the UK.
The Tax Chamber of the First-tier Tribunal on 12 August 2009 ordered these banks to give details to HMRC about their customers who hold offshore accounts.
HMRC are now issuing the information notices to banks ahead of the NDO. The NDO will allow people with unpaid taxes linked to offshore accounts or assets to settle their tax liabilities at a favourable penalty rate.
HMRC will use this information to ensure everyone pays the right tax and to check that NDO disclosures are complete.
Anyone with a UK address who has an offshore account could therefore come under scrutiny from HMRC and should therefore review their tax affairs.
What information are HMRC requesting?
I am deeply indebted to Mark Lee (Chairman of the Tax Advice Network) for the detail of what is comprised in the notice issued to the banks by HMRC.
The notices being issued include a wide ranging definition of 'account' to include holdings of cash, time, notice and demand deposits. It also includes accounts which do not carry interest or any other return and also any account into which money or investment assets have been deposited, including portfolio asset management accounts, whether managed by the account holder directly or managed bny another or others. So the types of account which will be disclosed include:
- current account
- deposit account
- capital account
- wealth management account
- discretionary account
- alternative investment account
- property investment account
- trustee account
- client account
- investment trust account
- bond account
The notices state that information and documents related to the following need not be disclosed:
- account holders who have authorised exchange of information for the purpose of the EU savings tax directive (or int'l equivalent) - for periods covered by such agreements:
- accounts where the account holder died more than 4 years ago;
- accounts where all account holders are PLCs, governments, charities, churches, mutuals, trade associations or clubs
- ISA accounts
This is much as you would expect but also includes:
- Account holder's date of birth
- Date account was opened
- Date account was closed (if closed)
- The account balance at 31 March 2004, 2005.....2009
- Transaction information for a number of specified periods including
- - April-June 2004,
- - First 3 months of operation for accounts opened after 31 March 2004
- - Jan, Feb and March 2009 for accounts open at 31 March 2009
It is not just interest income from offshore accounts that is being targeted
HMRC is not simply interested in undisclosed income from these accounts, but also the possibility that the capital comes from an untaxed source such as undeclared takings from UK businesses, rental income from overseas properties and income earned overseas by UK residents that was undeclared in the UK.
What is covered?
Individuals, companies and trustees who use the new disclosure opportunity must report all matters wrongfully omitted from their tax returns in the prior 20 tax years (if the irregularity goes back that far). This includes any UK or overseas income not reported and all taxes, including PAYE and VAT, must be encompassed within the disclosure. The disclosure must cover all legal persons with a liability, with separate scheme numbers and disclosures for the individual and any company or trust controlled by the individual.
This is a complex area
There is nothing wrong with having an offshore account or assets - as long as you meet your tax obligations. Depending on your circumstances, it may be that you are not required to disclose the accounts or the income arising from them. If you believe an offshore account does not need to be disclosed, it is recommended that professional advice is taken to confirm the position.
Even if you did not realise tax was due in respect of income received from your offshore account, the NDO still applies to you
Whether you are someone who has deliberately not disclosed offshore income, or someone who has mistakenly underpaid tax, perhaps because you may not have realised the obligation to declare overseas income (such as rental income on a second home abroad), the NDO equally applies to you
A penalty of 10 per cent for those making a full disclosure by 12 March 2010
The NDO means that instead of penalties of up to 100 per cent of the tax owed, most people making a full disclosure by 12 March 2010 will pay a penalty of just 10 per cent.
A higher penalty of 20 per cent will be charged to people who received a letter from HMRC in connection with the previous facility in 2007 but who failed to make a disclosure. If the tax owed is less than £1,000, HMRC will waive penalties, although interest will be charged in all cases.
Individuals, companies and trustees who use the new disclosure opportunity must report all matters wrongfully omitted from their tax returns in the prior 20 tax years (if the irregularity goes back that far). This includes any UK or overseas income not reported and all taxes, including PAYE and VAT, must be encompassed within the disclosure. The disclosure must cover all legal persons with a liability, with separate scheme numbers and disclosures for the individual and any company or trust controlled by the individual.
This is a complex area
There is nothing wrong with having an offshore account or assets - as long as you meet your tax obligations. Depending on your circumstances, it may be that you are not required to disclose the accounts or the income arising from them. If you believe an offshore account does not need to be disclosed, it is recommended that professional advice is taken to confirm the position.
Even if you did not realise tax was due in respect of income received from your offshore account, the NDO still applies to you
Whether you are someone who has deliberately not disclosed offshore income, or someone who has mistakenly underpaid tax, perhaps because you may not have realised the obligation to declare overseas income (such as rental income on a second home abroad), the NDO equally applies to you
A penalty of 10 per cent for those making a full disclosure by 12 March 2010
The NDO means that instead of penalties of up to 100 per cent of the tax owed, most people making a full disclosure by 12 March 2010 will pay a penalty of just 10 per cent.
A higher penalty of 20 per cent will be charged to people who received a letter from HMRC in connection with the previous facility in 2007 but who failed to make a disclosure. If the tax owed is less than £1,000, HMRC will waive penalties, although interest will be charged in all cases.
What’s in it for me?
You can own up to past tax inaccuracies and put them right at relatively low cost. Getting up to date now means that you will not have the worry and cost of a detailed tax investigation at some future date. As ever, with tax arrears, the sooner you put things right and the more you cooperate with HMRC, the less it costs.
You can own up to past tax inaccuracies and put them right at relatively low cost. Getting up to date now means that you will not have the worry and cost of a detailed tax investigation at some future date. As ever, with tax arrears, the sooner you put things right and the more you cooperate with HMRC, the less it costs.
Penalties under the new disclosure opportunity will be as low as 10% but, if HMRC catches you at a later date, it could charge penalties of up to 100% of the tax due – so you could end up paying twice what you would have originally, plus interest.
Also, if you use the new disclosure facility, it is much less likely that HMRC will prosecute you for fraud (see below) or use its new powers to ‘name and shame’ you for tax fraud.
This is not really a tax amnesty, you will still need to pay the tax and interest charges for paying it late. However, HMRC is offering:
The new disclosure opportunity is not to be used where tax is underpaid as a result of an innocent error by the taxpayer. In such circumstances, taxpayers must provide evidence of the error to their normal tax office and HMRC will consider whether or not penalties should be applied. However, it is vital to take advice before taking such action.
This is not really a tax amnesty, you will still need to pay the tax and interest charges for paying it late. However, HMRC is offering:
- a standard penalty of 20% of the tax due if you received a letter from HMRC or your bank regarding the previous offshore disclosure facility but chose not to disclose
- a standard penalty of 10% of the tax due (if you did not receive such a letter)
- no penalty where the disclosable income is less than £1,000
- no penalty on pre-death liabilities of a deceased taxpayer.
The new disclosure opportunity is not to be used where tax is underpaid as a result of an innocent error by the taxpayer. In such circumstances, taxpayers must provide evidence of the error to their normal tax office and HMRC will consider whether or not penalties should be applied. However, it is vital to take advice before taking such action.
Make sure to obtain a Reference Number (DRN) from HMRC
If you think you need to make a disclosure make sure you obtain a “Disclosure Reference Number” (DRN) from HMRC by registering with them between 1 September 2009 to 30 November 2009.
The DRN is needed if you are to make a disclosure under the terms of the NDO. Obtaining a DRN does not commit you to making a disclosure report if you subsequently establish that there is no unpaid tax.
Payment needs to be made in full
Payment of all tax, interest and penalties needs to be made in full at the time the disclosure report is submitted to HMRC. If you think you will have problems paying the liability in full, then you should contact HMRC to discuss possible alternative payment arrangements as soon as possible.
An incorrect or incomplete disclosure will lead to high penalties
HMRC will target those where there is a "mismatch" between information it holds and the NDO disclosure forms or the normal tax returns. Penalties for an incorrect or incomplete disclosure are likely to be at least 30 per cent and could be significantly higher. There is also the possibility of criminal investigation in the most serious cases.
If you think you need to make a disclosure make sure you obtain a “Disclosure Reference Number” (DRN) from HMRC by registering with them between 1 September 2009 to 30 November 2009.
The DRN is needed if you are to make a disclosure under the terms of the NDO. Obtaining a DRN does not commit you to making a disclosure report if you subsequently establish that there is no unpaid tax.
Payment needs to be made in full
Payment of all tax, interest and penalties needs to be made in full at the time the disclosure report is submitted to HMRC. If you think you will have problems paying the liability in full, then you should contact HMRC to discuss possible alternative payment arrangements as soon as possible.
An incorrect or incomplete disclosure will lead to high penalties
HMRC will target those where there is a "mismatch" between information it holds and the NDO disclosure forms or the normal tax returns. Penalties for an incorrect or incomplete disclosure are likely to be at least 30 per cent and could be significantly higher. There is also the possibility of criminal investigation in the most serious cases.
Is there an alternative?
By voluntarily coming forward now there is a reasonable prospect of agreeing to settle with HMRC for the tax and interest on the ‘in date’ years only (currently 2003/4 to 2007/8). In contrast, the new disclosure opportunity covers tax irregularities over 20 tax years. So, although the penalty rate under the new disclosure opportunity may well be lower, in many circumstances you could save money overall by making a disclosure before the new disclosure opportunity starts.
By voluntarily coming forward now there is a reasonable prospect of agreeing to settle with HMRC for the tax and interest on the ‘in date’ years only (currently 2003/4 to 2007/8). In contrast, the new disclosure opportunity covers tax irregularities over 20 tax years. So, although the penalty rate under the new disclosure opportunity may well be lower, in many circumstances you could save money overall by making a disclosure before the new disclosure opportunity starts.
When will the deadline run out?
The registration period runs from 1 September 2009 to 30 November 2009 or 1 October 2009 – 30 November 2009 if applying online.
The completed disclosure pack must be submitted to HMRC by 31 January 2010 or 12 March 2010 if submitted online.
The registration period runs from 1 September 2009 to 30 November 2009 or 1 October 2009 – 30 November 2009 if applying online.
The completed disclosure pack must be submitted to HMRC by 31 January 2010 or 12 March 2010 if submitted online.
Will I have to go to court?
HMRC is not prepared to guarantee immunity from prosecution to anyone using the new disclosure opportunity. However, you are far less likely to be prosecuted if you do use it to bring your tax affairs up to date rather than if you just wait for HMRC to catch up with you. Using the new disclosure opportunity means following a prescriptive paperwork process (see below), so that HMRC can process large numbers of cases easily and cheaply. Although some individuals will be chosen for a more detailed investigation, if HMRC follows the pattern of the previous offshore disclosure facility, it is likely that most disclosures will be accepted and the matter regarded as closed. In such circumstances, there is no need to go to court.
HMRC is not prepared to guarantee immunity from prosecution to anyone using the new disclosure opportunity. However, you are far less likely to be prosecuted if you do use it to bring your tax affairs up to date rather than if you just wait for HMRC to catch up with you. Using the new disclosure opportunity means following a prescriptive paperwork process (see below), so that HMRC can process large numbers of cases easily and cheaply. Although some individuals will be chosen for a more detailed investigation, if HMRC follows the pattern of the previous offshore disclosure facility, it is likely that most disclosures will be accepted and the matter regarded as closed. In such circumstances, there is no need to go to court.
Are Liechtenstein investments any different?
In short, yes.
The Government has announced a special deal with the Liechtenstein authorities which is in many ways quite different to the NDO. One major difference is that any disclosure is restricted to a maximum of only 10 years, unlike the 20 years of the NDO. There are various other differences which also need to be considered before making a disclosure.
What happens if I don’t use the NDO?
HMRC may already have obtained details of your offshore assets from your financial institution (it already has rulings against a number of financial institutions requiring them to supply specific details for all UK based account holders and others are expected to follow suit). These standard details are likely to be sufficient to enable HMRC to launch an investigation into your affairs – leading to large penalties on top of any tax you are found to owe.
The only sensible option for individuals, companies or trustees who have not fully declared their income in the past is to make a full voluntary disclosure to HMRC now. But anyone contemplating this approach should seek expert advice on how to do it in a way that keeps penalties and risks to a minimum whilst reducing exposure to further investigation and potential prosecution.
HMRC may already have obtained details of your offshore assets from your financial institution (it already has rulings against a number of financial institutions requiring them to supply specific details for all UK based account holders and others are expected to follow suit). These standard details are likely to be sufficient to enable HMRC to launch an investigation into your affairs – leading to large penalties on top of any tax you are found to owe.
The only sensible option for individuals, companies or trustees who have not fully declared their income in the past is to make a full voluntary disclosure to HMRC now. But anyone contemplating this approach should seek expert advice on how to do it in a way that keeps penalties and risks to a minimum whilst reducing exposure to further investigation and potential prosecution.
Seeking help
If you are unsure whether you have paid your tax correctly, then you should get some help to check the position - either from a tax advisor like myself or HMRC directly. HMRC are setting up a helpline for queries on the NDO that will be operational from September 1 2009.
Don’t just sit there
Individuals with more complicated tax affairs should seek professional advice urgently as the limited period for making a disclosure will make it difficult for them to comply.
HMRC has said that there will be no further amnesties and, if in future it catches up with tax evaders, they can expect to pay tax penalties of at least 30% of the tax HMRC discovers they have evaded.
Where can I get more help?
If you want to bring your tax affairs up-to-date, contact me for a FREE initial consultation to assess your position and how I can help you.
Comment
The Charterd Institute of Taxation have rightly suggested NDO should also include anyone with an undisclosed income rather than just those with offshore accounts. Such universal tax amnesties have been very effective in France and Italy.
Perhaps HMRC is concerned that a general amnesty would flood it with work putting more strain on its overstretched resources.
I can guide you through any tax investigation or disclosure process for offshore income and negotiate directly with HMRC to ensure that the tax, interest charges and any tax penalty are minimised.
If you want to bring your tax affairs up-to-date, contact me for a FREE initial consultation to assess your position and how I can help you.
Comment
The Charterd Institute of Taxation have rightly suggested NDO should also include anyone with an undisclosed income rather than just those with offshore accounts. Such universal tax amnesties have been very effective in France and Italy.
Perhaps HMRC is concerned that a general amnesty would flood it with work putting more strain on its overstretched resources.
I can guide you through any tax investigation or disclosure process for offshore income and negotiate directly with HMRC to ensure that the tax, interest charges and any tax penalty are minimised.
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