The UK tax authority has announced that a New Disclosure Opportunity (NDO) will be launched in the autumn, to enable taxpayers to come clean and disclose any previously undeclared offshore income.
The UK tax authority has announced that a New Disclosure Opportunity (NDO) will be launched in the autumn, to enable taxpayers to come clean and disclose any previously undeclared offshore income.
The scheme is open to all taxpayers who have not paid tax due in the UK on interest earned in offshore bank accounts and other offshore investments such as bonds, rental income and assets purchased with previously untaxed income such as business profits or undeclared capital gains. The scheme applies to investment in any country outside the UK, and not just to offshore accounts in so-called ?tax havens?. HM Revenue & Customs (HMRC) also expects all undeclared UK source income to be disclosed.
It is the final opportunity for anyone who has hidden any income or gains away from the UK taxman to disclose with reduced penalties.
The NDO was initially announced in the April Budget. While full details will be revealed later in the year, preliminary details have recently been issued.
The NDO is expected to start in September or October of 2009 and run until March 2010. As with the 2007 Offshore Disclosure Facility (ODF), the penalty will be limited to 10% of the underpaid tax in return for full disclosure of the undeclared funds. However, anyone who had the opportunity to disclose through the 2007 ODF and failed do so will now face a higher penalty of 20%. All back tax plus interest will also have to be paid.
HMRC has applied for an unprecedented blanket order to legally compel all 500 banks in the UK to hand over details of customers with offshore accounts. HMRC has already won a set of legal rulings that will require four unidentified banks with operations in Austria, Belgium, Luxembourg and the Channel Islands to disclose customer details.
HMRC is expected to sift through the bank account data handed over by the banks. It will then target those who do not come forward during the NDO for further investigation, which will almost inevitably mean a higher penalty and the prospect of criminal prosecution.
Prior to the 2007 ODF, HMRC targeted five UK high street banks ? Lloyds TSB, Barclays, HSBC, HBOS and Royal Bank of Scotland – forcing them to provide details of their offshore account holders. It is clients of these five offshore banks who will now face the higher 20% penalty under the NDO, since they should have come forward last time.
HMRC has described this as the final opportunity to own up and regularise your tax affairs. There will be no more lifelines.
Although offshore account structures can be complex, HMRC will make it as simple and straightforward as possible for people to disclose. The tax authority plans to risk assess all information it receives and will identify people who it believes have undeclared liabilities but who have not disclosed through the NDO. It intends to use its enquiry and inspection powers to approach customers in this group and will ?vigorously? pursue all outstanding liabilities.
Depending on the sums involved they may also face public embarrassment under the naming and shaming measure planned for next year whereby HMRC will publish the names and addresses of individuals and companies who have underpaid ?25,000 or over in tax. HMRC will closely watch those who have underpaid by between ?5,000 and ?25,000.
?Now is a critical time for anyone with undeclared funds in an offshore account or undeclared income from offshore assets, to take stock of their situation and ?come clean?, if they are to minimise the costs and other consequences of their mistakes,” warned tax partner at PricewaterhouseCoopers? Stephen Camm. “There will be no more chances.?
The 2007 ODF raised around ?400 million in recouped tax. It has been estimated that the NDO could raise ?2 billion for the taxman.
Key points of the NDO:
– Will start in the autumn and run until March 2010.
– Penalties likely to be capped at 10%.
– People who didn?t disclose during the 2007 ODF and who had the opportunity to do so face penalties of 20%.
– The underpaid tax will also need to be paid, plus interest.
– Full disclosure to include offshore fiscal accounts and investments, other undeclared foreign income (eg rental income) as well as undeclared UK income.
– Failure to disclose will attract higher penalties (up to 100%), potential naming and shaming and possible criminal prosecution.
– HMRC is seeking to obtain details of offshore accounts and assets from hundreds of financial institutions.
– During the disclosure period, all account holders will be informed that HMRC has, or will soon have, their bank details.
– Once the NDO closes HMRC will ?vigorously? pursue those who choose not to disclose undeclared income as quickly as possible.
– Final opportunity to disclose in return for favourable penalty rate.
HMRC was criticised during the run up to the ODF facility for not publicising the facility enough. The number responding was considerably smaller than HMRC expected, which according to some tax experts, was due to the lack of awareness.
Tax investigations partner at PKF, John Cassidy said: ?The take up rate for the ODF was significantly lower than expected and this was largely because many of the individuals potentially affected really knew little about it. Sadly, HMRC spent lots of time and effort putting the ODF in place but barely any effort in promoting awareness of it.?
There was no major press or TV campaigns promoting the ODF, unlike the ?shop your plumber scheme?. “This time round HMRC must invest in a comprehensive publicity campaign in the national media,” Cassidy said.
The Chartered Institute of Taxation (CIOT) is one of the professional bodies working with HMRC to ensure that the NDO runs as smoothly as possible. Chairman of the CIOT?s Management of Taxes Sub-Committee, Gary Ashford, commented: “Those people who have not declared offshore income have evaded tax and we do not condone tax evasion in any way. However, it makes every sense to help such people regularise their tax affairs, particularly as many will have fallen foul of the law through mistake or misunderstanding.” CIOT hopes that the advanced notice of NDO will lead to further publicity from HMRC once the scheme is up and running, giving those who could be in line for severe penalties the opportunity to disclose.
Anyone who still has undeclared offshore accounts should come forward at the earliest opportunity. Disclosure prior to the NDO may also attract low penalties since it is voluntary and the sooner it is declared, the less interest there will be to pay.
After the NDO, there will be no further opportunities to legalise your tax affairs with reduced penalties.
This can be a good opportunity to review your investment strategy. There may be options available that can legitimately allow you to reduce your tax liability. Always take advice from an authorised and regulated financial adviser like Blevins Franks Financial Management to achieve the best tax savings possible.
By David Franks, Chief Executive, Blevins Franks
30th June 2009
