UK Revenue Continues Mission Against Offshore Tax Evasion


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If British offshore savers were already feeling prosecuted, they may need to brace themselves. HM Revenue & Customs (HMRC) is considering increasing the penalties for tax evasion through offs

If British offshore savers were already feeling prosecuted, they may need to brace themselves. HM Revenue & Customs (HMRC) is considering increasing the penalties for tax evasion through offshore accounts. Experts have also warned that other offshore centres may copy the deal with Liechtenstein, where more favourable penalties are offered to those who voluntarily disclose their accounts – but where the offshore account will be closed if the owner does not disclose it to the UK authorities.

HMRC’s New Disclosure Opportunity (NDO), which is for offshore accounts other than those held in Liechtenstein, began on 1st September 2009. Anyone needing to take this opportunity must notify the tax office by the end of November and make their full disclosure and payment by 31st January next year (for paper disclosures) or 12th March (for online submissions).

Under the disclosure penalties will be 10% or 20%, the latter for those who were contacted during the 2007 Offshore Disclosure Facility. The full amount of tax owed plus interest also must be paid.

While HMRC has said it will not fine those who made innocent errors and were misled by their financial adviser, taxpayers cannot use innocence of the laws as an excuse – they will still be charged the 10% or 20% penalty.

The tax office is under pressure to help the government plug the growing gap in the public finances.

HMRC launched a podcast on its website where Dave Hartnett, the Permanent Secretary for Tax, warns that individuals who fail to disclose an undeclared offshore income face an increased risk of prosecution.

Hartnett emphasises that penalties will be much higher for those who do not come forward under the NDO (minimum 30%, maximum 100% of the unpaid tax), and that “there will not be another chance” to benefit from lower penalties.

This time“, he warns, “we are going to have information from the majority of banks operating in the United Kingdom“.

Prior to the 2007 facility, HMRC had received information from Barclays, Lloyds TSB, HSBC, HBOS and Royal Bank of Scotland on their offshore clients.

This time it has obtained information from 308 banks.

The banks have been asked to provide the following information on their offshore account holders: (1) Name. (2) Address. (3) Date of birth. (4) Date the account was opened or closed. (5) Account balance. (6) Any transaction information.

Tax investigators will trawl through the information received and those found to have lied about disclosure are more likely to face prosecution. HMRC may also probe their onshore accounts.

HMRC will also scrutinise rental income on overseas properties.

According to The Sunday Times, the Revenue has also begun an investigation into leading building societies and former mutuals.

The article also reports that the Revenue is considering applying for increased powers, whereby it can take half an individual’s offshore wealth if they are proved to be using an offshore jurisdiction to evade tax (currently penalties cannot be higher than 100% of the unpaid tax). Hartnett told the newspaper that, when prosecuting someone for tax evasion, “it would help to change the rules so that those with hidden offshore accounts face much larger penalties.”

Running alongside the NDO, HMRC is offering a separate disclosure opportunity to those with capital hidden in Liechtenstein. This offer came after it struck a deal with the alpine jurisdiction to exchange information. The deal was ground breaking – Liechtenstein agreed to close down accounts belonging to UK resident account holders who do not take up the offer and report their account in the UK.

There has been criticism about the disparity between the NDO and the Liechtenstein disclosure opportunity since the latter offers more favourable terms. The NDO closes next March; the unpaid tax to be declared and paid goes back 20 years and the penalty could be 20%. The Liechtenstein facility does not close until March 2015; the unpaid tax only goes back 10 years and penalties are capped at 10%.

This could result in individuals with accounts in other jurisdictions like the Channel Islands and Isle of Man moving their funds into Liechtenstein before making their disclosure.

Experts have warned that the UK-Liechtenstein agreement may have repercussions for offshore centres around the world. Since they cannot afford to have large capital outflows from their banks, they may negotiate similar tax information exchange deals with the UK to encourage their wealthy clients to leave their funds where they are.

After the Liechtenstein agreement was signed, Financial Secretary to the Treasury, Stephens Timms, commented: “A year ago, I think it would have been inconceivable. That changed with the G20 in April which created a completely new momentum behind agreements of this kind.”

Organisation for Economic Co-operation and Development (OECD) Secretary-General, Angel Gurria, expressed similar sentiments at the September Global Forum on Transparency and Exchange of Information. He reported that over 90 new Tax Information Exchange Agreements and double taxation conventions had been signed since April, saying that “what we are witnessing is nothing short of a revolution.”

He continued: “By addressing the challenges posed by the dark side of the tax world, the campaign for global tax transparency is in full flow. We have equipped ourselves with the institutional means to continue the campaign. With the crisis, global public opinion’s expectations are high, their tolerance of non-compliance is zero and we must deliver.”

Considering that Spain’s budget deficit is expected to reach 10% of gross domestic product this year and Portugal’s state deficit hit €7.3 billion in the first half of the year, and both are struggling with falling tax revenues, they are likely to take a leaf out of the UK’s book and step up their crackdown on offshore tax evasion. France has recently managed to obtain 3,000 names of individuals suspected of tax evasion though Swiss bank accounts.

The irony is that with the withholding taxes applied on offshore bank accounts under the EU Savings Tax Directive, it is now often possible to pay less tax using fully legitimate tax planning arrangements. An experienced financial and tax adviser like Blevins Franks will advise on the opportunities available to lower your tax bill, as well as reduce inheritance taxes for your heirs if necessary.

By Bill Blevins, Managing Director, Blevins Franks

14th September 2009

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.