UK Revenue?s Pursuit Of Tax Evaders Reaps Rewards


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The UK tax authority has been hard at work targeting tax evasion over the last few years. Many readers will be aware of the drive to recoup unpaid tax revenue, particularly from assets held in of

The UK tax authority has been hard at work targeting tax evasion over the last few years. Many readers will be aware of the drive to recoup unpaid tax revenue, particularly from assets held in offshore bank accounts. Some may think it doesn?t affect them while others may feel that they have ?got away with it?. Beware – the government and HM Revenue & Customs (HMRC) are determined to use every method they can think of to get their hands on tax they argue is rightfully theirs.

One of the main methods of claiming unpaid tax is through so-called tax ?amnesties? – disclosure facilities to encourage tax evaders to come clean, pay their back tax, interest and penalties and then to be tax compliant in the future. In 2007 HMRC announced its Offshore Disclosure Facility (ODF), which raised nearly ?450 million from around 45,000 tax evaders with undeclared assets in offshore accounts.

Last year the New Disclosure Opportunity (NDO) was launched and ran until the beginning of January this year. HMRC has now revealed that the NDO has yielded around ?82 million from approximately 5,500 disclosures ? but this is just from people who came forward voluntary and approximately 10,000 registered. HMRC will now dig deeper into information held to pursue those who did not disclose although they have undeclared offshore assets and expects to raise around ?500 million in unpaid tax, interest and penalties from the NDO overall.

Before the start of the NDO, 308 UK banks with overseas branches, and foreign banks with UK account holders, were ordered to supply HMRC with information on offshore accounts. Once the NDO closed tax inspectors planned to examine the information supplied and pursue those with offshore bank accounts and undeclared tax liabilities who did not make a disclosure.

The Liechtenstein Disclosure facility (LDF) started at the same time as the NDO on 1st September 2009 and runs until March 2015. HMRC has released figures revealing that as of 31st March 2010, 419 taxpayers had registered for the LDF – but as there is a five year window for disclosure, HMRC is not concerned about what critics describe as low response citing lack of publicity as the main reason.

Following the release of the March figures, HMRC has said that the numbers stepping forward have increased significantly. ?We are very pleased with the way the LDF is going and money from previously untaxed accounts is already coming in.?

?We?re only 50 yards into a marathon. Those who don?t come forward will face naming and shaming and in the most extreme cases will be prosecuted. We always win in the end.?

From September, key legislation coming into force in Liechtenstein in conjunction with HMRC means that Liechtenstein bank accounts will undergo a compulsory tax audit. All UK taxpayers suspected of owing tax will have to make a declaration under the LDF or find their accounts closed. Banks, other financial institutions and advisers will have three months from identifying a client as being a UK tax evader to notifying these clients that they must disclose. These measures are designed to flush many more tax evaders out into the open to rectify their tax liabilities. HMRC is hoping to claim around ?1 billion from an estimated 5,000 account holders in Liechtenstein.

A tax amnesty for medical professionals who have failed to declare income for tax was launched in January and ended on 30th June. Called the Tax Health Plan, it has yielded around ?9 million from approximately 1,500 disclosures with one case alone worth ?1.2 million. HMRC said it is ?encouraged? by the results and that ?the campaign has resulted in millions of pounds of tax that might otherwise have been lost being paid to HMRC as required by law.?

HMRC is relaying the message that it holds information on medical professionals who have not yet disclosed and should have done so, for example, partners in the same medical practice. Cases are being passed to local compliance and to HMRC?s specialists in the Civil Investigation of Fraud teams and in Special Investigations. For those who have not disclosed and should have they should do so immediately and receive a reduced penalty under the usual rules for disclosure.

HMRC said that it had more than 20 projects aimed at particular groups.

There are many various ways in which HMRC is obtaining information on and pursuing suspected tax evaders.

On 10th August HMRC sent out letters to 600 offshore account holders who came forward during the 2007 ODF to question them about how offshore accounts are marketed. The tax authority is asking those involved to take part in a phone call with a tax official by answering ?a few short questions about how you opened, operated and maintained your accounts?.

HMRC maintains that it wants to better understand how these accounts are marketed to UK citizens and stresses that ?This is not an enquiry into your tax affairs.? However, the letter is being viewed by many as a forerunner to a major probe into offshore tax avoidance structures. Tax lawyers are advising people to be wary of what they say to HMRC and to take advice before responding, concerned that the phone calls are ?fishing trips? to question wealthy taxpayers about their financial affairs.

However hard tax evaders try to hide their money, the taxman will catch up. It was reported in July 2010 that a businessman had buried ?140,000 in his aunt?s grave intending to leave it hidden there for 20 years, the period that tax investigations can go back. But a whistleblower tipped off tax inspectors who, with permission from the priest, reclaimed the ?50,000 due to them.

HMRC disclosed in April that it has paid informers ?437,000 in return for tip-offs since 2007 and prosecutes around 200 people annually for tax evasion.

Nobody really wants to be continually looking over their shoulder to see how close the taxman is. Fortunately, there are legitimate tax mitigating structures available to help the wealthy reduce their tax liabilities to the minimum possible. An international tax and wealth management specialist like Blevins Franks will advise on which is most suitable for you, taking into consideration your personal circumstances, aims and objectives and country of residence.

By Bill Blevins, Managing Director, Blevins Franks

13th August 2010

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.