A large part of our business is understanding changes to legislation and ensuring we adapt our solutions to keep your business in line with anything that could affect it. Our news area offers a snapshot of recent industry news.


Amnesty on offshore bank accounts

22 April, 2007

In an attempt to recover billions of pounds in unpaid tax in 2007 the HM Revenue & Customs (one of the most powerful bodies investigating crime and tax evasion) announced an amnesty called the “offshore disclosure facility” and gave a period of 2 months, to anyone who came forward, the offer of a reduced penalty of only 10% of the tax owed compared with the normal penalty of up to 100%. The penalties would be waived if the amount was less than £2,500 but all interest on back tax would have to be paid.

HM Revenue & Customs vowed to “track people down” who failed to cooperate, and to launch a full-scale investigation into their tax affairs that could stretch back up to 20 years. Anyone who was caught could face prosecution as well as a 100% penalty.

But this was not to been seen as a general tax cheat amnesty. A former tax inspector Noshir Avari from the consultancy Avari & Associates said that some taxpayers would have a lot of explaining to do. Mr. Avari felt that the HMRC wanted disclosure for the less serious cases so that it could concentrate its growing firepower on big offenders.

Mr. Avari said: (quoted from the Guardian) “This is an offer that only a fool would turn down, but it is not as clear cut as it might seem. By disclosing an offshore account, you also reveal a sum of money. The Revenue will want to know where that comes from. If you can’t or won’t say, you could be in serious trouble.”

The amnesty applied to 3 different groups:  (1) the ordinary people who may have innocently underpaid tax or dodged tax on interest but no more. (2) those who did not realize that they had to declare overseas income and who had never paid tax on their offshore accounts. And then (3) a small but important group of fraudsters and money launderers who could face criminal action.

It had been estimated that 1 in 5 people did not declare overseas interest and that nearly £200bn was hidden in offshore banks earning approximately £8bn a year in interest, resulting in nearly £3bn a year in tax evasion loss. A similar amnesty in Ireland some 5 years previously had brought in close to £580m in unpaid taxes.

In 2002 the Offshore Fraud Project Group was set up by the Inland Revenue on Merseyside fairly close to the Isle of Man, which was seen as a preferred tax haven for UK tax avoiders.  Although the UK’s big banks resisted, in mid year 2005 a real breakthrough came with the EU saving directive which obliged the banks in EU nations to inform tax authorities of accounts.

Then in April 2006 the Inland Revenue forced Barclays to disclose details of customers using UK legislation. When Halifax Bank of Scotland, HSBC, Lloyds TSB and NatWest/Royal Bank of Scotland failed to reveal information voluntarily they were hit by disclosure orders.

“While this emphasises HMRC’s active approach in tackling offshore tax evasion, crucially, there is no immunity from prosecution. Therefore any disclosure can probably be used in evidence. Undoubtedly, the incentive to disclose is the fact HMRC is holding substantial information on individual offshore accounts.”  Chris Oates at accountants Ernst & Young. (Quoted from the Guardian)

“This is a reduced penalty period, not an amnesty. And you’ll have to explain where the money comes from.”  Francesca Lagerberg at the Institute of Chartered Accountants. (Quoted from the Guardian)

There was a time when offshore accounts were protected by confidentiality, but that is no longer the case and it is illegal not to disclose the interest received and to pay the tax when it’s due. More details can be obtained on the HMRC website and if you think that you are likely to be a subject of tax investigation you should seek advice, as tax investigations are complex and expert advice could prove to be necessary.  Even people who have moved or retired abroad but spend some of the year in Britain are warned to check that they are not liable for unpaid tax. The message sent out by the Inland Revenue is that there are no more excuses and the punishment is severe.

The definition of who should pay tax reads: Anyone with “UK domicile” (someone whose real or permanent home is in the UK) with untaxed interest from anywhere outside the UK. Hartley Foster from law firm DLA Piper says that the definition of who should disclose their offshore accounts extends to anyone with a Euro account for their French holiday home to hardline evaders.

Knowledge Base