5,000 offshore accounts targeted for investigation .jpg

5,000 offshore accounts targeted for investigation


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…are the taxpayers being presumed guilty?

Bill Blevins is Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.

FOLLOWING ON from its success last year in forcing high street banks to disclose information on clients’ offshore accounts, the UK’s HM Revenue & Customs has recently taken significant further steps in its battle against tax evasion on undisclosed offshore income.

The Revenue recently revealed that it estimated that it lost 1.5 billion pounds sterling in tax in 2005 alone. Most of the money concerned is thought to be hidden away in the Channel Islands and Isle of Man.

Last year’s Offshore Disclosure Facility, a partial tax amnesty offered after HMRC had received the information from the banks, brought in 400 million pounds sterling in tax owed by 45,000 offshore account holders. However the Revenue always said it would look into the accounts of those who did not make a disclosure to establish if anyone was evading tax.

The tax department is now writing to 5,000 British offshore account holders requesting a formal declaration of their overseas income and investments.

Not all will be liable for a tax charge, but those who have not declared their offshore accounts and income could face a 100 per cent tax penalty on the tax and interest owed, besides having to pay all the back tax and interest. In exceptional circumstances, criminal investigation could follow.

The letter says:

“Information we hold suggests you hold or have held one or more bank accounts outside the UK (offshore account(s)). We cannot see from our records that you have told us about your account(s).

“You did not notify us of your intention to disclose under the Offshore Disclosure Facility and the time limit for using that facility has now passed.

“There is nothing wrong with having an offshore account. But our task is to see that everyone meets their tax obligations. To make sure we assess the right amount of tax we need you to complete the enclosed form.

“Please return the form within 30 days from the date of this letter. If you do not return it, we will take further action that may involve formal proceedings to recover the duties, interest and penalties.”

“If a disclosure is made that results in additional duties/liabilities being due, interest is payable and we will seek penalties.”


HMRC has also prepared some FAQs, including:

“What action will HMRC take on receipt of the questionnaire?

If the customer considers that they have any unpaid taxes HMRC will send the necessary forms to allow them to calculate the tax they owe. If the customer has a reason for not disclosing their account(s) HMRC will consider the explanation given. In certain circumstances we may challenge the explanation.”

“What happens if there are unpaid taxes to disclose?

This new approach is designed to encourage those with unpaid tax and duties to pay what they owe. A simple way of doing this is for customers to self calculate the tax owing and to return this to us. HMRC will then calculate the interest and invite an offer to include an amount for penalties.”

“This approach offers customers an opportunity to put things right without the need for a more lengthy traditional compliance review.

Co-operation throughout the process will be taken into account in determining the level of penalty to be applied. However, this is unlikely to be less than 30 per cent of the tax and duties due.

“We expect the vast majority of disclosures to be accepted. However, we may need to contact customers or their tax adviser to clarify any points. We may also ask customers to provide appropriate evidence of their circumstances to satisfy us that the disclosure is complete.”

Gary Ashford, tax investigations partner at Grant Thornton, points out that the Revenue’s approach is indicative of the increased powers announced in the March Budget to carry out compliance checks.  With regards the 5,000 letters, he said: “Tax evaders had their chance to come clean and pay reduced penalties of 10 per cent last year.  Now HMRC is playing hardball and will be taking no prisoners. If anyone in this situation receives a letter, they should comply immediately or face serious consequences.”

John Cassidy, tax investigations partner at PKF Accountants, argues that HMRC’s move turns one of the central tenets of the English legal system on its head, by presuming that taxpayers are guilty and demanding proof of innocence.  He explained, “In many cases, HMRC only knows that someone has an offshore bank account and the funds it contains at a few specific dates. It has little idea how much interest was earned on the deposits, where the money came from or the key question of whether there is an undeclared UK tax liability at all.”

“Legally, to issue an assessment for unpaid tax, HMRC must have made a ‘discovery’ or, in other words, have actual knowledge that further tax is due, not just that it might be due. Yet the threat is that such assessments will definitely be issued unless informal, voluntary answers are given to the questions raised.”

“The fact is that taxpayers are under no legal obligation to respond to these letters, but the reality is that anyone who ignores one will ultimately face an assessment seeking to collect the tax assumed to be due, perhaps after a detailed investigation into their tax affairs.”

Cassidy concluded, “Anyone contemplating making a voluntary disclosure to HMRC should seek expert advice on how to do it in a way that keeps penalties and risks to a minimum while reducing exposure to further investigation and potential prosecution”.