Banking secrecy crackdown can affect you.jpg

Banking secrecy crackdown can affect you


Financial Correspondent, Blevins Franks

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THE UK’S crackdown on tax evasion and banking secrecy is a clear and (to some) shocking message that banking secrecy is no more. No longer is it possible to ‘hide’ money in offshore accounts or believe that because you don’t live in the UK you are out of sight and reach of the scourge of the taxman.

It began in May last year when HM Revenue and Customs (HMRC) won what it described as a “landmark victory” when Special Commissioner, John Avery Jones, handed down a ruling ordering Barclays Bank to disclose details of its offshore bank account holders.

This followed an earlier ruling which compelled banks to hand to HMRC details of customers’ credit cards whereby offshore account holders could be traced. A third ruling followed that forced four major high street banks to release details of 400,000 of their offshore account holders to HMRC – details previously believed to be confidential.


The next attack in April this year was the Offshore Disclosure Facility (ODF), wrongly dubbed a “tax amnesty”, which offered a reduced penalty of 10 per cent to offshore account tax dodgers who voluntarily admitted to undisclosed accounts and unpaid tax on the interest.

Letters were sent out to 200,000 of the 400,000 names supplied by the four high street banks to people whom HMRC suspected of tax evasion, warning the account holders that if they did not disclose under the ODF, the penalties would be much higher (anywhere between 30 per cent and 100 per cent of the tax due with a possible criminal prosecution as well).

The time horizon was tight. Under the ODF, people had until June 22 to register their intention of making a disclosure and until November 26 to make a full disclosure of all undeclared liabilities (including those not connected with offshore accounts), undeclared bank interest and unpaid tax stretching back to 2001, as well as calculating and paying the full amount of tax, interest at 7.5 per cent and 10 per cent penalty.

Critics voiced the opinion that the time span was too short. The fact that the ODF was not well publicised would eventually give HMRC more people to target for more money. In August HMRC increased the interest on unpaid tax from 7.5 per cent to 8.5 per cent.

In the end the ODF flushed out 60,000 offenders and HMRC declared it “a cracking achievement”. HMRC vowed to “aggressively crack down” on those suspected of tax evasion and who did not respond to the ODF and subsequently said it would eventually examine the remainder of the 400,000 account holders.

Of the 400,000 names supplied, HMRC expected about 100,000 to be guilty of tax evasion. Later figures reveal that HMRC is launching enquiries into at least 100,000 taxpayers who failed to disclose under the ODF. This, added to the 60,000 who did own up, makes the number of suspected evaders higher than first thought.

HMRC is working with the information provided by the five banks it has successfully targeted so far. People with offshore accounts with other banks may therefore feel safe and few probably thought to use the OFD to come clean to the taxman.

However, they won’t be safe for long. HMRC has vowed to extend its search to include all 550 banks in the UK, but whether there will be another ‘amnesty’ at that time is anyone’s guess. There may be no opportunity for reduced penalties. Taxpayers should be on the alert by HMRC’s persistency to clampdown on those who do not pay tax due to the UK authority. The ODF was focussed on UK tax residents not declaring interest earned in offshore bank accounts. It was expanded to disclose all undeclared tax as far back as 20 years.

This could include undeclared rental income, whether the property is in the UK or overseas and tax on capital gains earned from a sale of overseas property. HMRC also gave the opportunity for anyone with undeclared onshore liabilities to come forward.

Portugal residents

Even though you are living overseas, you may still be liable to UK tax. For instance, if you spend more than 90 days per UK tax year in the UK you may be liable to UK tax, particularly if you retain a UK property. Also, depending on when you left the UK, any suspicions relating to when you were still UK resident may come to light, especially if your bank still has a UK address registered for you.

Banking information is automatically exchanged through the Savings Tax Directive so the tax authorities of the country where you live may gain this information. HMRC and your tax authority are also likely to pass information to each other.

And perhaps the most important message here is that tax evasion is no longer tolerated. Tax authorities are increasingly gaining powers and accessing confidential information and as a result tax planning and mitigation has become much harder.

It is dangerous to think that not disclosing tax due doesn’t matter or that you won’t be found out. It does and you will. Fortunately there are legal ways to avoid tax and an international tax specialist will be able to advise you.

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