By: Bill Blevins
THE UK tax revenue has launched an “Offshore Disclosure Facility” in an all out unprecedented drive to scoop five billion pounds sterling in unpaid tax. The operation is targeted at offshore account holders who have failed to declare offshore bank accounts and interest earnings, as well as other offshore assets and income earned from them, to the UK taxman.
The facility is commonly being referred to as a ‘tax amnesty’, but it is not a true amnesty. It will not protect anyone from prosecution and all the previously unpaid tax must now be paid, plus interest accrued on the amount. However, penalties are reduced to 10 per cent of the tax due (from a possible 100 per cent).
People do not have long to respond. Notification of disclosure must be by June 22 this year, and full disclosure with payment by November 26. Anyone who is liable and does not disclose by the due date will be singled out by special tax investigators. These investigators are primed to pounce on suspects with “heavy duty investigation” and “high level enquiries”.
Disclosure one day late will not be accepted. HM Revenue and Customs (HMRC) is poised to send out letters immediately after the deadline to suspect tax evaders who have not notified their intention to make a disclosure, and whose accounts and/or tax returns suggest that tax may have been underpaid. Mitigation is then unlikely.
For disclosures stretching back beyond six years (i.e. before UK tax year 2000/01) information need not be provided for a year in which the unpaid tax and duties were trivial. However, HMRC does not clarify the amounts it considers to be trivial.
As it is, the offshore disclosure facility is offering an invitation to come forward and disclose undeclared and unpaid tax going back 20 years, to pay the tax and interest, and face penalties of up 10 per cent instead of a possible 30 per cent, rising to the maximum of 100 per cent. Untaxed amounts of less than 2,500 pounds sterling will be exempt from a penalty charge. Any disclosure found to be materially incorrect or incomplete, or where a full disclosure has been signed previously and now is revealed as false, will not get the special penalty rate.
HMRC can be notified of an intention to make a disclosure online at www. disclosures.hmrc.gov.uk/oaics/; by phone on 0845 302 1401 or 00 44 1506 476 094 for international callers or by post to HM Revenue & Customs, Section 10, Accounts Office, Bradford, BD98 1YY, United Kingdom.
A disclosure reference number will be given to you and a payment slip. There is then only five months to gather all the information and evidence needed before the full disclosure and payment of the outstanding amount, including back tax, interest at 7.5 per cent on the unpaid tax and the penalty of 10 per cent, must be submitted. Notice of whether or not the disclosure has been accepted will be sent by April 30, 2008.
When an offshore disclosure is made, it should include details of all offshore assets (not only those connected with the bank account), so any property owned overseas should also be declared along with any rental income earned from it. If you are a UK resident, tax on the rental income will be due in the country the property is located in as well as the UK. The UK tax is calculated after deducting the tax paid overseas, so you may not have any liability in the UK, depending on tax levels.
HMRC initiated its crackdown on tax evaders, in May last year, with a legal ruling which compelled Barclays Bank to hand over details of thousands of customers with offshore accounts. Similar ruling against four UK high street banks followed.
Some commentators say HMRC is not playing fair – with such a short time span to disclose, get all the relevant documents collated and find the money to make the payment.
HMRC has also not overtly announced the fact that onshore tax dodgers can also take advantage of the lower penalties. You would need to do this through your local tax office and make a full disclosure with payment under the same terms as the facility, and can “expect the same treatment”. The tax office may, however, require further evidence to prove that your disclosure is complete.
Britons living abroad should look closely at their tax residency status to see if they need to consider disclosing their tax affairs and take the opportunity to do so under the terms of the ‘amnesty’. For instance, if you visit the UK each tax year for more than 90 days, retain a property there or have a certain amount of ties with the UK, you may be deemed to be a UK tax resident by HMRC. You also have to be a non UK tax resident for five years to escape UK capital gains tax liability. HMRC may also inform overseas tax authorities of any suspicions of tax evasion.
The UK taxmen have their knives sharpened. For some years now they have been clamping down on tax evasion and the latest climax is the proffered ‘amnesty’. This is a golden opportunity with anyone with anything to hide to confess all and get their tax affairs in order once and for good. It could be dangerous to ignore this initiative and, for people with complicated tax issues, it would be wise to seek the advice of an international tax specialist.
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