By BILL BLEVINS
HM REVENUE & Customs are on a roll this year. Good news for Gordon Brown; very bad news for tax evaders, as well as compliant taxpayers who get caught up in Revenue investigations.
Three years ago, the Revenue established its Offshore Fraud Project Team in Liverpool, with the aim of tracking down tax evaders and collecting as much tax as possible for the Treasury’s coffers. So far, the team’s success in identifying and tackling fraud losses has greatly exceeded expectations … and that was before the latest ruling!
The use of offshore accounts, and the increasing availability of credit and debit cards, is a growing concern for tax authorities everywhere. Earlier this year, in the UK, a Special Commissioner’s ruling gave the Revenue the power to require banks and financial institutions to hand over customers’ credit card details, a move which is helping the Revenue find undeclared income from offshore savings accounts. As a result, around 15,000 people were expected to be investigated by Her Majesty’s Revenue & Customs (HMRC), about unpaid taxes relating to bank and credit cards held offshore.
This was considered a major coup for the Revenue, but just a few short months later, it has gone a step further. In a ruling handed down by Special Commissioner John Avery Jones, early in May, Barclays Bank has been ordered to furnish HMRC with details of offshore accounts held by its customers, in order to assist the tax authority in clamping down on tax evasion. The UK tax authorities are certainly intensifying their investigations!
This means Barclays must provide details of any person with a UK address who holds an offshore account with the bank – the authorities can now search bank records for information on UK-domiciled individuals who have not declared income on money deposited offshore.
HMRC had supplied the Special Commissioner with data about the amount of tax evasion taking place. The Revenue said it knew of 9,300 Barclays customers with addresses in Britain and accounts outside the UK, and of these 9,300 individuals, less than one fifth had filed UK tax returns and only 3.5 per cent declared any foreign income.
The Special Commissioner said that the information obtained by the HMRC “raises serious questions that merit investigation,” adding, “far from being a fishing expedition, it seems probable that some 76 per cent of cases will raise questions, in many of which there will be an innocent explanation, but in others there is likely to be a default in complying with tax obligations.”
The UK Revenue called the ruling a “landmark decision” and expects to yield 1.5 billion pounds sterling in unpaid tax from Barclays customers alone. The tax authority said “the action is about fairness and about creating a level playing field for all taxpayers. HMRC will continue to ensure that all monies located offshore are lawfully taxed …. Those who have been declaring the existence of offshore accounts, as the law requires, have absolutely nothing to worry about. The best advice we can give those who haven’t, is to get in touch with HMRC as soon as possible”.
Depositing money offshore, and earning interest from it, is not illegal. There are many valid reasons for doing so, particularly for expatriates and those who spend time in more than one country. However, not declaring your offshore capital and the income earned from it is completely illegal. It is tax evasion and a crime under money laundering provisions. The same rules apply if you live in Portugal.
Accountants and lawyers were quick to warn of the far reaching consequences of this landmark ruling. The Revenue is now expected to turn its attention to all the other banks that offer both UK and offshore accounts. And, with over 30 such banks, it will generate an incredible amount of previously hidden material for the taxman.
The head of regulatory services of one UK law firm told the Financial Times: “This is a remarkable development, with ramifications for potentially hundreds of thousands of UK taxpayers …. If your UK bank has any record of your offshore dealings, pretty soon those records will be in the hands of the Revenue, who will be checking whether funds have been declared for tax.” Another law firm called it “a means to a much bigger and more sinister end.”
The accountants Grant Thornton explained to The Telegraph: “If you have failed to declare income, and the Revenue decides this is due to negligence rather than fraud, it can go back up to six years and impose a penalty up to 100 per cent of the tax due.
“Where it is fraud, the Revenue can go back 20 years and impose penalties up to 200 per cent of tax due and, in severe cases, there may be a prison sentence.”
The ruling also overrides the withholding tax provisions of the Savings Tax Directive. Offshore banks in the Isle of Man, Jersey and Guernsey, currently deduct a withholding tax rather than automatically exchanging tax information. For the time being, this protects customer financial privacy. However, the Revenue will now be able to track down individuals with savings in these jurisdictions, regardless of the withholding tax provision, if the data relating to these accounts is held by a UK-based banking institution.
This is further evidence that the withholding tax option in the Savings Tax Direction is just a temporary one, and one which can be overruled in certain circumstances. Ultimately, we are looking at automatic exchange of information across the board.
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