By JOHN WESTWOOD
UK Inland Revenue is now taking action
THE UK government has sent 500 letters to holders of offshore bank accounts, reminding them that income from interest needs to be declared by those who are resident in the country. The letter gives them a month to explain themselves if they are not paying tax.
This may be the result of the European Savings Tax Directive, providing governments with information on overseas bank accounts, but HM Revenue & Customs (HMRC) refused to say where they are getting account details from. “We use multiple sources to obtain information,” said the HMRC.
The HMRC said the letters are part of its investigations into tax evasion, but denied they mark the opening of an inquiry. But, receivers of the letters, which are being sent by HMRC’s Offshore Fraud Projects Team, are only being given 30 days in which to reply from the postmark.
It is unclear what action will be taken against people who do not respond, but accountants believe the HMRC will start an inquiry into anyone who does not provide an explanation. The letters ask the holder to explain why there is no tax liability from their offshore bank account.
Advisers and their clients who receive letters are recommended to check there is no undisclosed non UK bank income. If there is, the situation should obviously be resolved with HMRC as quickly as possible. If tax returns are not incorrect, then clients should respond to that effect, however, there appears to be no legal obligation to provide more information about that.
HMRC said: “More information is becoming available to us, through various sources, about the holders of such accounts. We would like to give those who use such accounts legitimately and appropriately an opportunity to let us know that, without involving them in a full enquiry, when that may not be necessary.
“The object of the exercise is to develop ways of tackling this problem, which will minimise the impact on those who have complied with their obligations, while maximising the effectiveness of what we do to those who have not.”
A leading UK tax adviser has stated: “Our information is that these letters are being issued in cases where the HMRC feels that tax fraud has taken place, but there is sufficient doubt to stop just short of pursuing the taxpayer under the Hansard process (suspected fraud).
“This is a very heavy-handed approach that is likely to frighten people who receive the letters. Many are unaware of whether their overseas income is taxable in the UK and may not have thought to take professional advice.
“It is important to bear in mind that, according to HMRC, these letters do not constitute the opening of an enquiry. However, it is unclear what action HMRC would take if a recipient of such a letter was unable to reply within the prescribed 30 days.
“In the first instance, we would advise people to check they have no undisclosed non UK bank income and, if their tax returns are correct, to reply to HMRC to that effect within the deadline. There seems no need to supply extra information.”
•UK tax authorities have sent letters to holders of offshore bank accounts asking why they are not paying tax.
•Receivers of the letters are only given 30 days to reply, but the HMRC says it’s not the opening of an inquiry.
•Clients are advised to check their tax return is correct and, if it is, then not to supply any extra information to the HMRC.
It appears that the actions now being taken by the UK-HM Revenue and Customs are far more proactive than those seen in past years. We believe it is evident that persons, who have not correctly arranged their financial affairs to take account of the increasing pressures for disclosure, or the arrangement of financial assets into a tax efficient system, will be subject to increasing risks of exposure to investigation or penalties.
The trend towards sharing cross border information between tax authorities and financial institutions is increasing rapidly, and there sometimes appears to be disclosure in excess of that now demanded by the new European Savings Directive.
Obviously, in this environment, care must be taken to ensure your finances are in correct order to reflect your personal circumstances. These matters have increasing importance it seems – now more than ever.
• John Westwood can be contacted by telephone on 289 417 267 or via email at [email protected]