Clamping down on tax evasion
Clamping down on tax evasion
For many people who, in 2007, made a voluntary disclosure of tax irregularities to HM Revenue & Customs under the Offshore Disclosure Facility, the next few weeks will be a nail-biting time.
In a widely publicised operation last April, HMRC gave a ‘one off’ opportunity to individuals to volunteer information about undisclosed income, principally relating to offshore bank accounts.
The disclosure forms had to be submitted to HMRC by 26 November last year, together with a “letter of offer” signed by the taxpayer, agreeing to pay tax, interest and a 10% penalty on all of the outstanding amounts. HMRC had said that they would respond before 30 April 2008 by either accepting the disclosure and the offer, or they would commence an enquiry into the basis of the disclosure forms. However, with only a few weeks to go before the deadline, many people have not heard from HMRC causing anxiety and confusion. In most cases, only the smallest and simplest disclosures have as yet been accepted under the facility.
This will inevitably lead to a last minute rush with HMRC issuing thousands of acceptance letters or new enquiry letters in April.
With approximately 50,000 disclosures submitted to HMRC under the facility, compared to 400,000 individuals who were identified by them as holding offshore bank accounts, in their original information gathering exercise, there remains a wide gap for further individuals who may soon come under the spotlight.
HMRC have also sent notices to seventeen more financial institutions in addition to the original four who were targeted under the first circular to find out details of UK individuals who hold offshore bank accounts with those institutions. And if that wasn’t enough to keep them going, the tax authorities in the UK and Germany have reportedly been acquiring information from an ex employee of a Lichtenstein bank account who kindly provided information about UK residents which HMRC could not obtain through their ‘traditional’ sources. It is rumoured that HMRC’s investment of £100,000 for the information is expected to realise up to £300million in tax revenues.
So what now? How can an individual who has not disclosed under the 2007 facility clear up past tax arrears? The reality is that the door is never shut and if an individual would like to voluntarily disclosure information about unpaid tax to HMRC before an enquiry is opened, then they will be in a stronger position to negotiate when it comes to sorting out their affairs and will also be eligible for lower penalties.
Although some local tax offices may struggle to find a suitable person to deal with smaller cases, specialist offices such as HMRC’s Civil Investigation of Fraud or Special Civil Investigations offices are well equipped to deal with voluntary disclosures that are likely to produce liabilities of £75,000 upwards, and an approach can be made to them directly in the appropriate circumstances.
However we are starting to see the consequences of individuals not disclosing under the Offshore Disclosure Facility. Earlier this year HMRC wrote to people whom they knew had offshore accounts. HMRC announced that the letters took one of four approaches. 1) they asked for details of individuals bank statements and offshore accounts, 2) they opened a formal tax enquiry, 3) they issued blank tax returns for completion, if none were ever issued or 4) they could pursue a prosecution.
Anyone who receives one of these letters is strongly advised to seek specialist assistance. For example, if you received one of the first type of letters, there is a hidden pitfall because HMRC have not issued these letters with a formal Code of Practice. Enquires which are opened by HMRC without a Code of Practice leave the individual wide open for a potential prosecution. If route 2 or 3 is taken then this will be settled as a civil matter, but HMRC have stated that it is most unlikely that the penalties will be less than 30%.
Labour’s policy of clamping down on tax evasion appears to have lost no momentum and it is still the case that if you have hidden assets offshore you either need nerves of steel or should consider tidying up your tax affairs before HMRC find you.
Geoffrey Hollander is the tax investigations partner at Cameron Baum, Chartered Accountants. For a free initial consultation, please call 020 7724 8824.