Is HMRC Getting Desperate in Tax Haven Clampdown?

HM Revenue and Customs has officially announced a further tax ‘amnesty’ for those with undeclared assets offshore.  This comes after HMRC managed to raise about £440 million with the last disclosure opportunity that involved possibly the five largest offshore banks with British customers.

This latest offering from HMRC could be seen by some as the taxman getting generous in his old age – but dig a little deeper and speak to a few taxation experts and accountants in the UK, and you will learn that actually the taxman is perhaps getting desperate to find ways to plug the hole in the UK’s coffers. 

So, is HMRC getting desperate in this tax haven and offshore bank account clampdown?  Many are of the opinion that yes, Britain is very short of tax and HMRC is very short of resources to do anything about it.  However, there are those who have suggested ways that the UK can solve its tax problem by actually becoming more tax competitive.  Let’s take a closer look at what’s brewing…

HMRC decided to crack down on those Brits who held offshore bank accounts with some of the larger banks and who had ‘failed’ to declare the assets held therein.  Whilst having an offshore bank account is certainly not illegal, failing to declare the money within the account and the interest earned on it if you’re a British tax resident is illegal.  So, using a little bit of fear and a little bit of an incentive, the taxman managed to get about 45,000 tax evaders to come out of the woodwork and hold their hands up.  This carrot and stick approach is now being repeated because last time it brought in a lovely £440 million boost to the British economy!

This time however, the carrot isn’t quite as tasty for all potential tax evaders.  Whereas those who ‘fessed up’ without being prompted to last time were told that they may only have to pay a fine of 10% of their unpaid tax, (on top of their unpaid tax of course!), this time anyone who has already been contacted by HMRC and who has still failed to hold their hands up could fact a 20% fine plus unpaid taxes…if they finally confess.  Those who have not yet been found out and contacted and who are evading or avoiding tax or unaware that they have to declare their offshore assets, can now disclose their situation though, and they will still likely be given just the 10% fine.

If you fail to declare your situation and you’re found out, the fine you face could be up to 100% of the unpaid tax, (plus the unpaid tax), and even a period of imprisonment.  So the ‘incentive’ to be honest is certainly there.  However, is HM Revenue and Customs being generous in a bid to get British tax payers to admit to their unpaid tax – or have they no real idea who’s hiding what?  The truth of the matter, according to some financial experts such as Ronnie Ludwig, partner in the private wealth group at Saffery Champness, is that HMRC is stretched to the limit in terms of staffing and resources, and just cannot chase up those with unpaid tax.

According to Ludwig also: “The amnesty…demonstrates HMRC’s grave need for cash.”

With unemployment rising rapidly in the UK and on track to reach 3 million by next year, less tax is being received by the revenue, yet more tax is required to pay out the benefits to those who are out of work.  This is at a time when the nation’s coffers are empty following bank bail out missions which, let’s face it, have achieved very little.  We’re not seeing interest rates rising on our savings – probably why more people prefer to bank, save and invest offshore in the first place!  And we’re not seeing interest rates on mortgages fall or the accessibility to mortgages rise either.  So really the nation’s economy is in a terrible state, and HMRC is desperately seeking ways to find hidden and unpaid tax revenue.

According to some, the Chancellor is going about it all wrong anyway.  What with tax amnesties that HMRC doesn’t have the resources to make work, and a 50p tax on high earners coming into effect next year that could see as many as 250,000 wealthy and powerful Britons exit UK and take 140,000 jobs with them, (according to the Centre for Economics and Business Research), if Britain simply became more tax competitive it could raise its appeal as a place to live, work, bank, invest and do business.  Thus naturally and smoothly solving the national debt issue!  If the UK was a more attractive place in taxation terms, greater numbers of people would be in work as greater numbers of businesses would operate from the UK.  These people would pay tax rather than claim it in the form of unemployment benefit, and fewer people would be likely to hide their wealth offshore if the tax they paid on it was fair.

It really could be that simple according to the likes of the Institute of Directors…so why doesn’t Britain make itself more tax competitive and attractive?  It is bizarre isn’t it!  But instead, the fact of the matter is UK residents are taxed, taxed and taxed again, to the point at which high earning entrepreneurs could face up to 92% tax throughout their lifetime if they go on to leave wealth to their family after their death.  That’s not really an incentive to remain in the UK, start a business or even work particularly hard throughout your lifetime is it?

Isn’t it time for a massive change?  A radical overhaul?