Why You Need to Know About the Tax Amnesty

HM Revenue and Customs, HMRC, recently announced details of a second opportunity to disclose and pay tax for those UK taxpayers who have non-UK income which they have so far failed to make known to the taxman.

The so-called ‘New Disclosure Opportunity’ or NDO is expected to be the last ‘tax amnesty’ of its kind by HMRC, so if you have any assets offshore that you have yet to make known to the taxman, and you are a UK taxpayer, this report will cover why you need to know about this tax amnesty and what you need to know about this tax amnesty…

Basically, UK taxpayers with unpaid taxes linked to offshore accounts are being given a final chance to settle their outstanding tax liabilities with only a reduced penalty applied to them in what is a partial amnesty that may result in up to a billion in previously lost revenue for the Treasury.

You may recall having heard about a version of this taxation amnesty before, it ran during the autumn of 2007 and was widely acknowledged by HMRC as having fallen well below expectations in terms of the returns to the Exchequer – which is possibly why they’re having another go and getting people to volunteer and ‘fess up about that which they think they owe.  It is certainly less costly for the taxman to have people hold their hands up and say, ‘actually, you know what, I’ve been bad and have failed to disclose’ than it is for them to look into people’s affairs and find them out.

So, in a similar way to a Voluntary Disclosure Program that was launched by the IRS in America earlier this year, the NDO from HMRC is designed to be the “carrot” for those taxpayers to provide details of any previously undeclared income, settle the tax, pay the interest on the late payment and accept a lower penalty regime for their transgression.  The “stick” will then come later for those found to have transgressed following the completion of the tax amnesty program where the threat of more draconian penalties, starting with fines of 30% on top of all money owed, and ultimately potentially resulting in criminal prosecution will loom large.

How Will HMRC Ever Know About YOU?!

In the run up to the first disclosure window, HMRC obtained UK based customer details from the UK’s five biggest banks with trading operations offshore.  They have actually yet to really act on this information.

HMRC have made no secret of the fact that they are actively pursuing an ever wider range of financial institutions for details of their UK based customers, including details of their assets and their income.  They have tightened up the legislation to make such information far easier to obtain, and have already obtained court orders compelling financial institutions to provide the information that they want.  So, there is more than a reasonable chance that any institutions with which you have an account will be potentially involved.  What’s more, despite the fact that HMRC has yet to act on information already obtained – some say as a result of a lack on man power and resources – you can pretty much guarantee that they will ‘get round to it’ eventually!  After all, the information they have is literally valuable – in the form of lost revenue – to the Exchequer.

However, this process is likely to take months if not years of time consuming investigations which HMRC is of course very keen to avoid.  Therefore, it is reasonable to expect that they will turn up the heat on this tax amnesty now, just as has occurred in the US over the last couple of months, to ensure greater success on this occasion.  So, you will be under pressure to disclose – and ultimately, even if you don’t it will probably be only a matter of time before you’re found out.

Who Should Declare What and What are the Penalties?

Individuals, companies and trustees will need to report details of all omissions that have occurred within the last 20 UK tax years - or go as far back as the ‘irregularity’ occurred.  Of course, for many people their records will simply not go back that far and there are taxation specialists out there, such as Greame Privett from Frank Hirth who helped us compile and compose this article, and they will work with clients to put together a reasonable approximation of undisclosed income and/or capital gains for those years for which they have no records.

Despite what many are saying, this NDO is actually no ‘amnesty.’  It is a facility for taxpayers to sort out their position to HMRC on the following fairly favourable terms: -

A standard penalty of 20% of tax due if you received a letter as part of the previous facility from HMRC
Or

A standard of 10% of tax due if you did not receive a letter the first time around
Or

No penalty where the income disclosed is less than £1,000
Or

No penalty for pre-death liabilities of a deceased taxpayer

How Long Have You Got to Declare

You will need to disclose your intention to notify HMRC of your position under this New Disclosure Opportunity by the 30th of November 2009.  You will then have until the 31st of January 2010 to make full disclosure on paper – this deadline is extended to the 12th of March 2010 where your disclosure is made electronically.

What May Happen if You Fail to Declare

If you are a UK based tax payer and you’re well aware of the fact that you are evading taxation by squirreling assets offshore and failing to mention them to the taxman then you are acting illegally.  If you are such a person and you decide not to take advantage of the New Disclosure Opportunity, which the government says will be the last, are you re found out, you are open to prosecution for violation of tax laws – plain and simple.  What’s more, you could face a penalty levy of at least 30% and as much as 100% on the interest you earned – and you could therefore end up with a criminal record and a huge fat bill to pay.

What to Do if You Are Worried About Your Position

The first thing is don’t panic, if you are not sure about your position or you’re an expatriate living away from the UK and unsure whether this applies to you, speak to an expatriate financial adviser or taxation specialist who can review your situation and advise you.  Alternatively, if you’re based onshore in the UK and you’re a UK tax payer you can speak to your own accountant or get in touch with Graeme Privett from Frank Hirth on 020 7883 3500 or by emailing .(JavaScript must be enabled to view this email address).  The company’s website is full of useful information and Frank Hirth are leading tax advisory specialists with experience of guiding clients through Revenue enquiries and the previous disclosure facility.  They also have experience of advising clients on the UK tax implications of offshore structures and the taxation of non-UK domiciled individuals.

Please note, Shelter Offshore is not affiliated with Frank Hirth in any way, we are simply grateful to them for their help with this article.