Evasion invasion

15 February 2010 8:00 am

Tax may not have to be taxing but tax evasion is about to become a whole lot harder as HM Revenue & Customs steps up its campaign against persistent offenders.

The Revenue recently ended its latest amnesty for holders of overseas accounts and anyone who has failed to register untaxed overseas income can expect to have the book thrown at them.

The New Disclosure Oppor-tunity, which ended on January 4, was the second time that HMRC has asked offshore holders to come forward.

It undertook a similar exercise in 2007 when customer information from five major UK high-street banks was involved and £400m was raised after 45,000 savers came forward.

This time, 10,000 people registered for the amnesty before the deadline, more than 1,000 on the last day.
KPMG UK head of tax investigations Paul Harrison says: “Our phones have been red hot with people wanting to take advantage of the carrot on offer through the NDO.”

Those who have taken the bait of a reduced tax bill and registered have until March 12 to supply details and pay the tax, interest and 10 per cent penalty.

Taxpayers who got a letter from HMRC about the previous offshore disclosure in 2007 but did not respond will be hit with a 20 per cent penalty. There will, however, be no penalty where the outstanding tax is less than £1,000 or the disclosure relates to liabilities of someone who has died.

Figures from the TUC suggest that the UK economy loses £4bn in tax revenue hidden in overseas havens.

In its current operation, HMRC has collected records from 300 banks and will trawl through the lists of 100,000 individuals to weed out any-one who has not come forward.

Permanent secretary for tax Dave Hartnett says: “Now that the NDO is closed, HMRC is beginning the job of using the data obtained from banks to identify people who have not made disclosures despite having hidden their money offshore. We are starting our investigations and penalties can be up to 100 per cent of the tax not paid.”

Harrison says: “This is a serious and organised pincer movement on the part of the authorities to clamp down on offshore tax evasion.”

PricewaterhouseCoopers tax partner Stephen Camm says: “For those that have missed the boat, the prospect of a call from HMRC is very real as more and more financial institu-tions open up their records and allow the taxman access to offshore account details.”

But Harnett gives some comfort, saying: “It is very important to remember that, when someone comes for-ward voluntarily, the penalty is always lower than when we catch the evader. This means it is still well worth contacting HMRC if you have undisclosed offshore accounts.”

Those who continue to defy the Revenue will, if they are caught, be deemed to be deliberately evading tax and, in the most extreme cases, risk being charged aggregate penalties of up to 200 per cent of tax due (100 per cent of the tax outstanding plus a further 100 per cent for non-disclo-sure of an offshore account within 60 days of opening it) plus interest.

Hartnett also gives a stark warning to accountants and advisers who might have assisted in tax evasion schemes. He says: “We are also examining information about offshore accounts in order to help us identify intermediaries who have assisted UK residents in hiding money offshore.”

When the NDO was launched last September, the Revenue said it expected to raise £500m over the next four years, £150m of it in 2009/10. So far, the amount raised has been less than £135m.

PKF tax investigations partner John Cassidy attributes this shortfall to a number of possible factors, including lack of awareness of those being targeted that HMRC has them in its sights and the “fear factor”.

He says: “Some individuals will fear that the amounts of money involved are more than they can afford to pay now that interest rates have fallen. Remember, the tax could have first become due 20 years ago when interest rates were a lot higher.”

At the same time, about 20 institutions are reported to be still refusing to co-operate with HMRC and are appealing against having to surrender the information.

Cassidy believes one of the main reasons that more offshore account holders have not come forward could be because they are playing a long game and intend to take advantage of a further special amnesty for those who have squirrelled away their cash in Liechtenstein, for which there is a separate amnesty.

The Liechtenstein Disclosure Facility runs from September 1, 2009 to March 31, 2015 and is linked to an unprecedented agreement between the UK and Liechtenstein authorities that Liechtenstein banks and other financial institutions must identify UK clients and see evidence that they are meeting their UK tax responsibilities or they must close UK clients’ accounts.

Cassidy says the Liechten-stein loophole is giving reluctant taxpayers a useful get-out-of-jail card to keep them out of HMRC’s clutches for another five years.

’For those that have missed the boat, the prospect of a call from HMRC is very real as more and more financial institutions open up their records and allow the taxman access to offshore account details’

He says: “The savings to be had are huge. All that a person needs to do to qualify for the Liechtenstein amnesty is to be an individual with ’relevant property’ in Liechtenstein - and that ’relevant property’ can simply be a bank account.

“Nor is it too late to open one. Liechtenstein does not mind. All it is concerned about is to have money flowing into the country. It is all quite above board and HMRC is aware this is happening and is happy with it. The only proviso is you must move your money into Liechtenstein from another country outside the UK. There must be no UK footprint.” Those who opt for the Liechtenstein amnesty will only have to declare income from April 6, 1999 rather than a decade earlier under the NDO and in most cases the penalty will be restricted to 10 per cent. They have five years from now to pay any tax owing.

Meanwhile, other tax evaders should take note that they could soon be targeted by the Revenue. HMRC last month announced that it is to crack down on medical profess-ionals such as doctors and dentists under the so-called tax health plan.

The Chartered Institute of Taxation believes that THP would logically lead to a similar arrangement being available to all tax- payers as a matter of fairness.

Gary Ashford, chairman of Ciot’s management of taxes committee, says: “While we welcome HMRC encour-aging people to get their tax affairs in order, there is a meas-ure of unfairness in offering a deal to one sector of the population and not to others. Surely it would be better to have a general arrange-ment available to all and a concerted effort by HMRC to get their message over.”

Cassidy thinks advisers could be one of the earliest groups to be targeted. He says: “HMRC will in the first instance go for profess-ions where bulk data is readily available - and commission records from the banks will provide that data.”

If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing