This is not the end of HMRC’s investigations into offshore bank accounts, however. Andrew Watt, managing director of tax disputes and investigations at Alvarez & Marsal Tax and UK, says: “We are still at a relatively early stage of this process.”
The facility was established after legal rulings forced Barclays, HSBC, HBOS, Royal Bank of Scotland and Lloyds TSB to provide names of clients with offshore bank accounts.
It offered account holders the opportunity to make a disclosure to HMRC about previously undeclared offshore accounts. They had until June 22, 2007 to notify HMRC that they would be making a disclosure and then until November 26, 2007 to make a full disclosure and the required payment to HMRC. It was not an amnesty because account holders had to pay the tax due, interest on the tax owed and a penalty of 10 per cent.
It is believed that more than 60,000 people made a disclosure and that some declarations have not been accepted by HMRC. This is probably because they made an incomplete declaration or HMRC believes individuals have not revealed all their offshore accounts or money.
HMRC has not only collected information from the highstreet banks served with legal notices but also through the European Union savings tax directive, which began on July 1, 2005. The directive covers 40 countries and requires banks and financial institutions to exchange information with tax authorities of an EU citizen account holder’s home member state.
Some countries, including the Channel Islands and Isle of Man, have offered account holders the chance to pay a withholding tax instead of the exchange of information. On July 1, 2008, the withholding tax rate increased from 15 per cent to 20 per cent.
It appears HMRC has entered the next stage of its investigation. As well as following up on declarations that were rejec-ted under the facility, it is believed to be contacting people on whom it has information but they did not make a declaration.
One tax adviser says 40 per cent of the 60,000 people who made a declaration are not customers of one of the five big banks subject to the legal ruling. It is uncertain how many account holders HMRC has information on and have not made a declaration. But accountants have said it is writing to 5,000 people to request details on their offshore bank accounts. The infamous Liechtenstein “whistle blower” is understood to have supplied another 100 names to HMRC. HMRC is expected to vary its approach to dealing with such account holders, depending on how much money they hold offshore and the offence.
Edward Reed, partner of Macfarlanes, says most of the contacts will be through an explanatory letter and a request that the individual completes the “Initial Form” OCG1. He says HMRC is likely to impose penalties of 30 per cent of the tax due on undeclared account holders compared with the 10 per cent under the facility.
Reed says: “Those who believe they have no liabilities, such as because they are not resident or domiciled in the UK, are not under any obligation to complete the disclosure forms but the risks and costs of an enquiry must be borne in mind.
“What is clear is that failure to complete form OCG1 at this stage will push account holders into a higher-risk category in HMRC’s records and will make formal enquiry procedures more likely. This could be embarrassing if it is then discovered that there have been inadvertent irregularities such as remittances of income or gains to the UK.”
Reed argues that it can pay to take advice before making a disclosure. Without advice, account holders may pay excessive penalties or prompt HMRC enquiries through poorly presen-ted disclosures. “HMRC will inevitably be interested in the source of funds in offshore accounts. Advisers can root out problems with an individual’s affairs before disclosure so that full disclosure is given and no embarrassment is stored up for the future.
“Experience of dealing with HMRC and a working knowledge of their procedures can reduce the guesswork involved in negotiating the level of penalties imposed. Finally, putting someone else in the firing line can greatly reduce the irritation for the taxpayer and the waste of their time involved in dealing with tax compliance.”
Reed says bankers and other advisers have a strong interest in their clients co-operating with tax authorities. “The recent US Department of Justice decision to arrest a senior Swiss banker in connection with US tax evasion enquiries was watched with interest and envy by HMRC inspectors.”
Indeed, it is said that some individuals are cautious about taking advice because of the obligations on professional advisers to report people if they suspect them of money laundering. But lawyers say any contact is protected by privilege if the client is taking advice to get their affairs in order and to pay tax. After all, this means the client will be making a declaration to HMRC.
HMRC is believed to have spoken to another 125 banks about how to get information on offshore accounts held by their customers. Tax advisers estimate there are around 500 banks with offshore connections, including non-UK private banks.