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No hiding place

Bob Reynolds sets out the terms of the latest and final Revenue tax amnesty on declaring offshore assets and warns that time and places are running out for evaders

This week was supposed to be the deadline for the latest, and last, opportunity for UK taxpayers to declare bank accounts held in offshore jurisdictions and to pay a reduced rate of tax on any assets that HMRC considers should be liable to UK income tax.

Last week, HMRC extended the deadline for disclosure to early 2010 but despite the easing of the timescale for disclosure, there are signs it is gearing up to take tough action on anyone who does not take advantage of what the Revenue considers to be a generous concession.

HMRC has also separately introduced a ground-breaking scheme for UK taxpayers with assets in Liechtenstein. The Liechtenstein Disclosure Facility is open for longer and the Revenue has been more generous to taxpayers in the terms of this scheme. HMRC has admitted that it has less leverage in Liechtenstein because no British banks have branches there.

Tax advisers across the country have been encouraging their clients to register. The message has been clear cut – if you do not register now, you will be identified by HMRC and you will be prosecuted.

Last week, HMRC said it had received a substantial number of representations from UK banks asking for the final date for registration to be postponed.

An HMRC spokesman says: “The banks have said they have had insufficient time to write to all their customers to encourage them to register. We have listened to their requests and we have announced that registration can now be completed at any time up to January 31, 2010, for paper filing and March 12, 2010 for online filing.”

The Revenue has good reason to be relatively relaxed on this point. The 2007 disclosure opportunity process cost £6m to roll out and raised around £400m in back taxes and interest. Multinational accountants Grant Thornton estimated 400,000 accountholders came forward for the offshore disclosure programme two years ago.

The average yield per taxpayer was £9,000 but the largest topped £3m. It was also able to identify at least 70,000 taxpayers who had not taken advantage of the 2007 scheme.

So pleased were the tax chiefs with the success of the initial round of disclosure and compliance, that it put pressure first on high-street retail banks and then on a much wider set of banking institutions to reveal account details of UK customers with offshore accounts.

It then announced the New Disclosure Opportunity to scoop up taxpayers who had failed to comply with the initial exercise. HMRC billed this programme as emphatically the last chance to come into the fold of legitimate disclosure. The Revenue has also been forthright in addressing its agenda with tax agents – principally accountants and lawyers. The result has been a concerted approach by tax advisers to make clients aware it is in their best interests to sign up now.

The Revenue has also benefited from stronger international cooperation between national tax authorities since 2007 and a programme by the Organ- isation for Economic Coop- eration and Development – launched at the behest of the G20 – to grade the quality of cooperation between jurisdictions on tax information exchange. This has spawned a flood of bilateral tax information exchange agreements.

The UK points to its TIEA with Liechtenstein in the summer and Singapore more recently as critically important in this endeavour.

National tax authorities are exchanging details of accountholders, especially in offshore financial centres so HMRC is fully briefed on thousands of UK citizens who base funds overseas for tax- avoidance purposes.

For the NDO, the Revenue has said that if taxpayers do not comply this time, it will pursue criminal and civil prosecutions. On the front page of its site on the NDO, the HMRC lists recent examples of taxpayers who it has prosecuted successfully. This is designed as a warning to those considering avoiding the NDO to think again.

The Revenue says it is in possession of the names and address of many thousands of British citizens with offshore accounts. It has sourced these mainly from banks but also from other revenue bodies. The most notorious is the LGT Bank affair where a disgruntled employee in Liechtenstein sold the account details of vast numbers of foreign citizens to German state agencies. These were acquired by other national revenue authorities.

HMRC says where it is aware that UK citizens hold assets in such bank accounts, it will move for confiscation of assets. It will also give details of such defaulters to other national tax bodies and to international agencies such as the OECD.

This brings into question the policy of naming and shaming. HMRC says it has this technique at its disposal. The Irish government has used this policy for several years. It compiles lists of people who have failed to pay taxes on offshore assets and publishes them quarterly in the leading national newspapers.

HMRC says it may make a relatively early decision on naming and shaming UK citizens. The registration date has now been put back until January and March but within a few weeks of final registration it will know who has complied and who has not and it will be a simple exercise of cross-reference.

An HMRC spokesman told Money Marketing: “We do have this weapon at our disposal. We have not decided one way or another as yet but we will make a decision very quickly after registration. It is an option and we may choose to use it if we think it will boost the compliance rates.”

The timescales for the NDO are clear – registration and paper filing by January 31 next year and online filing by March 12, 2010. Filing in this context means full declaration and calculation and payment of the tax, interest and penalties owed.

The Revenue says taxpayers who comply have certainty of treatment. The terms of the NDO settlement are:

  • A fixed penalty of 10 per cent of the taxes/duties that have been underpaid.
  • No penalty where the total of unpaid taxes or duties is less than £1,000.
  • A fixed penalty of 20 per cent must be paid by anyone to whom HMRC wrote to about the availability of the Offshore Disclosure Facility in 2007, either to tell them that it had their account details or to remind them to disclose after they had notified.

The LDF is different in its scope. It leans on the recent UK-Liechtenstein TIEA which the HMRC hopes will be the forerunner of other disclosure programmes linked to specific states.

Ronnie Ludwig, of Saffery Champness in Edinburgh, says: “A lot of people have responded to HMRC permanent secretary for tax Dave Hartnett’s hellfire and brimstone pronouncements. We have been quite clear in advising people that we regard this as the last chance for them to sign up on preferential terms.

“The Liechtenstein deal is exceptionally attractive. It has led to some people transferring out of more traditional offshore centres into Liechtenstein to exploit the terms. Our consistent advice to our clients is to take advantage of this scheme. The Revenue will catch up with defaulters and they will never enjoy the same terms again.”

The LDF scheme lasts until 2015. HMRC outlines the cope of the LDF as:

“The facility has been introduced to help UK taxpayers with undeclared investments in Liechtenstein to come forward and get their past and future tax affairs on the right footing. By coming forward under the LDF, they will be able to take advantage of a number of special terms:

– a 10 per cent fixed penalty on the underpaid liabilities (full interest will have to be paid)
– no penalty where an innocent error has been made
– assessment period limited to accounting periods/tax years commencing on or after April 1, 1999
– the option to choose whether to use a single composite rate of 40 per cent or to calculate actual liability on an annual basis
– assurance about criminal prosecution
– a single point of contact for disclosures.”

Simon Newsham, of New-shams Tax Solicitors, says: “The Revenue has been consistent in its attitude. It has said it wants compliance. The income from the disclosure programmes is attractive. Spending £6m and getting in £400m is exceptionally good value for money. It will be looking for similar levels of return. We have advised all of our clients who have not previously declared to use this moment to save themselves a lot of trouble in the future.”

At the end of this latest set of disclosure opportunities, there will still be taxpayers who seek to transfer their assets out to more exotic locations to avoid detection. A new breed of pirate jurisdictions will emerge to house the money of those who are determined that the taxman will not get a penny. Panama, Vanuatu, Ras al Khaimah, Somaliland and Moldova are currently in on the list. But in the end, how secure will those assets be in the endless quest to dodge domestic tax?


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