A second tax ‘amnesty’: HMRC’s ‘new disclosure opportunity’ creates chance for people with undeclared taxable income to wipe the slate clean

HMRC’s New Disclosure Opportunity gives holders of offshore bank accounts an opportunity to disclose and pay tax on their offshore income, with the incentive of reduced penalties for those who come forward by 4 January 2010.

HMRC has issued formal notices to over 300 different financial institutions requiring them to hand over detailed information relating to thousands of offshore bank account holders.

This approach echoes HMRC’s 2007 tax “amnesty” which was introduced following HMRC’s issue of formal notices to five major banks calling on them to hand over details of offshore account holders. The ‘amnesty’ was so successful in terms of tax yield, approximately £440m, that it caused HMRC to consider issuing similar notices to smaller financial institutions, thereby leading to this latest NDO. HMRC has said that the tax yield from this new initiative could amount to over £500m over 4 years.

Sue Holmes, head of Tax Investigations at Smith & Williamson, the accountancy and financial services group, believes that HMRC’s administration of the ODF appears similar to the 2007 ‘amnesty’.  The main points of the ODF are:

• Individuals will be required to register their disclosures by 4 January 2010;
• Disclosures of offshore income together with the unpaid liabilities must be paid by 12 March 2010;
• Penalties will be set at 10% (of the unpaid tax) for taxpayers with “new” disclosures where the tax due is more than £1,000.  For liabilities of less than £1,000, no penalty will be levied.
• For those taxpayers who disclose now and who were either written to by HMRC as part of the 2007 Amnesty, penalties will be set at 20%.
• For those who choose not to come forward and leave HMRC to launch an enquiry,  Ms Holmes expects HMRC to levy penalties of a minimum of 30%, and possibly as much as 100% of the tax underpaid, and those taxpayers could even face prosecution.

 HMRC will not give a guarantee of immunity from prosecution even if disclosure is made. That said, HMRC has confirmed that with the exception of cases involving the proceeds of serious organised crime, a complete and unprompted disclosure will generally suggest that civil settlement will be appropriate. “The tax authorities will only consider prosecution in very serious cases, so for most individuals this is a good opportunity to clean the slate,” explained Ms Holmes.

“The other major uncertainty is that individuals will have to wait for at least four months after the ODF is closed (12 March 2010) to receive agreement to the settlements made. HMRC has said that it hopes to issue acceptance letters for low-risk taxpayers within this four month period, so effectively individuals will have to endure a period of uncertainty for at least a year from now.

“The ODF should be treated as a final chance for people to put their tax affairs in order as there is unlikely to be another tax ‘amnesty’. So anyone who thinks they can avoid detection by the tax authorities should think again as HMRC will certainly be looking to prosecute those who choose to ignore this last chance. Moreover, HMRC’s information gathering powers mean that they will have a vast amount of detail at their fingertips so people should not expect to be able to keep below HMRC’s radar.”

“I would also advise anyone considering disclosure to seek professional advice beforehand as they only have one chance to get this correct and thus avoid potential prosecution.”

The information obtained by HMRC will typically include the following details, and cover up to six years.

• The name and address of the account holder
• The bank, branch, sort code and account number
• The annual balance held on the account
• The interest paid, and
• A detailed statement of transactions covering a specified period

A dedicated team within HMRC will review this information to ensure that it accords with disclosures made.  Once the NDO closes, it will use this data to identify persons who have not  come forward.

For further information:
Sue Holmes, head of Tax Investigations at Smith & Williamson, the accountancy and financial services group
Tel 020 7131 8167 or  mobile  07866 544946

PR queries:
Kate Harrison  020 7131 4228
Matt Rowe       020 7131 4550

Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Note to editors

Smith & Williamson is an independent professional and financial services group employing over 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Salisbury, Southampton, and Worcester.

Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International