Declare your offshore account in return
for reduced penalties.
In April HM Revenue and Customs (HMRC) announced a deal that
allowed those taxpayers who held offshore bank accounts on which
they had not previously declared interest earned in their tax
returns, to do so in return for significantly reduced penalties.
There are sure to be some dentists affected by this facility. HMRC
have given the initiative a rather grand sounding-name "The
Offshore Disclosure Facility".
It has been dubbed by most commentators as a tax amnesty but
this is a misnomer as it is nothing of the sort. Amnesties involve
a general pardon with no questions asked. The Offshore Disclosure
Facilty does not absolve anyone from their obligation to pay tax
and there will still be interest and penalties to pay - albeit at a
much reduced rate of 10%. Think of the initiative as more like a
scene from a John Wayne movie - "Come out with your hands up - real
slow, and no tricks."
The combination of winning a series of legal victories in the
courts together with the effects of the European Savings Initiative
has enabled HMRC to force the major High-Street banks -
RBS/NatWest, Lloyds TSB, Barclays, HSBC and HBOS to hand over the
details of their client's offshore bank accounts. This has come
about as a result of key strategic decisions at the highest level
in HMRC being made several years ago to tackle offshore tax
evasion.
HMRC now have in their possession details of offshore bank
accounts - including dates when opened, the initial deposit and
interest earned. Faced with the sheer volume of information at
their disposal - i.e. millions of bank accounts - HMRC recognise
that they do not have the resources to follow-up the majority of
cases. The "amnesty" therefore represents a practical attempt to
flush out the required information voluntarily rather than follow
the lengthy process of a tax investigation.
What is the Offshore Disclosure
Facility?
It is a one-off offer for a limited period aimed at those tax
payers who have held - directly or indirectly (i.e. through a
trust) an offshore account that it is any way connected with the
loss of UK tax. The purpose is to encourage tax payers to come
forward and to voluntarily disclose this information. It is a
"carrot and stick" approach - in return for coming forward HMRC
will impose reduced penalties but there's a strict deadline. The
stick comes in the form of a veiled threat - HMRC will pursue those
with offshore bank accounts and undisclosed tax liabilities that
have decided not to make a disclosure. What is more, HMRC have the
power to go back for 20 years where there is fraud or
negligence.
Incidentally, the same reduced penalty is available to all
taxpayers with undisclosed income (not just offshore income) but
there is a slightly different procedure to follow. HMRC are on
record as saying that they expect the vast majority of disclosures
to be accepted.
There are three critical stages:
* Stage 1 - notify your intention to disclose by 22nd June
2007.
* Stage 2 - make your disclosure and payment by November 26th
2007.
* Stage 3 - final decision by HMRC as to acceptance or not by 30th
April 2008.
It must be appreciated appreciate that there are very strict
deadlines and there is not much time in which to act, the decision
has to be made very soon.
The process of making the disclosure is relatively quick - it
can be done on line and it merely involves providing a statement of
intent and providing personal details. The trap lies in the closing
statement " I intend to make a disclosure of all outstanding
liabilities". Once this statement has been made you are beyond the
point of no return.
Frequently Asked
Questions
1) What is meant by the term "full
disclosure"?
When HMRC talk about "full disclosure" - they are not just
talking about undisclosed interest on a foreign bank account. They
are really wanting to identify the source, i.e. where did the money
come from to invest in the offshore account in the first place?
HMRC will want to know if the income (or capital) which was
invested in the offshore bank account has been subject to UK tax
before going offshore. Indeed, it is one of the questions on the
"Disclosure and Declaration" form". If one supposes that the income
has not been subject to UK tax then the size of the liability will
be substantially more than most pundits predict - especially if the
suppression has lasted for several years.
2) How do I pay all the tax, interest and penalties that
will be due by 26 November 2007 if I have not got the funds to do
so? After all that is only six months away.
Taking into account the time it takes to complete a normal
enquiry, the process of calculating the tax liability, calculating
the interest and penalties payable and making an offer to HMRC, the
time-scale is unbelievably short. The decision will have to be made
very soon if the deadline is to be achieved. Remember, should the
deadlines not be achieved, penalties will be imposed at a
considerably higher rate - probably somewhere between 30 and 50%.
Delay could cost you thousands of pounds, literally! Dentists
should take professional advice if they are in any doubt - there
are traps for the unwary. There will be time to pay arrangements to
allow spreading but these will be very strictly controlled.
3) What happens if I do nothing - thinking about the
consequences gives me a headache?
Let me put it like this. On the one hand, HMRC simply do not
have the resources to mount a full investigation into the vast
majority of instances. Just to do nothing must be tempting! On the
other hand, the main benefit in making a voluntarily disclosure is
that the process will be considerably shorter than a normal HMRC
enquiry and much less stressful. Also, the outcome will be much
more certain.
HMRC have made it clear that after 22nd June 2007, they will
"target holders of offshore bank accounts who do not disclose". You
have been warned.
Further details are available on HMRC's dedicated website at https://www.disclosures.gov.uk/oaics