Offshore bank accounts - HMRC new approaches

Last year HM Revenue and Customs (HMRC) launched an offshore disclosure facility that, for a limited period, allowed offshore account holders to get their tax affairs up to date. HMRC is now making contact with those offshore account holders that did not disclose their affairs during the facility and for whom it holds information about offshore accounts. So what can those affected expect to happen next?

What was the offshore disclosure facility?

This initiative was launched in April 2007 and provided an opportunity for those with offshore accounts and undisclosed tax liabilities to settle their affairs with HMRC with only a 10% penalty likely to be due. The disclosure facility closed on 26 November 2007.

The tax story from 17 April 2007 has further details, click here to view it.

What is HMRC doing now?

Over the next few weeks HMRC will be contacting offshore bank account holders who (for perhaps legitimate reasons) chose not to disclose under the offshore disclosure facility and for whom they hold information about offshore accounts. HMRC has a wealth of information available concerning these accounts following court cases giving them the right to obtain information about offshore accounts from the five big UK banks and the EU Savings directive provides them with information about interest earned from financial institutions within the European Union. Similar information sharing arrangements have been agreed with various jurisdictions around the globe, particularly in relation to OECD countries.

HMRC has said that depending on the circumstances the contact may take the form of:

• a letter and an initial form, followed, where appropriate, by the issue of a disclosure form to enable account holders with unpaid tax to bring their tax affairs up to date;
• a formal notice of enquiry;
• the issue of a self assessment return for the years where none have been submitted; or
• in exceptional circumstances, that meet the criteria within HMRC's Criminal Investigation Policy, the undertaking of a criminal investigation.

The issue of these forms is in line with the new Compliance Check regime announced in the Budget. This approach for obtaining information has been piloted for some time, but there has been no legal requirement to respond.

Given the fact that the Budget measures have not been legally enacted, those who receive the form should consider whether they wish to respond. If they do they will be doing so voluntarily. However, if the do not respond, they may well receive a formal enquiry, which does have a legal foundation.

If taxpayers do respond, the information will then be compared to the information HMRC holds in order to verify the response. If it transpires that further tax and/or duties are due then HMRC will issue a further form for the taxpayer to calculate the amount due. HMRC will then calculate the interest and invite the taxpayer to make an offer to include an amount for penalties. HMRC has said that co-operation at this stage will be taken into account in determining the level of penalty to be applied. However this is unlikely to be less than 30% of the tax/duties due. In some cases the penalty could be as high as 100% of the amount due.

Gary Ashford, a Tax Investigations Director at Grant Thornton says: "The letter in itself is no cause for alarm as many offshore account holders will not have used the offshore disclosure initiative because they had good reasons for holding an offshore account which they did not feel required further explanation to the taxman. These individuals may wish to simply reply to HMRC with a valid reason as to why they have not disclosed the details of their accounts and expect to be bothered no more."

Ashford adds: "On the other side of the fence, there will be some who knowingly avoided using the offshore disclosure initiative in the hope they would not be caught. Some of these individuals could face penalties of up to 100% of the tax due and in exceptional circumstances, criminal investigation. If anyone receives a letter, they should comply immediately or face serious consequences."

Our advisers have many years of expertise and experience in negotiating with HMRC and would be delighted to assist you in obtaining the best possible outcome. Please click here to contact us if you would like further information.