After months of speculation, HM Revenue & Customs (HMRC) has finally confirmed details of the New Disclosure Opportunity (NDO) aimed at encouraging those with undeclared income arising from offshore accounts or assets (including land/property, trusts, business interests, vehicles, boats/yachts etc) to disclose it and pay the tax and interest thereon. In return, HMRC is offering beneficial fixed penalty arrangements – it is not, however, offering ‘an amnesty’ or any ‘immunity’ from possible prosecution as part of the NDO.
As part of its first Offshore Disclosure Facility (ODF) in 2007, HMRC obtained offshore bank account details from the five main high street banks. It is understood to currently be in the process of forcing a further 250 financial institutions (please click here to view our offshore bank account disclosure update article) to disclose similar information about their customers – the chances of avoiding detection are certainly decreasing!
HMRC has also stressed that the NDO will be the ‘last opportunity of its kind’ for taxpayers to bring their tax affairs up-to-date, but how will it work in practice?
Key Dates
Anyone wishing to make a disclosure under the NDO has to do so within a structured time frame.
Firstly, a taxpayer has to notify HMRC that they wish to make a disclosure. The periods in which this notification needs to be made are:
- By post/paper – from 1 September 2009 until 30 November 2009
- Online – from 1 October 2009 until 30 November 2009
HMRC will then issue a Disclosure Reference Number (DRN), which the taxpayer needs to use when making the actual disclosure.
Disclosures have to be made within the following timeframe: -
- Paper disclosures – between 1 September 2009 and 31 January 2010
- Online disclosures – between 1 October 2009 and 12 March 2010
The NDO will close on 12 March 2010 and any opportunity to make a disclosure (and pay the reduced penalties being offered) will then be lost.
What is required under the NDO?
After notifying HMRC of their intention to make a disclosure, taxpayers will have to provide the following details/information for the period to 5 April 2008:
- full details of the offshore bank accounts and assets held (relevant to the disclosure);
- calculation of the tax/duties, interest and penalties owed;
- an offer to pay the tax, interest and penalties due (as calculated);
- certification that the disclosure is correct and complete; and
- payment of the amounts owed to HMRC
For paper disclosures, all this has to be completed by 31 January 2010. For online disclosures, the completion date is 12 March 2010. It is important to note that HMRC’s view is that a disclosure will not be complete (and therefore cannot be accepted) until the amounts disclosed as being due have been paid.
Penalties
HMRC has the ability to levy penalties up to a maximum of 100% of the tax/duties due. However, as part of the NDO, it is offering the following penalty arrangements:
- 10% if a full disclosure of all liabilities due is made;
- 20% if a full disclosure of all offshore liabilities is made now by someone who was made aware of the ODF in 2007 (i.e. those who HMRC believes it wrote to as part of the ODF);
- 30% (minimum) if no disclosure is made, but HMRC then investigates the taxpayer’s affairs and discovers undeclared tax liabilities.
No penalty will be charged if the undeclared tax/duties are less than £1,000.
Those taxpayers who were written to by HMRC during the ODF, but who did not make a disclosure, may still be ‘in the queue’ to face investigation by HMRC. If they are found to have undeclared tax liabilities then the penalties that will be levied will be, at least, 30% and could be much higher. However, they now have a ‘second chance’. If they make a disclosure via the NDO before any investigation starts then they can still ‘cap’ any penalty at 20%.
‘Onshore’ disclosures
Whilst the NDO is predominantly aimed at ‘offshore’ income/assets, HMRC has confirmed that it will ‘facilitate’ disclosures of ‘onshore’ income/assets etc via the NDO provided they are unprompted and voluntary (i.e. the taxpayer is not already under investigation). If all the other NDO criteria are then met (including payment) then a 10% penalty will be available.
Taxpayers should note, however, that ‘onshore’ disclosures are unlikely to be able to be accepted by HMRC as readily as ‘offshore’ ones (because HMRC can’t just cross-check it with the information provided by the Bank). Consequently, ‘onshore’ disclosures might be scrutinised/tested in greater detail by HMRC. Specialist professional advice before any such disclosure is made to HMRC is strongly recommended.
Contact from HMRC?
Unlike the ODF, HMRC will not be writing to taxpayers as part of the NDO to confirm that it is aware of their offshore income/assets. Given the number of financial institutions now caught by HMRC’s ‘Offshore Campaign’, taxpayers should expect their details to be with HMRC soon and take advantage of the disclosure opportunity and beneficial penalty arrangements being offered by the NDO. If not, then they could be subject to a robust investigation by HMRC in the future. Furthermore, the threat of possible future prosecution cannot be ruled out.
Is the NDO suitable for everyone?
HMRC is championing the NDO as being a simple and straightforward way for taxpayers to pay any amounts that they owe on undeclared offshore income/assets. In return, HMRC will charge them a lower penalty than would normally be sought. However, taxpayers wanting to make a more complex disclosure possibly involving, say, a number of accounts/assets/entities etc or previously undisclosed ‘onshore’ issues are recommended to seek specialist advice before committing to the NDO route.
Although it is unlikely that anyone making a full disclosure under the NDO will be prosecuted, no ‘immunity’ from prosecution is being offered. However, if carefully handled, disclosures can be made to HMRC by another route where such‘immunity’ can be obtained. Expert advice on this area is extremely important.
In addition, currently under the NDO, there is no time limit or deadline by which HMRC has to formally accept or challenge a disclosure made under the NDO. This uncertainty is, obviously, unwelcome and taxpayers might prefer to make a disclosure to HMRC outside the NDO whereby any potential issues can be discussed and agreed with HMRC as part of the disclosure process – and certainty achieved. Again, specialist professional advice in this area is crucial.
Conclusion
One thing is certain. Anyone with undeclared liabilities who does not make a full disclosure, either through the NDO or via a separate approach to HMRC, is risking significantly higher financial penalties than those being offered now. They also run the risk of potential prosecution. Taxpayers are strongly advised to take advantage of the beneficial terms currently being offered by HMRC and to seek specialist help before making any disclosures to HMRC.
For further information on any of the points discussed above, please contact Keith Richards, Tax Partner at Vantis in Leicester, on Tel: 0116 272 8200 or Email: keith.richards@vantisplc.com.