Last year, after obtaining data from five leading high street banks, HM Revenue & Customs (HMRC) launched the Offshore Disclosure Facility (ODF). This provided a short window of opportunity for anyone who had used offshore accounts, but who hadn’t paid the correct amount of tax due, to pay any undeclared tax, plus interest and a fixed 10% penalty. HMRC are understood to have received details of around 400,000 offshore accounts in respect of which it probably expected over 100,000 monetary disclosures.
HMRC has heralded the ODF as a success – it raised circa £400 million. However, concerns have been expressed about the number of taxpayers that came forward. Only 64,000 initially notified their intention to disclose, of which, only 45,000 subsequently made a disclosure, with only 30,000 actually notifying undeclared tax.
This would appear to be a disappointing return for HMRC, especially when one considers that the ODF was an opportunity for anyone who had used offshore accounts, not just investors of the five high street banks, to make a disclosure. Recent reports suggest that HMRC considers that a further 75,000 account holders should have come forward.
HMRC has said that it is 'pursuing those with offshore accounts and tax liabilities who did not come forward under the ODF arrangements'. At the very least, these taxpayers can expect to face intrusive investigation and a higher level of penalty. Currently, HMRC is understood to have opened nearly 12,000 investigations and, based on the number of taxpayers with offshore accounts that it believes should have come forward, a large number of further investigations appear likely.
Notably, the ODF did not provide any immunity from prosecution and, in July 2008, the outgoing HMRC chairman warned that HMRC hoped to start its first prosecution relating to the offshore account data within months. Realistically, only the most serious cases will be considered for prosecution. More serious financial penalties will be sought against other taxpayers who chose not to come forward as part of the ODF and anyone found to have made a false ODF disclosure can realistically expect to find themselves being considered for criminal investigation.
HMRC is currently understood to be in discussions with another 25 leading financial institutions to obtain additional offshore account information. However, what is unclear is whether HMRC will offer a second ODF or simply use that information to begin civil or criminal investigations. HMRC reportedly plans to increase its offshore investigations by a further 80,000 cases over the next two years. Even though the ODF is currently closed, all taxpayers can still take proactive steps to bring their tax affairs up-to-date by making disclosures to HMRC. It is extremely important, however, to manage the disclosure process in such a way as to minimise the risk of potential prosecution or greater financial penalties. Practitioners and taxpayers with undisclosed offshore assets should seek specialist professional advice in this area.
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