In a further move to tackle perceived tax evasion, HM Revenue & Customs (HMRC) is planning a far-reaching campaign to target taxpayers with undeclared investment income, including anything from share dividends to interest on UK bank accounts. The campaign is expected to involve the issue of ‘intervention’ letters by HMRC, where taxpayers will be invited to voluntarily disclose their liabilities in exchange for potentially reduced financial penalties.
News of the campaign comes at a time when there is also considerable focus on offshore bank accounts and assets. Globally there is growing intolerance by governments to the use of tax havens and the secrecy they provide to potential tax evaders. In response, the UK has signed or is planning to sign tax information exchange agreements with several overseas territories to facilitate the exchange of information and help identify those suspected of evading tax. Agreements have recently been signed with the British Virgin Islands and the Isle of Man and a further agreement with Jersey is currently being finalised.
In addition, following on from the Offshore Disclosure Facility (ODF) in 2007, HMRC is to launch a second ODF in 2009. This is predominantly aimed at customers of other UK banks with overseas bank accounts and assets. What is currently unclear is whether those taxpayers who were contacted by either their bank or HMRC under the first ODF will have the chance to avail themselves of the potential benefits of the second ODF (primarily a reduced financial penalty). The final details and workings of the second ODF are currently being formulated, but any penalty element is expected to be higher than the flat-rate 10% imposed on the liabilities disclosed by those who participated in and made a full disclosure under the first ODF.
Various criticisms have been made of the first ODF, such as the lack of HMRC publicity, inadequate risk assessment of the foreign bank account information obtained by HMRC and insufficient resources being allocated to follow up the disclosures and undertake investigations. That said, HMRC raised over £400 million via the first ODF and is keen to ensure that ODF2 is even more successful.
Anyone with undeclared income arising from offshore bank accounts or assets should consider their position carefully and would be well advised to take proactive steps to bring their tax affairs up-to-date by making a voluntary disclosure to HMRC. They shouldn’t just wait for the terms of ODF2 to be published. A properly handled voluntary disclosure now, could actually lead to lower penalties being charged than might be offered via ODF2. Specialist professional advice in making any disclosure is essential if potential penalty mitigation is to be maximised.
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