HMRC has announced the creation of an Offshore Disclosure Facility. This is a facility for owners of offshore accounts that are in any way connected with a loss of tax, to make a disclosure of the tax owed, and pay the tax, together with interest and penalties. The arrangement is only for a limited time.
HMRC recently won a court case forcing five high street banks to disclose details of their offshore account holders. Armed with that information, they are in a good position to determine if any UK-resident holders of offshore accounts are evading tax. To save itself the administrative burden of investigating, it has set up the facility so that affected investors can come forward to give full disclosure.
The disclosure is in two stages. At the first stage, the investor notifies intention to disclose, while the second stage involves the disclosure and payment. Notification of intention to disclose must be done by 22 June 2007. Disclosure and payment must be made by 26 November 2007.
There is a fixed penalty of 10 per cent on any unpaid tax, subject to a de minimis limit of £2,500. The 10 per cent rate is far more generous than the statutory 100 per cent that would normally apply in such cases. However, interest is payable on any unpaid tax, so where a tax debt goes back many years, the investor could be facing a very large bill. HMRC have provided a table of interest factors which taxpayers may use to calculate the interest due.
A taxpayer who wishes to notify intention to disclose should contact HMRC (either online or by phone or post) for a Disclosure Reference Number (DRN) and a payslip.
HMRC states that the disclosure must be "a full disclosure of all undeclared liabilities, not just those connected with offshore accounts, and contain:
- summaries of tax and/or duties, interest and penalties due.
- details of offshore bank accounts relevant to the disclosure and/or open at 5 April 2006.
- details of offshore assets that were held at 5 April 2006.
- an offer to pay
- a declaration that the disclosure is correct and complete.
- payment of the full amount disclosed, including interest and a 10 per cent penalty."
An offshore bank account is "relevant to the disclosure" if it is connected in some way to a loss of UK tax.
While HMRC insist on full disclosure, they make the point that no disclosure must go back beyond 20 years. Presumable because this is because the widest ranging discovery powers open to HMRC under the Taxes Management Act 1970 do not extend beyond 20 years. As such, it would not be right to require taxpayers to provide HMRC with information which it wouldn't have been able to obtain were it to use its statutory powers.
After calculating the tax due, plus interest and penalty, the taxpayer then makes an offer to HMRC to pay that sum. HMRC anticipates that most such offers will be accepted. They will inform the taxpayer as soon as possible whether the offer has been accepted, but no later than 30 April 2008. If they do not accept the offer, HMRC will open an enquiry against the taxpayer, but this must be done before 30 April 2008. However, HMRC also warn that, in exceptional cases, criminal prosecution may be considered.
A taxpayer who chooses not to disclose at all cannot later take advantage of the facility. Given that HMRC has received details of offshore account holders, they will target those who do not disclose, and where they feel it appropriate, launch an investigation into their affairs. Should such taxpayers be found to have evaded tax, HMRC will seek penalties higher than the 10 per cent penalty offered as part of the facilty. They will also, in exceptional cases, consider criminal prosecution.