Over the last few months the press has been full of rumours that HMRC (as the Inland Revenue is now known) were about to announce an ‘amnesty’ for UK taxpayers who had not declared their offshore bank accounts. This followed on from recent rulings which compelled some UK high street banks to provide HMRC with detailed information about offshore bank accounts held by customers with UK addresses.
Customers whose details have been given to HMRC as a result of these rulings will be receiving letters from their banks outlining the details that have been provided. This may cause the recipient of such a letter anxiety or concern, but receiving one of these letters does not imply any wrongdoing. The banks could not sift out which holders of offshore bank accounts have in fact already fully complied with their tax obligations. As a result, the letters are going to everyone who has an offshore account with any of the affected banks. If you receive a letter like this and you are concerned by it, please contact us.
The number of accounts that has been disclosed is very large and HMRC has announced a new, temporary, ‘Offshore Disclosure Facility’ to enable taxpayers (whether individuals, trustees or companies) to tell them about untaxed income and gains in relation to offshore bank accounts or offshore assets, for example rental income from a French property.
Taxpayers can also use this opportunity to disclose unpaid tax due in relation to purely UK matters, including unpaid income tax, capital gains tax and inheritance tax, as well as tax credits and company, VAT and employer issues. Whether the disclosure relates to onshore or offshore assets, or to both, any taxpayer wishing to take advantage of the 'amnesty' must disclose all undeclared tax liabilities for the last 20 years.
The Disclosure Facility is not really an amnesty, as the unpaid tax and interest will still need to be paid in full. However, if HMRC accept the disclosure, the penalty will be limited to an amount equal to 10% of the unpaid tax, rather than a potential penalty of 100% of the unpaid tax (payable in addition to the tax itself and the interest). If the total amount of undeclared income or gains disclosed under the Disclosure Facility is less than £2,500, there will be no penalty.
There has been a misapprehension among the public at large that if assets are situated offshore then UK tax does not have to be paid on them. This offshore rule in fact only applies to people who are ‘non-UK domiciliaries’, and even then only if they meet certain complex requirements. So the temporary Disclosure Facility could provide a useful opportunity to some to correct under-declarations that have arisen because of this mistaken impression. Taxpayers who fail to use this opportunity to disclose undeclared bank accounts may expose themselves to a substantially higher penalty and, at worst, the risk of prosecution.
There is a strict timetable for those wanting to use this facility:
?? By 22 June 2007 HMRC must be notified of the intention to make a disclosure. Full details do not need to be provided at this stage.
?? By 26 November 2007 the tax, interest and 10% penalty must be paid.
?? By 30 April 2008 HMRC will decide whether to accept the disclosure or to pursue further enquiries.
There is speculation (which is probably wishful thinking) that HMRC might extend the 22 June deadline. If HMRC were to extend the deadline, we would expect details to be made available on the Revenue website at https://disclosures.hmrc.gov.uk
This article only gives an overview of the Disclosure Facility. The full implications of making a disclosure must be considered carefully in the particular circumstances before notifying HMRC. With a 22 June deadline, the timescale is very tight indeed.