Offshore Assets: Tax Penalties Get Even Harsher

The penalty regime where tax is understated and there’s a connection to an offshore asset or bank account has got even tougher from this year.

When, following an investigation or enquiry, additional tax is due HM Revenue and Customs can charge a penalty on top of the tax of an amount equal to 100% of the tax.  In other words, the penalty can double the liability, before any interest is charged.  But if the irregularities are related to offshore bank accounts or assets, then the penalties can be higher still.  This penalty regime connected to offshore assets has now been made even more punitive.

From summer 2015 the maximum tax-related penalty will be determined by the extent to which the foreign country shares information with the United Kingdom.  For the 90 countries (including the UK) that have signed up to the OECD’s Common Reporting Standard (whereby from 2017 financial information will be automatically reported and shared) the maximum penalty will stay at 100% of the tax (Category zero).  But for other countries with less transparency the penalties can be 125% (Category 1), 150% (Category 2), and even 200% (Category 3) of the evaded tax.  So a UK tax payer with undeclared tax of say £25,000 linked to a bank account in Dubai (Category 3) could face a combined tax and penalty bill of £75,000 (before interest is charged!).  This penalty regime now also covers Inheritance Tax – for the first time.

But the taxman is introducing further, hard-hitting, penalties for people who try to evade tax by moving their money to a less transparent jurisdiction.  Where funds are shifted after 27 March 2015 the penalties can then be increased by another 50%.  The start date for the money-shifting penalties applying has yet been announced, but it is likely to start by 2017 at the latest – with effective retrospection back to March 2015.  In our previous example, the tax bill of £25,000 could potentially produce a tax and penalty bill of £100,000 (if, say, the funds were move from Dubai to Singapore) plus interest!  The tax offender’s details would also be likely to be published by HMRC.

What does it mean for me?
If you have undeclared UK tax liabilities and an offshore bank account or asset then the penalties you could face and the chances of you being caught will increase massively once the Common Reporting Standard applies in 2017.

How can I improve my situation?

There are a number of disclosure facilities available whereby UK residents with offshore assets can settle their historic tax liabilities on very favourable terms.  Amongst these offshore disclosure facilities the Liechtenstein Disclosure Facility also offers a guaranteed immunity from prosecution.  But all of the existing disclosure facilities come to an end on 31 December 2015.  They will then be replaced by a less generous tax amnesty, which HMRC are now promising will be the last of its kind.

How can Lynam Tax Disclosure Experts help me?
Our Lynam Tax Disclosure Specialists have a massive amount of experience in dealing with tax investigations where offshore assets are concerned, and also in dealing with HMRC’s offshore disclosure facilities.  If you have any concerns please do not hesitate to contact our specialists for an initially free and entirely confidential disclosure:

Paul Lynam:  0845 643 9997

Andrew Nutbrown:  07718 778710