HMRC have announced a 2nd Tax Amnesty for Spring 2009 (The New Disclosure Opportunity). But what was the first Tax Amnesty about?

HM Revenue & Customs had managed to obtain details of approximately 100,000 offshore bank accounts registered to UK residents, with the offshore branches of 5 UK based high street banks, and which had not been declared to HMRC. The taxman came up with the Offshore Disclosure Facility or ODF – to encourage as many people to come forward and confess as possible, for the least cost to the Revenue. HMRC have now got hold of similar information from about 170 offshore banks, with associated businesses in the UK, and also from most European banks under the terms of the EU Savings Directive: and are planning a second Tax Amnesty for Spring 2009 (The New Disclosure Opportunity).  The NDO will work very much like the ODF.

How did the Offshore Disclosure Facility 2007 work?

In April 2007 HMRC quietly announced what many people called the Tax Amnesty. It wasn’t a true amnesty – they didn’t let people off any tax due. It was an incentivised tax evasion disclosure project. It was aimed at people with interest arising from offshore banks accounts, but anyone could use the Facility if they’d underpaid tax. In reward for stepping forward and disclosing historic tax liabilities, taxpayers were guaranteed a 10% penalty, instead of the more typical 35-65% penalties. Anyone who didn’t come forward, or who made an incorrect disclosure was warned that the minimum penalty they would face would be 30%.

There was not a lot of publicity around the ODF. It had a set process and set time limits to take part. It had three stages: notification, disclosure, then either acceptance or investigation. Notification of the intention to disclose had to be made within 10 weeks from the launch of the ODF. Full detailed disclosure plus payment of all liabilities including interest and penalties, had to be made within 7 months. HMRC then had 5 months to accept or investigate. If they accepted the disclosure then a reduced 10% penalty applied.

The ODF covered all taxes dealt with by HMRC, not just interest arising on overseas bank accounts. So, if business profits had been under-declared, and the cash deposited in an undisclosed offshore bank account, then Income Tax or Corporation Tax and VAT due on those profits were within the scope of the ODF, as were any payroll taxes which had not been declared. The Tax Amnesty could be used in cases where individuals had complex offshore structures involving, say, multiple trusts (e.g. Stiftungs) or tax haven companies, foundations etc.

There was a parallel facility, on the same terms, for onshore tax disclosures.

Disclosures had to cover the 20-year time limit, where tax had been evaded that far back.

Taxpayers had to: enter into a formal contract settlement; sign a declaration that the disclosure was correct and complete ; give details of all offshore bank accounts relevant to the disclosure; give details of all offshore bank accounts open at 5th April 2006; and sign a statement of all offshore assets held at 5th April 2006.

Not all foreign income is chargeable to UK tax. Residence and Domicile factors determine whether the income is chargeable in the UK in the first place and whether it is chargeable on an arising or remittance basis.

Results of Offshore Disclosure Facility 2007

• HMRC received 45,000 disclosures, totalling £400million;
• Disclosures averaged £9,000 – the largest was £3million;
• 300 ‘large and complex’ cases worth an estimated £100million were given extra time to complete their disclosures; and
• The Offshore Disclosure Facility cost HMRC approximately £6million.

In an interview with Accountancy Age at the end of 2007, Dave Hartnett, HMRC’s Chief Inspector said:

• HMRC expects a number of criminal prosecutions in 2008, targeting individuals who evaded tax using offshore bank accounts, offshore trusts or offshore companies;
• It will take several years to complete the investigation of tax evasion via offshore bank accounts;
• A second wave of voluntary disclosures is preferred by HMRC, but it was still deciding what ODF 2 (The New Disclosure Opportunity) would look like. The Chancellor of the Exchequer then announced (in the 2008 Pre Budget Report) that there would be a second Tax Amnesty in Spring 2009.

What happened to the Disclosures?

The disclosures were “risk assessed” and the vast majority accepted. Those selected for review are being subject to an in-depth audit of the work supporting the disclosure and the accuracy of the figures. Any additional tax arising will be subject to a penalty of 30% or more, of the tax bill.

HMRC has been issuing Tax Enquiry letters to individuals it believes have an offshore bank account but did not make a disclosure. Anyone found to have an undisclosed tax liability will get a substantial penalty, of a minimum 30% of the tax owed. Specialist tax fraud investigators from HMRC’s elite Specialist Investigations branch and the Civil Investigation of Fraud (CIF) units are also reviewing information on the larger cases of failure to disclose under the ODF. They will carry out investigations under HMRC’s Code of Practice 9 (cases of Suspected Serious Fraud). The most serious cases will be referred to the Revenue & Customs Prosecution Office (RCPO) for them to consider criminal charges. Some prosecutions have already started.

What if I disclosed under ODF 2007 and am being investigated?

You may need specialist help. HMRC clearly suspect your disclosure was incomplete or incorrect. They could start a criminal investigation. They are likely to subject you and your business to an in-depth and intrusive investigation. It could cost you a lot in tax, very high penalties and disruption to your business and personal life.

What if I’ve got an offshore bank account and didn’t disclose under ODF 2007?

You could be in serious trouble; but you’re not the only one, and you can still improve your position. Especially now HMRC have announced The New Disclosure Opportunity.

HMRC estimate that over 10,000 people who should have disclosed did not do so. That’s one reason they are launching the second Tax Amnesty – The New Disclosure Opportunity – in Spring 2009. Many did not disclose due to lack of publicity. Only customers of some of the original five banks even got warning letters from their banks. Anyone who missed HMRC’s ODF 2007 opportunity risks either: at worse, prosecution or, an intrusive and highly penalised tax enquiry; if they do not disclose now.

The New Disclosure Opportunity will offer another opportunity for reduced penalties, but its terms are will be less attractive than ODF 1 for anyone with accounts at the 1st 5 banks involved. Particularly as the new penalty rules come into force in 2009. We can advise you on how best to take advantage of the The New Disclosure Opportunity – Tax Amnesty 2009.

In any event, it can still be highly beneficial to make a voluntary disclosure of any tax irregularities to HMRC. This can minimise the chances of prosecution and substantially reduce penalties. It allows you to manage the disclosure rather than have Tax Inspectors enquiring intrusively into your business and financial affairs; possibly visiting your bank and business contacts to help with their Tax Enquiry.

Lynam Tax specialists successfully managed a number of ODF 2007 tax investigations. We had a number of cases where no tax was actually due (e.g. because our client was non-resident or non-domiciled in the UK) and have even had a case where we got a client a repayment. We have a vast amount of practical experience in managing general tax disclosures and of dealing with HMRC investigations,  and now The New Disclosure Opportunity – Tax Amnesty 2009. We can advise you on the best course of action and if appropriate, help you manage any necessary disclosures in order to obtain the optimum outcome for you, your business and your family. For sympathetic and confidential help, call Paul or Gemma NOW on: 0845 643 9997