‘Amnesty’ for offshore tax dodgers
Anyone who has failed to declare tax liabilities of any type can do so now and suffer a penalty of only 10% of the underpaid tax, but it is essential to act quickly. HM Revenue & Customs (HMRC) has announced a new disclosure facility, dubbed an amnesty in much of the press. Individuals must have come forward by 22 June 2007 and provide full details by 26 November 2007. There is no penalty at all if the income to declare is less than £2,500. Normally, penalties are charged of around 30% of the tax, and up to 60% in the worst cases where HMRC discovers a person has not declared income, although a 100% penalty is possible.
The amnesty is mainly directed at people who have not paid tax on offshore income, and HMRC has put a special procedure in place for those in this position to notify and declare that income and any other liabilities. What has received much less publicity is that taxpayers who do not have undeclared offshore income can disclose other tax liabilities by approaching any tax office. If they have notified by 22 June 2007, they can expect similar terms.
The low penalty is not the only attraction. HMRC has said that most disclosures will be accepted without question and it will allow reasonable estimates where it is impossible to obtain records, such as bank statements. Normally, where HMRC makes a discovery of undeclared offshore income, taxpayers are subjected to a lengthy enquiry into all their tax affairs.
Such enquiries are time-consuming and tend to cost considerable amounts in professional fees. They may also result in taxpayers having to accept higher tax liabilities than necessary because they cannot prove they have declared all their other income, especially if they are self-employed or company directors. HMRC usually works on the principle that if a person has failed to declare one type of income, such as offshore interest, they have probably done the same in other areas.
Some tax advisers have estimated that the 'amnesty' could affect more than one million people and raise up to £5 billion for the Treasury. A similar move in Ireland resulted in payments of £580 million.
Taxpayers using the disclosure facility will have to calculate their own tax as well as interest from the date the tax should have been paid up to the date of actual payment, which must normally be not later than 26 November 2007.
We hope our clients have long known that placing investments offshore does not avoid UK tax on the income they generate, and have given us full details of all their income, wherever it arises, to record on tax returns. If not, or if you have a friend or relative who needs help in disclosing income under the new disclosure facility, please tell us without delay.