Practice Article

H M REVENUE & CUSTOMS HARD LINE ON OFFSHORE ACCOUNTS

For a limited period H M Revenue & Customs offered a facility to help offshore account holders get their tax affairs up to date (the offshore disclosure facility). This facility has now closed.

HMRC is now contacting offshore bank account holders who chose not to disclose under the offshore disclosure facility and for whom they hold information about offshore accounts.

Depending on the circumstances the contact may take the form of:

  1. A letter and an initial form, followed, where appropriate, by the issue of a disclosure form to enable account holders with unpaid tax to bring their tax affairs up to date;
  2. A formal notice of enquiry;
  3. The issue of self assessment returns for the years where none have been submitted; or
  4. In exceptional circumstances, that meets the criteria within HMRC’s Criminal Investigation Policy, the undertaking of a criminal investigation.

In some circumstances HMRC may issue a form to ask for more information before considering what, if any, further action is appropriate. Where HMRC issues a form it will be because it holds information from one or more banks indicating the existence of offshore account or accounts.

HMRC is urging taxpayers to complete and return the form, even where the taxpayer considers that no tax is due. HMRC will then use the information they hold to verify the responses and will either accept or challenge the information.

If on completion of the initial form it transpires that tax is due then HMRC will send a further form for completion to calculate the tax owed. On receipt of the form HMRC will calculate the interest due and invite the taxpayer to make an offer to include an amount for penalties. Co-operation at this stage will be taken into account in determining the level of penalty to be applied. However, HMRC has said that the penalty is not likely to be less than 30% of the tax due. In some cases the penalty could be as high as 100% of the tax due.

If HMRC does not accept the disclosure then it is likely that further enquiries will be made in the normal way.

The issue of these forms is in line with the new compliance check regime announced in the Budget, This approach for obtaining information has been piloted for some time, but there has been no legal requirement to respond.

It is important to note that whilst the new compliance checks were announced in the Budget, the proposed legislation providing any additional powers will be in the Finance Bill 2008 and will not receive Royal Assent until probably July 2008. Cooperation with these requests is therefore currently still entirely voluntary.

FORMAL NOTICE OF ENQUIRY

HMRC will open a self assessment enquiry if it holds information from one or more banks that indicates that the taxpayer holds or has held an offshore bank account or accounts and HMRC wishes to enquire into the completeness and accuracy of the information provided in the tax returns made.

If the returns are proved to be incomplete and the taxpayer chose not to participate in the Offshore Disclosure Facility then this will be taken into account when determining the level of penalty to be applied. HMRC has said that this is unlikely to be less than 30% of the tax due.

HMRC may issue a self assessment return where the information received from the banks indicates that the taxpayer’s circumstances require a return(s) to be issued. This will allow the taxpayer to declare their income and allow HMRC to regularise the tax position, including charging interest and penalties.

CRIMINAL INVSTIGATION

In the most extreme circumstances HMRC may undertake a criminal investigation.

For further information on this matter please contact Mrs Vasanti Patel on 0208 864 6689 or e mail vsp@jcp.uk.com