8 January 2010

With the deadline for registering under HM Revenue & Customs’ latest “amnesty” now passed, what are the options if you have failed to declare a tax liability connected with an offshore bank account?

The Revenue’s “New Disclosure Opportunity” (NDO) was a chance for anyone with liabilities relating to offshore bank accounts or other investments to “come clean” via a standard disclosure form with penalties typically set at 10% of the tax involved. The extended deadline for notifying an intention to disclose was 4 January. For those who have registered the next step is to complete the disclosure and pay the tax (plus interest and penalties) by 12 March. For those who failed to register, however, the question is “What should I do now?”

It is thought that about 10,000 people have chosen to take advantage of the NDO, some way short of initial estimates and certainly well short of the estimated total number of UK-resident offshore account holders. The NDO coincided with an attempt by the Revenue to force 300 banks and other financial institutions to disclose the details of relevant account holders. Some of those banks have written to their clients to explain what was happening and these clients are likely to form the bulk of those who have made use of the NDO. Other banks have appealed against the court orders, however, and are unlikely to have written to their clients; those individuals may be totally unaware of the existence of the NDO. It would be wrong to say, however, that either they or those who made a conscious decision not to contact the Revenue have missed the boat.

The first consideration for any UK resident with an offshore account that has not previously been disclosed to the Revenue is whether or not you do have a tax liability. There may be no tax due, either because your total income is covered by your personal allowances or because you are not liable to tax in respect of overseas income because of your non-domiciled status. (If you think you are within the latter category do take advice – non-dom status is subject to challenge and the rules for non-doms and the remittance basis of taxation changed significantly with effect from 6 April 2008). If there is a liability and the account is relatively new it may be possible to deal with matters via your Tax Returns. If you have a tax liability that goes back some years, however, the position is more complicated. The options are as follows: 

1.  Do nothing

A dangerous strategy! Although, as noted above, some of the institutions served with court orders by the Revenue have lodged appeals it is likely that these will prove unsuccessful. It can therefore be assumed that within about 6 months or so details of almost all offshore accounts opened by UK residents via banks with a presence here will be in the hands of the taxman. The Revenue are already reviewing the information they have and from March they will start to pursue those who have not disclosed under the NDO. They have made clear that those who are found to have undisclosed liabilities will face penalties of at least 30% - and possibly as much as 100% - of the tax at stake as well as the possibility of criminal prosecution.

2.  Make use of the Liechtenstein Disclosure Facility

Announced shortly after the NDO, the Liechtenstein Disclosure Facility (LDF) is designed specifically for those with a Liechtenstein bank account. There is no tight deadline and the terms are generally better than those available under the NDO. Many of those who already have Liechtenstein accounts will have made a conscious decision to use the LDF. If you have missed the NDO but decide to disclose after all it may be possible to bring yourself within the scope of the LDF by opening a Liechtenstein account now but this must be done directly rather than via a UK bank. Appropriate professional advice should be taken.

There is speculation that a Swiss Disclosure Facility will follow and this is certainly one ray of hope for some of those who have not registered under the NDO. It should be borne in mind that the LDF has been created as part of an agreement with the Liechtenstein government and that a Swiss Facility is likely to have a similar basis. In both cases it is likely that details of UK account holders will eventually be passed to the Revenue and that to minimise penalties you need to contact them before they contact you.

3.  Make a disclosure direct to the Revenue

For those who have missed the NDO and for whom the LDF is not a practical option (it may not be easy or cost-effective to open a Liechtenstein bank account, particularly if the sums involved are relatively small) there is always the “old-fashioned” approach of coming clean outside the terms of any special facility. This will typically involve a letter of disclosure to the individual’s tax district or one of the Revenue’s specialist offices. Provided such a disclosure is made prior to any approach from the Revenue, it should result in mitigation of penalties on grounds of disclosure and cooperation. They are therefore likely to be rather closer to 30% than 100%.

As we have commented previously, time is running out for those seeking to evade UK tax by depositing funds offshore. There will no doubt be some who decide to take their chances on the basis that they will deal with an approach from the taxman as and when it comes. For those who want to reduce their exposure to penalties and the possibility of criminal prosecution, however, it is important to take advice now. For further assistance contact Mark Giddens or get in touch with your local UHY Hacker Young office.

Mark Giddens