Opening the books on offshore income
Autumn 2009
HM Revenue & Customs (HMRC) is offering an ‘amnesty’ on undeclared offshore income. This is the second such tax amnesty, and is called the ‘new disclosure opportunity’ (NDO). Taxpayers will be charged reduced penalties for previously undisclosed and unpaid tax connected to offshore bank accounts.
The previous tax amnesty focused primarily on customers of the five largest high street banks, but everyone with unpaid taxes linked to offshore accounts or assets can take advantage of this chance to settle their liabilities on favourable terms. If you have both an offshore account and/or asset, such as an overseas property or business, and an address in the UK, it may be time to review your tax arrangements before HMRC opens an enquiry.
During the NDO period, which runs until 12 March 2010 for online disclosures, instead of penalties of up to 100% of the tax owed, most people will pay a penalty of just 10% if they make a full disclosure by that date. It’s important to note, however, that the time limit for paper disclosures is 31 January 2010.
If you received a notification from HMRC in 2007 about your overseas income, but still failed to make a disclosure, it’s likely you’ll now face a higher penalty of 20% if tax is due. Where the tax owed is less than £1,000, HMRC will waive penalties, although interest will be charged in all cases. Penalties for an incorrect or incomplete disclosure are likely to be at least 30% and could be much higher: the most serious cases may warrant criminal investigation.
Ignorance of the rules or honest mistakes will be not be accepted as a valid defence, and obviously deliberate attempts to thwart HMRC by intentionally hiding any overseas income may result in higher penalties.
Although the amnesty is only for people with unpaid tax related to an offshore account or asset, the disclosure must include all unpaid liabilities including UK income tax and other taxes, such as capital gains tax or VAT.
If you think you need to make a disclosure you must get a ‘disclosure reference number’ (DRN) by registering with HMRC, which you can do between 1 September 2009 (1 October if done online) and 30 November 2009. Requesting a DRN does not oblige you to make a disclosure report if you subsequently establish that you do not have any unpaid tax.
Payment of all tax, interest and penalties has to be made before the NDO deadlines of 31 January 2010 (paper) or 12 March 2010 (online). This does not leave you much time to comply. We can help you to organise payment arrangements with HMRC if you envisage difficulties in being able to pay your liability in full.
Provided it has the necessary resources, HMRC will eventually check for discrepancies between its own information and the NDO disclosure forms, or the usual tax returns.
After the NDO period ends, HMRC will actively pursue those who should have disclosed tax liabilities but did not do so. There is concern that many who have made an innocent oversight will be caught up in this initiative. For example, you might have overlooked interest on overseas accounts used for holiday money while abroad, or you might have inherited money overseas and placed the money into a local account for a while.
It is time to review any offshore accounts and assets you may have and avoid being classed with real tax evaders. Whether you have complicated tax arrangements or are not sure if you have undeclared overseas income, please come and see us. Not only might this limited period for making a disclosure make it difficult for you to comply, but this is also likely to be the last amnesty of its kind.
