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  3. HMRC Sweeps Decks To Focus On Hardcore Offshore Evaders

HMRC Sweeps Decks To Focus On Hardcore Offshore Evaders

by Robert Lee,, London

19 April 2007

HM Revenue and Customs (HMRC) have taken UK taxpayers by surprise by their recent announcement of a form of amnesty for all tax evasion including VAT, Income & Corporation Tax, Inheritance Tax and PAYE - the first time in living memory that the UK has embarked on such a bold initiative, says Andrew Watt, Director of Tax Investigations at Chiltern plc. But he believes that it remains to be seen whether it will have the effect HMRC so desperately wishes to achieve.

According to Andrew Watt:

The move is born out of the need to be able to cope with the anticipated surge in the numbers of investigations following HMRC’s success over the last eighteen months in obtaining from five High Street Banks access to the details of UK residents (individuals and companies) with an address in the UK and an offshore bank account. In the course of the next few years HMRC will serve similar information notices on all Banks trading in the UK including the branches and subsidiaries of foreign Banks. It is estimated that this exercise will yield almost a million pieces of information. The amnesty, it is hoped, will clear the decks by encouraging evaders to come forward in large numbers and make a clean breast of previous tax irregularities leaving HMRC free in due course to target the hard core who choose not to make a disclosure.

The booklet published to coincide with the announcement of the amnesty (or to give it its official name the ‘Offshore Disclosure Facility’) appears to suggest that the benefits are open only to those who hold, or have held, an offshore bank account. However, this would clearly in due course have led to a challenge under Human Rights legislation and the booklet goes on to make it clear that tax evaders who have never held an offshore bank account are entitled to make disclosures on precisely the same basis, and to expect to receive the same treatment, as those who do have offshore accounts.

The amnesty process is divided into two distinct phases and will work as follows. Those who wish to avail themselves of the amnesty have until 22 June 2007 simply to do no more than notify HMRC of their intention to make a disclosure of all irregularities not just those connected with an offshore account. In doing so they can, with certain limited exceptions to be mentioned later, be certain of receiving a fixed penalty of 10% of the tax/duty to be paid (and no penalty at all on disclosures of untaxed amounts less than GBP2,500). The tax/duties to be disclosed are those underpaid for the years 1987/88 to 2005/6. However, for the years 2000/1 and earlier, undeclared income and gains which were ‘trivial’ need not be disclosed. No guidance has been given on what exactly is meant by ‘trivial’!

It is important to recognise how crucial the 22 June date is. Notifications received even a day late will not be accepted. Those who have notified will then have until 26 November 2007 to quantify their disclosure. This must be sent to HMRC along with a statement of offshore bank accounts open at 5 April 2006, a statement of offshore assets held at 5 April 2006, a formal letter of offer to pay, a declaration that the disclosure is correct and complete and of course payment of the full amount disclosed including interest and penalty. Where the full amount cannot be paid by 26 November 2007 that fact must be notified to HMRC immediately along with a statement of assets and liabilities and proposals for clearing the debt.

HMRC have said they will not act on notifications which are not followed up by a disclosure and that indeed such notifications will be expunged from the taxpayer’s computer records.

Those who are not eligible to use the Offshore Disclosure Facility because they do not have an offshore account, but who have a disclosure to make, may make that disclosure and payment directly to their normal tax office in the form, and within the time limits, set out above. If they do so they may expect to receive the same benefits as those who hold an offshore account but almost certainly they will have to provide some evidence to satisfy HMRC that the disclosure is complete since HMRC will not have information from a bank to help them with the verification process.

HMRC will check a number of disclosures where its risk assessment highlights the most significant possibilities of under declaration but the majority of disclosures will be accepted. Those which are unlikely to be accepted include-

  • disclosures which are found to be materially incorrect or incomplete.
  • disclosures from those into whose affairs an investigation or an enquiry has already begun.
  • disclosures from people suspected of being involved in serious organised crime (including mobile phone – carousel – fraud, VAT Bogus Registration Repayment fraud or organised Tax Credit fraud) and those involved in wider criminality (presumably drug dealers and the like).
  • disclosures from those whose circumstances would result in criminal investigation in accordance with HMRC’s stated Criminal Investigation Policy. This category includes professionals such as lawyers and accountants and those who during a previous investigation appear to have made a significantly incomplete disclosure. HMRC have made it clear that they may use material disclosed as part of the amnesty process as evidence in a criminal investigation

Immediately after the initial phase ends HMRC investigators will move to target those who have, or have had, offshore accounts who have not notified their intention to make a disclosure and whose accounts and/or tax returns suggest that tax may have been underpaid. HMRC’s elite investigation unit - Special Civil Investigations - will investigate cases where the information suggests the yield may be in excess of GBP500,000. Those where the anticipated yield is between GBP75,000 and GBP500,000 will be dealt with by eight Civil Investigation of Fraud teams established specifically to deal with this offshore initiative. Both of these teams will handle their investigations under Code of Practice 9 commonly known as the Hansard procedure. All other cases will be distributed around HMRC’s investigation network.

Inevitably those who decline to disclose under the amnesty can expect to be charged significantly higher penalties – 30% or higher – and some may face criminal prosecution.

The disclosure obligation applies equally to those who are resident, but not domiciled, in the UK if-

  • there is undeclared income arising in Ireland whether or not this has been remitted to the UK.
  • income or gains have been remitted to the UK without being declared and tax paid.
  • the offshore account contains income or gains which arose in the UK and which have not previously been declared.

It is believed that the banks which have already complied with information notices will be writing to their customers whose details they have been obliged to hand over to HMRC. Customers of banks which have not yet been served with a disclosure notice must not be lulled into a false sense of security. They must assume that all banks will, in due course, be approached by HMRC for information and they too, if appropriate, must act urgently. The opportunity to make a clean breast of all past tax irregularities, the certainty of a 10% penalty and the very slim chance of any detailed enquiry make this an extremely attractive proposition for most tax evaders. However, anyone considering making a disclosure must take into account that there is a very short period of time for making a notification and for compiling disclosures. It is likely that complete documentary evidence will not be available meaning that estimates and reasoned assumptions will have to be made. And the consequences of making a materially incomplete disclosure are likely to be serious.

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