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HMRC To Turn Screws On Offshore Account Holders

by Robert Lee,, London

24 December 2009

Dave Hartnett, Permanent Secretary for Tax at HM Revenue and Customs (HMRC), the UK tax authority, has revealed that offshore account holders will in future be required to notify the taxman when their account balance hits GBP25,000 or more.

Fielding questions from tax advisors about the UK's two offshore disclosure schemes, the New Disclosure Opportunity (NDO) and the Liechtenstein Disclosure Facility (LDF), Hartnett said that taxpayers who fail to disclose offshore financial arrangements under either of these two amnesties will face penalties of up to 100% of any tax owed.

"We’ve been surprised that some people seem determined to frankly hold out and not make a disclosure when they can see announcements that have been made of penalties for incorrect tax returns, and that some of them will face a penalty of 100%," Hartnett said in response to a question by Gary Ashford of the Chartered Institute of Taxation on new legislation requiring notification of the opening of new accounts, referred to in the recent pre-budget report.

"We needed to make things more secure from a tax administration perspective going forward," Hartnett continued. "And our ministers accepted that argument, and so people are going to have to make a notification going forward of an offshore account which hits a GBP25,000 balance or is newly opened with that sort of money. Now people who don’t do that and whose tax returns are wrong will face a penalty of up to 100% of the tax for not notifying us, plus up to 100% of the tax for an incorrect return. That’s a big penalty."

Under the NDO, people making a complete and accurate disclosure between September 1, 2009 and March 12, 2010 of their untaxed offshore liabilities will have any penalty capped at 10%, or 20% if they failed to take up a written offer of a capped penalty under HMRC’s 2007 Offshore Disclosure Facility. However, HMRC must be notified of an intention to disclose by January 4, 2010.

Following the January 4 deadline, Hartnett revealed that HMRC will begin to notify by letter those who have offshore accounts but did not avail of the NDO that the department has information about them. "For the time being, those letters [about disclosure] will be very friendly, very warm, letting people know we’ve got information," Hartnett said. "But I think once we get past the time for people to come forward, those letters are much more likely to be invitations to interviews, and meetings to discuss the accuracy of tax returns."

Hartnett expects that, with a high volume of information obtained from banks with a UK presence to sift through, it will not be until the end of March 2010 before HMRC begins the process of "risk profiling" individuals to identify those who could have made "significant" disclosures but chose not to do so. "I think people will then see a growing number of investigations," he added.

Hartnett also confirmed that HMRC is in discussions with a number of other jurisdictions regarding the possibility of negotiating further disclosure facilities along the lines of the LDF.

The LDF agreement, signed by the UK and Liechtenstein governments on August 11 alongside a broader tax information exchange agreement, is aimed specifically at those with accounts in Liechtenstein and commenced on the same date as the NDO. The LDF also caps penalties at 10%.

"We are in discussion with other countries," Hartnett said, although he refused to discuss the countries involved in the talks, or whether the terms would be the same as the LDF.

"It really depends on two things," he explained. "Have we got any levers that would allow us to gain access to banking data in those countries? That’s the first consideration. If the answer is no, there are none at all, well we’d think hard about what to do. But what we don’t want to do either is to undermine the Liechtenstein disclosure facility by suddenly giving someone a choice between the Liechtenstein facility, and – I’d better not name any countries – say, the ‘Ruritanian facility’."

"My message is very simple," Hartnett warned when asked how the department would respond to those determined to escape the clutches of the taxman. "The world is getting smaller. Tax administrations are cooperating more and more. But I asked one of my colleagues what I should say, and she said to me I should quote Geena Davis … The quote is, and I think it is very apt – it’s not meant to be frightening, it’s just very apt – 'Be afraid, be very afraid,' if you want to keep hiding your money offshore.”

A comprehensive report in our Intelligence Report series, examining in depth the situation of offshore transparency and secrecy in a number of the most prominent jurisdictions, is available in the Lowtax Library at and a description of the report can be seen at

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