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PKF Predicts Second Amnesty For Offshore Account Holders

by Philip Morton, Investors

19 November 2007

Accounting firm PKF has predicted that the UK's HM Revenue & Customs (HMRC) will offer a second "amnesty" to those who owe tax on bank accounts overseas, and has suggested that this could undermine any incentive for tax evaders to volunteer their liabilities in future.

HMRC is currently receiving the final payments from its first Offshore Disclosure Facility (ODF), which ended earlier this year. Those who volunteered under this scheme had to pay the tax owed, interest and a 10% penalty.

The amnesty is expected to net the Treasury between GBP750 million and GBP1 billion in unpaid tax, but the final number of registrations remained small compared to the total number of people suspected of holding undeclared money in offshore accounts. Before the amnesty expired, HMRC sent out 200,000 letters warning that penalties would be "much higher than under the disclosure arrangements”.

John Cassidy, Tax Investigations Partner at PKF, observed that:

"There would be no logic to setting the penalty for a second ODF at the same 10% level and still allowing those who ought to have come forward the first time to use the new facility. Where is the incentive to come forward now rather than wait until a later exercise? There is a serious danger that such exercises will stop being taken seriously if they happen every year without change."

He continued:

"What I think is needed is an updated model. The priority must be to incentivise more people to come forward and there are certainly lessons to be learnt from the first exercise. For instance, HMRC asked people to calculate and disclose unpaid tax as far back as 20 years which I believe dissuaded many people from utilising the facility. They either didn't have the old records anymore or it was simply such a daunting task that they would rather risk not disclosing."

"Reducing the length of time to be investigated to six years, perhaps counter-balanced by a different penalty structure, would provide a much greater incentive to people, which is the key issue. The more people come forward, the more tax arrears HMRC will collect – it should give more to get more."

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