Time is running out for anyone wanting to tidy up their affairs and admit that they haven’t paid enough tax on something that was offshore.
November 30, 2009 is the last day on which you can avail of the chance to clear matters up in the cheapest and most stress-free way.
HMRC on that day will close the bizarrely-named “New Disclosure Opportunity”. When we hear the word opportunity mentioned in financial circles it generally points to some dodgy investment that is being dressed-up as a great opportunity. Here. However, the tax-man means your last chance to admit you haven’t paid enough tax.
The tax you owe must, at least in part, be due to an offshore asset, investment or bank account. Offshore could mean somewhere as close as the Isle of Man or Republic of Ireland.
If you register under this initiative then you have until early in the New Year to submit the figures for each tax year. Estimates are allowed, since many people have not kept the bank statements etc for the 20 years covered. HMRC will want the tax you should have paid them plus a 10% penalty (which is low). Also they charge interest from when the tax should have been paid to the date it is paid. The interest can be quite a large figure.
Note that HMRC does not go back any further than 1988/89. This is important. For example say you are a farmer and sold a field in 1986 for £50,000 and didn’t declare it. HMRC will not want the tax on the sale of the field. All they will want is the tax on whatever interest your money in the Isle of Man earned. (In my experience much of the money salted away overseas was in Jersey or the Isle of Man.)
Going back to the question at the start of the article – should you confess?
I say categorically YES. There are a number of reasons for this, including:
1. Leaving your affairs tidy should you die.
2. Being able to enjoy the money once HMRC have their chunk.
3. No more sleepless nights.
4. A simple declaration rather than a complex investigation.
Going through these points in more detail...
If you have savings offshore and are currently hiding them from HM Revenue and Customs then in the event of your death there will probably be problems. If the account is joint and you both die (say for example in an accident) then the money will come back to the UK. This will draw it to the attention of the tax people - who administer Inheritance Tax as well as Income Tax. The result will be a tax investigation into your tax affairs during your lifetime. The problem is it will be down to your executors to handle the tax investigation. Without you around to explain lodgements and what happened then the tax people will probably get a bigger slice of your estate than they would if you settled matters while still alive. Even if you think you have sorted things by having an adult child or other relative on the account, this will not necessarily help out. Firstly if you die they would get all the money and that might not be what you want. Secondly they will be unable to repatriate the money as that would highlight that your tax affairs were up-the-left.
Enjoy your money after you confess. Over the years we have helped a lot of people to tell HMRC about previously-hidden savings – often offshore. Of course there is money to pay to HMRC but in my experience most people have been too scared to touch their offshore savings for years. The savings are useless to them. Once HMRC has been told then the money can safely and legally be brought back into the country. Pay off HMRC and you will be able to enjoy the remaining funds. This could mean making lifetime gifts to family etc (potentially saving Inheritance Tax) or treating yourself to something your UK funds did not permit you to buy.
No more sleepless nights. It is hard to emphasise enough the effect of the ongoing worry people face while hiding money from the tax-man. What seemed a bit of cat-and-mouse fun years ago gets less attractive the older you get. As you get older you realise what a mess you will leave when you die. You may have retired from business and not even have an accountant any more to talk about the issue. Every day that goes by you look at the post hoping there is not a brown envelope from HMRC ominously saying “We think there’s something you have not told us.” More worry comes every time you read about a local tax prosecution in the courts, or hear how HMRC’s information is being gleaned from ever-increasing sources. You can end all this by coming clean about your offshore savings. A couple of months of working with a tax consultant and you will be able to put it all behind you.
A simple declaration rather than a complex investigation. This is an important aspect of using the current tax amnesty. Your tax adviser fills in some streamlined forms for you – declaring the figures for the past 20 years – and submits them to HMRC. Most will simply be accepted and the matter is closed. Dave Hartnett HMRC’s Permanent Secretary for Tax promises in his official video that if you come forward before 30 November and make a full and complete disclosure that you will not go to jail. In other words they will not prosecute you. Miss the deadline and then, whether you go to HMRC or they come knocking at your door, then you will face a tax investigation, almost certainly into all of your tax affairs. It will cost you more in accountant’s fees, last a long time (perhaps more than a year) and you will be questioned in depth about a lot of stuff. Your business, what holidays you take, how much you spend each week on groceries, where all your property came from etc. The penalties will be at least 30% and there is a real possibility of prosecution in the more serious cases.
If you owe tax on something offshore – whether on the money used to fund it, or on income since then, you need to act quickly. You - or your tax consultant,- need to register by November 30, 2009 that you wish to take part in the NDO – New Disclosure Opportunity. If a bank account was joint then every person on the account (at any time in the past 20 years) should register – but look after your own side even if others want to take a gamble.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.tv or 028 9080 6080.