Offshore net is tightening
The paperwork surrounding the Budget back in April announced that there is going to be a further and final opportunity to admit to offshore income. Once this opportunity passes then the HMRC will get heavy.
We do not have exact details or dates but HMRC is supposed to launch this new initiative in the autumn. The exact date is unknown but September or October seem the most likely.
I will start by refreshing your minds on the history of offshore disclosures. Prior to 2007 the UK tax people had not given any form of amnesty whereby a person who had not paid enough tax could declare their hidden income for a preferential treatment.
You might remember that in the 1980s and early 1990s the Republic did have such amnesties. The millions in tax brought in |really set their government up |financially at that time.
At the UK end the first change was in April 2007 when a limited amnesty was announced. The tax people never called it an amnesty, because a true amnesty brings immunity from prosecution. What happened in 2007 allowed for a simple way of declaring past income, a reduced penalty (10% of the tax) and a light touch as far as investigations were concerned.
I say a light touch because most of the disclosures were not queried. HMRC simply took the money and accepted the figures. This left those people with certainty that those tax years were now a closed book (so long as they had finally declared everything).
I expect HMRC will adopt similar procedures for handling the 2009 initiative. It is being given a different title. So in the autumn we should see the lunch of the New Disclosure Opportunity — NDO.
HMRC is keen to bring in the tax it is owed from all sorts of offshore investments. Mostly bank accounts, but also including offshore bonds, rental properties and assets abroad purchased with what might be described as hot money.
By hot I mean untaxed income — things like business profits or capital gains which were stashed abroad in the hope the taxman would never get his cut. In the 1980s many banks advised clients to do this and it is only now that the chickens are coming home to roost.
The tax people have obtained a lot of information about overseas accounts and hope that the people with something still to declare will do it in 2009.
We can expect that, like in 2007, HMRC will open the door so people can register their interest in the New Disclosure Opportunity. They will probably allow a couple of months for this.
Registration does not mean you are sure you have failed to declare something, but it keeps your foot in the door while you find out. You can read more about the 2007 initiative at http://tinyurl.com/kuwmgz
There will then be a longer period over which you can make the disclosures to HMRC. This will probably again be in a simplified form and with a facility to send the stuff electronically.
Once again the individual or their tax adviser will have to do all the sums and make sure a cheque for the full amount arrives by a certain date.
Some people the last time decided they would continue to keep quiet about that old bank account in Jersey etc.
That was a high risk strategy, but they should think again this year. HMRC does not plan to offer a third opportunity. Which means they will throw the book at anyone who fails to cough up this time. High penalties, rigorous investigations and more prosecutions in court.
Add to this the new legislation planned to publicise large scale tax offenders and life could get pretty unpleasant.
Chat around the golf club would be along the lines “Did you see how much the Revenue got out of Gerry? Wonder how he got caught?”
The Revenue Commissioners in Ireland have been publicising such things for years now and it makes interesting reading when you know the person.
Tips for the approach to autumn 2009 if you have, or used to have, offshore stuff which was not declared:
- Brace yourself for the tax bill plus interest and a penalty
- Don’t throw anything out related to the money
- Start pulling together what statements or details you have
- Ask the banks etc to help provide missing statement
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co — www.huston.tv or 028 9080 6080