HMRC have historically taken exception to the use of offshore accounts to evade UK taxes, but in years gone by they have had to rely on information or documents passed on to them from disaffected wives, lovers, employees etc who have gained access to it relating to the hidden investments.
In such cases, approaches by HMRC were made on this basis: ‘We suspect you of serious tax fraud – either you tell us everything or we will seek to prosecute you through the courts.’ If the matter reached the courts, HMRC had to use the judicial process known as ‘letters of request’ where foreign jurisdictions would formally supply material relating to the assets in their territory, so that it could be used in the UK courts.
In the last six or seven years HMRC have made considerable efforts to improve the information-gathering process relating to offshore accounts held by UK residents. These activities are now bearing fruit and details of bank account holders in British territories will soon be handed over to HMRC.
Throughout their attempts to gain access to the information, HMRC have offered opportunities for individuals to come clean, disclosing tax irregularities linked to offshore assets and investments. Here is a guide to these opportunities.
Initially there were no sweeteners to encourage people to come forward, but in 2009 the Liechtenstein Disclosure Facility was introduced, offering most participants with offshore assets anywhere in the world the opportunity to regularise their tax affairs with no tax recovery sought for years before 5 April 1999 and minimal tax penalties for duties arising after that date.
The agreement reached with the Liechtenstein Government means that account holders have to prove their UK tax compliance or move their assets before 5 April 2016 or face sanctions.
A follow-on agreement with Switzerland again called for evidence of UK tax compliance or alternatively substantial capital deductions and further annual deductions which were treated as UK withholding tax. HMRC are aware that some individuals would opt to move their assets and they have promised to pursue them using every method open to them.
The UK/Swiss tax agreement started 1 January 2013 and failure to authorise disclosure to the UK authorities mean that the tax deductions started from 31 May 2013. There is no guarantee that these deductions will clear tax liabilities for past years and if they later become aware of the account HMRC are certain to enquire into account movements and transactions in earlier years.
Agreements have now been reached with British territories in Jersey, Guernsey and the Isle of Man who will hand over details of UK account holders after 30 September 2016. To encourage disclosure before that date HMRC are offering beneficial terms similar to the Liechtenstein agreement.
HMRC have announced that they are seeking access to other known ‘tax havens’ including Monaco, Gibraltar, and British Virgin Islands.
Disclosure Facility Opened Closes
Liechtenstein 1 September 2009 5 April 2016
Jersey 6 April 2013 30 September 2016
Guernsey 6 April 2013 30 September 2016
Isle of Man 6 April 2013 30 September 2016
The message from HMRC to individuals who have not so far come forward is clear: disclose now or we will track you down and either prosecute you or fine you heavily. The civil penalties for tax evasion linked to offshore accounts can be as much as 200 per cent and as a further deterrent HMRC will publish the names of tax defaulters where liabilities exceed £25,000.
Tax issues relating to offshore accounts can often be resolved quickly and cheaply through the disclosure process. For anyone with concerns about possible tax irregularities the advice has to be to talk to your tax adviser today. We at GSC can offer independent advice with the protection of legal professional privilege.
Nick Mogford is a tax consultant at City law firm GSC Solicitors LLP. He worked for the HMRC for several decades and specialises in tax investigations