Amnesty experiences so far. By Will Heard

I understand that HMRC deduced that there is a lot of undeclared offshore interest by comparing the number of individuals for whom they have details from the banks with the number of individuals sending in "Foreign" pages with their tax returns. There was a shortfall. Their conclusion: tax is due but has not been paid.

Although there are undoubtably many people who should have been declaring interest and have not done so, I am certain that some of these accounts will not produce the expected tax return:

(a) in many cases taxpayers didn't realise that they should have been putting this income on the "Foreign" pages and may well have just included it on page 3 of the return with their other interest income. This is very likely where the bank name is the same as a UK HIgh Street bank. [Let's hope it went into the "paid gross" line or there will be underpaid tax]

(b) some of these accounts, as in the case of a few of my own clients, will be monies (eg gifts from relatives and inheritances) held in bare Trust by parents for minors. It can be much simpler and easier, to ensure gross payment of interest, to hold the accounts offshore for minors, especially if the parents and child are foreign nationals.

(c) identity fraud accounts where the person named on the account has no idea of its existence.

(d) as mentioned elsewhere, accounts for people who have a UK address but who are resident abroad.

I shall be very interested to learn how many of the suspect accounts will result in additional tax to the Treasury and on how many the interest had been declared already, where it should have been.

we are in danger of committing the cardinal sin of going off-topic, but if those stats are right, then the ones the software indusry and HMRC use for agent online filing are totally out.
Sorry, Will, so what are everyone else's experiences?

I have only had one client disclose to me an offshore account.
The average yearly interest is only £8, and the source of the funds is not an issue. The account is in the name of all four familly members, and two of them are non tax payers. They got a letter from the bank RBS and are extremely concerned.

I have checked the bank statements and it would appear that in Oct 2005 the bank started to deduct tax at source as the interest is stated as NET and previously it stated GRS.

It is normal practice with joint accounts to split the interst between the account holders. In this case they would have to make 4 disclosures for a very small amount. I would have to charge a fee more than the tax due.
It would be a complete waste of time and money and am tempted to say just forget it as it would not be worthwile for HMRC to investigte this.

Any thoughts?

David,
Out of interest, where do you get the stats of 40,000 accountants from? I was led to believe HMRC estimate it at around 25,000 agents, but then I do not know if 25,000 is people/firms who call themselves accountants and the 40' includes people/firms who do not, such as bookkeepers. In terms of numbers of individuals who call themselves accountants, that runs well into six figures.

In terms of what sort of response is to be expected, one must bear in mind that the estimates of the tax at stake, which HMRC put forward as estimates to the Special Commissioner in its s 20 cases, were worked up from the results of reasonably few but very high value cases.

Extrapolating these results would have produced the same results as Will might have got if he did the same with his post s.20 decision, pre-amnesty cases.

Alternatively, people are holding out until the last minute,or taking care to submit a timely and accurate disclosure or have decided that 10% is poor value, and statistically if the figures are not too high they will not be picked up anyway.

I would wager that there is a large number like the £8 case just mentioned, and they quite possibly think that as it is so low it is not worth disclosing, if ,of course they have not already been disclosing it in the wrong place anyway.

Nichola

The HM Treasury consultation paper on implementing the Third EU Money Laundering Directive (published in July 2006) included a partial regulatory impact assessment. At para B.28 on page 90 it gives the government's understanding of the numbers involved in different parts of the 'regulated sector' for money laundering regulation purposes. It includes:

"External accountants: Estimates are 25,000 firms belonging to
recognised professional supervisory bodies and 40,000 that do not
belong to such bodies."

So actually I should have quoted 65,000 (not 40,000) in my posting below. I have now changed it.

How reliable this estimate is remains to be seen. The government's expectation apparently is that 40,000 will sign up for ML compliance monitoring by HMR&C.

David
www.MLROsupport.co.uk

HMR&C say their website page on the 'amnesty' has received more than 20,000 hits.

According to Will over 300,000 letters have gone out from the banks.

The government believes there are 65,000 firms of accountants (with or without formal qualifications, and including one-man-bands) in practice in the UK.

In the light of that, 20,000 hits on the HMR&C website page seems a pretty small number to me!

David
www.AccountingEvidence.com

P.S. I have changed the above figure for accountants from 40,000 to 65,000 after checking the HM Treasury estimate.

But I don't.

Not all of the hundreds of thousands of letters will have been sent distressed little old ladies.

Let's get real. My web site is receiving thousands of hits on this issue. There must be a reason.

Richard Murphy

Interesting Any Answers query from John Anon gives the facts relating to a client who has come forward following a circular from John's firm and recent press articles.

David

Let us be clear, it is not an amnesty. You still have to pay the tax and interest.

As regards the likely sources of disclosures, my soundings suggest that one fruitful area will be all those overseas properties where the rent has been kept offshore. This creates a double problem of the tax in the host country and the exchange of information between the UK and other tax treaty countries.

The real problem arises when the property is sold. If the taxpayer declares the capital gain in the UK this could prompt HMRC to enquire into the rental history, so another good reason to advise full disclosure while the facility exists. Of course, if the client does not disclose the capital gain, they risk details being passed to HMRC by the host country authorities.

David Rangeley

The most notable point about this amnesty observed from the phonecalls to TaxHelp for Older People is the fact that none of our callers had heard about it from HMRC publicity, only from the letters from their banks. Do HMRC really believe that the passengers on the Clapham omnibus regularly browse their website to keep abreast of tax matters, especially the low incomes clients that TOP helps?

Paddy Millard

HMRC have said that they have a lot of information. It seems in fact thet they have a lot more than many people suppose (much will have come in under the EU savings directive).

Those who do not come forward at this point - and so far there must be a lot even of those who have had letters from their banks - cannot I think assume that this will be the end of the story.

Given that there are another 3 to 4 weeks yet , I think we might still see the numbers jump !

I, like Mark Gosling, have a client with very small amounts of interest from two accounts; the source of which is OK. The interest for 2002 & 2003 is pence and for 2004, 2005 and 2006 is £10, £10 and £2 respectively. From October 2005 tax has been withheld from both accounts. I have telephoned HMRC's helpline in respect of these disclosures and have asked whether there is a need to declare such trifling amounts and received an unhelpful 'cannot discuss this with anyone bar the taxpayer' response. I am loathe to charge the client a fee well above the tax liability arising - £4.80, and am tempted to send the guidance books and declaration direct to the client to deal with. This latter action does not sit well with me as I feel I should be doing more. Any ideas or information on cases such as this?

1) Tax is due. There is no 'materiality' in tax. Tax must be paid.

2) The tax withheld was at 15%. It does not settle that UK tax liability. There is additional tax due.

Yes the sums may be trifling, but that's not the point. The client may decide to ignore this issue. The accountant cannot. And the accountant should know what tax deducted at source means.

I am thankful to Richard for reminding me that materiality is a concept for accountancy, not taxation; however HMRC accept that materiality is an issue as it is ultimately the commissioners and the courts who will decide the factual accuracy. I would expect an Inspector would rather not raise a determination for understated profits of a few pounds knowing he may need to justify his actions before the commissioners and/or certify the debt for Magistrates Court proceedings. HMRC has internal limits to avoid this occurring and I was hoping for some useful input from agents who have received some response in this area from the Revenue.

On page 6 of HMRC's guidelines it states that "For 2000/01 and earlier you do not need to provide information for a year in which the unpaid tax and duties were trivial". What is HMRC's definition of trivial? Does anyone know as an amount may be "trivial" to one taxpayer but the same amount may be substantial for another taxpayer in proportion to their total income for a particular year.

I need to correct a wrong impression in the article "Amensty Experiences so far"

Please see the paragraph below.

So what of our experiences in Shaws? Having spoken to a number of firms of accountants and other knowledgeable sources in the past few weeks I can say with a certain amount of confidence that we have all had similar experiences namely that, as predicted, there have been many inconsequential disclosures which often fall below the disclosure facility de minimus limits (less than £2,500 taxable in total) and many more that will yield very little in themselves though the UK aggregate “haul” might be fairly impressive.

This gives the impression that if one has less than £2,500 of income that should have been declared then there is no need to declare it under the Offshore Disclosure Rules. I am sorry for the confusion here. The de minimus limit only operates with respect to the ten per cent penalty. If less than £2,500 of income has escaped taxation then the tax and interest will have to be paid but there will be no penalty on the tax. See page 3 of the booklet DS101 "Making a disclosure".

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