Tax amnesty for offshore income announced

It should be noted that any tax irregularities can be disclosed under this facility.

Whilst it is primarily aimed at money in offshore accounts that is linked in some way to a UK tax loss, anyone making a full disclosure and payment within the same terms/timescale can expect the same treatment, regardless of whether an offshore account exists.

John Cassidy
Tax Investigations Partner
PKF (UK) LLP

Experienced practioners will note that the penalty applicable under the new process is not substantially different from what could be acheived when approaching HMRC with a voluntary disclosure.

There are various areas of concern about the new process. These include the position regarding the use of estimates, and what protection there will be if these are subsequenstly challenged and found to be incorrect.

Also, there is the possibility of prosecution even where a disclosure has been made, although I suspect this will occur in only a small number of instances. HMRC's guidance states that if they decide to prosecute after the disclosure is made, material provided (in the disclosure) may be used in evidence against the taxpayer.

On balance, this is an excellent opportunity for anyone (individual, company, partnership or trust) with a tax problem to come clean. The process will not be available to all, and may not always be the best solution, but, in a large number of cases, will provide an opportunity for those who have not declared all their income, etc to sort their tax affairs out.

Phil Berwick
Director of Tax Investigations, Tenon
020 7535 1400
phil.berwick@tenongroup.com

Some FAQs to help AccountingWEB readers

In view of the 'amnesty' is tax evasion no longer criminal conduct which needs to be reported under the Money Laundering Regulations?

Tax evasion (i.e. the knowingly dishonest under-declaration or non-declaration of taxable income) is still criminal conduct that may need to be reported to SOCA under section 330 Proceeds of Crime Act 2002 and The Money Laundering Regulations 2003 (but see below).

If a new client or an existing client approaches me to ask if he might qualify for the 'amnesty' am I obliged to report this to SOCA?

If a client whom you did not previously suspect of tax evasion asks you for advice in connection with the 'amnesty' then the advice which the client is seeking is legal advice and you will be exempt from reporting this client to SOCA providing that both:-

(i) you are a member of (or your firm is regulated by) a professional body which meets the requirements set out in The Proceeds of Crime Act 2002 and Money Laundering Regulations 2003 (Amendment) Order 2006, and

(ii) the client is not asking your advice in order to facilitate a criminal purpose (such as in order to facilitate further tax evasion).

Otherwise a report to SOCA is normally required.

If the client, after seeking my legal advice, subsequently decides not to make a disclosure to HMR&C do I then have to make a report to SOCA?

No, you do not have to report it unless you conclude that in originally asking your advice the client had intended to facilitate a criminal purpose.

A bloke in the pub told me that a recent court case decided that takings of a legal business which have not been declared for tax are not 'criminal property'. Does this mean I don't have to report suspected tax evasion to SOCA?

The bloke was probably thinking of R v Gabriel. What the Court of Appeal decided was that (in most cases) the takings themselves are not 'criminal property'- see paragraph 20 of the judgment. But 'criminal property' does come into existence when the tax (including Value Added Tax) on those takings falls due and is not paid as a consequence of dishonest under-declaration or non-declaration of the income or takings. When that happens a money laundering offence occurs and a report to SOCA is required. So the position regarding reports by accountants has not changed as a result of the Gabriel case.

For more detailed advice (which is chargeable) contact me via my website.

David
www.MLROsupport.co.uk

"What penalty do I have to pay?
Calculate and apply the penalty which is fixed 10 per cent of the undeclared tax/duties and National Insurance contributions. But if the total amount of undeclared income, profit or gains is less than £2,500 you need not pay a penalty.
Do not apply the penalty to the interest."

I have made an adjustment to the article above so it is clear that the 10% applies to tax/NI.

HMRC assure me that this "facility", i.e. arrangement per the special website is only for under declared offshore income/profits. So there is no reason to suggest the same time limits will apply to onshore income/profts, even though the penalty treatment may well be identical. A point to note is that the new tax penalty regime will apply when FA 2007 goes through, and so those who are debating what to do with underdeclared onshore income/profits may need to weigh up any remote benefit that could accrue from delaying action.

David - thank you very much for the money laundering angle on all this.

It looks like there could be a lot of work for accountants putting together disclosure documents and calculating tax, interest and penalties before the 26 November deadline for detailed disclosure and full payment (especially as disclosures may cover a period of up to 20 years).

It seems that HMR&C are willing to accept reasonable estimates of undeclared income where information is unavailable and to ignore years in which undeclared income is trivial.

Incidentally my typical clients (those involved in serious crime such as drug trafficking) will be excluded from this offer.

David

The real culprits in this are the banks and other professionals who allowed people to run these acocunts offshore without ever 1) reporting suspiscion of evasion under local money laundering rules 2) telling people to declare 3) asking relevant questions so long as local regulations were complied with.

I explore this in more detail at http://www.taxresearch.org.uk/Blog/2007/04/18/the-uk-tax-amnesty/

The 'amnesty' does not address IHT.

Suppose father had 'black money' outside the UK, and son inherits, excludes from IHT return and keeps money.

Whilst 'amnesty' will address penalties on tax on the son's undeclared interest, it will not address failure to include money in deceased father's estate.

This is not affected by any incometax/CGT statute of limitation under TMA s40.

Uh oh.
Strange that people lose touch with objectivity when the word "real" is introduced e.g. in the "real" world (as if everyone else lived in a virtual world except the writer).
Richard, the "real" (or better expressed, primary) culprits are the people who commit the crime ie in this case, the evaders.
Just as in the WWII looting of Jewish property, the "real" (or primary) culprits were the Nazis and others directly doing the looting.

Sure, it is perfectly reasonable to say that others involved in the routing of the ill-gotten gains have a "real" secondary culpability, ranging from negligible to very high to co-conspirators. The Swiss banks in my view had a clear secondary culpability, bordering on conspiracy, albeit it is dangerous to ignore counter-arguments as if they do not exist. It may be the case that some of the banks and professional advisers in respect of the offshore funds also have a secondary culpability, or even venture near to co-conspiracy, or even knowingly indulge in conspiarcy to fraud.

But it weakens the case (which I personally have great sympathy for) to start making claims about "real" culprits in this manner.

I've done an analysis on my blog of howw much could if the funds moved offshore were untaxed in the first place.

I used a model created by the Telegraph and show tnat they massively understate likely liabilities

http://www.taxresearch.org.uk/Blog/2007/04/18/the-bit-about-the-amnesty-most-people-are-ignoring/

Yes Mark Lee the sum of £2,500 refers to the tax unpaid on the income not the amount of the income. This is just the same concession given to anybody where it has not been the practice of HMRC to seek penalties where the abated monetary penalty was < £250 in hard currency. It will mean different levels of income for people with 40% tax laibilities or basic rate and if any other duties e.g. Class 4 NIC/CGT etc. were to be included.

regards
bill@wamstaxltd.com
http://www.wamstaxltd.com

The way I read the Revenue guidance it is income less than £2,500 not tax.

Yes Peter I see what you mean however it is possible that this could give rise to problems considering HMRC's other reference manuals etc. if for example somebody had say £6,000 of income or gains that had not been notified and was laible @ say 40% the (simply put and ignoring complications) the unpaid tax would be roughly £2,400 and a 10% penalty would get £240 of a penalty. My recollection is that HMRC are prepared to forego tax geared penalties of less than £250 so I wonder if this is a peculiarity of the "amnesty" - not really an amnesty if you are having to pay tax interest and penalties.

I do however take your point and will resolve it when and if it becomes an issue with a case with HMRC. It is worth thinking about however.

I am coming to the view that a key benefit for the taxpayer in making a voluntary disclosure is that the process will be less personally stressful than being subject to a routine HMR&C tax investigation.

It seems that the 'amnesty' route will avoid the usual considerable and detailed correspondence, and the potentially very long period of uncertainty during which an HMR&C enquiry is ongoing.

There may also be some saving in accountancy fees compared to a lengthy investigation.

I appreciate there will be accountants who will say, "When my clients are under investigation they find it a breeze - so swift and painless they send me flowers and chocolates afterwards" - but I don't think all clients regard tax investigations that way!

David

Colin

In practice it DOES apply to non offshore disclosures covering all tax irregularities. The notes state that anyone making a disclosure (even without an offshore account) can expect the same treatment as under the offshore disclosure facility. I have spoken with the helpline and confirmed that this is the case and that the same time limits apply, ie the same treatment can be expected as long as the same terms are embraced.

I note what Martin Foley says, but I chose my words with care.

You can't have an offshore bank account without their being a bank. No one promotes banking in the Isle of Wight as an industry. The fact that all the main bamnks and many of the building societies promote banking in the Channel Islands and the Isle of Man is because they know tax will not be paid there. That's not chance. That's deliberate. They lay temptation in people's path, promote it as a product, and then claim no knowledge of the abuse that follows.

But I think they are responsible for the abuse that follows. And they should also know that abuse has taken place. Under the EU Savings Directive these offshore banks had to ask all their UK based customers if they wanted their interest income declared to HMRC. At least 70% said 'no'. In every one of those acses the offshore bank must have had reasonable suspisicion that the account holder was, as a result, tax evading. That should have given rise to a money laundering SAR in every one of those cases in my opinion. In Jersey at least none were issued (there was no money laundering reported at all to the Jersey police in 2006 - not one case). In that case the banks have also failed in their duty in this respect as well, in my opinion.

So they are the real culprits. They are, as the Tax Justice Network would describe it, the 'suppliers of corruption services'. They may be legal themsleves, but they knongly supplied a product which others could use for corrupt purpose. And I think this is the bigger problem right now.

Richard Murphy

.......so the "real" culprits in gun crime are the guns.

There is a perfectly good argument for saying that guns should not be readily available, because they are a contributory factor in violent crime. But that hardly is the same thing as saying the guns are the "real" culprits.

Sorry, I think you are just weakening a perfectly good case by over-stating it - so I think your careful choice of words is (for me) quite wrong.

Abolition of offshore banking is not a practical proposition any more than banning production of guns is.
The best solution would be for transparency and information access - which is sloooowly coming, but agreed is a long way off.
How about Norway, where tax returns are publicly available documents !! Yips, perhaps total transparency is a bit frightening !

Colin,
The crux of matters will be ensuring that any non offshore account case provides a full disclosure and pays all the tax interest and penalties to get the parity of treatment
regards

All very well blaming the banks, but one need to examine the bigger picture. Why do banks behave as they do? Well, you could start by asking who laid down the legislation in the first place to enable to operate like that?

Where is the dividing line for 'innocent error'?

The guidance at page 4 says you should not use the facility if the omission was as a result of innocent error and that in those circumstances they'd only go back six years and there should be no penalties.

I assume that the following would not be accepted as innocent error, but where is the line?

"I didn't know that offshore accounts were taxable in the UK"

Martin

Let's agree 100% on disclosure - I'm all for it, and will be publishing a lot more on the issue shortly.

And now let's disagree on guns. I agree with you 'guns' are not the problem in gun crime. But those who promote the sale of guns, who promote violence on televison and in film, who use it as part of electronic games and so on for their own gain, they are a problem.

The gun is a vehicle. Those who sell them for gain are the problem. It's not the bank accounts that are the problem in this case. It's the bankers, accountants, lawyers and others who promote offshore in compliance with their own (usually contrived) laws whilst turning a blind eye to the consequence elsewhere who are the problem.

It is possible to regulate offshore banking. It is possible to close down lawyers and accountants who promote tax evasion. It requires will. Political will. I think that is possible. I think it will happen.

And when the supply of corruption services is curtailed then we'll see dramatic falls in tax evasion, and corruption in developing countries. These issues are the responsibility of those who callously promote offshore without consideration for the harm it causes. Many in our profession are tarred with that brush.

I do not think I overstate my case. The World Bank this week suggested this may be a problem amounting to US£500 billion or more a year. That's big.

Richard Murphy
http://www.taxresearch.org.uk/blog/.

I note Nichola's comment. As some people will know, I have some experience of engaging with offshore governments.

The principle actors in writing their financial services legislation are bankers, lawyers and accountants. For example, Jersey's new Trust Act passed in 2006 which allows the blatant creation of sham trusts that can only be of benefit to tax evaders was presented complete to the parliament, and was nodded through by it without a vote. See http://www.taxresearch.org.uk/Blog/2006/06/15/jersey-passes-law-allowing-‘sham’-trusts-for-use-by-tax-evaders/ . Who promoted it? The local financial services community, of course

Nichola would be unwise to assume banks are merely responding to an opprtunity. They help create that opprtunity as well. Offshore is not an accident. It's the creation of the financial services industry acting in concert with the British government, who had a policy of promoting tax havens until about 1990.

Offshore accounts exist for more reasons than just evasion.

e.g. People working in non-UK countries may have to be paid into a Euro account which the offshore banks provide.

It's only recently that the onshore banks knew what an IBAN was.

David, The cruel twist here is that even if a person is wholly innocent in the first instance then if there is any delay in correcting any error or misunderstanding then negligence is attached to the error. If his " honest belief" was provable as showing him to have taken every action a reasonable man would have taken to establish the taxability or otherwise and he onestly believed what he was suggesting - he would then have had to approach HMRC as soon as he became aware that offshore interest was taxable. Given the publicity leading up to this "amnesty" I wonder if anyone would genuinely try and convince HMRC that he acted as soon as he became aware of the taxability of such interest. No doubt this might put your question in perspective and generate some interesting propositions. Remember that if you don't take advantage of the "amnesty"disclosure opportunity ou would not then apparently be ableto claim 10% penalty.

we need to get more convincing "innocent error" suggestions
regards
bill@wamstaxltd
http://www.wamstaxltd.com

Does anybody know the position if a client has had an earlier enquiry
and not declared offshore accounts ?
Are they leaving themselves wide open to prosecution having filled in
inaccurate statements of assets etc

Hi Anon,
The following extract from the publicity Q&A holds an ominous warning however it seems almost beyond belief that HMRC could mount a prosecution in relation to an offence where they have induced the provision of evidence by holding out a penalty and monetary settlement as the envisaged conclusion. Perhaps the legal brains in our audience can elaborate further as I personally consider that the prosecution comments are in relation to inadequate disclosures made under the "amnesty".

Will my disclosure be accepted?
We expect the vast majority of disclosures to be accepted. We will send you a letter accepting your offer as soon as possible and by 30 April 2008 at the latest.
If we cannot accept the disclosure we will open an enquiry in the normal way before 30 April 2008. It is also possible that in exceptional circumstances a disclosure may be considered in accordance with our published criminal investigation policy. In these cases, the material in the disclosure could be used in evidence against you.
regards
bill@wamstaxltd.com

My feeling would be that HMR&C would be most unlikely to go for prosecution where a taxpayer: (i) made full disclosure of all tax irregularities under the 'amnesty', (ii) the tax irregularities were not part of wider (non-tax) criminality, (iii) there were no indications that a previous enquiry had been settled on the basis of a certificate of full disclosure signed by the taxpayer which now appeared to be false and dishonest (i.e a deliberate lie), and (iv) there was no link with organised tax fraud (such as carousel fraud).

It is worth looking at HMR&C's list of circumstances in which they consider criminal prosecution which is:

- In cases of organised criminal gangs attacking the tax system or systematic frauds where losses represents a serious threat to the tax base, including conspiracy;

- Where an individual holds a position of trust or responsibility;

- Where materially false statements are made or materially false documents are provided in the course of a civil investigation;

- Where, pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme;

- Where deliberate concealment, deception, conspiracy or corruption is suspected;

- In cases involving the use of false or forged documents;

- In cases involving importation or exportation breaching prohibitions and restrictions;

- In cases involving money laundering with particular focus on advisors, accountants, solicitors and others acting in a ‘professional’ capacity who provide the means to put tainted money out of reach of law enforcement;

- Where the perpetrator has committed previous offences / there is a repeated course of unlawful conduct or previous civil action;

- In cases involving theft, or the misuse or un lawful destruction of HMRC documents;

- Where there is evidence of assault on, threats to, or the impersonation of HMRC officials;

- Where there is a link to suspected wider criminality, whether domestic or international, involving offences not under the administration of HMRC.

David

"will there be enough jails?"

(inland rvenue inspector worried about his next year"s salary increase - alomony is 'is problem).

In terms of the practicalities, those banks that have submitted information on their customers to HMR&C will be writing to each affected customer shortly.

If your client receives one of these letters then he will know that he is on HMR&C's hit list. In that event he has nothing to lose from making a disclosure under the 'amnesty' arrangements (providing he makes a FULL disclosure this time).

His disclosure might be accepted under the amnesty. If it is not, and if prosecution follows, his legal team will be able to make use of his voluntary admission and payment in mitigation in court. It will certainly be of some assistance.

One cannot make promises, but even if he is prosecuted and pleads guilty the Judge would have various options for punishment, such as a fine, community service or a suspended sentence. Prison is by no means automatic.

However, if prosecuted, he may also be subject to other penalties depending upon the circumstances. These may include confiscation (which can be extremely severe in financial terms and most unfair) and disqualification from being a company director.

I hope that helps.

David
www.AccountingEvidence.com

A tax investigation costs the taxpayer a fortune with meetings corresspondence etc.
Is there anything to stop a person currently under investigation declaring their liabilities under the amnesty. ?

Thanks for interest and replies

I spoke to the HMRC "helpdesk" today in the Offshore Disclosure Facility.

It was a fairly short conversation as the operator told me that HMRC's policy was not to speak to agents with queries on making a disclosure, only to the taxpayer (of course if my client had been a taxpayer I wouldn't be making the call, but at that point I gave up).

Has anyone else had the same bizarre experience?

Anon

This is from the HMR&C offshore disclosures website FAQs page:-

"What disclosures are unlikely to be settled through this facility?

We anticipate that the vast majority of disclosures will be accepted. However, certain disclosures are unlikely to be settled through this facility.

* Disclosures that are found to be materially incorrect or incomplete when checked by us for accuracy and completeness.

* Disclosures from customers where we have begun an investigation or enquiry into their affairs. Those who want to disclose liabilities should tell the person conducting the enquiry. A full and early disclosure will influence the amount of penalty we seek.

* Disclosures from people suspected of being involved in serious organized crime against us (including VAT MTIC – carousel – fraud, VAT Bogus Registration Repayment fraud or organised Tax Credit fraud), and those involved in wider criminality or others whose circumstances would result in a criminal investigation in accordance with our published Criminal Investigation Policy. "

I read that to mean that existing enquiries will not be handled through the amnesty and it is "business as usual" as far as they are concerned. My impression is that amnesty cases will be handled by specially trained teams within HMR&C and that the approach taken by other tax officers will not be affected.

HMR&C do reserve the option, in cases where a disclosure is made under the amnesty, to commence an enquiry under their normal procedures rather than simply accepting the disclosure. So you cannot 'force' them to just accept an offer and payment under the amnesty.

David
www.AccountingEvidence.com

Geoffrey

It might be interesting if you were to post this as a query on the Any Answers forum.

Also see my posting of 25 April "The HMR&C mindset" on Will Heard's article in which I commented on "SAFE" - self assessment for enquiries (!) - and HMR&C's apparent attitude to the role of agents (which is rather confirmed by your posting here).

David
www.AccountingEvidence.com