UK residents who believed they would escape the clamp down by HMRC on unpaid tax on overseas funds by holding the money in a company or trust need to think again, and think quickly, according to PKF accountants & business advisers.
In April, HMRC launched a temporary "Offshore Disclosure Facility" to help taxpayers get their tax affairs up to date. Broadly, the terms of the facility are as follows:
- Those wishing to use the facility should notify HMRC of the intention to make a disclosure by 22 June 2007.
- There will be a fixed penalty of 10% of the tax/duties underpaid.
- There will be no penalty on disclosures of untaxed amounts totalling less than £2,500.
- Certainty of treatment throughout - taxpayers will know the rules and timetables in advance.
- The taxpayer will disclose with full payment of tax, duties, interest and penalties before 26 November 2007.
- HMRC will issue a final decision on whether or not the disclosure has been accepted as soon as possible and by 30 April 2008.
PKF's tax investigations teams have come across a number of instances where banks have supplied HMRC with details of accounts held by offshore companies and trusts with a connection to individuals from the UK. Tax investigations partner John Cassidy believes this is no accident and points out that individuals will be liable for the same penalties if tax evasion can be proved.
John said: "It has quickly become apparent that the banks' provision of information is much wider than most people expected; bank letters we have seen clearly show that they have supplied details of company bank accounts. Anyone who thinks their funds are still secret because they used an offshore company or trust might be in for a nasty surprise.
"HMRC has obviously thought very clearly about catching funds held in trusts and companies or they would simply have demanded information on accounts that had opted for retention tax under the European Savings Directive (ESD) – arguably an option that is indicative of tax evasion. With company and trust affairs being generally more complex, the downside for HMRC is going to be that it is likely to end up with a substantial amount of information, much of which it will eventually prove to be worthless. However HMRC must have considered this and still believes it is worth while to go after company and trust cases.
"The only sensible option for individuals who have not fully declared their income in the past is to make a full voluntary disclosure to HMRC. But anyone contemplating this approach should not rely solely on the 'amnesty' but should seek expert advice on how to do it in a way that keeps penalties and risks to a minimum while reducing exposure to further investigation and potential prosecution."
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