Page last updated at 22:31 GMT, Monday, 21 September 2009 23:31 UK

Tax dodgers told 'the game is up'

By Ian Pollock
Personal finance reporter, BBC News

Dave Hartnett 5
Dave Hartnett, Permanent Secretary for Tax

The era of some UK tax payers stashing their money offshore to avoid paying up is coming to an end.

From here on, says Dave Hartnett, the top taxman at HM Revenue & Customs (HMRC), they will not be getting away with it.

On Monday, the BBC's Panorama revealed how Lloyds bank's offshoot in Jersey has been less than scrupulous in its advice to potential tax dodgers.

Earlier this month the Revenue gave people a second chance to come clean and pay tax, plus interest and limited penalties, on money they may have been hiding in bank accounts abroad.

Mr Hartnett says the breakthroughs his department have been making in the past few years have been "huge".

"The game is fundamentally up," he says. "Is the game comprehensively up? Maybe not just yet."

His comments come as the Treasury minister, Stephen Timms, promised that the forthcoming pre-Budget report would include even more powers for the Revenue to stop tax avoidance.

£500m opportunity

People with money in offshore accounts run by 300 UK and foreign banks are the latest group to be offered a chance to confess to hiding taxable income.

People find it hard to part with the money they have squirreled away off shore
Dave Hartnett, HMRC

The New Disclosure Opportunity, as it is called, runs until next March and is aimed at raising a minimum of £500m over the next four years.

Mr Hartnett's hunch is that it will in fact raise more - and he expects to receive a "wall of data."

"This time we are into the investment banks, the foreign banks who offer investment opportunities and these will include European banks Swiss banks, Chinese banks, banks in tax havens who operate in London, so I would expect the figure to be greater than the £500m," he says.

"There are foreign banks operating in the UK whose holding on behalf of clients and customers in the UK and the channel islands and the Isle of Man run into tens of billions of pounds - that's quite interesting.

"Or big international banks which are in the UK, have got vast amounts of money here or in the channel islands, or maybe in their home country, on behalf of UK residents," he adds.

Learning a lot

The first offshore disclosure campaign in 2007 was aimed at customers of the big five High Street banks and two others.

John Sweeney in Jersey
Panorama reporter John Sweeney in Jersey

As well as raising £450m, the Revenue learned a great deal about tax dodgers and the banks the use.

"Customers of about 130 banks made disclosures," says the top tax man.

"One of the things we learned from the 2007 initiative and which we are going to pursue here is the routes by which people got to some of these banks.

"We learned a huge amount - the size of deposits as between banks - where do people put bigger money, where do they put smaller money, where did the landladies from Blackpool put their pin money, where did the investment bankers put their bonuses," Mr Hartnett adds.

As a result of that first trawl two years ago, the Revenue discovered that banks in fact hold far more information in the UK about their offshore customers than it had realised.

"Not all in computers, some of it papers, some of it letters, all sorts of things like that," says Mr Hartnett.

"If you go back three or four years, we were only then beginning to understand the extent to which data about offshore bank arrangements was kept in the UK by banks operating in the UK."

"As we began to see that banks have a lot of data about offshore accounts in the UK we began to see how we could use our information powers," he adds.

Losing their nerve

The Revenue was reminded about just how reluctant some people are to pay their taxes.

We did gang up on them a bit
Dave Hartnett, HMRC

"People find it hard to part with the money they have squirreled away off shore," says Mr Hartnett.

"62,500 registered with us to make a disclosure and 45,000 actually went on to do so, so we have got 17,000 people who having registered then didn't make a disclosure."

Perhaps these people had made a mistake and didn't owe anything, or the sums involved were trivial?

Maybe, but Mr Hartnett doubts that is true in all cases.

"We know from various representations we have had from tax advisors that there are people out there who lost their nerve, who had squirreled away a lot of money and didn't fancy parting with a big chunk of it, so there is more to get from that group," he says.

These miscreants now face a 20% penalty rather than the original 10%, but if they still have not coughed up by 12 March next year the penalty will range from 30% to 100% - plus the unpaid tax and interest.

'Phenomenally useful'

Alongside the campaign against banks operating in the UK has come a remarkable breakthrough deal to flush out UK assets hidden in Liechtenstein, until now the most notorious European tax haven.

Liechtenstein"s head of state Prince Alois
Liechtenstein's head of state Prince Alois explains the tax deal

Last year a former employee of Liechtenstein's LGT bank was paid by the German authorities to reveal the identities of some account holders from Germany.

The HMRC paid for a list of 300 UK citizens with secret accounts too, and Mr Hartnett describes the information as "phenomenally useful".

Then, with the international recession in full swing and government tax incomes plummeting, the countries in the OECD finally decided to get tough on tax havens.

A series of tax exchange agreements with various tax havens have followed along with updated double-taxation agreements.

Mr Hartnett says it all represents remarkable progress.

"I never thought that in my time in tax administration I would ever see anything like [the Liechtenstein agreement]," he says.

"It was very difficult - lots of meetings, lots of concerns, groups of people who initially didn't trust each other at all because in fact they had had no engagement, ever."

"The outstanding thing of all was the truly enlightened approach by the government in Liechtenstein, an enlightened approach by the Royal family in Liechtenstein, to want to create some transparency, in an innovative way, without undermining their banking secrecy, but committing to ending tax secrecy," he explains.

Surely they reacted to pressure simply because countries such as the UK, Germany, France and the USA were ganging up on them?

"I think it was a bit of both," says Mr Hartnett.

"We did gang up on them a bit, that's fair, and we in the UK led that because we probably had the most data."

"Actually they are human, they are like the rest of us, you could talk to them, I think they took an enlightened view that being a pariah of the tax world had to come to an end," he adds.

Named and shamed

The general public will able to enjoy the public discomfort of tax dodgers from April 2011 when the names and addresses of the worst offenders will published in newspapers, if they have failed to take advantage of the various disclosure opportunities.

"You will be named and you will be shamed," Mr Harnett says, with some enthusiasm.

"Have a look at what the Irish newspapers publish every quarter. It's peak time reading - there are always interesting names there."

If he gets the mass of data he wants, along with the five-year time scale of the Liechtenstein disclosure plan, then the Revenue staff will be very busy for years to come.

What next?

If he had sole power, Mr Hartnett says he would change the rules so that all new offshore accounts had to be disclosed to HMRC, and he would like USA style penalties for tax evaders as well.

"I want to get to the point where we have made tax legislation in the UK tight in relation to people hiding money offshore, so if they want to do this they are taking a very big risk indeed, so the risk of detection is enormous."

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