Page last updated at 00:11 GMT, Thursday, 27 November 2008

New attack on offshore bank accounts

Money Talk
By Ronnie Ludwig
Saffery Champness, Chartered Accountants

Ronnie Ludwig
Ronnie Ludwig

As long expected, HM Revenue & Customs (HMRC) has announced details of its latest trawl for hidden offshore bank accounts, to be launched next year.

The government is also starting a wide ranging review of offshore financial centres, such as the Channel Islands and the Isle of Man.

So it looks like the authorities are going to be scrutinising offshore bank account holders for some time to come.

In the second phase of its current campaign, it will try to persuade thousands of people with undeclared offshore bank accounts to come clean on a voluntary basis and pay tax on the money stashed in their accounts.

According to HMRC, some 50,000 people have apparently decided to tough it out and have not come forward from the last trawl.

However, the reality is that nobody knows exactly how many people have such offshore accounts and the number may be well in excess of the figure quoted by the authorities.


On the face of it, HMRC has been phenomenally successful in its counter-evasion work.

It has more than doubled the tax recovered by its network offices from non-compliance work - in other words, tackling tax dodgers.

In the three years to 5 April 2007, the figure rose from 1.44bn to 3.1bn.

The Revenue's elite Specialist Offices have produced equally stunning results by increasing the tax recovered for the Treasury to 5.7bn from 2.5bn three years earlier.

Whilst these figures appear impressive, it is reasonable to assume that they only account for a small percentage of the liabilities that are actually being evaded.


There is no doubt that HMRC's counter-evasion tactics have become far more effective due to improved information technology and greater manpower following the introduction of self assessment.

Tax evaders have become much more clever

But its staff is still woefully under-resourced in terms of inspectors available to deal with the volume of cases.

It may be the case that HMRC has become far more clever in tracking down miscreants.

However, the tax evaders have also become much more clever in their tactics, to the point that many of them feel that, despite the more sophisticated technology available to HMRC, they can continue to be one step ahead of the tax man.

Not compelling

Another important factor deterring people from coming clean is that in many cases it will not simply be the interest EARNED in the hidden offshore bank accounts that should be taxed, but the capital sum deposited as well.

Douglas, Isle of Man
Offshore bank accounts held by UK citizens will come under fresh scrutiny

These sums will almost certainly have been derived from undeclared business dealings, possibly over the internet, or foreign transactions where a proper paper trail may not have been available to the authorities.

What is surprising is that, given the limited success of the first campaign on offshore bank accounts in 2007, HMRC has not come up with a more compelling scheme to encourage evaders to come clean this time round.

Lessons can be learned from abroad. Italy and the Republic of Ireland, for example, have both held amnesties in the past few years.

The authorities offered tax amnesties to evaders, with penalties significantly lower than those offered by the UK authorities in the 2007 campaign, where the penalty was capped at 10%.

If that incentive only produced disclosures equal to less than 50% of those believed to have hidden bank accounts, it is difficult to see why the remaining 50% or so will feel incentivised to come clean under the new deal.

Nowhere to hide?

Nobody wants to see tax evaders getting away with it and nobody wants to see them being offered a "deal", which is in itself an incentive to crime.

If it does not happen sooner, it will almost certainly happen on death

But a balance must be struck and HMRC must be realistic in its expectations following the new campaign.

In my view, the relatively modest success of the 2007 campaign is likely to be followed by an even more modest success in the 2009 campaign based on what is on offer.

For tax evaders, however, the message is simple.

Whilst there may be somewhere for them to continue to hide their undeclared income and gains in the short term, the authorities will inevitably catch up with them.

If it does not happen sooner, it will almost certainly happen on death.

That is because at that point the hidden bank accounts are generally passed on to someone else who is then left in the position of trying to defend the indefensible.

The new incentive is not great, but tax evaders would be foolish not to take this new opportunity to own up.

There may be no pockets on a tax evader's shroud but the revenue will haunt them beyond the grave.


Of course, not everybody with an offshore bank account is attempting to evade tax.

There are a number of individuals who still believe that interest credited to an offshore account is exempt from UK taxation.

That might be the case, especially if the account was opened during a period when they were employed overseas and built up an offshore savings account.

Whatever the circumstances, anyone wishing to own up to HMRC should take professional advice as there are many pitfalls in attempting to negotiate directly with the tax inspector.

It would be very unwise to simply write to the revenue confessing the oversight, or worse, telephoning to arrange an interview.

The manner in which a disclosure is made can materially affect the end result in terms of tax payable and penalties levied.

As the penalties are up to 100% of the tax payable if you do not come clean, it is well worth speaking to an expert.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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