By Ronnie Ludwig
Partner, Saffery Champness accountants
Ronnie Ludwig of Saffery Champness
In a groundbreaking deal, HM Revenue and Customs (HMRC) has this week signed an agreement with Liechtenstein, so the Alpine principality will try to force UK citizens with money hidden in its banks to come clean with the UK's tax authorities.
This is a significant breakthrough in the negotiations, which have been continuing since the G20 Summit in early April where an international co-ordinated approach was adopted in pressuring tax havens such as Liechtenstein to provide information to the tax authorities.
If they did not co-operate they would be put on a "black list" which could have caused them certain difficulties in terms of international cooperation, trade, and so on.
As a result of the agreement Liechtenstein will be the first of the offshore tax havens to offer transparency on UK individuals holding bank accounts there.
Next in line?
It remains to be seen whether other tax havens will follow suit. However, this is the first breach in the wall of secrecy surrounding tax havens and there is no doubt that it spells the beginning of the end for tax dodgers operating offshore accounts.
HMRC estimates that approximately 5,000 British investors own bank accounts in Liechtenstein and estimates of the unpaid tax due to the Exchequer range up to £3bn.
To that figure may be added interest and penalties, so the potential return to the Exchequer could be very substantial indeed.
If these figures are reliable, the sums recoverable on a worldwide basis should all other tax havens follow Liechtenstein's example will be eye watering.
Under the recently announced second amnesty to holders of offshore bank accounts, HMRC has offered relatively generous terms by capping penalties at 10% of the tax due whereas, in the most serious cases, these could be as high as 100% of the tax due.
The interest chargeable on unpaid tax is however non-negotiable and given that the Revenue will be looking back at the previous 10 years, the interest sums alone could be very substantial.
The Revenue is adopting a stick and carrot approach to this initiative and for those who decide not to avail themselves of it, the stick could be very hard indeed because the Liechtenstein bank accounts risk being frozen.
No doubt many tax evaders will attempt to move their cash out of Liechtenstein in the short term.
However, it would be naive of them to expect that HMRC will not pay very close attention to those who do.
A Revenue spokesman said it had many sources of information on tax dodgers and that these people could not hope to slip away undetected by simply closing their accounts in Liechtenstein and moving their money elsewhere.
The Revenue's counter-evasion tactics have proven hugely successful, particularly in the period since the introduction of self-assessment when many Revenue staff have been retrained to look at investigatory work.
To put this into context, the yield from the Revenue's counter evasion work has increased dramatically over the past 15 years, having gone from £1.13bn in 1991/92 to more than £12.8bn in 2007/08.
Encouraged by this success, the Revenue has now announced that it intends to spend £1bn, equal to 25% of its entire budget, on enforcement and compliance this year.
The world is becoming a very much smaller place for tax evaders and time is running out. They would be well advised to come clean with the Revenue and prepare a full disclosure report.
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