Scan Magazine

By Helena Whitmore

Regular readers of this column may have the impression that tax investigations and dealing with tax irregularities are at the top of my agenda every day.  In fact, the world of tax is far more varied than that, and a typical working day involves dealing with a wide variety of questions.  In terms of tax news to share, however, the intense activity by the tax authorities in their quest for information regarding offshore structures and accounts mean that this must again be my topic of choice.

Over the last few weeks, Her Majesty’s Revenue and Customs (“HMRC”) have announced further details of the New Disclosure Opportunity (“NDO”), which is designed to enable taxpayers to disclose details of unpaid taxes in relation to offshore accounts or assets in return for a reduced fixed penalty.  The NDO runs from 1 September 2009 to 12 March 2010.  The deadline to notify HMRC of an intention to make a disclosure is 30 November 2009.  In connection with the signing of a Tax Information Exchange Agreement (“TIEA”) between the UK and Liechtenstein on 11 August 2009, a separate Liechtenstein Disclosure Facility has also been set up, which will run from 1 September 2009 to 31 March 2015.  This is more generous than the general NDO.  As further encouragement to non-compliant “customers” to come forward, HMRC have also obtained an order against 300 financial institutions, forcing them to hand over information to HMRC of offshore account holders with UK addresses.

Taken together, these measures form part of HMRC’s general attack on tax evasion through offshore arrangements. Other G20 nations are also busy clamping down on similar issues, and hardly a week goes by without another TIEA being entered into by a succession of low tax jurisdictions (which in the past were referred to as “tax havens”).  There must be a minimum of 12 TIEAs in place for a jurisdiction to be entered on the OECD “white list” and sanctions are threatened against those who fail to comply.  Since September 2008 the UK has signed TIEAs with the Isle of Man, Guernsey, Jersey, Anguilla, Turks & Caicos and Liechtenstein.  In the same period, Denmark, Finland, Iceland, Norway and Sweden have all signed agreements with Guernsey, Jersey, Cayman Islands, Bermuda and the British Virgin Islands.

The message is very clear – the end of secrecy is nigh.  The low tax jurisdictions are of course keen to stress that confidentiality is still alive and well, but should not be thought of as a cover for tax evasion.  This all adds up to one conclusion – errant UK taxpayers with offshore accounts or assets should take this opportunity to put things right with HMRC in return for a reduced penalty of 10% plus improved chances of sleeping at night.  Those who simply don’t know if they have paid the correct taxes on their overseas accounts should take tax advice now to ensure all is in order, so that if any problems are identified these can be put right while there is a discounted penalty on offer.

HMRC have stated that they do not intend to offer any further disclosure opportunities, and that taxpayers who do not take this opportunity to come forward are likely to face future penalties ranging from 30% to 100% of the tax unpaid, and will also run the risk of prosecution.  In contrast, the NDO and the Liechtenstein Facility offer a 10% penalty (20% under the NDO for those who already received a letter from HMRC under the earlier 2007 Offshore Disclosure Facility – but no penalty is payable if the total amount of the unpaid liability is less than £1,000.).  A disclosure under the NDO must include all undisclosed amounts that tax should be paid on going back 20 years, not merely items linked to the offshore accounts or assets.  The Liechtenstein Facility is more generous, as it only requires back taxes for a maximum of ten years up to 6 April 2009.

Further information is available on HMRC’s website www.hmrc.gov.uk, or by contacting the writer. This column is intended to provide information of general interest to the public and is not intended to offer legal advice about specific situations or problems.

Author:  Helena Whitmore, McGuireWoods London LLP (formerly Grundberg Mocatta Rakison LLP) hwhitmore@mcguirewoods.com.