HM Revenue & Customs (“HMRC”) recently announced further details of the second (and expected to be final) opportunity to disclose and pay tax on their non-UK income, the New Disclosure Opportunity (“NDO”).
U.K. taxpayers with unpaid taxes linked to offshore accounts have a final chance to settle them with a reduced penalty in a partial amnesty that may result in £1bn for the Treasury.
The first version, which ran during Autumn 2007, was widely acknowledged by HMRC as falling well below expectations, in terms of the returns to the Exchequer.
In a similar way to a Voluntary Disclosure Program launched by the US IRS earlier this year, the NDO is designed as the “carrot” to those taxpayers to provide details of any previously undeclared income, settle the tax, pay the interest on the late payment and accept a lower penalty regime for their transgression.
The “stick” will come for those found to have transgressed following the completion of the program where the threat of more draconian penalties (starting at 30%) and potentially criminal prosecution will loom large.
Will HM Revenue & Customs ever know about me?
In the run up to the first disclosure window, HMRC obtained UK based customer details from the UK’s five biggest banks with trading operations offshore. They have yet to really act on this information.
HMRC has made no secret of the fact it is actively pursuing an ever wider range of financial institutions for details of their UK based customers, including details of their assets and income. It has tightened up the legislation to make this easier and already obtained court orders compelling financial institutions to provide the information. There is a reasonable chance that any institutions with whom you have an account will be involved.
Outside this process there is likely to be months, if not years of time consuming investigation which HMRC are keen to avoid. So we can expect the heat to be raised as has occurred in the US over the last couple of months to ensure greater success on this occasion.
What would I need to declare and what will I need to pay?
Individuals, companies and trustees will need to report details of all omissions within the prior 20 UK tax years (or as far back as the irregularity goes). For many clients, records will simply not go back that far people may need to seek advice to put together a reasonable approximation of undisclosed income and / or capital gains for those years.
The NDO is no amnesty. It is a facility for taxpayers to regularise their position on the following favourable terms:
• a standard penalty of 20% of tax due if you received a letter as part of the previous facility from HMRC; or
• a standard of 10% of tax due if you did not receive a letter the first time around:
• no penalty where the income disclosed is less than £1,000; or
• no penalty for pre-death liabilities of a deceased taxpayer.
How long do I have?
You will need to disclose your intention to notify under the NDO by 30 November 2009. You will then have until 31 January 2010 to make full disclosure on paper, which is extended to 12 March 2010 where the disclosure is made electronically.
What could happen if I don’t pay?
Savers who do not take advantage of the New Disclosure Opportunity, which the government says will be the last, are open to prosecution for violation of tax laws. They could face a penalty levy of at least 30 percent and as much as 100 percent on the interest they earned.
Graeme Privett is a personal tax senior manager at Frank Hirth, a tax advisory specialist
