Taxline3D

Background

The 2009 Budget Report contained a formal announcement that UK residents were to be offered a second opportunity to disclose untaxed income and gains connected with the operation of offshore bank accounts.  Further details of these arrangements, known as the New Disclosure Opportunity (NDO) have now emerged and in many respects they bear a striking similarity to the Offshore Disclosure Facility (ODF) that ran during 2007.  HMRC intends to publicise the NDO and in doing so attract a number of offshore account holders who did not come forward under the ODF.  In general terms the NDO is targeted at customers of private banks so HMRC does not anticipate the same volume of disclosures that emerged during the ODF but does expect higher tax yields from larger and more complex cases. 

Who is affected?

The NDO will run from September 2009 to March 2010, and is open to offshore bank account holders who wish to take the opportunity to provide HMRC with details of previously undisclosed income or gains. In return, HMRC will charge a fixed penalty of either 10 per cent or 20 per cent of the tax due compared to a maximum penalty of 100 per cent it could pursue in normal circumstances.  In broad terms the 20 per cent penalty applies to customers of the five UK high street banks (LloydsTSB, Barclays, RBS, HSBC and HBOS) who were targeted under the ODF and, in HMRC's view at least, passed up the opportunity to settle for the 10 per cent penalty offered on that occasion.  The 10 per cent penalty offered under the NDO will, in general terms, be offered to customers with offshore accounts at all other banks. 

A separate initiative will run in parallel with the NDO offering similar settlement terms to UK residents who have undisclosed income and gains arising from UK based assets and business activities.

The details

The initiative will run from September 2009 to March 2010, split into notification and disclosure phases, much in the same way as the ODF, but with more time allowed for people using HMRC's on-line web-based facilities as opposed to paper submission.  Notifications will generate a Disclosure Reference Number (DRN) which will allow participants to complete the disclosure phase, which will involve calculation and payment of any additional taxes, potentially going back up to 20 years, plus interest for late payment and the fixed 10 per cent or 20 per cent penalty.  The NDO does not carry with it immunity from prosecution for tax offences but some comfort can be taken from there having being no reported prosecutions of taxpayers who came forward under the ODF.  HMRC has emphasised that no further disclosure opportunities will be offered to offshore bank account holders and those with unpaid tax who decline to come forward will face penalties of 30 per cent and upwards if HMRC has to instigate its own enquiries. 

Recent Developments

Whilst the NDO is in progress HMRC will be pressing ahead with its programme of obtaining details of  offshore accounts held at various offshore financial institutions, and has recently successfully applied for such details to be supplied by four more banks.  HMRC has plans to seek approval from the new Tax Tribunal to force some 500 further banks with a UK presence to disclose details of UK resident customers with offshore accounts.

How can we help?

From what is known of the NDO at present it is not without its anomalies and is not a 'one size fits all' facility.  If any of your clients either intend to participate or think they may be targeted by HMRC by not coming forward under the NDO, then specialist advice should be sought particularly if the client's circumstances display any of the following features:

• An incomplete or incorrect disclosure having been made under the ODF.
• A previous tax enquiry having been concluded that failed to include any tax due arising from the use of an offshore bank account.
• Cases of hardship or other circumstances where the payment of tax, interest and penalty as a lump sum may not be possible.
• Cases where there is doubt over which level of penalty should apply.
• Cases that could be categorised by HMRC as involving serious tax fraud.
• Cases where the source of the funds held in an offshore bank account is an inheritance or legacy from a deceased's estate.
• Cases involving claims to non-UK residence or non-UK domicile or the remittance basis of assessment.
• Cases of particular complexity or difficulty or involving tax avoidance / mitigation schemes.
• Cases where it would be difficult to prove the origin of the funds invested in an offshore bank account.
• Cases involving the personal taxation affairs of company directors.
• Cases where your client is considering making a disclosure in advance of the launch of the NDO.
• Cases where a voluntary disclosure involving an offshore bank account has already been made and the terms of the NDO would like to be secured as part of the settlement with HMRC.
• Cases where enforcement agencies other than HMRC may be interested in the source of income giving rise to a tax charge.
• Cases where it is believed a genuine error has been made and no penalty should be charged.

We at BDO can provide expert, specialist advice to secure the most suitable route for your client to limit their exposure to tax and penalties, whether inside or outside the NDO. 

We have a wealth of experience of the ODF as well as the expertise to approach HMRC and obtain a civil settlement of all tax liabilities at any point in time, without being bound by the terms, conditions or time constraints of the NDO. We can also help to place a disclosure with the most appropriate office at HMRC thereby minimising delay and, in appropriate circumstances obtain letters providing immunity from prosecution in relation to serious tax offences.

Please contact Steve Besford for further information or a confidential, no-obligation discussion of your client's particular circumstances.