Top ten tips: What you need to know about HMRC’s tax amnesty
31 Jul 09
HMRC is launching a second offshore tax ‘amnesty’, known as the ‘New Disclosure Opportunity’ (NDO). The NDO offers taxpayers a reduced penalty for the disclosure of unpaid tax in connection with bank accounts held offshore
Here are the top ten tips from Graeme Crawford, tax partner at Ernst & Young in Scotland, for those with offshore accounts who want to ensure that their tax position is correct.
1. Anyone with a UK address who has an offshore account could come under scrutiny
“This time HMRC has cast its net wider: they are now targeting UK residents with offshore accounts operated by approximately 250 banks and other financial institutions with a presence in the UK. HMRC’s similar campaign in 2007 focused solely on customers of the five largest high-street banks. Anyone with a UK address who has an offshore account could potentially come under scrutiny from HMRC and should therefore review their tax affairs.”
2. It is not just interest income from offshore accounts being targeted
“HMRC is not just interested in undisclosed income from these accounts, but also the possibility that the capital comes from an untaxed source. Typical examples seen under the first amnesty in 2007 included undeclared takings from UK businesses, rental income from overseas properties and income earned overseas by UK residents that was undeclared in the UK.”
3. This is a complex area
“There is nothing wrong with having an offshore account or assets - as long as you meet your tax obligations. Depending on your circumstances, it may be that you are not required to disclose the accounts or the income arising from them. If you believe an offshore account does not need to be disclosed, it is recommended that professional advice is taken to confirm the position – this can be a complex area.”
4. Even if you did not realise tax was due in respect of income received from your offshore account, the NDO still applies to you
“Whether you are someone who has deliberately not disclosed offshore income, or someone who has mistakenly underpaid tax, perhaps because you may not have realised the obligation to declare overseas income (such as rental income on a second home abroad), the NDO equally applies to you.”
5. A penalty of 10% for those making a full disclosure by 12 March 2010
“The NDO means that instead of penalties of up to 100% of the tax owed, most people making a full disclosure by 12 March 2010 will pay a penalty of just 10%. A higher penalty of 20% will be charged to people who received a letter from HMRC in connection with the previous facility in 2007 but who failed to make a disclosure. If the tax owed is less than £1,000, HMRC will waive penalties, although interest will be charged in all cases.”
6. Seeking help
“If you are unsure whether you have paid your tax correctly, then you should get some help to check the position - either from a tax advisor or HMRC directly. HMRC are setting up a helpline for queries on the NDO that will be operational from 1 September 2009.”
7. Make sure to obtain a Reference Number (DRN) from HMRC
“If you think you need to make a disclosure make sure you obtain a “Disclosure Reference Number” (DRN) from HMRC by registering with them between 1 September 2009 to 30 November 2009. The DRN is needed if you are to make a disclosure under the terms of the NDO. Obtaining a DRN does not commit you to making a disclosure report if you subsequently establish that there is no unpaid tax.”
8. Payment needs to be made in full
“Payment of all tax, interest and penalties needs to be made in full at the time the disclosure report is submitted to HMRC. If you think you will have problems paying the liability in full, then you should contact HMRC to discuss possible alternative payment arrangements as soon as possible.
9. An incorrect or incomplete disclosure will lead to high penalties
“HMRC will target those where there is a "mismatch" between information it holds and the NDO disclosure forms or the normal tax returns. Penalties for an incorrect or incomplete disclosure are likely to be at least 30% and could be significantly higher. There is also the possibility of criminal investigation in the most serious cases.”
10. Don’t just sit there…
“Individuals with more complicated tax affairs should seek professional advice urgently as the limited period for making a disclosure will make it difficult for them to comply.”