October 13, 2011 8:30 pm

Tax evasion suspects given chance to come clean

Around 6,000 suspected tax evaders who are clients of HSBC’s private Swiss bank will be given 30 days to come forward to qualify for significantly reduced penalties before they face investigations into their affairs.

The decision to give the account holders – whose identities became known to the Revenue as a result of a data theft – a final chance to come clean about unpaid tax is a sign of Revenue & Customs’ drive to collect taxes quickly while minimising resource-intensive investigations and disputes.

Its approach has aroused controversy, with critics arguing it rewards evasion and avoidance while defenders claim it is a pragmatic response to constrained resources. The issue of how rich individuals and corporations are taxed is politically toxic in the current economic climate. George Osborne, chancellor, has justified his austerity plan on the basis that the burden would be fairly shared across society.

Simon Airey, a partner of DLA Piper, a law firm, said the plan was “an extraordinarily generous offer”. He said: “The reality is that they are under pressure to collect revenue quickly and they cannot staff 6,000 complex investigations at the same time. “

Dave Hartnett, permanent secretary for tax at HMRC, said: “This is not an amnesty. There are no special rates of penalty or interest for those who come forward voluntarily. This is an opportunity for those who have made errors in past returns to correct them.” HSBC declined to comment.

HMRC has already begun criminal and serious fraud investigations into more than 500 individuals and organisations with HSBC accounts, in an initiative handled by the Offshore Co-ordination Unit, a newly established unit. Its information is based on a stash of data that was allegedly stolen by an ex-employee of HSBC’s Swiss private bank and fell into the hands of the French authorities who later passed it to the UK and other governments.

Swiss deal expected to raise up to £7bn

Britain expects its agreement with Switzerland over tax evasion to raise between £4bn and £7bn for the UK exchequer by imposing a one-off tax of between 19 per cent and 34 per cent of undeclared assets when it comes into force in 2013.

Fears that some account holders would move their funds to other financial centres rather than pay a levy have been addressed by a clause allowing Revenue & Customs to “follow the money” by accessing details of the top ten destinations for funds that left Switzerland.

Singapore is often named by advisers as the most favoured destination for funds leaving Switzerland. The Singapore authorities issued a warning on September 6 drawing attention to anti-money laundering rules and calling on financial institutions to “carefully evaluate the risks and establish the bona fides of customers” before accepting assets from countries that have signed agreements to resolve tax issues.

HSBC clients who own up to owing tax after receiving letters from HMRC are expected to use the Liechtenstein Disclosure Facility – a 2009 deal that charges owners of undeclared accounts relatively modest penalties, usually about 15 per cent of the asset value – to make them tax-compliant and immune from prosecution. They will not be exposed to the maximum 200 per cent penalty on the unpaid tax.

The Revenue’s move comes a week after the government signed a deal with Switzerland that will allow owners of secrets accounts to regularise their affairs.

The deal, which will preserve the anonymity of UK account holders, has provoked protests from campaign groups and others. It has been criticised for undermining European Union’s drive towards automatic exchange of tax information, for leaving open potential loopholes concerning discretionary trusts and companies and for giving organised criminals an opportunity to money launder the proceeds of their criminal activities through Switzerland whilst continuing to conceal their identity from the UK authorities.

On Wednesday, Margaret Hodge, chair of the Public Accounts Committee, suggested the treatment of people with undeclared Swiss bank accounts was overly generous compared with the treatment of the single parents being pursued for the overpayment of tax credit. Her concerns were raised at a meeting where MPs criticised the Revenue for its handling of a settlement of a dispute with Goldman Sachs, the investment bank, which did not include interest costs.

Mr Hartnett described the deal as “pragmatic”, saying the Revenue would get money it would not have secured any other way, whereas it knew the identity of individuals who had overpaid tax credits.

Advisers said the terms of the UK-Swiss deal would be less attractive than the LDF to many investors. John Cassidy of PKF, an advisory firm, said that interest in the LDF had increased significantly over the past week.

Gary Ashford, director of RSM Tenon, an advisory firm, said the details of the deal showed that Revenue & Customs had plenty of routes to pursue Swiss account holders guilty of serious crimes if it chose to do so.

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