Building societies and overseas banks targeted in new tax probe

A fresh onslaught on offshore tax evasion is to be mounted by Revenue & Customs early next year when it targets customers of 25 building societies and foreign banks with UK operations.

The move follows the Revenue's success last year in forcing five British high street banks to disclose details of secret offshore accounts. That assault, accompanied by the offer of an amnesty, recovered around £400m in unpaid taxes at a cost to the Exchequer of just £6.5m.

The Revenue is also set to initiate the first prosecutions for tax evasion, arising from that early probe. Five people have been identified as targets for criminal sanctions.

As with the first wave, the new move on building societies and foreign banks will coincide with the launch of a partial amnesty next spring. The 25 will receive legal notices ordering them to disclose details of British residents with foreign accounts in coming weeks. The legal manoeuvre is expected to yield hundreds of millions of pounds more of revenue hidden from the Exchequer by wealthy individuals.

The foreign banks chosen are those thought most likely to yield the largest number of possible tax evaders, but Stephen Camm of PwC said he expected the Revenue to adopt the same approach to all of the 500-odd banks with a UK presence.

The Revenue sent a memorandum to advisers this week saying its objective "will be to obtain information from a new tranche of financial institutions, using the same legal powers as applied to the first five banks.

"The intention of the new exercise will be to provide an opportunity for account holders to inform us of their own accord, if they have unpaid tax or duties and to settle their debts in a similar way to the original offshore disclosure facility."

The new amnesty is likely to levy penalties of 15-20 per cent, significantly more than the 10 per cent levied in last year's amnesty but much less than the 100 per cent maximum. Last year's amnesty yielded less than expected but proved highly cost-effective for the Revenue.

Legal battles are looming over the banks' willingness to disclose details about some customers. Unlike the high street banks which were the target of the Revenue's last name-gathering campaign, some of the institutions do not hold the names of potential evaders in the UK.

Officials have told advisers that they believe they will be able to get round strict Swiss secrecy laws, which make it a criminal offence to divulge client information.