A mixture of concessions and threats is expected to encourage up to 1m tax evaders with undisclosed offshore accounts to come forward this year.
The main incentive is a promise by Revenue & Customs that the penalty charged on undisclosed tax will be limited to 10 per cent of the amount due, instead of a maximum of 100 per cent. The offer is accompanied by a warning of much harsher treatment if individuals fail to come forward voluntarily. Penalties will be at least 30 per cent and could be significantly higher.
Stephen Camm of PwC, the professional services firm, described this as a “carrot-and-stick” approach. “The carrot is a lower penalty. The stick will be that we [the Revenue] will inevitably find you.”
Tax investigators say that individuals with straight-forward affairs should benefit from the Revenue’s initiative. Steve Besford, head of tax investigations at Chiltern, the professional services provider, said: “Anyone with concerns should take advantage of the amnesty for peace of mind and to save money. Failure to do so could result in stringent penalties and investigation.”
Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants, said it would be folly for individuals to ignore the opportunity. “This is the nearest to a tax amnesty they will get.”
But anyone considering taking advantage of the initiative will be aware that it falls far short of what is normally considered an amnesty. For example, its terms are far less generous than those offered by the Irish Republic in 1993, which allowed taxpayers to come clean by paying tax at a reduced rate of just 15 per cent on previously undisclosed funds.
Indeed, the terms of the disclosure initiative are little more generous than the deal that can normally be negotiated by an individual who has come forward voluntarily to disclose unpaid tax. Furthermore, it does not promise immunity from prosecution. Although taxpayers who come forward voluntarily are relatively unlikely to be prosecuted for tax evasion, anyone who has acted fraudulently or hidden large sums may be vulnerable. Some tax advisers suspect the Revenue may be tempted to follow other jurisdictions in making some high-profile prosecutions of people in positions of responsibility, such as judges, MPs or senior civil servants. Lawyers warn that taxpayers vulnerable to prosecution may have less protection under this initiative than they would if they came forward under normal rules.
The initiative is also unattractive in that it gives little time for taxpayers to decide whether to come forward and to calculate their liabilities. Mr Camm described the timetable – which requires individuals to step forward by June and calculate and pay the back taxes by November – as “incredibly tight. People may face a real problem in accessing bank statements. I think that it will prove close to impossible”.
Taxpayers who cannot obtain the information in time should, says the Revenue, make an “educated guess” about their liability.
But advisers warn that it would be unwise to underestimate the amount due, as this could leave the door open for an inquiry at a later date.
The Revenue has already received information about the offshore bank accounts of customers of five high street banks – Barclays, HSBC, HBOS, Royal Bank of Scotland and Lloyds TSB – after legal wrangling ended in victories for the department over the past year.
It could potentially obtain information about the offshore accounts of customers of other banks if a legal case were made that it had legitimate suspicions about those accounts.
Individuals with accounts in Switzerland are, however, likely to escape scrutiny since the banks are banned by strict laws from disclosing information.