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HMRC have offered a partial tax amnesty relating to offshore assets and income so what are the likely consequences if you choose not to disclose any tax evasion?
Although a number of people are expected to take advantage of the offshore disclosure tax amnesty and the offer to treat people who have committed tax evasion without offshore assets on a similar basis it is expected that a significant number of people will not take advantage of this partial amnesty.
HMRC have stated in their literature relating to the tax amnesty for which the deadline for making an initial disclosure is 22 June 2007 that:
“After 22 June 2007 when the notification period ends we will, in our enquiry work, target holders of offshore bank accounts who do not disclose”.
Thus it is clear that there is a statement that clearly states that
these individuals will be pursued if they do not disclose any tax
evasion under the offshore disclosure tax amnesty
There are several routes that HMRC will take. It is expected that they will filter the information held in monetary terms. Enquiries will then be undertaken and the following are some of the areas where HMRC are expected to take action.
Prosecution
It is believed that a small percentage of these may be selected for potential prosecution in accordance with the published Criminal Investigation policy (www.hmrc.gov.uk/prosecutions/crim-inv-policy.htm). One of the reasons for prosecution is as a deterrent effect and to publicise that people can go to prison for tax evasion. Although not many people will be prosecuted there is the real risk that this will happen.
Civil Investigation of Fraud Procedures
The Civil Investigation of Fraud procedures come into effect when HMRC uncovers evidence of serious non-payment of tax, which they feel may be caused by tax fraud or tax evasion. The amount of underpaid tax in question is always suspected to be more than £75,000, and a civil investigation of fraud enquiry will be undertaken when HMRC feels that a criminal prosecution is not necessary. If an individual deliberately makes material errors in a civil investigation of fraud case they may face a criminal prosecution in the future. The minimum level of penalty in a Civil Investigation of Fraud case is usually 25% and the usual level is between 30 and 40% even if handled well. Theoretically the penalties can be up to 100% of the tax due. As part of the civil investigation of fraud procedures, provided that the individual admits to tax fraud they are expected to engage an advisor to prepare a disclosure report covering the last 20 years tax history. The costs of this report are not tax deductible.
Normal Tax Investigation
HMRC can use their powers to open an enquiry into an individual’s or company tax return. Under the self assessment rules there are time limits for doing this unless HMRC can prove that they have discovered that there have been omissions from tax returns which they could not reasonably have been expected to know. Given the information available to HMRC it is believed that they will have sufficient evidence of tax evasion to open an enquiry using the discovery proceedings. Generally these will be cases where the tax is believed to be in excess of £2500 but less than £75,000. Again penalties in these sort of cases are expected to be a minimum of 25% and could rise to 100% of the tax due.
Hidden Economy Teams
These are units within HMRC who specialise in low level project work. They will often use a stock letter to write to individuals and ask them to make a disclosure. They have already undertaken a similar sort of exercise for people who have not declared interest on UK accounts and it could be easily replicated across the country for this
Timing
Given the wealth of information it is expected that the information held will keep HMRC busy for the next few years. Thus even if they do not contact you immediately HMRC has a number of years to use the information and it could be anytime in the next few years that the dreaded brown envelope lands on the doormat.
Penalties
There has been a recent consultation document and it is expected that from April next year the penalties will increase significantly. Although it is not expected that this will be retrospective if the tax evasion continues then it is likely that the individual will receive a much higher penalty loading than is available under either the tax amnesty or the current penalty regime.
If you would like to discuss any possible disclosure to HMRC or any matter to do with the offshore disclosure tax amnesty or how to deal with any tax evasion difficulties please phone 0800 734 3333 or e-mail scott.gilbert@gilberttax.co.uk now
For more information about the different types of tax investigation
cases we deal with on a regular basis please click
here.
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here.
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