Tax Amnesty: Will it Happen?  

If you have committed tax fraud or used an offshore bank account HMRC could be offering a tax amnesty soon

Recent Developments on Information Gathering by HMRC

It is a well published fact that HMRC won a significant victory against a financial institution, reported to be Barclays, in February 2006 which has provided them with a high volume of information about money held by UK resident individuals in offshore bank accounts.

HMRC are generally of the view that if someone has an offshore bank account then there is a significant chance that they have committed tax fraud. HMRC presented information to the Commissioners which demonstrated that of the 9000 offshore bank accounts they were aware of only 3.4 percent of these had been declared on the tax returns. The Commissioner granted HMRC access to certain information and it is believed that this approach will be replicated with all major financial institutions.

What are HMRC going to do with all of this information?

There have been a number of articles in the press and rumours circulating that HMRC is shortly to offer a tax amnesty to people who have money in an offshore bank which has not been notified on the appropriate tax return.

Should the rumours of a tax amnesty be believed?

In the view of the writer then there is a high likelihood that a tax amnesty will be announced in the next few months and at the time the tax amnesty is announced it is expected that HMRC will announce some form of increase in penalties with regards to individuals who do not partake in the tax amnesty. This could mean that the maximum penalty for tax evasion is increased to 200 percent of the tax due as a result of a tax fraud not declared under the tax amnesty.

There is a lot of circumstantial evidence to support this view. It is commonly known that the information gathered following the Barclays case has not been disseminated within HMRC and that it will not be available to them until late 2007. This would fit in with a tax amnesty being announced in early 2007 with a limited duration of at most 6 months.

The formation of the Civil Investigation of Fraud teams in July 2006 who have a mandate to recover significant sums using the guarantee of a civil settlement has enabled the network to have teams in place who can check and monitor any reports made under a tax amnesty. Many of the members of the teams are experienced tax investigators and the group includes people with experience of both the Inland Revenue tax regime and that operated by Customs and Excise. It is not known at this stage whether the tax amnesty will cover VAT.

There is also the need of the Chancellor to fill the tax gap. It is estimated that from the information obtained from Barclays alone that there was nearly £1.5 billion of tax at stake. Thus the total of money HMRC believe is at risk from tax fraud is probably in the region of £7-10 billion. Even if only ten percent of the individuals suspected came forward this could boost the Treasury coffers by over £1 billion pounds. A systematic targeting of the people who do not take advantage of the tax amnesty by the Civil Investigation of Fraud teams will then be undertaken and a significant change in the penalty regime will increase penalties. Thus those who do not take advantage of a tax amnesty will pay even more in terms of penalties. Again this seems to be a way to generate additional income for the exchequer with little extra effort and fits in with recent press comment about a change in the penalty regime including an increase in the Self Assessment late filing fee from £100 to £250.

HMRC are currently in the process of reviewing the Taxes Management Act which governs the level of penalties. Many of the high level HMRC investigators the writer has dealt with over the last year or so have been talking about the need for an increase in the level of penalties for tax fraud to approximately 200% (it was this level in the past) to discourage tax evasion. A one off tax amnesty prior to the introduction of such a regime would both increase the tax take in the short term and also make people aware that the tax amnesty was their one chance to sort out their tax affairs.

There has been no denial of the reports that a tax amnesty will be offered by HMRC. Indeed every quote that has appeared in the press seems to indicate that this is something that HMRC are considering in detail.

Given the circumstantial evidence available then it would appear that there is a significant chance that HMRC will offer some form of tax amnesty. Whether this is only offered to people with offshore bank accounts or is extended to include people who have committed tax evasion in any other way remains to be seen. It would seem to be unfair to offer the tax amnesty to only those who hold an offshore bank account so it is more than likely that any tax amnesty will be an all encompassing one. If a tax amnesty is going to be offered it is speculated that it will be instigated before the end of March 2007.

If you would like to discuss any possible disclosure to HMRC or any matter to do with the potential 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. All enquiries are strictly confidential

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