UK taxpayers with overseas bank accounts face some tough decisions this month. Since September 2009, HM Revenue and Customs (HMRC) has been offering individuals the chance to come clean about any unpaid taxes under the New Disclosure Opportunity (“NDO”).
Those with savings in overseas accounts, and other overseas income or gains, who have not properly complied with UK tax law, are offered a reduction in the possible penalties on unpaid taxes of up to 90 per cent. This is coupled with the promise of a simplified procedure and very little chance of a follow-up with a more in-depth tax investigation (unless HMRC suspect criminality). Those who don’t come forward, and are later identified by HMRC, risk a tax investigation which could extend into all of their affairs. They would also face penalties of up to 100 per cent of the outstanding tax, interest on that tax and the possibility of criminal prosecution.
This will affect most people who are resident in the UK for tax purposes since their worldwide income and gains are actually taxable in the UK. It could extend 20 years into the past, if there are historical irregularities, and could also affect people who live overseas but treated as resident in the UK. People with overseas arrangements will wonder why they should disclose now as opposed to taking their chances and keeping quiet. Anyone with an overseas bank account will wonder how this affects them, especially if interest is already deducted by their bank. However, unless the same amount of tax that would have been paid in the UK (or more) has been deducted, then a UK liability may remain.
There are new factors that were not a concern previously. HMRC are relying on these to give an added push. There have been several cases where banks have been forced to hand over customer information. This could affect overseas banks with UK branches. There are also EU rules requiring certain information to be disclosed by banks across the EU.
There is also a trend for previously secretive countries like Switzerland to bow to pressure and hand over details on their banks’ customers. HMRC has also publicised that they are in the process of finalising agreements with several countries to agree mutual exchanges of information.
Most importantly, just because someone has cash abroad does not mean that they need to pay UK tax. Many people are able to reduce their exposure to penalties through the use of existing tax law. Anyone who might have outstanding tax and needs to disclose will need notify HMRC of their intention to disclose before 30 November. It is crucial they do so.
Shimon Shaw is a tax lawyer in Matthew Arnold & Baldwin LLP