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HMRC have finally announced the details of the new disclosure initiative (NDO) that will allow people with unpaid taxes linked to offshore accounts or assets to settle their liabilities at a favourable penalty rate.
Under the initiative, taxpayers who make a complete and accurate disclosure between 1 September 2009 and 12 March 2010 will qualify for a 10% penalty.
Those who do not to take this opportunity and are subsequently found to have undeclared tax liabilities are likely to face a 30% or higher penalty and also run an increased risk of criminal prosecution.
Describing the procedure as ‘simple and straightforward’, Dave Hartnett, HMRC permanent secretary for tax, said: ‘Now everybody who has not paid the tax they should in relation to offshore accounts or assets has this new disclosure opportunity to pay what they owe with penalties on more favourable terms than normal.’
He added that it ‘will be the last opportunity of its kind’.
The mechanics of the NDO are as follow.
A notification of the intention to disclose must be made to HMRC between 1 September and 30 November 2009.
Paper notifications must be made from 1 September to 30 November; those notifying electronically can do so from 1 October to 30 November.
Disclosures can then be made:
- on paper from 1 September 2009 to 31 January 2010
- electronically from 1 October 2009 to 12 March 2010.
The penalty rate of 10% will apply to those who were not written to by HMRC under the ODF in 2007.
Taxpayers contacted by HMRC in 2007 offering the 10% rate but who did not complete the ODF procedure and now want to disclose will have an opportunity to do so with unpaid tax attracting a penalty of 20%.
‘Never before has a tax amnesty been undertaken on such a huge scale,’ said Andrew Watt of Alvarez & Marsal Taxand.
‘The NDO is different to the previous amnesty in that it covers both customers of offshore banks and those of all building societies and financial institutions which provide offshore accounts or structures.
'It also covers any possession or property available to meet debts e.g. bonds or other financial instruments, land/property, trusts, business interests, yachts and vehicles.'
Noting that HMRC’s previous offshore disclosure facility had been only a ‘moderate success’, Mr Watt said the NDO is likely to ‘raise upwards of £1 billion in tax receipts at a crucial time for boosting the Government’s coffers’.
He added that the new opportunity ‘provides a good option for companies and individuals with a disclosure to make as they will benefit from a much more favourable penalty’.
However, he feels that the timing for the NDO is not great as ‘accountants are usually very busy in December and January, when the majority of disclosures will be made, as they are meeting self-assessment deadlines’.
He suggested ‘this may lead to a lack of capacity from many accountants to deal with the NDO’.
As to the gap between HMRC’s announcement of the NDO and the date it starts, Mr Watt said there would be some taxpayers who would like to make a disclosure now but would be unable to take advantage of the opportunity. In the event that they were challenged between now and 1 September, he advises that taxpayers in that position ‘should keep evidence that they have been in discussions with their advisers regarding their intention to disclose under the NDO’.
‘Tax evaders who knowingly avoided disclosing their assets under the initial 2007 ODF in the hope they would not be caught are likely to be feeling the heat now’, said Paul Roberts of Grant Thornton.
‘If any taxpayer in this situation receives a letter from their bank, they should consider taking advantage of the NDO or face serious consequences.’
He noted that regardless of making a disclosure under the NDO, HMRC have not said that this would lead to immunity from prosecution. He said that the department ‘is now relentless in its pursuit for increased powers of investigation and is taking no prisoners by seriously honing down on evaders at all costs’.
