Last month's warning letters from hmrc were just the start
The decision of the UK government to send 500 letters warning of possible tax liabilities to holders of offshore bank accounts signals the start of an extended campaign, according to a London-based tax adviser.
Paul Noble, tax adviser at consultancy Vantis, said that although the HM Revenue and Customs (HMRC) stated a failure to respond within 30 days to the letters did not guarantee an investigation, he added that this was a clear threat. The letters from the HMRC's Offshore Fraud Projects Team have asked receivers why there is no tax liability from their offshore bank account.
According to Noble, giving people 30 days to respond is a cop out because it did not threaten an investigation nor did it deny it. There are strict rules regarding the launching of an investigation into a self-assessment, said Noble, so the HMRC should either investigate or not. And HMRC certainly has enough information to keep themselves busy. "I understand the amount of contradictory and potential claims in their possession would be enough to give the team work for 20 years."
Such investigations and the European Savings Tax Directive raise disclosure issues for financial advisers, said Noble, because they have to report suspicious transactions. He said if a client approaches an adviser and admits he has assets on which he has failed to pay tax, the adviser must report the client, whether the client takes his advice or not.
And if the adviser warns the client that if he admits anything illegal, the adviser will have to report the client, that the warning is itself illegal as it counts as tipping him off, added Noble.
One approach to responding to the Directive is to move money from offshore bank accounts to insurance products or offshore companies so it is not caught. But Noble cautioned that if a client switches investments to avoid complying with the Directive, this could trigger a suspicious transaction report.
"Over the years, the line between tax avoidance and evasion has become grey, largely because of the attitude of the HMRC," said Noble.
The Directive and HMRC have made the use of offshore banks less attractive to most UK investors than ever before. "But, there is one advantage - timing." says Noble. In the UK, you will suffer deductions of tax at source but if you go offshore the interest is paid gross and you only have to pay tax when you file your tax return.
"In discussions I have with offshore banks, most of them will not take plain vanilla business from UK residents and domiciled retail business."
Offshore bank accounts are still attractive, added Noble, for non-domiciled UK residents as they are only taxed on UK sourced income.
• Last month's warning letters to offshore account holders were merely the start of an ongoing process.
• The HMRC apparently has enough suspicious information on account holders to keep the offshore specialist team in work for many years.
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