EU savings directive has seen more aggressive approach from the revenue, with barclays bank the first under investigation
HM Revenue & Customers (HMRC) is targeting UK banks with offshore subsidiaries in its fight against tax evasion, following the implementation of the EU Savings Directive.
Jeanette Harwood, head of the regulatory group at law firm Walker Morris, said the first UK clearing bank to be impacted by this move was Barclays Bank, which has until 24 June to disclose details of its customers with UK addresses and non-UK bank accounts to the Revenue.
In the landmark tribunal case, Special Commissioner John Avery Jones ruled Barclays had to disclose customers' details from its offshore base in the Isle of Man because information from UK.
In the tribunal, HMRC argued Barclays' customers could be evading tax and, as the bank had access to offshore account details, it was necessary for them to hand this information over in order to check if the accounts were legitimate.
Emma Rees, spokesperson for Barclays said there was no specific reason why HMRC was targeting the group, but she believed the bank was the first of many.
She said: "We believe we were a test case and it is likely other banks will or have also come under attack.
"Most of our customers are legitimate and this ruling is unlikely to affect our offshore business. Most customers have been using their bank accounts in a reasonable manner and there may be a legitimate reason for them to have a non-UK bank account.
"For example, a non-UK depositor might be working abroad but have a UK property that they are renting out."
Harwood said the HMRC was now using this as a means to investigate anyone with offshore dealings. She explained: "Since the introduction of the Directive, HMRC has been taking a more aggressive stance on tax evasion and has decided to use its legislative power section 20 (8A) to go on a fishing expedition targeting any UK resident with an offshore bank account.
"Prior to the Directive, this was limited to cases that HMRC thought were illegal."
According to Harwood, the ruling means any UK bank which has access to details of customers in their offshore subsidiaries can now be investigated by HMRC.
Charlie Hall, tax investigations partner at Grant Thornton, said that while most offshore accounts were legitimately set up, account holders needed to be fully aware of their tax liabilities in the UK.
He added: "As more people invest in property abroad, there could be a significant proportion who are not aware their assets in offshore accounts are liable to UK tax.
"Anyone, subject to their tax status, who receives rents or interest from an overseas property or investment will need to declare that income on their UK tax return and pay tax on any gains or profits made when selling the property.
"Tax arising overseas will also need to be paid in the right country and then set off against any UK liabilities."
According to Hall, the source of the funds used to buy the property or open the investment account will also be the subject of attention from the UK taxman.
In many cases, he explained, the tax inspector assumes from the outset the property has been purchased from untaxed funds.
A taxpayer who has purchased the property on retirement or via a UK mortgage, or by releasing the equity on their UK property may also be targeted as a potential tax cheat, and may be required to produce bank records going back several years to satisfy HMRC, warned Hall.
He added: "Failure to properly declare liabilities on overseas assets can lead to substantial charges of interest and penalties, as well as the recovery of unpaid tax, and could put individuals in jeopardy of prosecution either in the UK or the overseas host country."
The Directive, implemented in July 2005, was intended to reduce tax evasion by allowing the exchange of information on EU residents' accounts.
Offshore centres including the Isle of Man, Jersey, Guernsey and Gibraltar have all implemented the regulation.
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