Financial newspapers

Government investigation of offshore accounts

H M Revenue & Customs (HMRC) last month won a landmark ruling allowing them to obtain details of offshore accounts held by customers of a leading financial institution, thought to be a well-known high street bank.

The ruling, by the Special Commissioner ( an independent arbitrator who hear and determine appeals concerning decisions of HMRC), allows HMRC to serve a formal notice on the financial institution under section 20 of the Taxes Management Act 1970 requesting information about its customers.

It is expected that the institution will have to hand over details of its customers’ credit card transactions, which will then be used to trace money back to offshore accounts. Although the ruling relates to the institution in question, HMRC is expected to make similar demands of other banks.

The ruling is part of a long-running crackdown by HMRC against offshore tax evaders.

Interest earned on money held in offshore accounts is paid gross, but taxpayers resident in the UK must declare the interest on their self-assessment forms and pay any tax due. A sample analysis of this particular institution’s account holders suggested that only 19% of those with UK addresses and holding offshore credit/debit cards declared their income on tax returns, while only 18% declared foreign income.

The increased availability of credit cards makes it easier to access offshore funds, as they can be used either to draw money in the UK from ATMs, or sums charged to the card in the UK can be paid from the offshore account. HMRC considers this to present a significant risk to the proper collection of UK tax.

The Special Commissioner agreed that there was reasonable grounds to suspect that many of the institution’s customers were failing to declare income from offshore accounts. The Revenue estimates that the investigation into this particular institution alone will yield £347 million of additional tax revenues. Extending their enquiries into other institutions potentially results in billions of pounds being clawed back from reluctant taxpayers.

The Special Commissioner rejected the institution’s argument that HMRC’s request amounted to a ‘fishing expedition’ and that it was incompatible with the European Convention of Human Rights.

HMRC has already written to thousands of offshore account holders inviting them to declare details of deposits to their offshore accounts. If a person is found to have undeclared income, as well as paying the tax due, HMRC can impose a fine of up to 100% of the tax owed.

HMRC can make enquiries relating to the past 6 tax years if there is no suspicion of fraud or negligence, or the past 20 years if it has such suspicions.

Anyone who thinks they may have fallen foul of the tax rules should immediately get in touch with a qualified tax adviser, ideally one with experience of issues relating to non-disclosure.