The "Tax Amnesty"
Newsletter issue - May 07.
It's amazing how many people still believe that income from offshore accounts is not subject UK tax, but if you live in the UK and are domiciled here, you must pay tax on all your income wherever in the world it arose.
The Taxman has now received details from the top five high street banks about offshore accounts held by UK residents, including the balances held and transactions made through the account. He would like to enquire into each one of these accounts where the details do not match what has been declared on a UK tax return, but he just doesn't have the resources to do so at present.
The solution, as far as the Taxman is concerned, is to use a carrot and stick approach to encourage taxpayers to declare their offshore income by launching a limited offer for voluntary disclosures. This has been dubbed a "tax amnesty" by many newspapers, but there is no reduction in the tax or interest due on the undeclared income. The only carrot is a fixed penalty of 10% if before 22 June 2007 you tell the Taxman you are prepared to come clean. This compares to a probable penalty of 30% to 50% that would apply to a voluntary disclosure outside this scheme. However if the undeclared income is under £2,500 there will be no penalty charged at all.
If you take up the Taxman's offer you need to make a full disclosure of all your undeclared tax liabilities, including VAT and business taxes, even if these are not connected with the offshore account, and pay all the tax, interest and penalties due by 26 November 2007. This disclosure must cover the last twenty years, so it is not a small task. The Taxman will also want to know how the capital came to be in the offshore account, and whether UK tax was paid on the funds before they were deposited there.
If you need further advice on what to do in your own situation, please contact us.