What is meant by a “full disclosure”? How do you pay all taxes, interest and penalties by November 26 if you have not got the money to do so?

Even if you can make a quick sale of that foreign property that represents most of your assets, what about the Capital Gains Tax that you will have to provide for, before paying off the back tax etc? What on earth is meant by the phrase “final decision” that HMRC will give by April 30 next year? Let us look at some of these questions in more detail. When HMRC talks about a “full disclosure” the amount of interest accruing on a foreign bank account, which should have been declared for tax is the least of a person’s worries.

Where did the money come from to invest in the offshore account in the first place? Is the money actually in a trust settled by the worried taxpayer rather than a bank account in the taxpayer’s name? Is it in an account bearing more than one person’s name and do they also want to join in with a disclosure under this “amnesty”?

Does the taxpayer’s spouse know what’s been going on (often not)? Is the money in the account effectively the discloser’s pension without which neither he nor his family can live a reasonable existence?

If the original source of money was from undeclared business takings from the UK or elsewhere does the potential discloser want to open up a can of worms that has been buried for many years?  This is particularly important in the case of someone who was or still is in business in the UK.

For example there may well be VAT implications (e.g. should they have registered for VAT based on the real turnover of the business), interacting with direct tax implications that also interact with the deemed distribution legislation (S419 Income & Corporation Taxes Act).  The potential discloser may still be in business and merrily evading tax currently, even though he has not put any “knock off” into his foreign bank account for years.  What sort of disclosure does he make?

What about those cases where children have “inherited” an undisclosed offshore bank account (being one or more of the signatories to the account when their parents were alive), and have made fraudulent statements to HMRC during the period of administration of their parents’ wills? What about people who have made fraudulent statements to liquidators or in divorce cases to protect their overseas assets?

If the tax system was simple and people’s lives were one dimensional an amnesty would also be simple but they are not and neither is this amnesty.

What do the detailed guidance notes say about these sorts of problems?  Virtually nothing!  But they do have something to say if the potential discloser makes materially incorrect or incomplete statements under these rules, because they have been rushed into things or just don’t have the correct information to hand to make a proper disclosure.  The guidelines say that penalties will then be at least 30% even if the discloser is not considered for a criminal prosecution.

The statement that penalties will be at least 30% is an understatement.  A new penalty regime was announced in the last Budget, which will raise the minimum penalty for deliberate intention to conceal to at least 50%.

These are just a few of the problems that will be brought out, by trying to impose a simplistic disclosure procedure on a highly complex tax regime.  The unwary or ill advised taxpayer could well walk into a trap by making incomplete and ill considered statements to HMRC.

The answer to all of the questions mentioned above lies in getting the best advice possible before opening the door to the lion’s cage.  It involves developing a strategy for a disclosure having considered all the risks in advance that ensures immunity from future investigation or even prosecution. 

WHO TO CONTACT

Paul Malin 0121 452 1515 paulmalin@shawtax.co.uk
Will Heard 0121 452 1515 willheard@shawtax.co.uk