Bigger amnesty penalty will deter disclosure

The penalty HM Revenue and Customs applies to the next offshore tax amnesty begs a question about how a penalty could encourage people to come forward to declare untaxed income held offshore.

Last week it emerged the penalty is expected to triple from 10% of the tax owed to 30%. Observers are sceptical that an increase will help the taxman.

So what is the right level? The department needs to strike a balance between generating sufficient revenue and maintaining the compliance and co-operation from taxpayers who came forward under the terms of the 2007 amnesty.

While tax advisers agree 30% is too high, if HMRC is to encourage people to come forward, most also argue retaining a 10% penalty would be unfair to people who disclosed information in the first amnesty.

Noshir Avari, of tax investigation consultants Avari, says a 30% penalty would see too few taxpayers coming forward. ‘How could they expect people to disclose with a 30% penalty when just £400m was collected through the first amnesty. It’s not staggering,’ he says.

The second round of disclosures will see the net of targeted customers broadened from the five major retail banks to as many as 500 other financial institutions.

Advisers are urging HMRC to roll out an advertising campaign publicising the next round of disclosures, with many attributing the absence of a widespread campaign to low revenue generated in the first amnesty.