Banks fail to tell clients about amnesty

The first that many offshore account holders will know their confidential account details have been passed over to the taxman – as part of an attack on tax evasion – is when a letter from HM Revenue & Customs hits their doorstep.

A large proportion of the 308 banks having to pass confidential client details over to the taxman have not informed their clients that they may be doing so. Based on their dealings, advisers have estimated more than half may have failed to tell account holders.

The situation, triggered by HMRC’s crackdown on offshore tax evasion, is sure to raise concerns that customer confidentiality, one of the main planks of the banking system, has been bypassed.

Accountancy and legal advisers have criticised the short timeframe of HMRC’s New Disclosure Opportunity (NDO), the tax amnesty flagged up by the taxman as the last chance to come clean about tax owing from undeclared income held in offshore accounts.

The deadline was extended to 4 January from 30 November as banks came under pressure to comply with the legal obligation to hand over client information under Schedule 36 notices. The amnesty began in September.

An HMRC spokesman told Accountancy Age it was a “distinct possibility” that many account holders would first find out about the disclosure of their details through an enquiry from the taxman, but maintained a tough line, saying offshore account holders had been given the opportunity to come forward voluntarily. “Information is moving from the banks. There’s a distinct possibility [customers will be unaware their account details have been passed on] but we had a major advertising campaign and took very significant steps to make sure everyone was made aware of the NDO.

“Everyone knows if you came forward voluntarily, you get a lower penalty than if we come looking for you.”

The 308 banks targeted by Schedule 36 are not legally bound to inform clients that details are being passed on to HMRC, and fears of reputational damage generated by issuing a blanket letter to customers were cited as potential reasons for holding off informing clients.

Simon Airey, partner at law firm DLA Piper, said banks were currently considering which customers were “in scope” of the Schedule 36 notices and did not want to “spook” them unnecessarily.

“The banks will be a little bit nervous. They don’t want to create the impression that legitimate customers have done anything wrong. It will still be one to two months before they get the information over to HMRC. A lot of the banks are still in negotiations with the Revenue, working out their position. Writing to too many clients could spook the herd. Also, writing to too few before contacting others later could be a PR disaster. The NDO has been a case of bad timing.”

After being hit with the Schedule 36 notices, banks scrambled to work out their powers of possession – the information they were allowed to disclose about client accounts – before starting the daunting task of collecting the information and checking it for accuracy.

Concerns have been raised about HMRC’s powers. The CIOT recently said HMRC is using its new information powers to “obtain huge amounts of data from third parties about individuals’ tax affairs”, citing the Schedule 36 notices.

“There’s great uncertainty as to which banks have sent [client] information out,” said Mike Down, tax investigations partner at Baker Tilly. “Some of the banks feel they shouldn’t be supplying this information. The timing of the NDO was very strange and the advertising was poor."

The British Bankers Association was not asking its members whether they were writing to their customers in relation to Schedule 36 notices, a source said.

Further reading:

HMRC to blow overseas accounts wide open after Schedule 36 win