Penalty for second tax amnesty expected to treble

The second tax amnesty for holders of offshore accounts will impose penalties significantly higher than the first scheme, Accountancy Age has learned, with experts expecting HM Revenue and Customs to treble the charge to 30% of the outstanding tax.

A source close to the planning of the amnesty said that it is ‘highly unlikely’ the same 10% penalty will apply to the second round of disclosures.

‘It’s virtually inconceivable that it’ll be as generous as the first one,’ the source said.

Under the terms of the first amnesty conducted in 2007, the penalty applied was capped at 10% of the outstanding tax owed plus interest.

The first amnesty, or offshore disclosure facility, was launched in 2007 and raised £400m after HMRC targeted 100,000 people with overseas accounts in five major retail banks.

The prospect of a 30% penalty has divided advisers. Bill Dodwell, tax partner at Deloitte, said 30% did not offer an incentive for taxpayers to come forward. ‘They need a carrot on the stick. If you’re going to encourage people then you need to offer something that looks a reasonable deal,’ he said.

John Cassidy, tax investigations partner at PKF, said 30% is too high to ‘set as a carrot’ in
taxpayers coming forward.

According to George Bull, national head of tax at Baker Tilly, while HMRC needs to encourage people to voluntarily disclose, the penalty needs to be higher than the first amnesty.

‘It’s striking a balance between getting the taxpayer to come forward but can’t be the same as the people who complied first time around will be out of sorts,’ he said.

Observers have also speculated that the taxman would tie the penalty to the amount of undisclosed funds held offshore. Bull said it was a possibility.

‘It wouldn’t surprise me at all if a tiered structure based on the powers and penalties regime was used ­ that would make perfect sense,’ he said.

‘A 30% penalty would recognise the seriousness of a taxpayer not having previously disclosed the information, but it needs to be pitched as tougher than the first.

‘Ignorance of the law in the UK is no excuse for taxpayers not to comply ­ people who have deliberately kept money offshore knowing they’re not paying UK tax won’t get any sympathy offshore,’ Bull said.

A spokesman for HMRC said a final decision on the penalty applied to the second amnesty was yet to be made.

Facts/Figures

30%
Predicted penalty to be charged on outstanding tax

£400m
The amount raised by HMRC from the first amnesty