Low profile may limit amnesty’s success tax

Of all the pieces that will help shape HM Revenue & Custom’s efforts to persuade people to declare income on funds held in overseas accounts, the one most advisers have been waiting for is the penalties that will be imposed by the taxman.

HMRC first launched an amnesty for holders of overseas accounts in 2007. This was for accounts held with the five major retail banks. What the taxman wanted was for account-holders to declare what interest they had earned on the funds held offshore. Failure to come forward earned a penalty of 10% of the outstanding tax plus interest.

Details of a second amnesty have been emerging over the past few weeks. Among the details revealed last week is that account holders in those banks would now face a 20% penalty if they voluntarily come forward - a big increase on the previous punishment. If they fail to own up and are found out the penalty will rise to 30-35%.

But, many tax advisers remain skeptical about how HMRC is going to circulate the message out to the estimated 50,000 people who might have tax liabilities to confess.

The lack of publicity from the first round of disclosures in 2007 is widely-touted as the reason for the £400m in tax revenue generated by the scheme - a haul many experts regard as paltry, when estimates of a possible £1bn win for the taxman had been reported.

Despite calls from the tax community for HMRC to aggressively promote and publicise the next round of disclosures - scheduled to commence in September, a public advertising campaign is yet to be launched.

Mike Down, chairman of Baker Tilly’s tax risk and investigations management group, says: ‘I don’t think the first amnesty was advertised enough. They put it on the website and relied on the profession to get the message out.’

A spokesman for the Chartered Institute of Taxation says: ‘The risk you run if you don’t publicise it is people saying they weren’t aware, so maximum publicity is needed. It prepares the ground for HMRC to come down heavier.’

A spokeswoman for HMRC says the department plans to ‘make people aware of the opportunity through a publicity campaign. The major activity is timed to begin at the same time as the NDO in early September.’

HMRC has estimated the disclosure opportunity could bring in approximately £500m over four years, including £150m in 2009/10.

Steve Besford, tax associate at BDO Stoy Hayward, says the penalty structure will create an ‘administrative headache’ for HMRC, as many taxpayers of the major retail banks will argue they weren’t aware of the previous disclosure opportunity.