SO HMRC has identified 500,000 UK residents with undeclared offshore accounts, according to reports in the press.
The figure, I believe, comes from a preliminary data collation and cross-referencing exercise within HMRC on the information they have but have not previously had the resources to analyse.
The leak may be a deliberate ploy or evidence that they are about to launch a new crack-down on those with offshore accounts. Although there are positive signs from the Liechtenstein Disclosure Facility (LDF) in terms of money raised, the actual number of registrations under the Scheme of 1,351 in the first 18 months to the end of March 2011 would appear, compared to HMRC’s figure of 500,000 offshore account holders, to be the tip of the Iceberg.
Although the LDF is clearly having some impact, the problem remains that HMRC does not have the investigatory resources to launch conventional investigations against such large numbers of offshore account holders.
The way forward for HMRC is to continue negotiating amnesty agreements with foreign governments and offering new UK initiatives for offshore account holders to come forward.
At the same time, HMRC has had at its disposal a huge volume of data acquired from banks and other related information sources, such as Money Laundering Reports.
The likely next step for HMRC is issuing letters to sample groups of offshore account holders (probably the largest in value first), to see if it results in voluntary disclosures.
It is clear from the amounts raised in the LDF that these types of initiatives are going to yield far more than launching individual investigations. The number of accounts is obviously revelatory to HMRC which, for the first time, is getting a clearer picture of just how many people are involved in concealing money in offshore accounts.
Although HMRC always states that it will prosecute individuals, a more pragmatic policy has always prevailed because they would rather reach a monetary settlement than get involved in court proceedings.
This is more so now because the government needs all the money it can raise. Sadly, the truth is that only by successfully prosecuting sufficient numbers with offshore accounts will they ever create an effective deterrent against this type of tax evasion.
The new initiative from HMRC that I believe is on its way reveals that some advisers are simply not asking enough questions of their clients and not making Money Laundering Reports when they should. There is an opportunity for advisers to encourage clients to come forward before they receive a letter from HMRC or mistakenly wait to see if the rumoured Swiss Tax Deal is better than the LDF one.
Besides, advisers may face further HMRC scrutiny themselves if they end up with large numbers of regular clients with undeclared offshore accounts.
Daniel Feingold is a senior partner at tax consultancy Strategic Tax Planning
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