Off Shore Accounts

I have a client, whom I have known and liked for many years.  He saw me a year or so back, and we talked about various things.  He then informed me that all his cash was off shore in a foreign bank account, and so he said, as a consequence, he gets a higher rate of income, and he does not pay any income tax.  I tried very hard to point out that this in fact was against the law, but with limited success.  I have not been in touch with him for some time, and so do not know if the arrangement is still exists, but I am minded to write to him ,because a new problem has arisen for those having off shore bank accounts that the Revenue knows nothing about (if you have an off shore bank account, and the Revenue know about it, then you need read no further).

The Revenue may now use their powers under 20 Taxes Management Act 1970.  In one particular case, the Revenue have used this power to require Barclays and an un-named investment bank to give them information about any customers that they know to have an off shore account.

As a consequence, Barclays have been advised that they must provide, addresses, dates of birth, off shore account numbers and details of selected transactions, going back some 6 years.  H.M. Revenue & Customs Fraud Group estimate that the Revenue could stand to gain some £1.5 billion in back tax, from Barclays customers alone.

If you have an off shore bank account that the Revenue does not know about, the danger is that they will soon find out.  What should you do?

• Doing nothing is always an option, but not a very sensible one.  You can live in hope that they do not discover your account, but that is a chance that you will have to take, and remember that the Revenue can go back 6 years.

• You could, of course, close the account, repatriate the funds and keep your fingers crossed.  It is possible that it will be missed in the grand sweep, and again it is a choice that you alone can make.

• Finally, you might decide to come clean and tell the Revenue, and make what is called a voluntary disclosure.  If that is your decision, then the sooner that you go to the Revenue, the better, because by being honest with them, you stand a much stronger chance avoiding, either being prosecuted and being heavily penalised.  The Revenue have powers to invoke penalties on tax payers, and it is a fact that the sooner they know and the more honest the tax payer is, then the less the penalties tend to be. 

The fact of the matter is that if you have had a bank account off shore and received income, and not paid tax, the Revenue will not be very happy and you will have to pay the full amount of tax outstanding, certainly interest on that tax, because the Revenue have not had use of their money, and quite possibly a penalty.  It will be uncomfortable and it will be expensive, but it is the best of the three options.

Unfortunately the use of off shore accounts is widely misunderstood in this country.  Not to advise the Revenue and to pay tax on income simply amounts to fraud and is a criminal offence, and in extreme cases the consequences will, at the very least be unfortunate.

It is also becoming clear that countries are more than ever working together, and it is certainly possible, indeed probable, that those people who have left the country to live abroad, and whose affairs come under scrutiny in the present sweep by the Revenue, may find that their local tax office is told, simply because the ethos now is for the various Revenue authorities, certainly across Europe, to be much more co-operative with one another.