New Offshore Disclosure (ODF) Initiative
As anticipated, HM Revenue & Customs (HMRC) have now issued details of its new disclosure initiative. Remember, disclosure can be made by personal representatives of a deceased person.
There was a similar initiative back in 2007, but this largely focused on customers of the large banks. This latest initiative is expected to be far wider-reaching, especially given the increase in the rate of exchange of tax information between jurisdictions as part of the attack on tax havens. In fact over 300 banks have already been ordered to give details to HM Revenue & Customs (HMRC) about their customers who hold offshore accounts.
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For those who choose to make a complete and accurate disclosure between 1 September 2009 and 12 March 2010 under the new initiative, a penalty of 10% of the tax underpaid will be applied.
In normal circumstances, when considering the level of penalty to be imposed, HMRC’s starting point is 100% of the tax, with discounts being applied for levels of gravity, cooperation, disclosure and frequency. The result of this is that, typically, other than in fraud and other more serious cases (when it would be higher), one would normally expect a penalty of 20% to 30%. On this basis, the offer of a 10% penalty rate looks a reasonable deal.
Against this background, it is interesting to read what HMRC have said about penalties for those who do not disclose:
“Those who choose not to take this opportunity and are subsequently found to have undeclared tax liabilities are likely to face a 30% or higher penalty and also run an increased risk of criminal prosecution. “
This statement certainly raises the stakes.
It is also worth noting that, while the penalty under the 2007 initiative was also set at 10%, HMRC have said that those to whom they offered the 10% rate in 2007 but who did not complete the ODF procedure and now want to disclose will still have an opportunity to do so, however the penalty will be at 20%.
Anyone wishing to take advantage of this latest, and probably final disclosure opportunity must seek advice and be prepared to notify an intention to disclose by 30 November 2009. Once the intention has been lodged, disclosure must be made by 31 January 2010 (if in paper form) or by 12 March 2010 (if electronically).
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