Taxman targets offshore accounts

By Rebecca O’Connor

WEALTHY individuals with offshore savings accounts are being targeted by Revenue & Customs in a crackdown on tax evasion.

Some of the 500 individuals in the Revenue’s sights will receive letters today telling them that they face investigations into their tax affairs and possible criminal prosecution if they do not comply with the Revenue’s demands.

More high-net-worth people will be contacted later, as the Revenue attempts to recover unpaid tax of up to £1 billion.

In the letter sent out yesterday, the Revenue asks for a response within 30 days that justifies why the account- holder believes that no tax liabilities arise from their accounts. If they fail to answer, or their response suggests that they might be liable for tax, there will be an inquiry into their latest tax return. Prosecution will be considered “in the most serious cases”.

UK taxpayers are liable for income tax on interest earned on offshore accounts, including those in the Channel Island and Isle of Man subsidiaries of British banks. The Revenue is also writing to banks, informing them that it knows the details of their customers with offshore accounts. The Revenue has not said how it identified the 500 savers, but it says that banks have a legal obligation to provide information about account-holders if requested.

Tax experts have branded this latest attempt by the Revenue to uncover offshore tax fraud as “heavy-handed”, with some claiming that the Government was contravening the tax investigation rules. Andrew Watt, director of tax investigations at Chiltern, a tax consultancy, said: “Many people are unaware of whether their overseas income is taxable in the UK. Receiving a letter from (the Revenue) referring to tax evasion and possible prosecution will be extremely alarming.”

Paul Noble, assistant director of investigations and inquiries at Vantis Tax, another tax consultancy, said: “The letter is a cop-out. The Revenue is essentially saying ‘tell us something, then we might be able to come to a decision’.”

The Revenue says that the letter is an informal way of ascertaining whether there is a need for a formal inquiry. It said: “The use of offshore bank accounts and other investments to hide the proceeds of tax evasion has been and remains a significant problem. (The) accounts are legitimate investment vehicles as long as people meet their obligations to declare interest that arises in their tax returns. However, we often find them associated with serious tax evasion.”

In 2003 a special Revenue unit, the Offshore Fraud Projects team, was set up to coordinate an effort against large-scale tax evasion. Most inquiries have been resolved through civil settlements, with account-holders agreeing to pay any tax, interest and penalties for which they are liable.

“Prosecutions only tend to occur in cases that the Revenue can highlight to others as a deterrent,” says Mr Noble. Account-holders who receive the letter are advised to seek professional help immediately.

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