Taxman takes 'guilty unless you can prove innocence' approach

Published on Friday 21 March 2008 20:14

TO FOLLOW up on in its offshore disclosure project in 2007, HM Revenue and Customs (HMRC) is sending letters to thousands of taxpayers who did not respond.

HMRC is demanding to know why tax is not owed to the Treasury on funds held in offshore bank accounts.

But according to Neil Whyte, tax investigations partner at PKF Accountants and business advisers, HMRC's move turns one of the central tenets of the legal system on its head by presuming that taxpayers are guilty and demanding proof of innocence.

Whyte said: "HMRC is demanding confirmation and an explanation as to why tax is not due on funds about which it knows little.

"In many cases, HMRC only knows that someone has an offshore bank account and the funds it contains at a few specific dates. It has little idea how much interest was earned on the deposits, where the money came from or the key question of whether there is an undeclared UK tax liability at all.

"Legally, to issue an assessment for unpaid tax, HMRC must have made a 'discovery' or, in other words, have actual knowledge that further tax is due, not just that it might be due. Yet the threat is that such assessments will definitely be issued unless informal, voluntary answers are given to the questions raised."

He added that taxpayers are under no legal obligation to respond to these letters. However, the reality is that anyone who ignores one will ultimately face an assessment seeking to collect the tax assumed to be due, perhaps after a detailed investigation into their tax affairs.

This type of "intervention" exercise was piloted in 2006 and was heavily criticised by taxpayers and agents alike. The reaction was so strong that HMRC agreed to suspend this approach pending further review and discussion. Whyte said that review, launched by HMRC's director general Dave Hartnett, does not seem to have achieved much.

"With so many complexities and possible twists in these cases, it is essential the boundaries of the legislation and taxpayers' rights are respected," said White. "The only sensible option for individuals who have not fully declared their income in the past is to make a full, voluntary disclosure to HMRC."