Act now or miss out on HMRC's offshore tax amnesty

HM REVENUE and Customs (HMRC) has used its powers to obtain details of offshore accounts operated by the largest high street banks and is now turning its attention to smaller banks and other financial institutions.

The details, which include accounts held in the Channel Islands and the Isle of Man, will be checked against UK taxpayers' returns and any undeclared accounts will be targeted for inquiry by HMRC.

With up to one million UK citizens believed to hold accounts and investments overseas, HMRC sees this as a major scheme to recover billions of pounds in unpaid tax. In addition to collecting tax, HMRC is able to charge interest on late payment and, following an investigation, can also charge a penalty of up to 100 per cent of the undeclared liabilities.

Serious cases may result in criminal proceedings and indications are that HMRC intend to use the courts to make an example of selected individuals.

In an unprecedented departure from this "big stick" approach, HMRC announced a "tax amnesty" in April, which allows taxpayers to register any previously undeclared holdings by 22 June.

A successful declaration under the amnesty will not reduce the tax and interest payable but HMRC have offered the carrot of a restriction of the penalty to 10 per cent of the unpaid tax.

Following the success of a similar scheme in the Republic of Ireland, HMRC hopes this carrot and stick approach will encourage taxpayers to come forward and will reduce the need for formal inquiries.

But, with the deadline approaching, there is concern that not all tax payers are aware of the amnesty or consider that it does not apply to them. As HMRC gathers more information on offshore accounts, it is only a matter of time before undeclared income is discovered and taxpayers will miss out on the amnesty.

There has been a perception offshore accounts are used mainly as a means of avoiding UK tax and that this may discourage account holders from coming forward. However, in reality, accounts are held for totally innocent reasons. In particular, the significance of the growth in ownership of overseas properties means that many people are obliged to set up an offshore account to meet expenses.

In many cases, people holding accounts for this purpose have mistakenly believed that they did not require to report interest to the UK authorities. However, a genuine lack of knowledge or misunderstanding will not protect the taxpayer from a penalty.

Despite the concerns, there has been no indication that the amnesty will be extended beyond 22 June, and missing the deadline may prove costly. Anyone with an overseas bank account who has yet to take action should seek advice from a tax expert or visit the HMRC website at www.hmrc.gov.uk immediately.

Hazel Bowman is tax partner at Mazars LLP