Genuine mistakes will escape offshore tax fines

People who have made a “genuine” mistake over their tax affairs or who have been affected by exceptional events will not face a fine under HM Revenue and Custom’s second and last disclosure offer for those with undeclared taxes in offshore accounts.

Under its New Disclosure Opportunity (NDO), HMRC is giving people who have money in offshore accounts but who have not disclosed the tax that may be owing a second, final opportunity to settle their bills at a reduced penalty rate.

The new ‘amnesty’ covers some 300 UK and foreign owned banks.

Anyone who makes a disclosure before 12 March 2010 will face a penalty charge of 10 per cent of what is owed.

But HMRC is prepared to waive any fine in cases of genuine errors.

Dave Hartnett, HMRC’s permanent secretary for tax, said: “The new approach to penalties in the HMRC is that for truly genuine mistakes we do not levy penalties.”

An example arises in the case of a bank making an incorrect calculation of the interest received from an account as a result of which the tax payment fell short of the proper amount.

Fines would not generally apply to those affected by events beyond their control, such as serious illness or the loss of a partner or close relative at the time HMRC should have been notified of the tax situation.

However, lack of information and ignorance of the law on taxes do not qualify as genuine excuses.

HMRC launched its first amnesty, or Offshore Disclosure Facility (ODF), in 2007 and recouped some £400 million in unpaid taxes from 45,000 people holding undeclared offshore accounts with five leading banks.

As part of the New Disclosure Opportunity, people who contact HMRC voluntarily will only face a penalty charge on undeclared, unpaid taxes of 10 per cent of what is owed.

In principle, HMRC is entitled to impose a fine of 100 per cent but is hoping that, as in 2007, the reduced penalty will encourage more account holders to come forward.

Higher rate taxpayers with offshore savings accounts need to pay 40 per cent tax on the interest that is generated, irrespective of whether the money is re-introduced to the UK. Basic-rate taxpayers must pay 20 per cent.

HMRC is also tracking tax owed on other assets such as holiday homes which have produced income from lettings.

To qualify for the capped penalty, taxpayers must contact HMRC between 1 September and 30 November to notify that they owe undeclared tax. Those notifying on paper can do so from 1 September to 30 November and those notifying electronically from 1 October to 30 November.

Anyone making an offshore disclosure on paper must get it to HMRC from 1 September 2009 to 31 January 2010 at the latest. Electronic disclosures can be filed from 1 October 2009 to 12 March 2010.

However, people who were contacted during the 2007 amnesty and who did not come forward then, but who do so now will have to pay a penalty of 20 per cent.

Those who continue to fail to declare their liabilities will face penalties from 30 per cent up to 100 per cent.