| Offshore bank clients presumed guilty |
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| Monday, 17 March 2008 | |
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Tax payers are being forced to 'prove' their innocence as HMRC demands explanations of their offshore arrangements.
Following up on in its offshore disclosure project in 2007, HM Revenue & Customs (HMRC) has now begun sending letters to thousands of taxpayers who did not respond last year demanding to know why tax is not owed to the Treasury on funds held in offshore bank accounts. According to John Cassidy, tax investigations partner at PKF accountants and business advisers, HMRC's move turns one of the central tenets of the English legal system on its head by presuming that taxpayers are guilty and demanding proof of innocence. Cassidy says that HMRC is demanding confirmation and an explanation as to why tax is not due on funds about which it knows little. He points out that 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,” Cassidy adds. He explains that to issue an assessment for unpaid tax, HMRC must legally have made a 'discovery' or, in other words, have actual knowledge that further tax is due, not just that it might be due. Cassidy warns, however, that the threat is that such assessments will definitely be issued unless informal, voluntary answers are given to the questions raised. "The fact is that taxpayers are under no legal obligation to respond to these letters, but 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,” he adds. Cassidy says that this type of "intervention" exercise was piloted in 2006 and was heavily criticised by taxpayers and agents alike, so much so that HMRC agreed to suspend them pending further review and discussion. He notes that the 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, Cassidy says that it is essential that the boundaries of the legislation and taxpayers' rights are respected, whilst always being aware of practical solutions. He believes that 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. “Anyone contemplating this approach should seek expert advice, however, on how to do it in a way that keeps penalties and risks to a minimum while reducing exposure to further investigation and potential prosecution," Cassidy concludes. Related articles
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