HM Revenue and Customs has taken UK taxpayers by surprise with its recent announcement of an amnesty for all tax evasion including VAT, Income & Corporation Tax, Inheritance Tax and PAYE.

The move is born out of the need to be able to cope with the anticipated surge in the numbers of investigations following HMRC’s success over the last eighteen months in obtaining from five High Street Banks access to the details of UK individuals and companies with an address in the UK and an offshore bank account. HMRC will serve similar information notices on all Banks trading in the UK including the branches and subsidiaries of foreign Banks. It is estimated that this exercise will yield almost a million pieces of information. The amnesty, it is hoped, will clear the decks by encouraging evaders to come forward in large numbers and make a clean breast of previous tax irregularities leaving HMRC free in due course to target the hard core who choose not to make a disclosure.

Tax evaders who have never held an offshore bank account are also entitled to make disclosures on precisely the same basis, and to expect to receive the same treatment, as those who do have offshore accounts.

Those who wish to avail themselves of the amnesty have until 22 June 2007 to notify HMRC of their intention to make a disclosure of all irregularities not just those connected with an offshore account. In doing so they can, with certain limited exceptions, be certain of receiving a fixed penalty of 10% of the tax/duty to be paid (and no penalty at all on disclosures of untaxed amounts less than £2,500). The tax/duties to be disclosed are those underpaid for the years 1987/88 to 2005/6. However, for the years 2000/1 and earlier, undeclared income and gains which were ‘trivial’ need not be disclosed.

Those who have notified will then have until 26 November 2007 to quantify their disclosure. This must be sent to HMRC along with a statement of offshore bank accounts open at 5 April 2006, a statement of offshore assets held at 5 April 2006, a formal letter of offer to pay, a declaration that the disclosure is correct and complete and of course payment of the full amount disclosed including interest and penalty. Where the full amount cannot be paid by 26 November 2007 that fact must be notified to HMRC immediately along with a statement of assets and liabilities and proposals for clearing the debt.

HMRC have said they will not act on notifications which are not followed up by a disclosure and that indeed such notifications will be expunged from the taxpayer’s computer records.

Those who are not eligible to use the Offshore Disclosure Facility because they do not have an offshore account, but who have a disclosure to make, may make that disclosure and payment directly to their normal tax office in the form, and within the time limits, set out above.

Immediately after the initial phase ends HMRC investigators will move to target those who have, or have had, offshore accounts who have not notified their intention to make a disclosure and whose accounts and/or tax returns suggest that tax may have been underpaid. Inevitably those who decline to disclose under the amnesty can expect to be charged significantly higher penalties and some may face criminal prosecution.