New UK Disclosure Opportunity

August 11, 2009

Her Majesty’s Revenue and Customs (HMRC) have announced further details of the New Disclosure Opportunity (NDO), which is designed to enable UK taxpayers to disclose details of unpaid taxes in relation to offshore accounts or assets in return for a fixed penalty.

Under the NDO, the penalty rate is 10% in most cases. However, taxpayers who received a letter from HMRC in connection with the previous Offshore Disclosure Facility in 2007 will not be able to benefit from the 10% penalty. They will instead be subject to a 20% penalty rate, as they had a previous opportunity to come forward. No penalty is payable if the total amount of the unpaid liability is less than £1,000.

HMRC have stated that the NDO is the last opportunity of its kind. Taxpayers who have unpaid liabilities, but who do not take the opportunity to come forward under the NDO, are likely to face future penalties ranging from 30% – 100% of the tax unpaid, and will also run the risk of prosecution.

Therefore, the 10% or 20% flat rate penalty under the NDO provides a significant incentive for taxpayers to make a full disclosure. HMRC are currently in the process of obtaining details of offshore accounts and assets from hundreds of financial institutions, so taxpayers should be aware that HMRC may already have their details, and if not, it may only be a question of time before they do. These details will be risk assessed, so that HMRC can quickly take action where no disclosure is made or where they have reason to believe a disclosure is incomplete.

Those who wish to take advantage of the NDO must notify HMRC of their intention to make a disclosure. At the notification stage, only certain personal data such as name, date of birth and address is required. Paper notifications can be made between 1 September 2009, and 30 November 2009; and online notifications between 1 October 2009, and 30 November 2009. The taxpayer’s agent can assist with this process.

Once notification has been made, the taxpayer will be allocated a Disclosure Reference Number. Full disclosure must then be made either on paper by 31 January 2010 or electronically by 12 March 2010. It is important to note that the disclosure must include all undisclosed amounts that tax should be paid on – not merely items linked to the offshore accounts or assets. Payment of the tax, interest and penalties must also be made by the closing date of 31 January 2010, or 12 March 2010.