Offshore banking

The coming months will be significant for the offshore banking industry as HM Revenue & Customs (HMRC) increases its efforts to access customer account information and recover tax liabilities that arise on money banked in places like the Channel Islands and the Isle of Man.

In February 2007, the Special Commissioners ruled that HMRC had the right to compel four UK high street banks to hand over details of several hundred thousand customers’ offshore account details.

HMRC has made it clear that they expect to collect up to a billion pounds of unpaid tax, interest and penalties on interest and money deposited in hitherto undisclosed offshore accounts. Every bank and building society in the UK can now expect a visit from HMRC seeking details of offshore savings.

It is important that people with undisclosed savings go to HMRC voluntarily if they want to avoid large penalties. It is equally important that financial institutions understand the extent to which HMRC’s information powers – set out in s20(8A) Taxes Management Act 1970 – could be used to access their customer details and consider the commercial implications of this.

In most cases UK residents must ensure they are returning the interest that is accrued on offshore accounts (there are exceptions for non-UK domiciled individuals who do not remit income). HMRC is interested not only in the interest in offshore accounts, but also the source of the funds that find their way there as it is clear that people have seen some offshore accounts as a safe haven from the taxman.

More and more people are taking an active approach to reviewing their tax affairs and recognise that they may have issues, such as undisclosed offshore bank accounts, that need to be made known to HMRC. PricewaterhouseCoopers tax specialists can offer help and assistance with any queries on this matter.