Chris Moyles has been accused of using an off shore tax avoidance scheme
The government has launched an advertising campaign targeting people who have been evading taxes by holding money in offshore accounts. Tax evaders could face fines of 200% of the tax owed and the possibility of criminal prosecution and imprisonment, depending upon the amount and severity of the evasion.
Chancellor George Osborne said the campaign aimed to make it “very clear” that if people hid money offshore “then we are coming after them”. “Ultimately, this is about fairness and people have to pay their taxes.”
The Chancellor went on to say, “tax evasion means that others have to pay higher taxes and, as a society, we all have to make a contribution”. He claimed that the UK tax authorities were “expecting to collect a significant amount of revenue but the challenge is finding out exactly what is hidden offshore”.
Mr. Osborne made his remarks following a recent meeting of G20 finance ministers in Sydney, Australia.
HM Revenue & Customs director general for enforcement and compliance, Jennie Granger, said most people with offshore assets “do the right thing and tell us about them” but “for the minority who do not, the net is closing around them”. She advised any individuals with undeclared offshore assets to contact HMRC urgently or face penalties. “The days of hiding money in another country to cheat the UK are coming to an end,” she said.
You can’t fault the Treasury for going after people who hide their money abroad to avoid UK tax and the government has repeatedly said it will hunt down tax evaders; but I for one, question how effective its efforts have been thusfar. In one high-profile campaign launched just over a year ago, HMRC published a most-wanted list of alleged fraudsters and tax evaders, however after nine months only one individual had been caught, prompting Labour claims that it had been a huge failure.
In another campaign 5 years ago the then Labour government twisted the arms of the traditional offshore havens for offshore accounts, the Isle of Man, Jersey, Guernsey and the British Caribbean islands, to provide them with lists of non-residents who had bank accounts. They then spent millions telling people, “we know who you are, but if you volunteer the formation, we will not fine you!” A few individuals “fessed-up”, but the vast majority did absolutely sweet f.a. and nothing happened, because HMRC simply did not have the resources to follow things up.
Jennie Granger
So, is this campaign yet another bluff by the Treasury to try and scare people into doing the right thing? Yes it probably is and as with previous campaigns, it probably won’t work.
What about genuine ex-pats?
There are several hundred thousand Brits who have retired to their own personal place in the sun, largely living in EU member countries, such as Spain, Greece and Cyprus. Most of these people are oblivious to what the UK tax authorities are doing, do not pay UK income tax, but probably do pay local taxes on investment income and assume because of the EU double taxation agreement they’re doing nothing wrong.
They are probably correct if their total income from pensions, savings and investments is less than £41,451 in the current tax year. Unfortunately, any income above this limit is potentially subject the higher rate of 40% tax and may not come under the double taxation agreement.
To give you an example, John a person I know, lived in Tenerife for 10 years, but returned to the UK last year because of ill-health. HMRC issued a Tax Return because his total income was around £5,000 above the £41,451 40% tax threshold and John religiously filled it in expecting to receive a tax bill of £1,000. He was then asked why he had not completed a tax return for the previous 6 years; John told the truth and ended up being investigated for non-payment of taxes in earlier years.
It turned out that John, although his retirement to Spain had been intended to be permanent, had not made himself officially resident there. He had paid the Spanish tax rate on savings and investments of 21%, which ignores other taxes, but had no idea that he should have been paying the 19% difference to HMRC. The investigation is still on-going but I expect John will end up owing around £10,000 in tax, which could be quadrupled when penalties and compound backdated interest are added. The sad thing is if he had stayed in Tenerife, he would have had nothing to pay.
So if you’re living in the sun, find out which country has the more generous tax regime and have your official residence there, or you could hedge your bets and take a risk; but as my friend John found our you could just come a cropper.
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David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.