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Now Inland Revenue is getting serious
By James Featherstone
(Filed: 17/11/2003)

Holders of offshore bank accounts who have until now believed that they can use those accounts to keep their income beyond the reach of the UK Inland Revenue might soon be in for a shock.

The Revenue is carrying out a crackdown on people evading UK income tax by using offshore bank accounts.

A number of banks have already complied with the Revenue's request for co-operation and have forwarded account details to the body.

Accountants, financial advisers and credit card companies are likely to follow suit in the near future.

A spokesman for the Inland Revenue declined to confirm exactly how the crackdown will unfold, but industry insiders believe that large offshore banks will come under increasing pressure to hand over account information to the taxman.

Financial advisers are also likely to be approached for information.

In 2002 the American Internal Revenue Service (IRS) carried out its own clampdown on tax evasion through offshore accounts.

The IRS said that many high net-worth individuals were depositing money into offshore accounts domiciled in Caribbean jurisdictions, and were using credit cards to pay for living expenses in the US.

American taxpayers are liable for US tax wherever their income is generated. The IRS estimated that more than 1m Americans were using this method of tax evasion.

The US revenue service now roots out tax evaders through their credit card accounts.

The UK's Inland Revenue is using a special £66m investigation fund, established in Chancellor Gordon Brown's last Budget specifically to target tax fraud of all kinds.

British savers in the Isle of Man, the Channel Islands, Gibraltar, Switzerland and elsewhere are likely to be caught up in the probe.

Leading the investigation will be the new Financial Projects Team, based in Liverpool, made up of 20-25 experienced tax inspectors.

"We are looking mainly at large amounts of money lodged offshore, but other savers are likely to get caught up in it," said a spokesman.

The Inland Revenue estimates that it loses hundreds of millions of pounds per year from illegal tax evasion using offshore accounts.

Reg Day, tax specialist at KPMG in London, reckons that the Inland Revenue is serious.

"They believe that many people are using offshore accounts and trusts to escape tax. There may be big penalties, including interest on money sheltered offshore illegally."

Up until now, tax evasion using offshore bank accounts has been relatively easy. The American Government audits just one tax return in 160. The UK Inland Revenue will not reveal what percentage of UK tax returns are investigated, but it is unlikely to be much higher.

Governments across Europe have started taking expatriate tax evasion seriously. For example, Portugal, after looking at millions of tax declarations, some dating as far back as the mid-1990s, has recently checked the tax declarations of 100,000 Portuguese and foreign residents for possible tax evasion.

A number of supranational bodies, such as the OECD (Organisation of Economic Cooperation and Development) and the European Commission, have put pressure on offshore centres to combat money laundering and tax evasion.

Offshore jurisdictions have been falling over themselves to comply with the various initiatives, fearful of remaining on blacklists set up by the OECD and others, and of losing business and influence as a result. Banks domiciled in major offshore jurisdictions, such as the Isle of Man and the Channel Islands, have now put in place stringent anti-evasion and anti-money laundering processes.

The Bush administration last year signed tax information sharing agreements with the British Virgin Islands, the Bahamas, Antigua and Barbuda, and the Cayman Islands.

And Mike Warburton, tax specialist at accountants Grant Thornton, said that it is likely that the Inland Revenue will begin to work with credit card companies.

"Using a credit card on an offshore bank account has been a way of repatriating money without the Revenue knowing about it. I'm surprised that the Revenue has taken so long to sign up the credit card companies as part of the crackdown."

It is commonly reckoned that tax avoidance is a legitimate part of offshore banking. Interest can be rolled up gross, for instance, leading to lower overall tax bills.

But tax evasion is a crime.

Banks who pass depositors' details on to the Revenue would be unable to let the person know they were doing it.

It is therefore possible to be under investigation without knowing it.

Related reports 

External links 
Inland Revenue
Grant Thornton