So far, the main targets seem to be taxpayers with interests in Switzerland and The Cayman Islands.
However, tax sharing agreements have also recently been signed by the British government with a number of secretive offshore financial centres that are Crown Dependencies or British Offshore Territories.
Taxpayers with bank accounts and investments in these offshore centres, which include Jersey, Guernsey, the Isle of Man, and British Virgin Islands, should also expect to hear from HM Revenue & Customs (HMRC) soon.
The letters discuss declaring income and capital gains from investments and disposal of assets and threaten severe penalties for failing to comply with the request.
Tax evasion threat
Taxpayers with Swiss financial connections have been threatened with criminal inquiries for tax evasion, says the Chartered Institute of Taxation (CIOT).
The letters give taxpayers three options –
- No action against taxpayers who consider they owe no UK tax
- Disclosing any liabilities through the Liechtenstein disclosure facility, which offers reduced penalties for undeclared tax payments
- Disclosing liabilities through other channels rather than the Liechtenstein disclosure facility
In October 2013, HMRC told the Parliamentary public accounts committee that Swiss financial organisations had revealed the names of 18,000 British taxpayers holding accounts with them.
At that time, 9,000 letters demanding the taxpayers should declare any untaxed income or gains had been issued.
Meanwhile, taxpayers with offshore bank accounts and investments in the Caymans have received similar letter threatening criminal investigations if declarations of unpaid liabilities are not made within 30 days.
Assumption of guilt
HMRC wants to know about their financial affairs on the Caymans going back 20 years.
Tax specialists were expecting HMRC would act after signing a tax information sharing agreement with the Cayman government – but not for around another year.
The agreements with the Caymans and other offshore centres were signed between October and December.
“The request for information for the past two decades assumes that HMRC suspects the taxpayers receiving these letters have evaded tax,” said Sean Wakeman, tax investigations partner at Crowe Clark Whitehill.
Taxpayers receiving the letters are pointed at the reduced penalties offered by the Liechtenstein disclosure facility, which only wants information dating back 13 years.