Tax Disputes & Investigations

Offshore Disclosure Facility (ODF)

In April 2007, HM Revenue & Customs (HMRC) launched its 'Disclosure Campaign' by introducing the 'Offshore Disclosure Facility' (ODF). This announcement followed HMRC winning landmark rulings allowing it to obtain information from five major 'high-street' banks relating to offshore bank accounts held by individuals living in the UK.

The ODF was the first HMRC campaign designed to allow taxpayers who directly or indirectly held (or had held) offshore accounts and who owed UK tax thereon to disclose them to HMRC and settle their outstanding tax liabilities (plus interest) with a guaranteed 10% fixed penalty.

The ODF was a fast track campaign to try to collect as much unpaid tax as quickly as possible. The first stage involved the taxpayer having to notify HMRC of their intention to disclose. This had to be completed by 22 June 2007. The notification did not commit the taxpayer to subsequently making a disclosure, but if this deadline was missed the taxpayer could not take part in the ODF. The second stage required the taxpayer to make a full disclosure of all outstanding liabilities and pay these plus interest and the 10% fixed penalty by 26 November 2007. As part of the disclosure, the taxpayer had to enter into a formal settlement contract with HMRC, sign a declaration that the disclosure was correct and complete and provide a list of their offshore assets and bank accounts (as at 5 April 2006). HMRC then had until 30 April 2008 to either accept or reject the disclosure.

Contrary to a number of reports, the ODF was not a 'tax amnesty'. It was not intended to allow taxpayers to escape paying tax liabilities that were legally due nor did it provide immunity from prosecution to those that came forward.

So what results did the ODF produce:

• 64,000 taxpayers initially notified their intention to disclose;
• 45,000 taxpayers subsequently went on to make a disclosure;
• 30,000 taxpayers actually notified undeclared tax;
• £400 million tax was raised (against HMRC operational costs of only £6 million);
• £9,000 tax was the average disclosure, but £3 million was the largest disclosure.

Once the ODF closed, HMRC began using the data obtained from the banks to check the accuracy of the disclosures made and identify taxpayers who had failed to come forward. HMRC has subsequently opened over 13,000 (approx) formal investigations where prosecution was not considered appropriate and, by the end of 2010, had completed 12,000 (approx) of these collecting a further £85 million. HMRC believes that it will have raised a total of £100 million once all its formal ODF investigations have been concluded.

As part of its Offshore Campaign, HMRC has also commenced a number of criminal investigations with a view to prosecuting taxpayers for tax evasion linked to offshore accounts and/or assets.

Although the number of ODF disclosures was, perhaps, disappointing (45,000 from information understood to have been received on 400,000 taxpayers), HMRC heralded it as a success. Notably, the National Audit Office (in its 3 April 2008 'Value For Money Report on Tackling the Hidden Economy') commented favourably on the 67:1 yield:cost ratio achieved by the ODF and recommended that HMRC "devise similar schemes in other sectors to secure widespread voluntary disclosure.". Consequently, there can be little surprise that HMRC has embarked on further campaigns designed to maximise tax revenue for minimal cost.

Although participation in the ODF is now no longer possible, anyone with undeclared tax liabilities, whether they arise offshore or in the UK, is still strongly advised to make a disclosure to HMRC. By approaching HMRC (rather than risking HMRC initiating an investigation), taxpayers can help reduce the potential financial penalties that could be charged and best protect themselves from potential prosecution.

If you know or suspect that you need to disclose undeclared income, profits and/or gains to HMRC, whether they arise in the UK or offshore, you should seek specialist advice before doing so. The management of the disclosure process and the way in which the relevant facts are presented to HMRC are key to achieving maximum penalty mitigation and protecting you from further enquiry by HMRC. In addition, you can also protect yourself from being 'named and shamed' by HMRC as part of its 'Publishing the Names of Deliberate Defaulters' programme.

How can OneE TDI help?

At the core of OneE TDI is a highly experienced team specialising in all areas of tax disputes and investigations. We offer confidential, non-judgemental and invaluable advice to best defend our clients. We have a proven track record in managing all contentious tax matters and provide an outstanding, cost-effective service which results in tangible benefits and savings for our clients. We have up-to-date knowledge of all HMRC campaigns and disclosure facilities and are able to secure the best available terms for our clients.

Putting it simply, we take control of and manage all issues relating to tax disputes and investigations so that our clients can get on with their life and their business. What price peace of mind?

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Whilst we endeavour to provide informative and accurate information, the content on this site is for general information purposes only and should not be taken to constitute tax or legal advice which must always be tailored to individual circumstances. Please contact us if you would like to discuss matters.

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