Monday, March 29, 2010



I do not intend to use up space by reproducing my firm’s Budget booklet that we prepared for clients. If anyone would like a copy, let us know (

However there was one proposal that really worries me and I thought it might be sensible to give my comments on this wider circulation, so her goes:

Tackling Offshore Tax Evasion

Legislation will be introduced in Finance Bill 2010 to impose larger penalties on taxpayers who fail to provide a full account of their income tax or CGT liabilities where the failure is linked to an offshore bank account.

The proposal is that the world will be divided into three parts:

a) Countries with which the UK has both a full double tax agreement and a Tax Information Exchange Agreement (TIEA).

b) Countries with which the UK has a full double tax agreement but no TIEA.

c) The rest of the world.

Where the bank account is in a country within Category A the normal penalties will apply. If it is in Category B the penalties will be 150% of the normal penalty. If it is in Category C it will be 200% of the normal penalty.

Blackstone Franks’ Reaction:

It is noticeable that some of the changes proposed in the budget (such as this one) will be included in Finance Bill 2010 and others will be included in a Finance Bill to be introduced as soon as possible in the next Parliament. The normal procedure in an election year is to have either a very short Finance Bill containing only the rate changes, or to have a normal Finance Bill but to drop the part of it that has not fully been debated by parliament by the time that parliament rises. There is a rumour going round that this year the two main Opposition parties have agreed with the government that they will co-operate in putting a large number of provisions on the statute book with little or no debate and little or no regard for the rights of the citizen that such undebated legislation removes. We hope that this rumour is wrong. We particularly hope that the Opposition parties will not agree to bulldoze this provision onto the statute book without debate:

a) because it has not been subject to public consultation – the government consulted on a different proposal and have decided to adopt the above instead;

b) because although headed “Tackling Offshore Tax Evasion” it goes far beyond evasion and will penalise, amongst others, immigrants from overseas countries who omit to declare income arising in their home country, not deliberately but because they do not understand the tax system, cannot afford to buy advice on how it affects them, and are unlikely to be given helpful advice from HMRC helplines.

c) the proposal is discriminatory and penalises people for things outside their control, such as having been born in a particular country; and

d) the response is wholly disproportionate to the problem at which it is aimed.

Take for example nurse Ann and nurse Betty. They both work for the NHS. Both came here 15 years ago. Both intend to return home at some stage. Both live frugally and have saved some money out of their meagre earnings, which they send home every month. Accordingly both are earning interest in their home country. Both come from the Caribbean. Nurse Ann comes from Anguilla. Nurse Betty comes from the neighbouring island of Barbuda. They are both “non-doms”. Neither realises that, although the bank interest was not taxable here up to 5 April 2008, the law changed from that date. HMRC learn about the interest and think that Ann and Betty ought to have known that the law changed and demand penalties from them.

The UK has both a double tax agreement and a TIEA with Anguilla. It has a double tax agreement but no TIEA with Antigua and Barbuda. Accordingly Ann comes from a Category A country and is liable to a minimum penalty for having made a careless mistake of 15% of the tax on the bank interest. Betty comes from a Category B country and is liable to a minimum penalty of 22.5% for having made exactly the same careless mistake. Is that reasonable? It is not her fault that the UK and Antigua and Barbuda have not yet got round to agreeing a TIEA. As they entered into a double tax agreement it is likely that they will in due course enter into a TIEA too.