Midlands investors, who have tried to hide behind Swiss secrecy to dodge the taxman, are now facing the gamble of a lifetime – whether to stick or twist.
That is the warning from Graham Apperley, tax director at the Midlands office of national audit, tax and advisory firm Crowe Clark Whitehill, following the recent anti-evasion deal agreed with the UK.
“They can essentially go public with the authorities, admit all, and escape comparatively lightly or they can retain their anonymity but get hit hard in the pocket,” he cautioned.
“For some it will be a terrible dilemma – can they bring themselves to admit to the authorities that they are tax cheats? If they stay in the Swiss system they will remain unmasked … but it will cost them.
“Either way the old James Bond days of arriving in Zurich with the proverbial suitcase full of cash is over.”
UK residents will be given a choice of paying a one off levy or declaring their assets to HM Revenue & Customs (HMRC).
The levy will be between 19 per cent and 34 per cent of the value of their bankable assets as at December 31, 2010. The percentage will vary depending on the length of time the deposits have been in Switzerland.
Payment of the levy will be deemed to satisfy all past liability to Income Tax, Capital Gains Tax (CGT), VAT and Inheritance Tax on the money in question. Banking secrecy is maintained if the levy is paid – the Swiss will not pass over the details from the British accounts and the UK will never know who these people are unless they decide to disclose their details and challenge the payments.
It is expected that a treaty will be signed in January 2013 after which withholding taxes will be applied – 27 per cent for CGT, 40 per cent on dividends and 48 per cent on other income.
However there are alternatives for those willing to identify themselves to HMRC, including bizarrely, a favourable mechanism developed for the disclosure of similar cases in Liechtenstein. The Liechtenstein disclosure facility (LDF) guarantees immunity from prosecution for tax offences and a fixed 10 per cent penalty. HMRC have confirmed that the LDF procedure can be used for appropriate Swiss cases.
The UK-Switzerland agreement has been hugely controversial.
Critics claim the one-off tax is much lower than the culprits would have paid in the UK and in fines for avoiding it. They have accused the government of deliberately letting such people off and failing to be anywhere near tough enough on evaders. However, the government has maintained it is the best which could be achieved after tough negotiations with their Swiss counterparts.
Mr Apperley said: “I believe that for a large number of individuals it may well be preferable to declare their Swiss bankable assets to HMRC and settle any outstanding liabilities, rather than pay the levy and the almost penal future withholding taxes.”
“Anyone affected by this agreement needs to make a decision shortly about how they are going to handle the matter. Good professional advice will be essential if they are to find the best route for their circumstances.”
Crowe Clark Whitehill is well versed in the handling of Liechtenstein disclosure facility cases.
Mr Apperley added: “Not many firms of accountants will have the necessary experience to deal with this; between me and my colleagues in our specialist unit, we have handled literally dozens of LDF cases and are well prepared for the cases that will now emerge from the Swiss agreement.”
It is estimated that the tax arrangement could raise as much as £5 billion for the Treasury.
The deal will mean that the Swiss government and banks will identify accounts held by British taxpayers acting on information from HMRC, withhold the funds and return them to the UK.
However, it has put a question mark over European-wide attempts to create a wider framework for information exchange.