A little over a year ago we reported that the Revenue were starting to use targeted letters to taxpayers as part of their compliance activities. They began with letters to small businesses regarding the possibility of incorrect recording of income or expenses. This was followed with letters to those in the construction industry regarding status. More recently letters have been sent to holders of offshore bank accounts. The Revenue have said that this is part of an exercise to tackle the problem of offshore accounts being used in tax evasion or to hide the proceeds of crime. Whilst this is admirable the method leaves something to be desired. The letters are strongly worded and request a response within 30 days. You should be aware that receipt of such a letter is not an indication that there is anything wrong and does not constitute the opening of an enquiry into your tax return.
The European Savings Directive came into force last July. It covers the EU member states and certain ‘other territories’ (including Jersey and Guernsey).
In most cases the effect of the directive is that information on savings income paid by one member state to an individual resident in another state is freely exchanged, eg details of interest received by a UK resident on a bank account in Spain will be notified to the UK Revenue.
However some states, including Belgium and Austria, have chosen to deduct withholding tax (currently at 15%) from interest payments rather than exchange information. The withholding tax suffered is then deductible from UK income tax or capital gains tax liabilities.
An individual can avoid suffering the withholding tax if either: