For most people, the idea of having some money stashed away overseas is a dream. For others, the reality of having an undeclared offshore bank account is a waking nightmare: they know that there is a problem, but they don’t know how to fix it. With HMRC having recently set up an offshore fraud projects group (OFPG), the gloom simply deepens as they wait for the knock on the door or the official envelope to drop on the mat.

The good news for anyone concerned about their offshore funds is that there is an established procedure for dealing with them; the even better news is that the vast majority of problems are resolved confidentially and with the threat of prosecution removed at the outset.

Firstly, there is nothing illegal in a UK resident having a bank account outside the UK. Where the problem usually arises is when interest earned is not declared in the UK (and so tax is due but unpaid) and where the funds deposited are from a taxable source (typically cash sales), but have not been declared either. These factors will usually mean that the account holder is deemed to be engaged in tax evasion.

Tax evasion is a crime and can result in prosecution. However, the Revenue has a long history of selective prosecution of this sort of offence, typically taking fewer than 100 people to court in any given year. It is only if a tax defaulter is within certain key groups or is a repeat offender, that a court appearance is likely. A voluntary first approach to HMRC, through a professional adviser, will further reduce the risk of prosecution and when penalties are subsequently discussed, will also result in a significant saving.

The tax office will seek to recover the tax which should have been paid, interest from the due date to the date of payment and penalties up to 100% of the additional tax. However as mentioned the penalties will be mitigated by a combination of the disclosure, subsequent co-operation, the amounts involved and the level of organisation of the tax evasion itself. That means that any final offer to settle is the result of a detailed report and is ultimately based on a combination of real or apparent tax liabilities and negotiations.

The Inland Revenue’s stated target for the average duration of enquiries is six months, our experience is that this target is well off in all, but the simplest of cases.

Coming clean to the Tax Office will never be totally painless. On top of the negotiated offer of settlement there is the stress and occasionally the guilt associated with being labelled a tax evader. However, if the letter from the Tax Office is going to arrive some day, surely it is better to take the initiative and contact the Revenue first? For many clients, clearing up a long-standing tax problem is a positive experience; the lifting of a weight which leaves them free to get on with their lives and to spend the remaining funds with a clear conscience, or even invest them more tax-efficiently.