I have to be candid, I am appalled by the response of the UK's tax institute's to the HMRC offer of reduced tax penalties to those making voluntary disclosure of their offshore bank accounts. I'm pleased to see I'm not alone. My friend Dennis Howlett shares my concern.

The first thing that worries me is that the combined Institute's (and let's be clear, it's all of them as they have collaborated on this issue in the guidance issued here) seem quite sure that HMRC is creating a massive injustice by offering this arrangement to those who have broken the law. Take this for example, which was specifically from the ICAEW:

We are particularly anxious to elicit clear guidance from HMRC about how they will operate their prosecution policy on incorrect and incomplete disclosures and about the level of certainty taxpayers coming forward will have that they will not subsequently face prosecution or further investigation.

HMRC have said:

We expect the vast majority of disclosures to be accepted. We will send you a letter accepting your offer as soon as possible and by 30 April 2008 at the latest. If we cannot accept the disclosure we will open an enquiry in the normal way before 30 April 2008. It is also possible that in exceptional circumstances a disclosure may be considered in accordance with our published criminal investigation policy. In these cases, the material in the disclosure could be used in evidence against you.

Let's be clear about two things:

a) We know what the Revenue is saying is true. They're doing this precisely because they haven't the resources to follow up the vast majority of these cases;
b) If there's an exception there's going to be a good reason - which is that the Revenue have additional information which it seems worth pursuing.

In other words, the ICAEW and the Institutes are getting their knickers in a twist about the rights of people to not be prosecuted who have a) already committed a tax offence b) now declare that fact under this arrangement and c) knowingly don't do so properly.

What the heck is this about? No one could be more concerned about human rights than me, but there are both limits to rights and it's a fact that rights are matched by obligations, one of which is to abide by the law. So if there are incomplete disclosures at this stage the tax institutes should be expecting, and even welcoming prosecution by HMRC. They should expect nothing less of taxpayers who come forward now. I'm ashamed that this, however, seemed to be the only point my own Institute could make in its press release on this issue. I never knew I was in a body whose main concern was with protecting persistent liars from prosecution.

Secondly, I'm staggered by the comments in the joint Institute's paper which seems to imply that it's unjust that disclosure of an error under this scheme also require that all other errors in tax returns be put right at the same time. Take this for example:

Although the facility is called the offshore disclosure facility, its scope is wider than that name implies. Although the facility is only open to those who have held an offshore account, it is a condition of taking part that a person discloses and pays all arrears of tax, both onshore and offshore. The ramifications of this could be considerable, and it is important that members understand precisely what is involved before advising clients.

Come on, what did they expect? I hate the obvious criticism inherent in the construction of the first sentence of this paragraph. And I dislike as much the obvious distaste inherent in this paragraph about the fact that this opportunity is going to be used by the Revenue to make sure that a taxpayer discloses all liabilities or will suffer risk of prosecution. They trivialise this with an example so trite that they must know that it is facile:

Take, for example, the case of a sole trader who has not disclosed all of his trading income, and who has diverted some of it offshore. He will have to recompute his trading profits to include the omitted takings. But he will also have to make any other adjustments. So, for example, if he has only added back 20% for private motoring expenses, whereas in reality the private motoring expenses were 50%, then he will have to make the appropriate adjustment. This could also mean that there was an under-declaration of VAT, and this will also have to be accounted for in the settlement.

Put bluntly, I expect better of them.

Thirdly, I think the whole tone of the advice is patronising to practitioners. For example, it says:

HMRC have designed the facility to be as simple as possible to use, and it is likely that all members will be able to deal with the more straightforward cases, such as the omission by a client of interest from one offshore bank account where all of the bank statements are available. Members should, however, be aware that some offshore matters can be highly complex, and that they should not act in cases which are outside their competence.

Why on earth don't they simply say "leave all the difficult bits to us clever chaps in the Big Firms?". Because that's what's implicit in this.

And this is also implicit in the pathetic appendix to the advice which is a suggested letter to clients on the issue. My guess is that this was written by someone who hasn't had to communicate with a client for years. It's useless but is entirely indicative of the fact that those who wrote this note seem so intent on protecting the human rights of those who have broken the law and intend to continue doing so that they've forgotten that a primary duty of the professional institutes is to help their members. In other words the guidance issued should have said the Institutes were planning to, if they could not already issue

1. A realistic letter a practitioner could send to their clients;
2. An engagement letter for use on these matters (which is vital);
3. Advice on billing for this work;
4. Provide an on-line or downloadable calculator of penalties and interest due matched to a schedule to be used for disclosure purposes, which would be of immense use to practitioners at this time;
5. Provide some real help with the technical issues involved to ensure members really do help the public.

But there's no hint of this. Which is my biggest worry of all, which is an issue I'll return to later.