Most people reading this were born in the United Kingdom, have lived here all their lives, and still live here. They are obviously British. For the purpose of paying income tax, they need to declare their worldwide income, including income received from overseas. If their total income is substantial, then they may have to pay income tax at higher rates, known as surtax.
If you have income from cash in a deposit account with a local bank in Carlisle, then usually interest will be credited to your account with income tax at 20% already deducted. If you are a basic rate taxpayer, as most people are, then this deduction at source is likely to meet your income liability in full, and often you won’t be asked to fill in a tax return. If you do have to fill in a tax return, then income needs to be grossed up and declared on the return to cover the theoretical possibility that your total income puts you into the surtax bracket. Any income tax already deducted is also entered on the return and you get credit for it. In most cases there will be no extra tax to pay and this is just a paper exercise.
If it turns out that you have enough income in total to put you in the 40% tax bracket, then when you fill out your tax return you will mention grossed up income and the tax credit at 20%. You now have an additional liability to income tax of an additional 20% which you will need to pay.
Many people have money in foreign bank accounts for perfectly good reasons. It may be a legacy of a period of time spent working abroad. You may be a regular visitor to relatives in another country. You may be intending to emigrate there. Suppose your foreign income tax rate is 15% and this is also deducted at source.
When you fill in your UK tax return, you need to gross up foreign income received net of tax by dividing it by 0.85. Foreign interest deducted at source at 15% is also entered on the tax return, and you can claim double taxation relief so you are not taxed twice. This means that basic rate taxpayers only need to pay an extra 5% in UK income tax, while 40% higher rate taxpayers need to pay an extra 25%.
Many countries have banking secrecy laws so that foreign tax authorities are unable to find out anything by direct enquiries. It may occur to a depositor that if details of a foreign bank account are not reported on the tax return, then the taxman need never know. That is apparently true, but tax returns need to be signed, and signing an incomplete tax return is considered to be fraud. HM Revenue & Customs have various ways of finding out about foreign savings accounts, and when they do find out, they have various procedures which can be very unpleasant for the tax evader.
Professional advisers can legitimately advise clients to have overseas deposit accounts for a variety of reasons, and indeed avoiding excessive taxation or excessive bureaucracy is legitimately one of those reasons. What they cannot do is to be a party to tax evasion as a dishonest or fraudulent activity. The “Chartered” in Chartered Certified Accountant means a charter to practise accountancy issued by the Queen-in-Council, which means the Queen or her representative on the Privy Council. Professional accountants with such a status cannot be involved in anything nefarious.
David Porthouse & Co is a forward-looking firm of accountants based in Carlisle with a keen interest in new technology with the aim of speeding up accounts production and making accountancy more affordable for our clients.