bank accounts Archives - London Chartered Accountants Blog

Following the news that several UK banks have notified their retail and business customers that they will lose their UK accounts before or when the Brexit transition period ends on 31 December, there is now some uncertainty about the implications for businesses. We have had enquiries from businesses who have suddenly encountered issues with EU customers who have been unable to pay into the UK accounts. This can have a devastating impact on cashflow, not something any business needs on top of the current economic challenges and uncertainties.

Whilst most businesses have considered their Brexit planning many months ago, before the first deadline, the realities of the banking arrangements may require many to revisit their arrangements. It may be costly to make assumptions about what may continue to work post 31^st December when the ‘passporting’ arrangement comes to an end.

The banks are having to unpick the legislation of 30 different countries to work out if they can continue serving customers.

“Where possible, firms want to keep providing banking services to customers living in the EEA after the transition period,” said a spokesperson from UK Finance, the banks’ trading body.

“The impact on each customer will vary depending on the operating model of their bank or provider, the product or service being provided, and the legal and regulatory framework in the country in which they are resident.”

EU Subsidiaries

One approach to minimise complications may be for British businesses to establish an EU subsidiary.

We have heard that some British businesses have spent months recently trying to get paid by EU customers, given the 1^st January is almost upon us, it may be wise to have a subsidiary in place as a precautionary measure. It is a relatively quick thing to set up and can be in place in time.

In 2011 the UK and Swiss governments signed an agreement to deal with Swiss bank accounts held by UK residents.

Under that Agreement account holders had a choice – opt for voluntary disclosure or retain anonymity. The deadline for making a decision was 31 May 2013.

Under the voluntary disclosure route Swiss banks provide the names of UK resident account holders to HMRC each year. The first disclosure was for the 2012/13 tax year and therefore it was essential to ensure that income and gains realised on the funds in the account for that year and earlier years had been disclosed to HMRC. Many people chose to regularise matters by using the Liechtenstein Disclosure Facility (LDF). The LDF had the unique advantage of limiting the disclosure period to income and gains earned since 6 April 1999 and a penalty of only 10% was levied on tax due up to 5 April 2009. (Penalties for deliberate omissions are usually much higher and in certain cases can be as high as 200% of the tax due). The LDF also offered a guarantee of immunity from criminal prosecution. A successful LDF disclosure has the advantage of giving clearance on all past tax liabilities on the Swiss account.

If the account holder opted to retain anonymity a one-off charge was levied on the capital in the account and this was paid over to HMRC. The one-off charge was calculated using a complex formula and the rate of the charge was between 21% and 41%. Income and gains are subject to withholding tax at rates varying between 27% and 48%. The one-off charge does not provide immunity from prosecution and also does not confer clearance for past tax liabilities. It only clears liabilities to income tax, capital gains tax, inheritance tax and VAT where these liabilities relate to the capital balance used to calculate the one-off charge.

As a result there could still be an exposure to tax in respect of monies previously withdrawn from the account where the withdrawals were not included in the capital balance used to calculate the one-off charge. There could also be a liability to corporation tax if the money deposited in the account had been diverted from a company.

Even if the one-off charge has been paid it is not too late to regularise matters. The LDF can still be used to put things right and the one-off charge can be used as a credit against tax liabilities. In some cases there may be no further tax to pay but a disclosure under the LDF will give clearance and peace of mind.

We have dealt with a considerable number of LDF disclosures. If you wish to discuss in confidence then please contact me.