The government continues its crackdown on those seeking to illegally evade their UK tax liability by using offshore tax shelters.
£1.5bn has been recovered from offshore tax evaders over the past two years and the government is continuing with measures to improve tax transparency across jurisdictions.
Since the end of June, financial institutions in the Isle of Man, Guernsey, Jersey, and all the UK’s Overseas Territories with financial centres have been collecting information on UK residents’ offshore accounts to share with HMRC, and a further 33 jurisdictions will follow suit under the new Common Reporting Standard.
HMRC is encouraging taxpayers to come forward and bring their tax affairs up-to-date on a voluntary basis. HMRC has also expanded its ‘affluent unit’, to identify and deal with avoidance and evasion by the wealthiest individuals.
New consultations launched
HMRC is seeking to ratchet up the sanctions for those who choose not to come forward and make a voluntary disclosure of any offshore tax evasion. They have issued two new consultations: one deals with making civil deterrents more punitive and the other introduces a potential new criminal offence for offshore tax evasion. Both consultations are available for comment until 31 October 2014 and can be accessed below:
- Tackling offshore tax evasion: A new criminal offence
- Tackling offshore tax evasion: Strengthening civil deterrents.
New criminal offence
This consultation document sets out the government’s plans to introduce a new strict liability criminal offence of failing to declare taxable offshore income and gains, and seeks views on the design of the new offence.
The government is planning to introduce a new ‘strict liability offence’ for the most serious cases of offshore tax evasion. A strict liability offence is a criminal offence where it is not necessary for the court to ascertain the state of mind of the defendant before convicting. That is, the act in itself warrants the imposition of a criminal sanction, regardless of why the individual broke the rules. In this case, a failure to declare the right amount of taxable income would be enough to warrant criminal prosecution, regardless of the behaviour surrounding the offence.
The offence would relate to the worst cases of offshore income tax and capital gains tax evasion and, if adopted, would be the first strict liability offence in the field of direct tax.
The consultation proposes de minimis limits, below which a criminal prosecution could not be pursued. It also proposes the introduction of custodial sentences for the worst cases, in order to strengthen the deterrent effect, and seeks feedback on the appropriateness of such a measure and also on the appropriate length of custodial term. The obvious concern is that, under the new rules, a taxpayer could be faced with a custodial sentence even though they may not have intentionally evaded tax. The consultation also considers whether statutory defences such as reasonable excuse and other safeguards should be introduced.
Strengthening civil deterrents
The existing offshore penalties regime (introduced by Schedule 10 to the Finance Act 2010) has applied to liabilities arising from 6 April 2011. The level of penalty is based on the type of behaviour that leads to the understatement of tax, as summarised in this guide.
The penalty is then loaded based on the tax transparency of the territory in which the income or gain arises, as follows:
| Category | Membership | Penalties |
| Category 1 | – UK
– Territories with automatic exchange of information on savings income with the UK |
Penalties unchanged- up to 100% |
| Category 2 | – Territories which exchange information on request with the UK- Least Developed Countries | Penalties increased by a factor of 1.5 – up to 150% |
| Category 3 | – Territories which don’t exchange information with the UK- Territories whose agreements with the UK do not allow exchange of information to the international standard | Penalties increased by a factor of 2 – up to 200% |
The new consultation proposes the following:
- to extend the offshore penalty regime to include inheritance tax. At present, the regime only covers income tax and capital gains tax
- to extend the offshore penalties regime to cover inaccuracies in category 1 or 2 territories where the proceeds are hidden in higher category territories
- to introduce a new offshore surcharge (in addition to the existing penalties) where offshore assets have been deliberately moved to continue evading tax
- to extend the 20 year assessing time limit where offshore assets have been deliberately moved to continue evading tax
- to increase the quantum of offshore penalties to reflect the number of times that offshore assets have been deliberately moved to continue evading tax
- to amend the table of categories to the following:
| Proposed new criteria for 4 categories:– Category 0: jurisdictions which share information to the Common Reporting Standard;
– Category 1: jurisdictions which automatically share tax information short of the CRS (eg information on savings income) or operate tax cooperation agreements; – Category 2: jurisdictions which exchange information on request, and some of the least developed countries; – Category 3: jurisdictions which do not exchange tax information, or which have agreements to share information on request with the UK, but those agreements do not meet international standards. The consultation seeks comment on the appropriate levels of penalties for each of the above categories. |