The UK government is toughening its stance on offshore tax evasion, further strengthening the deterrents and penalties.
It warned that criminal investigation and sanctions will play an increasingly prominent role in HM Revenue & Customs’ (HMRC) response to such tax evasion.
On July 16 HMRC published four consultations proposing tough new measures. These cover:
A new simpler criminal offence to make it easier to prosecute offshore evaders.
Tougher financial penalties for offshore evaders, including the possibility of a penalty based on the value of the asset on which tax was evaded and wider public naming of offshore evaders.
A new penalty regime for those who enable tax evasion.
A new criminal offence for corporations that fail to take adequate steps to prevent the facilitation of tax evasion by their agents.
The proposals were announced by David Gauke, financial secretary to the Treasury, who warned: “These proposals will ensure tax evasion is a high-risk activity that will result in serious consequences.”
He pointed out that over 90 countries across the world have signed up to automatically exchange information on taxpayers under the Common Reporting Standard. When you add the new sanctions, “there is nowhere left to hide for offshore tax evaders”.
One of the proposals is to introduce a strict liability offence for offshore tax evasion.
This idea was first mentioned in the 2014 spring budget, but then omitted from the following Autumn Statement and draft finance bill published in December 2014. However in this year’s March budget the Chancellor said the government was going to go ahead with the proposal.
In future, if the strict liability proposal goes ahead, HMRC will no longer have to prove that it was deliberate. The failure to declare will be sufficient in itself.
The maximum penalty will be a six-month prison sentence.
The offence will only apply to income tax and capital gains tax, though this could be reviewed in future.
It will be an offence if a taxpayer does not notify HMRC that they are chargeable to income tax or capital gains tax in respect of offshore income, assets or activities, or if they fail to submit a tax return or include such income and gains on their return.
The proposal is for the offence to apply to all offshore income and gains, and not just to under-declared investment returns. However, it will only apply where the amount of unpaid tax exceeds £5,000.
Previously, the strict liability offence was only going to apply to income and gains hidden in countries which have not signed up for Common Reporting Standard (CRS). It will now apply to all territories.
HMRC explains that despite advances in international co-operation, it still faces challenges in detecting and countering offshore non-compliance. Although it will receive information under the CRS, it would still be very difficult to demonstrate the intent, particularly where the facilitator is based offshore.
Although the consultation document says that there will be “effective safeguards” to make sure that those who make every effort to pay taxes correctly are not caught by the offence, tax practitioners are concerned that people who make genuine mistakes could be charged.
Patrick Stevens, Policy Director at The Chartered Institute of Taxation, questioned the “fundamental wrongness of creating this criminal offence which will require no proof of intention”. He said that tax evasion was a serious crime and the government is right to put additional resources into combatting it, but argued that any new measures should be based on sound legal principles.
He welcomed the new plan to include the £5,000 threshold, but said that this does nothing to change the fact that someone who had not intended to evade tax could find themselves liable to criminal sanctions.
The consultation will run from July 16 to October 8. HMRC wants to hear from individuals with offshore income and assets, tax practitioners, representative bodies and other interested parties.
No start date for new offence has been announced so far, though the consultation document does say it will not be retrospective.
This is the latest in the UK’s crackdown on offshore tax evasion. Over recent years, HMRC has netted over £2 billion from its efforts, and is aiming to increase this by £5 billion.
It has reminded taxpayers that the existing disclosure facilities will close at the end of this year, to be replaced by a new final tougher worldwide facility in advance of CRS data exchanges from 2017.
Wherever you live, you should always ensure that your tax planning is fully compliant with local tax law. Cross border tax planning can get very complicated and it is important to seek professional advice.
By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers.
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