02 September 2014

HMRC's latest consultation paper sets out the details of a tough new, strict liability, criminal offence of failing to declare taxable offshore income; though it will only apply to conduct that breaches a de minimis threshold where a 'significant' loss of revenue arises.

The proposed offence was originally mooted by HMRC in April 2014 with the release of its corporate report 'No safe havens', and whilst the new proposal is a more watered-down version of that which was originally planned it should still be cause for concern for taxpayers with historic or future offshore income and gains.

The main justification for the planned new offence is that HMRC’s ability to detect offshore non-compliance and respond to it is more limited, so a harsher punishment is justified to redress the balance and enhance the overall deterrent.

The consultation paper is designed to elicit responses on the finer details of the proposal, whilst  the initial suggestion is to limit the offence to income and capital gains taxes that arise offshore above a de minimis threshold that applies for each tax year (as opposed to a cumulative threshold). The criminal sanction is intended to be less severe than the available civil sanction whilst at the same time giving the courts the power to impose an unlimited financial penalty or even custodial sentences.

Any taxpayer who finds themselves on the wrong side of the new offence may have a defence if they can demonstrate that they took reasonable care in conducting their tax affairs or that they sought appropriate professional advice, though these are only suggestions at present.

In a parallel consultation, entitled 'Tackling offshore tax evasion: Strengthening civil deterrents', HMRC sets out how the cases still dealt with by civil means (because they are not covered by the scope of the new criminal offence) will face tougher penalties. The rationale behind the consultation is, the harder it is to get information from the territory in which the income or gain arises, the tougher the sanctions for non-disclosure.

The consultation contains proposals to extend the scope of the offshore penalties regime: to include inheritance tax, with penalties for failing to declare asset values held offshore; to cover inaccuracies where proceeds are hidden in higher 'category' territories; to provide sanctions in cases where assets are deliberately moved offshore in order to evade tax and to remove the current 20-year rule limiting HMRC's ability to look historically at a person's tax affairs.

The addition of IHT to this regime is significant and shows HMRC's intent on targeting avoidance and evasion through inheritance schemes.

David Gauke, Financial Secretary to the Treasury, introduced the new consultations with the following message:

'If taxpayers do not come forward to clear up their past non-compliance, or if they continue to fail to comply with their obligations in this new era of transparency, then they must face tough consequences.'

It is clear, going forward, that penalties for non-compliance with tax obligations will be designed with a deterrent effect in mind and taxpayers who are worried that they have underpaid tax, whether deliberately or otherwise, should seek advice.

For more information on this topic or for tax advice generally please contact Nigel Popplewell or John Barnett.

Key contact

Headshot John Barnett

John Barnett Partner

  • Head of Partnerships
  • Private Client Services
  • Tax

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