HMRC plans tougher penalties for offshore tax evaders

Added 24th August 2016

The UK tax office has announced plans to increase the penalties on anyone who has not paid outstanding taxes from offshore investments ahead of the start of a new data sharing agreement with the crown dependencies and territories in October.

HMRC plans tougher penalties for offshore tax evaders

HM Revenue and Customs (HMRC), which issued a consultation paper on its plans on Wednesday, said under its proposals penalties for not coming forward and paying taxes due could rise to up to three times the tax that should have been paid with an increased risk of potential criminal charges.

Data upgrades

From October this year the tax office will begin receiving unprecedented amounts of data on those with offshore accounts in the crown dependencies and overseas territories. This data flow starts a year before even more information starts to  come into HMRC from around the world when the Common Reporting Standard comes into force.

Financial secretary to the treasury, Jane Ellison, said: “From October we will start to receive data on the offshore finances of UK taxpayers. This is a game-changer in the fight against evasion and it’s time for anyone who is evading tax to do the right thing and pay what they owe.”

“HMRC has given people ample opportunity to regularise their affairs. If they choose not to, it is right and fair that we make sure that the penalties they face, and the penalties for those who assist them, reflect the wider harm caused by their actions and act as an effective deterrent to others,” Ellison said in a statement.

Director general of enforcement and compliance for HMRC, Jennie Granger, said: “We will find those who think they can dodge paying tax in this country. We’ve closed old disclosure facilities, increased penalties, and ramped up our powers to tackle evaders and those that help others evade - the days of any safe havens for tax evaders are numbered.

“Following the termination of offshore disclosure facilities last year, this is the final chance for taxpayers to come forward to correct their outstanding tax liabilities."

“Our message is simple – come to us pay the tax and penalties that are due, before we target you with the introduction of even tougher sanctions and game-changing data."

CRS preparations

However, it is the start of the Common Reporting Standard which is the main focus of the HMRC consultation paper as it requires anyone with UK tax irregularities related to offshore interests to come forward and correct those liabilities by or before 30 September 2018.  After this date any person who is found to have failed to have corrected their affairs will be subject to a new set of sanctions for this “Failure to Correct (FTC)”.

Special counsel at law firm Withers, Tessa Lorimer, said the HMRC consultation paper looked ahead to when information sharing under the Common Reporting Standard would make offshore evasion virtually impossible.

“Following the termination of offshore disclosure facilities last year, this is the final chance for taxpayers to come forward to correct their outstanding tax liabilities before September 2018, after which the taxpayer will be subject to a new, tougher set of sanctions.

“Although the penalties proposed are harsh from a historic perspective, taxpayers should not expect to get a better deal in future,” Lorimer said.

Dawn Register, a partner at BDO Tax Dispute Resolution, welcomed the move by HMRC noting: “The old adage of “staying off HMRC’s radar” simply does not apply in today’s world of automatic information exchange."

"Now more than ever, it is critical for those involved in failed tax avoidance or evasion, whether on or off shore, to consider a voluntary disclosure which will undoubtedly be less painful than a HMRC investigation where people could face penalties of up to 300%, or even criminal action," she said.

The consultation period for this latest proposal is open to 19 October and should be of interest to individuals with offshore income, gains and assets; and their advisors and agents.

Regime toughens

This new move by HMRC follows a series of steps taken by the government recently to strengthen the sanctions for those involved in offshore tax evasion.

These have included a new criminal offence for tax evasion; increased civil penalties for offshore tax evaders which involved a new penalty of up to 10% of the value of the underlying asset; and new civil sanctions on those who deliberately enable offshore tax evasion.

In the 2014-15 tax year HMRC said it had brought in £26.6bn ($35.2bn, €31,2bn) from tackling tax evasion and avoidance. Since 2010 it has raised more than £2.5bn from offshore evasion initiatives and going back to 2009 has also secured 13 offshore specific prosecutions.

HMRC has also announced it will open its Worldwide Disclosure Facility (WDF) from the 5 September 2016.

The WDF, announced at Budget 2015, allows those with outstanding tax to pay to put their affairs in order though offers no special terms. HMRC said it would release further details when it opens.

Mike Down, head of tax investigations at tax consultants RSM said the new from HMRC provided scant detail how to access the WDF. However he said:  "We now know that there will be “no special terms” which presumably means that although there will be a streamlined process for making reports to HMRC, the tax interest and penalties will be payable in full.

‘There is also no mention of immunity from prosecution, which was available in the now closed Liechtenstein Disclosure Facility. This confirms that such immunity is no longer an acceptable option,  he added.

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Richard Hubbard

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Richard Hubbard is the group editor at Last Word. He is responsible for the editorial content of International Adviser, Portfolio Adviser, Expert Investor and Fund Selector Asia. Richard previously worked for Thomson Reuters and has covered the financial services industry and investment themes from its offices in London, Singapore, Hong Kong and New York. Richard started his career at the Australian Financial Review in Sydney.

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