Tightening the net on tax evasion
In a further crackdown on offshore tax evasion, HM Revenue & Customs (HMRC) has been consulting on a new criminal offence and tougher civil sanctions.
The proposed powers will complement HMRC’s existing offshore evasion strategy. This provides incentives for taxpayers to disclose their liabilities voluntarily, and it is coupled with tough penalties where taxpayers fail to comply. It is backed up by a wide and increasing range of international information exchange agreements between many of the world’s tax authorities.
The Government has already recovered £1.5 billion from offshore evaders over the past two years and it has signed agreements with 44 jurisdictions to automatically share information on financial accounts. However, there are many jurisdictions from where HMRC finds it difficult to obtain information. To compensate, HMRC wants to increase the costs of being caught.
Tax evaders can already be prosecuted but HMRC has to prove that the taxpayer intended to act fraudulently – and that is a high bar. The proposal is for a strict summary liability offence, under which the act of evading tax itself is criminal, regardless of the reasons why the taxpayer failed to comply.
This offence would be limited to individuals’ conduct in relation to their personal tax affairs and where it causes ‘significant revenue loss.’ For example the consultation asks whether it should be restricted to failure to declare income and gains from savings and investments or cover the non-declaration of all offshore income and gains. Another question is whether conviction should carry a custodial sentence of up to six months in the most serious cases.
HMRC expects that it will continue to investigate most cases, which will still be settled through civil means. The consultation on tougher civil sanctions looks at extending the scope of the existing penalty regime for offshore non-compliance. For example inheritance tax could be included.
Other proposals would aim to deter taxpayers from deliberately moving offshore assets between jurisdictions to continue evading tax. Under consideration are a penal offshore surcharge, extension of the 20-year assessing time limit, and increasing the levels of offshore penalties to reflect the number of times a person has deliberately moved offshore assets to continue evading tax.