In April, HMRC announced a new proposal to counter offshore tax avoidance. To brighten the summer days for accountants, four months later HMRC issued a consultation paper fleshing out their ideas.
HMRC want to introduce a new ‘strict liability summary criminal offence’ of failing to declare taxable income and gains arising offshore. The ‘strict liability’ aspect is causing some controversy in accounting and legal circles. Translated from legalese ‘strict liability’ will mean that to win a case, it will only be necessary for HMRC to prove the (non-)taxpayer has failed to declare offshore income and gains. This is much easier than the burden of proof under the current law, which requires HMRC not only to demonstrate a failure to declare, but also to show that this was done with the intention of evading tax. In other words, the Court must assess the defendant’s state of mind, which has allowed scope for pleas of ignorance to be successful.
There are currently very few ‘strict liability’ offences in tax law, and none covering direct taxes, so the plans are a clear ratcheting up of the HMRC armory. A major concern expressed by some tax experts has been that criminal prosecutions could occur because the taxpayer failed to understand this complex area of tax law. The paper suggests financial penalties could be as high as 200% of the tax involved and, in the most serious cases, there could also be a custodial sentence of up to six months.
At present HMRC are offering penalty-light disclosure facilities covering several offshore jurisdictions, but these will come to an end in 2016. At the same time, HMRC will begin to receive new information about overseas accounts. 2106 therefore looks a likely start date for the new offence.
If you need to get your tax affairs in order and come clean on any offshore dealings, it makes no sense to delay: it is always best for you to find HMRC before they find you.