Proposed new criminal offence for offshore tax evasion

George Osborne announced last week that HMRC intends to introduce a new criminal offence for evading tax on money hidden overseas.  This is expected to be on a strict liability basis (that tax was payable on the overseas funds), whereas currently HMRC are required to demonstrate that there was an intention to evade tax by placing assets overseas.

This is a worrying development as a UK resident could have a number of legitimate reasons for holding assets overseas, none of which have anything to do with tax evasion. The UK already has one of the most complex tax systems in the world that is constantly changing so there is a real risk that despite someone’s best efforts they could potentially fall foul of the new proposed legislation. A criminal record is very serious and there is a danger that HMRC will prosecute people on a strict liability basis rather than there being deliberate tax evasion. HMRC have promised a five fold increase in criminal prosecutions and this new power may be used as a blunt instrument to achieve the stated aims.  Will HMRC perceive people caught by this new offence as collateral damage in the war on tax evasion, acting as a deterrent to others?

HMRC already has the power to charge higher tax-geared penalties on the tax arising on overseas assets in certain jurisdictions (up to 200% of the tax due).  It is therefore questionable whether this new power is absolutely necessary.

It should be borne in mind that over 50,000 people have already made a voluntary disclosure to HMRC about their overseas assets and have settled on a civil basis with HMRC, thereby avoiding the risk of a criminal investigation. Should HMRC’s message be that only hardened tax evaders are left and therefore a stronger power is needed to target these people? Possibly. What is clear is that HMRC are continually seeking new ways to encourage people to come forward and make a voluntary disclosure. Will the new power facilitate this?

In addition to seeking a new criminal offence for evading tax on overseas assets, HMRC are also considering whether they should reward people for disclosing information on undeclared overseas assets, in effect providing financial incentives to whistleblowers. This is not unprecedented, as HMRC have previously rewarded individuals for supplying data on overseas bank accounts. It would seem more preferable to rely on the much publicised new automatic exchange of information powers that utilise legal gateways to obtain details of overseas assets. It may be though in an effort to target assets held in less compliant jurisdictions that HMRC will utilise financial incentives to uncover tax evasion.

It is envisaged that these new powers will come into force in 2015 so there is still time for UK advisers to check that their clients with overseas assets are tax compliant. If there are any doubts as to whether there are any problems or grey areas then specialist advice should be sought straightaway to minimise the risk of the glare of an HMRC enquiry and the prospect of a criminal investigation.

Gabelle specialises in resolving complex tax issues involving overseas assets and we are experienced in dealing with the current disclosure facilities, as well as how to minimise the tax liabilities. Whatever the issue we can provide clear and cost effective advice.

For further information please call TaxDesk on 0845 4900509 and ask for John Hood.