Proposed new criminal offence for offshore tax evasion

In a speech on 11 April George Osborne announced that HMRC intend to introduce a new criminal offence for evading tax on money hidden overseas.  This is expected to be on a ‘strict liability’ basis – i.e. it will be sufficient to show that tax was payable on the overseas funds –  unlike the current position, where 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 (and constantly changing) tax systems in the world 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 it is expected that HMRC will prosecute people on a strict liability basis rather than only where there is deliberate tax evasion. HMRC have promised a fivefold increase in criminal prosecutions and this new power will be used as a blunt instrument to achieve the stated aims.

HMRC already have 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 needed?

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. Is the message from HMRC 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 and it is clearly intended that 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 the undeclared overseas assets of others – 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.

The proposals detailed above regarding the criminal offence for offshore tax evasion and the financial rewards for whistleblowers are both included in the updated version of the HMRC offshore evasion strategy, ‘No Safe Havens’ which was published on 14 April.  This document also includes details of how HMRC intends to exploit data on hidden offshore assets and the proposed new legislation to implement the OECD reporting standard for the automatic exchange of information between participating governments.

It is envisaged that these new OECD 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.  For further information please call TaxDesk on 0845 4900509 and ask for John Hood.