While the Liechtenstein Disclosure Facility (LDF) and other similar disclosure routes have offered beneficial terms under which individuals and other entities might bring their offshore tax affairs up to date, there has also been a move towards toughening the measures relating to offshore evasion.
Increased penalties in relation to offshore evasion have been in place since 6 April 2011, with a maximum penalty of up to 200% applying in the most serious cases.
The Autumn Statement confirmed the introduction of a number of further measures designed to tackle offshore tax evasion and provide the legislative support to penalise and prosecute those who continue to fail to disclose offshore income and assets.
Finance Bill 2016 will introduce various new measures designed to tackle offshore evasion:
Criminal offence removing the need to prove intent in the most serious cases of offshore evasion
The strict liability offence has been the subject of ongoing debate since the first consultation paper was issued in August 2014. Despite strong opposition from a number of representative bodies and a further consultation, this proposal is now to be legislated.
The offences are listed as failing to notify chargeability, failing to deliver a return or submitting an inaccurate return, all in relation to tax which has arisen wholly or in part from offshore ‘income, assets or activities’.
The draft legislation includes various safeguards including a ‘reasonable excuse’ defence and a threshold of £5,000 of undeclared tax on an annual basis.
Increased civil penalties for deliberate offshore evasion
Since 2011/12, penalties in relation to offshore evasion have been based on the transparency of the jurisdiction involved. A further distinction is to be made in relation to those territories which are part of the Common Reporting Standard (CRS) and those yet to sign up. A maximum penalty of 200% of the tax due will apply in relation to those jurisdictions least willing to exchange or provide information.
There is to be a new penalty calculated as a percentage of the asset linked to the evasion. The consultation paper on this issue proposed a level of 10% although it remains to be seen what the legislation will prescribe. This penalty is likely to be applied in more serious cases, those where the tax due exceeds £25,000 and the behaviour is deliberate.
Public naming of offshore evaders, and those providing assistance, is to be increased, with only those making a full and unprompted disclosure to HMRC likely to escape being listed.
Civil penalties for those enabling offshore evasion
Alongside the risk of being included on a publicly available list of those assisting offshore evaders, ‘enablers’ will also face penalties of up to 100% of the tax due. The legislation will be specifically targeted at those deemed to be careless or deliberate in assisting evasion, while those who have unwittingly provided assistance will not face a penalty.
The Government are to introduce a criminal offence for corporates which fail to prevent their employees from criminally facilitating offshore tax evasion.
There is to be a new consultation on an additional requirement for individuals to correct any historical offshore compliance, with penalties applying for those who fail to do so. Following the closure of the LDF on 31 December 2015 and the ‘last chance’ disclosure facility which is to follow, from 1 January 2016 to mid-2017, HMRC will be in receipt of information exchanged through the CRS, providing all they need to target persistent offshore evaders. Those who fail to come forward by the time the ‘last chance’ facility closes are likely to be treated harshly by HMRC in terms of the level of penalties to be applied and the new consultation should give an idea as to what these will be.
These measures are aimed exclusively at those with offshore issues, whether this be those who persist in keeping income and assets hidden from HMRC, or those providing assistance. There will of course be others who may have failed to disclose offshore assets to HMRC on the basis of a misunderstanding as to the tax treatment.
Going forward, the message from HMRC is very clear in that they intend to use all resources available, and what is soon to be legislation, to seek out and bring to justice those failing to ensure that their UK tax affairs are compliant in every respect.
Those who are aware that an offshore issue may exist are urged to seek professional advice without delay, while advisers should be having open and honest conversations with clients where they have concerns. The consequences of not making a full and complete disclosure will become unavoidable and severe.