Budget 2016: Tackling offshore evasion and the hidden economy

The final opportunity to make a disclosure of offshore assets through a defined route offering a number of benefits disappeared on 31 December 2015 with the closure of the Liechtenstein Disclosure Facility. The message from HMRC is clear that those who continue to hide assets offshore will face harsh financial penalties, naming and shaming and a possible prison sentence. There are similar offences for those that have provided assistance to offshore evaders. Finance Bill 2016 is to include a number of measures aimed at tackling offshore tax evasion:

  • A strict liability criminal offence for tax evasion – the controversial new measure will introduce a new criminal offence which will remove the need to prove intent for the most serious cases of failure to disclose offshore income and gains.
  • Civil penalties for offshore tax evaders – the government will increase civil penalties in respect of deliberate offshore tax evasion, and will introduce a new penalty linked to the value of the asset on which tax was evaded; naming and shaming of tax evaders is also set to increase.
  • Civil penalties for those who enable offshore evasion – civil penalties are to be introduced for those who have enabled tax evasion; the ‘enablers’ will also face publication of their personal details.

Further measures will be legislated in Finance Bill 2017, including a requirement to correct past offshore tax non-compliance. There is to be a legal requirement for those that have previously failed to disclose offshore income and gains to do so within a prescribed period of time, and new sanctions will apply where the failure continues. The fight against tax evasion will be focussed on the UK hidden economy and over the summer the government will consult on new sanctions for those who deliberately and repeatedly participate in the hidden economy. New powers enabling HMRC to obtain data from Money Service Businesses will be implemented.  Legislation is to be included in Finance Bill 2016 regarding HMRC’s power to gather data from online intermediaries and electronic payment providers. HMRC believe that UK residents with offshore assets who have chosen not to make a disclosure through the various facilities already offered fall into the most serious category of tax evaders. The new measures relating to offshore evasion reflect the severity with which they intend to deal with this group. Over the past 10 years HMRC have focussed on the ‘low hanging fruit’ and UK residents that can afford to settle with HMRC. The announcement that HMRC are to consult on the UK hidden economy highlights that HMRC are turning their focus on UK residents who knowingly trade or provide services and goods but choose not to register with HMRC.