UK Announces Tougher Penalties for Offshore Evaders

Strict new rules proposed this week could see UK criminal convictions handed down to those with undeclared income offshore, even if the HMRC (HM Revenue and Customs) is not in a position to prove a tax evasion intention.

In future, HMRC would only be required to demonstrate that the income was taxable and undeclared, rather than that tax was deliberately evaded, as under the current rules. In turn, persons under investigation could face a strict new liability criminal offence. The use of strict liability in criminal law is controversial; in some cases, persons have been found to be liable even in instances when they are not directly at fault , or have taken reasonable care to ensure compliance with the law.

The Government is also undertaking a review of existing financial penalties to ensure that they act as a clear and effective deterrent. It will consult on whether the existing penalty limit – of up to 200% of the tax owed- should be increased; how penalties could be increased if individuals are deemed to be trying to move money around to avert possible detection; and if the regime should be extended to include inheritance tax.

UK Chancellor George Osborne said, “The Government has taken significant steps to clamp down on those hiding their money offshore. HMRC has brought in over GBP1.5bn (USD2.5bn) over the last two years, and, through our leadership at the G8, we have taken significant steps towards greater transparency and tax information sharing. But there can be no let up and we will continue to pursue offshore tax evaders. Those who continue to believe they can hide wealth offshore should know that there is no safe haven and that serious consequences await them.”

Historically, strict liability has been applied to relatively minor misdemeanors and the punishment has tended to fit the crime. It is difficult to see how a strict liability offence could carry an unlimited penalty and a prison sentence, as clearly there are going to be a range of offenders from those who genuinely did not realize assets offshore were within the UK tax net to those who have been systematically and deliberately evading tax. The question of the taxpayer’s honesty, or lack of it, has to be seriously examined before you start locking people up.

HMRC is happy to bang the drum that they are ‘closing in’ on taxpayers with undeclared offshore income, and already have the powers and sanctions to pursue tax evaders. A key issue is whether HMRC have sufficient resources to do so, or whether they are happy to continue to ‘nudge’ taxpayers into responding.