Wheels in motion for ‘strict liability’ offence of offshore evasion

20 August 2014

Daniel Hedley considers the implications of the HMRC consultation on offshore tax evasion and how a balance needs to be struck with anti-avoidance.

HM Revenue & Customs' continued focus on ensuring that people pay the right amount of tax via targeted campaigns and task forces is something that we have become used to over the last 24 to 36 months.

HMRC proposals to remove money from the accounts of people found guilty of underpaying tax grabbed headlines back in June and accelerated payment and follower notices, only very recently announced, were the subject of an ICAS article and have quite significant implications for tax agents.  

Tax officials have been targeting offshore evasion for some time now, with the introduction of an ever-growing number of information sharing agreements, offshore disclosure facilities such as the Liechtenstein and Swiss arrangements, and the US-UK agreement known as FATCA.

This latest move might sound quite "heavy" but it is worth remembering that offshore evasion has always been a criminal offence, with a number of offenders already prosecuted. Typical sentences handed down to offshore evaders are in the region of two to five years, although in some cases this has been as high as 12 years.

The key difference with this proposal is that it includes a "strict liability" offence for failing to declare offshore income and gains.

HMRC will therefore not need to prove that the individual intended to defraud, they will only need to demonstrate that the person failed to declare the offshore income and/or gains correctly. This removes the "I didn't mean it" defence which a lot of evaders have been able to use to reduce their punishment.

Back in 2010, HM Treasury made a commitment to increase the level of tax receipts from compliance activity by £7bn per year between 2010 and 2015 (making available £917m to help achieve this), and this announcement almost seems par for the course in helping them achieve that goal.

ICAS believes that, in principle, HMRC needs to be focussing on addressing evasion rather than avoidance, given that the expected tax gap share from each is much the same.

Another strand to this concerns civil penalties being cheaper to administer than criminal trials where the benefit of the doubt often goes to the taxpayer or in some cases, the arrangements are so complex that juries struggle to understand them. It is felt that strict liability will provide a re-balancing effect in this sense.

The consequences of this proposal are certainly interesting as we could see more frequent Proceeds of Crime Act recoveries depending on the evasion scale.

Full details of the consultation can be viewed on the HMRC website.


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