Offshore tax evasion: A requirement to correct

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Donald-Drysdale By Donald Drysdale for ICAS

20 September 2016

HMRC’s latest proposals for tackling offshore tax evasion are understandable, says Donald Drysdale, but could they operate too harshly in some cases?

Tackling offshore evasion

In the Autumn Statement last November, the government announced a series of measures aimed at tackling offshore tax evasion.

These included provisions now enacted in Finance Act 2016 which received Royal Assent on 15 September, namely: a new criminal offence that removes the need to prove intent for the most serious cases of failing to declare offshore income and gains; new asset-based civil penalties for offshore tax evaders; and new civil penalties for those who enable offshore evasion

The Autumn Statement also announced further proposals which have not yet been implemented. One was the introduction of a new criminal offence for corporates which fail to prevent their agents from criminally facilitating tax evasion by an individual or entity.  The other was a commitment to consult on a new requirement for taxpayers to correct any past offshore non-compliance, with penalties for failing to do so.

Consultation launched

In a consultation entitled Tackling offshore tax evasion: A requirement to correct that closes on 19 October, HMRC are seeking views on the proposed principles and design aspects of a toughened offshore penalties framework.  Their proposals include an obligation on taxpayers to put past affairs in order before tougher penalties are introduced and Automatic Exchange of Information agreements come into full effect in 2018.

Rationale for change

HMRC hope there will be no jurisdictions where UK taxpayers feel safe to hide their income and assets.  They want would-be offshore evaders to realise that the balance of risk is against them, so that they pay their taxes voluntarily and remain compliant.  HMRC aim to detect those who do not come forward and impose serious sanctions on them, while ensuring that there is no place for facilitators or enablers of offshore evasion.

The game changer supporting this new approach is the implementation of the Common Reporting Standard (CRS), under which over 100 countries are already committed to automatically exchanging taxpayer information.  The 54 countries who are early adopters of CRS will begin these exchanges by 2017, with all others participating by 2018.

In addition to CRS, HMRC will also receive data from registers of beneficial ownership. Initially this will be from a pilot project involving the UK, Germany, France, Italy and Spain, sharing beneficial ownership information.  The UK has committed to publishing its register of company beneficial ownership, though its Overseas Territories and Crown Dependencies have not agreed to do likewise – or, at least, not yet.

Given the huge increase in information available, the government has decided to be tougher on those with offshore compliance issues by demanding full disclosure and increasing the severity of sanctions.

Key proposals

New legislation to be brought forward in Finance Bill 2017 will require taxpayers with outstanding tax liabilities relating to offshore interests, where they have yet to put their UK tax affairs in order, to come forward and correct any irregularities by 30 September 2018. The consequence of not meeting the requirement to correct (RTC) by carrying out the necessary correction within the defined timescale would see taxpayers subjected to a new set of legal sanctions for failing to correct (FTC).

The FTC sanctions would be applied to any relevant years which have not been corrected – usually in place of the sanction for the original offence (e.g. inaccuracy, failure to notify or failure to make a return).  The consultation sets out two possible penalty models for such sanctions, both set at punitive levels, and invites views on these.

Scope of the RTC

The RTC is likely to require the correction of any offshore issues relating to (at least) all taxes currently in scope of offshore penalties – namely, income tax, capital gains tax and inheritance tax.  However, HMRC would expect the inclusion of any other outstanding tax liabilities when meeting the RTC obligations.

By its nature, the RTC will be a transitory measure.  Taxpayers correcting past offshore non-compliance by 30 September 2018 will face penalties under pre-existing rules.  Those failing to correct such non-compliance by that deadline will no longer be able to avoid the full impact of the FTC sanctions.

Who will be affected?

Doubtless hardened tax evaders are watching the development of HMRC’s new approach. The combination of the CRS and the RTC may encourage them to come forward.  If they don’t, the FTC sanctions should be set at an appropriately punitive level.

As HMRC acknowledge in their guidance, there’s nothing wrong with UK taxpayers investing overseas as long as they declare all taxable income and gains on their UK tax returns.  But some investors may not fully understand the complexities of the tax rules – perhaps having taken professional advice many years ago, or having inherited their offshore investments.

The offshore penalty rules are already convoluted, and the RTC adds further confusion.  If taxpayers who are inadvertently non-compliant don’t identify themselves as within the emotive category of ‘evaders’ and don’t appreciate that they have something to disclose, they won’t realise they have a requirement to correct.  Not understanding the relevance of the RTC, they may feel that the FTC sanctions (when they hit them) are unduly harsh.


Taxpayers and their agents need to be aware that in December 2015 HMRC closed their previous offshore disclosure facilities.  On 5 September 2016 they launched a new, tougher Worldwide Disclosure Facility (WDF) and an online Digital Disclosure Service (DDS).

Unlike the earlier offshore disclosure facilities, the WDF offers no incentives to encourage people to come forward and clear up their tax affairs.  However, it offers a final chance to come forward before HMRC use CRS data and toughen their approach to offshore non-compliance.

The DDS is simply an optional online means by which an individual or corporate taxpayer can make such a disclosure. It can’t currently be used by tax agents on behalf of their clients, but HMRC say that this functionality should be available by the end of September.

An opportunity to give input to HMRC

ICAS representatives are in discussion with HMRC regarding the current consultation. They’ll be meeting with HMRC on 27 September, and submitting a formal response before 19 October. Your views on the practical implications and effectiveness of the RTC/FTC proposals are important, so please email these to

Article supplied by Taxing Words Ltd


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