Expert questions UK chancellor's proposed 'strict liability' criminal offence for taxable funds held offshore

Out-Law News | 14 Apr 2014 | 5:12 pm | 2 min. read

It would be disproportionate to introduce automatic unlimited fines and prison sentences for UK taxpayers with offshore assets on which they have not paid the correct taxes, as trailed by the Chancellor of the Exchequer at the weekend, an expert has said.

James Bullock of Pinsent Masons, the law firm behind, said that the proposed introduction of a 'strict liability' offence for those with taxable, undeclared offshore income could simply be "shock tactics" that would be "watered down in due course". Any proposed new offence would be subject to consultation and complement the UK tax authorities' existing criminal investigations policy, according to a briefing note published by HM Revenue and Customs (HMRC).

"The severity of these proposals – although subject to consultation and further thought – make the 'follower notice' and 'accelerated payment' provisions that are currently before parliament look positively moderate by comparison," Bullock said. "If these proposals do go forward as proposed lawyers are going to be very busy indeed in due course."

According to HMRC's briefing note, the new strict liability criminal offence of "failing to declare taxable offshore income" would only apply where income is "taxable and must be reported to HMRC". It would be used in circumstances "where there is a need to send a strong deterrent message or where the conduct is so serious that only a criminal sanction is appropriate", as is the case under HMRC's standard criminal investigations policy. The details will be contained in a consultation to be issued later in the year.

The document also proposes tougher civil sanctions for tax evasion, the details of which will again be set out in a future consultation. This consultation will look at whether the existing penalty limit of 200% of tax owed should be raised further, how penalties could be increased if the taxpayer tries to move money around in order to avoid detection, and extending the penalty regime to include inheritance tax, according to HMRC.

Currently, HMRC needs to be able to prove that an individual intended to evade tax when that person failed to declare offshore income. The change announced by the Chancellor would mean that it would only have to demonstrate that income held offshore was taxable, and had not been declared.

Tax expert Ray McCann of Pinsent Masons said that given the seriousness of what was being proposed, details of the 'appropriate safeguards' that the government said would be put in place would be crucial.

"Strict liability offences - the most familiar examples of which are certain motoring offences - generally have a fixed penalty attached to them," he said. "Historically, strict liability has been applied to relatively minor misdemeanours 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 realise 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."

"We have serious concerns over the way that this was announced by the Chancellor, and that the consultation promised will not now appear until later in the year. The fact that the consultation document is not due out until later in the year suggests that this proposal has not been properly thought through, especially as to how compliant it would be with English law and the European Convention on Human Rights. If a taxpayer can be labelled a 'criminal' regardless of his intent, that by its very nature is an unfair process and outcome," he said.

The HMRC briefing note also sets out how HMRC will be able to find out about offshore accounts held by UK residents once  new international automatic exchange of information between governments begins. HMRC will have access to information about UK residents with bank accounts in 44 jurisdictions, the note says. It states that HMRC's data analysis capabilities will enable it to 'hit the ground running' as soon as the first information is obtained in 2016 and urges those with offshore accounts to come forward or face tough sanctions.