HMRC announces new sanctions for taxpayers that 'fail to correct' offshore irregularities

Out-Law News | 26 Aug 2016 | 11:31 am | 2 min. read

UK taxpayers that 'fail to correct' historical tax irregularities from their offshore investments and accounts could face penalties of up to three times the unpaid tax, under plans put forward for HM Revenue and Customs (HMRC).

It is consulting on even tougher penalties for those who evade tax through offshore structures, ahead of the introduction of the new data-sharing arrangements with authorities in the Crown Dependencies and British Overseas Territories (CDs and BOTs). Automatic exchange of information on financial accounts held by UK taxpayers in the CDs and BOTs will begin in October, one year before a wider Common Reporting Standard (CRS) will begin to introduce the same arrangements at a global level.

HMRC will also introduce a new Worldwide Disclosure Facility (WDF) from 5 September 2016. The WDF will not offer any special terms, as was the case with HMRC's previous disclosure facilities; but will allow those with outstanding tax to pay to put their affairs in order.

The plans are part of HMRC's desire to get "tougher on tax evasion", according to Jennie Granger, director general of enforcement and compliance at the authority.

"We will find those who think they can dodge paying tax in this country," she said.

"We’ve closed old disclosure facilities, increased penalties and ramped up our powers to tackle evaders and those that help others evade – the days of any safe havens for tax evaders are numbered. Our message is simple -–come to us and pay the tax and penalties that are due, before we target you with the introduction of even tougher sanctions and game-changing data," she said.

The consultation sets out a new requirement for those that have not yet paid UK tax due on historical offshore interests to do so by September 2018, before the new automatic exchange of information agreements come into full effect the following month. Those that do not meet the requirements by this date would be subject to a new set of legal sanctions for "failing to correct".

HMRC has put forward two potential penalty models for consultation: a simple approach, with a minimum penalty of 100% and maximum penalty of 200% of the unpaid tax; or a variable approach, in which penalties would be charged at three levels depending on the circumstances, amount owed and whether the disclosure was 'prompted' or 'unprompted'. Penalties would be levied in all cases unless the taxpayer could show a "reasonable excuse" for not meeting their obligations, and would be reduced depending on the extent to which the taxpayer cooperates with HMRC.

In its consultation, which closes on 19 October, HMRC acknowledged that both proposed penalty models were "set at a high level compared with the standard penalties as they stand at the moment". However, it noted that those subject to the new penalties would have "committed an original offence, they will have failed to come forward under any previous disclosure facility and will now also have failed to correct under the new legal obligation".

"This is a significant failure on the taxpayer's part and we feel it should therefore attract increased rates of penalty compared with the standard penalties for offshore evasion," HMRC said.

The new penalty regime will operate in addition to previously-announced measures affecting "all those involved in offshore tax evasion", according to HMRC. These include a new 'strict liability' criminal offence of failing to declare offshore income and gains, increased civil sanctions for offshore tax evaders and new civil sanctions for 'enablers' of offshore evasion.

"We have seen a number of disclosure facilities come and go, but the recent raft of consultation documents make it clear that HMRC is genuinely clamping down on those who evade taxes," said tax expert Fiona Fernie of Pinsent Masons, the law firm behind Out-Law.com.

"This really is the last chance saloon - once HMRC receives information under UK FATCA and CRS it will no longer need to rely on taxpayers to come forward. Those who have not taken advantage of the WDF or the RTC will have no excuses, and will be sanctioned accordingly," she said.