HMRC has published a consultation document setting out its plans and proposals to tackle offshore tax evasion, including the introduction of new criminal offences for individuals failing to comply with tax laws, even where there is no deliberate tax evasion. This would be an important increase in the potential sanctions that could be imposed on people who have outstanding tax liabilities.
The document, "Tackling offshore tax evasion: A new criminal offence", states that the minority of would-be taxpayers who fail to satisfy properly their tax liabilities impose "an unfair burden on the honest majority and prevents money from reaching the crucial public services that need it".
To combat this, HMRC now proposes that UK taxpayers who fail to declare their foreign income, capital gains or assets should be convicted of the new criminal tax evasion offence on a strict liability basis – that is to say, potentially as a result of carelessness and not solely where criminal intent or dishonesty is apparent. The consultation invites opinions on whether a defence should be permitted where individuals can show that they took "reasonable care" in conducting their tax affairs, or had "sought and followed appropriate professional advice", although it seems that – pending the outcome of the consultation process – no such statutory defence is envisaged by HMRC
HMRC estimates that the 2010/11 financial year 'tax gap' was £32 billion and that "tax evasion and avoidance" accounted for a cumulative £9 billion of this shortfall. The document explains that HMRC has raised £547 million from voluntary disclosures (and a further £140 million from "follow-up activity including 20,000 completed investigations"), and that HMRC is taking swifter legal action against tax evaders, and is allocating more resources with the objective of increasing the pace and number of tax evasion cases brought before the criminal and civil courts.
To sharpen the focus of people with outstanding tax liabilities, the consultation states that financial institutions in Guernsey, Jersey, the Isle of Man and the UK's Overseas Territories have been collecting information on UK residents' accounts since June 2014, and that this information is to be shared with HMRC. A further 33 jurisdictions are expected to commence the collection of similar information to share with HMRC shortly, and it is HMRC's expectation that this will reveal individuals with outstanding tax liabilities. HMRC's attitude, therefore, is that individuals should regularise their tax affairs as soon as possible (using the disclosure mechanisms in place, such as the various Isle of Man, Guernsey, Jersey and Liechtenstein disclosure facilities) or risk the imposition of criminal convictions under the newly-proposed regime.
In the light of this document and the expanded criminal regime that is proposed, it should be noted that HMRC's addition consultation document, "Tackling offshore tax evasion: Strengthening civil deterrents", has stated that HMRC's expectation is that most tax cases will remain investigated and settled through civil means, in particular those cases that are not covered by the new criminal offence (for example, because "the revenue lost is below the qualifying threshold") and cases that HMRC may decide are not appropriate for criminal investigation pursuant to its published criminal investigation policy.
The consultation period will run until 31st October 2014. If you need any more information in relation to the consultation or the proposals' impacts, please do not hesitate to get in touch with your Charles Russell contacts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
