UK taxpayers who fail to disclose offshore income or gains will face imprisonment and swingeing penalties, accountants and advisory practice Blick Rothenberg has warned ahead of a deadline for get their affairs in order.
Those who either fail to notify HMRC of the tax they should be paying, fail to deliver a tax return, or submit an incorrect tax return are at risk.
Under strict liability rules introduced in the Finance Act 2016, which come into force this tax year, HMRC can sanction a maximum prison sentence of 6 months for offshore tax evasion.
Critically, Blick Rothenberg says, the rule does not distinguish between those who have intentionally misled HMRC and those who have merely “got it wrong”.
It is framed in such a way that the prosecution does not have to prove that there was “mens rea” (a guilty mind), meaning the mere existence of undisclosed offshore income and gains is sufficient to enable the sanctions to bite.
But those affected can defend themselves against a criminal sanction if they can demonstrate a reasonable excuse for the failures or inaccuracy.
Gary Gardner, a partner at Blick Rothenberg, said: “Individuals with offshore interests and their advisers should be aware that HMRC is committed to enforcing the new legislation introduced in FA 2016 in relation to undisclosed offshore income and gains in respect of which the maximum sanction is 6 months imprisonment.
“The offence applies from the tax year 2017-18 which means that HMRC will begin to take action from 6 October 2018 because taxpayers have until 6 months after the end of the year of assessment in which to notify HMRC of their chargeability to tax which means the cut-off date for such notification is 5 October.”
The strict liability criminal offence rules were devised partly in response to the immense political and public pressure for HMRC to criminally secure convictions against tax evaders, with the focus on wealthy individuals.
Blick Rothenberg says they are likely to drive a further increase in the number of criminal investigations relating to offshore tax evasion.
Tax evasion is different from tax avoidance in that it is illegal, whereas avoidance is the legal use of tax laws to reduce a person’s tax burden.
There are signs HMRC is already cracking down harder on evaders, as figures published last week (14 June) showed the number of cases the tax office’s Evasion Management Team dealt with in 2017-18 had reached a record high at 3,809, representing a 18 per cent rise on the year before.
Mr Gardner said practitioners may have been overly focused with the Requirement to Correct (RTC) and Failure to Correct (FTC) rules and might have overlooked earlier legislation which brought in the strict liability criminal offence for offshore tax evasion.
RTC is an obligation on taxpayers with overseas assets to correct any issues with their historic UK tax position or face punitive penalties of up to 300 per cent of the tax involved and sanctions.
The new rules come as a new mandatory disclosure regime is due to come into force across the EU, under which member states will automatically share any information they receive from tax advisers, in-house counsel and other intermediaries involved in cross-border tax arrangements.
Mr Gardner said: “It is not surprising that the earliest date that an offence can be committed coincides closely with both the deadline for the RTC and the first full automatic exchange of information by over a 100 countries under the Common Reporting Standard on 30 September 2018.
“The huge increase in information that CRS will deliver to HMRC will enable them to escalate their drive to stamp out offshore tax evasion.”
HMRC has previously said it takes tax evasion very seriously.
It said: “We have a range of tools to help us identify suspected evasion and we thoroughly analyse and investigate any information we receive to crack down on the minority who do not pay the tax they owe.”
carmen.reichman@ft.com
