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HMRC launches consultation to toughen offshore tax evasion laws

22 Aug 2014

HMRC is proposing new measures which could see expats facing criminal conviction if they fail to comply with tax laws, even if they are not deliberately evading tax.

A new consultation document 'Tackling offshore tax evasion: A new criminal offence' contains proposals meaning that expats who fail to declare offshore income, gains or assets could be convicted as a result of a mistake or omission, not just criminal intent or dishonesty. The proposed new criminal offence would be a 'strict liability' offence, meaning that it is not necessary for the court to ascertain the state of mind of the defendant before convicting, and the act in itself warrants a criminal sanction regardless of why the individual broke the rules.

In the document David Gauke, Financial Secretary to the Treasury states: 'Since the end of June, financial institutions in the Isle of Man, Guernsey, Jersey, and all the UK's Overseas Territories with financial centres have been collecting information on UK residents' offshore accounts to share with HMRC.

'Shortly after, financial institutions in a further 33 jurisdictions will do the same under the new common reporting standard. We know some of these people will have tax to pay. That is why HMRC is offering time-limited disclosure facilities allowing people to come forward and settle their bills as quickly and easily as possible.

'If taxpayers do not come forward to clear up their past non-compliance, or if they continue to fail to comply with their obligations in this new era of transparency, then they must face tough consequences. One of these consequences should be the realistic threat of a criminal conviction.'

Gary Ashford of Chartered Institute of Taxation expressed concern about the proposals, saying: "This new offence would go against the general presumption that mens rea (guilty mind) is required to impose criminal liability. Strict liability offences have until now mostly been used for matters with immediate risk to the public such as speeding offences or selling contaminated food. It's hard to see how non-declaration of tax fits into this category.

"UK and international taxation is a minefield of complexity, and the Government must recognise that while some taxpayers actively seek to hide their income by failing to declare their accounts to HMRC, there will be individuals who make mistakes in their financial affairs without intending to act wrongly. Not everyone who under-declares their tax is acting with criminal intent."

However, another HMRC consultation document 'Tackling offshore tax evasion: Strengthening civil deterrents' states: "The majority of cases are still likely to be investigated and settled through civil means. This includes cases not covered by the scope of the new criminal offence – for example, because the revenue lost is below the qualifying threshold – and cases which, under its published criminal investigation policy, HMRC decides are not appropriate for criminal investigation.'

The end date for the consultation is 31 October.