Offshore tax evaders face new criminal offence

Contractors can have their say on the taxman moving to criminalise people who fail to declare offshore income and gains, even if he cannot prove their intent was to defraud him.

Under the ‘strict liability’ offence, convictions could hit a person whose taxable offshore income and gains were not correctly declared, regardless of whether they wilfully acted in a criminal way.

Although the offence would apply only above a “sufficiently high” financial threshold, it could mean courts may potentially imprison such people without regard to their state of mind.

“This new offence would go against the general presumption that mens rea (guilty mind) is required to impose criminal liability,” said a concerned Chartered Institute of Taxation.

The institute called the offence, outlined in a consultation paper, “hugely controversial,” and reminded that “not everyone who under-declares their tax is acting with criminal intent.”

But the document says that “regardless of the state of mind of the taxpayer”, if they break tax rules, they harm the “compliant majority” and undermine public confidence in the tax system.

HM Revenue & Custom added: “Given the difficulties in detecting non-compliance, the government believes there is a case for increasing the cost of being caught in order to compensate.”

One possible defence being proposed is for a person who is not “careless” but who sought and followed “appropriate professional advice” about their tax affairs.

Also open for input is the geographical scope of the offence, the level of threshold and penalties and which taxes it should cover. Views on safeguards can be submitted too.

“I accept that it is a tough sanction, and rightly so,” stated the exchequer secretary to the Treasury David Gauke, in the foreword of the paper, which is open for replies until October.

“Offshore tax evasion has been a blight for too long, and it is time that those who exploit offshore arrangements to avoid paying their fair share face the consequences of their actions.”

Mr Gauke added that “ there is nothing wrong with holding assets offshore” but, like 56,000  such people who have already come forward to the Revenue, said these investors must pay the UK what they owe.

Despite the tougher stance, HMRC said steps would be taken to ensure the “proportionality” of the measure, and stressed that its civil powers were still sufficient for most offshore cases.

However, a second consultation sets out new plans to introduce tougher civil sanctions for offshore evaders, including those who move their taxable assets between offshore banks.

Alongside this targeting of those who move assets from a centre that has tightened tax-data sharing laws to another which hasn’t, how far the taxman can look back may also change.

In particular, the 20-year rule limiting how far HMRC can look back at a person’s affairs could be suspended, as part of the focus on those jumping between different offshore centres.

The CIOT’s Gary Ashford reflected: “Rightly, the net is tightening on those who think they can keep money in offshore bank accounts out of sight of the taxman.

“HMRC are pursuing a carrot and stick approach on undeclared offshore income, mixing disclosure facilities for those willing to become compliant with a bigger push against those who continue to evade. These proposals show quite how big a stick HMRC would like to wield.”