Offshore evasion offence given safeguards

The taxman has bowed to some of the pressure about his ‘strict liability’ offence for offshore evasion by promising to put it into place with “appropriate safeguards”.

According to HM Revenue & Customs, the offence will be targeted at only the most serious offshore tax evaders, as it will apply only above a £5,000 threshold of under-declared tax.

This should ensure that people who make errors over relatively small sums of tax do not get caught by the offence which, for now, will apply just to income tax and capital gains tax.

There will also be the ‘reasonable excuse’ and ‘reasonable care’ defences – additional safeguards to the offence which HMRC has announced following a consultation last year.

But the Chartered Institute of Taxation (CIOT), which called for safeguards earlier this year, says its main concern on behalf of taxpayers still stands.

“[These welcome safeguards do] not alter the fundamental wrongness of creating this criminal offence which will require no proof of intention.”

It added:  “In order to make a criminal conviction, it should generally be required to show that the act was committed with criminal intent unless there is potential for an immediate threat to public safety.

“The proposed strict liability offence for failing to declare overseas income and gains fails this test. A taxpayer may fall within the ambit of the offence without any intention or knowledge on their part.”

Although this absence of intent seems to no longer be up for debate by HMRC, its follow-up consultation asks whether “other legislative safeguards” should be included in the offence.

The same document states that the offence will be triggered in three ways - failing to notify HMRC of chargeability of tax; failing to file a return and filing an inaccurate return.

“It is easy to see why this is attractive to the tax authorities,” said the CIOT. “[But] it is not reasonable for someone to be convicted, let alone imprisoned, for offshore tax evasion without an intention to evade tax being proved beyond reasonable doubt.”

Also open for consultation is a new criminal offence for corporates who fail to prevent tax evasion or the facilitation of tax evasion on their watch.

Increasing the financial penalties faced by evaders – including, for the first time, linking a penalty to the value of the asset hidden offshore, is being consulted on too, as is ‘naming and shaming’ both evaders and their enablers.

The government’s tougher stance on evasion, underlined by its decision to close the LDF and CDDF earlier than planned, extends to consulting on new civil penalties for those who facilitate evasion so that they pay the same penalty as the evader.