Pre Budget Report 2009 - Offshore Tax Evasion

December 10th 2009

The Pre Budget Report 2009 proposes a tough crackdown on the evasion of UK tax by offshore account holders. A Consultative Document suggests the following:

Penalties

 - For tax periods commencing from 1 April 2011 subject to a reasonable excuse provision, all offshore non-compliance will attract penalties at the same scale as domestic penalties for deliberate non-compliance. So the lower penalty for carelessness will not be available. This would mean the non-compliant would be liable for minimum tax-geared penalties of:

• 20 per cent where there is an unprompted disclosure;
• 35 per cent where there is a prompted disclosure;
• 70 per cent where there is no disclosure;
• up to 100 per cent where the non-compliance was not disclosed and had been concealed.

- For periods between April 2009 and April 2011, where undeclared offshore income or gains are uncovered, HMRC would seek penalties under Schedule 24 to Finance Act 2007 on the basis that the non-compliance is deliberate- so it would be possible to argue for non deliberate error. These penalties are as above.

- For periods prior to April 2009, HMRC will view non-compliance involving an offshore element as conduct of the utmost gravity, and will seek penalties accordingly. The maximum penalty prior to the introduction of the new FA 2008 penalties was 100 per cent. The effect of this could mean that penalties associated with offshore evasion where someone didn’t take advantage of the New Disclosure Opportunity or the Liechtenstein Disclosure Facility could easily be over 50% of the tax evaded.

Disclosure of Offshore Accounts

- Offshore accounts in jurisdictions where there is no suitable exchange of tax information agreement where substantial sums would have to be disclosed to HMRC within 60 days of being notifiable. Failure to notify would be subject to penalties which in the worst cases would be tax geared.

“Any penalty charged for late notification to HMRC of the existence of an overseas account would be in addition to any penalty that may arise from an under-declaration of tax. Thus, a taxpayer seeking to evade tax by failing to declare the existence of an overseas account or the interest arising from it could be subject to two separate tax-geared penalties.

In the most serious cases of tax evasion, the sum of these two penalties could reach 200 per cent of the tax evaded.”

The Consultation Document can be accessed via the following link:

http://www.hmrc.gov.uk/pbr2009/offshore-tax-evasion-5350.pdf

Please call Iain Macleod on 07920 146800 for a free confidential discussion or email imacleod@edftax.co.uk.