Offshore penalties and Tax Evasion

HMRC are continuing to increase the number of tools available to tackle offshore evasion and are taking an increasingly aggressive stance in relation to offshore matters.

The government’s initiative to direct a further £60m to fund a threefold increase in the number of criminal investigations into serious and complex tax fraud is ongoing, and the enhanced penalties (see below) for undisclosed ‘offshore’ matters make it more important than ever for those with undeclared liabilities to take steps to regularise their tax affairs.

HMRC’s Worldwide Disclosure Facility (WDF) is the latest ongoing initiative to provide a means for taxpayers to bring to light undisclosed offshore income and gains.  Following a number of previous ‘tax-favoured’ initiatives in this regard, the WDF offers no specific favourable terms, but does provide a clear forum via which individuals can settle overdue matters.

Penalties

The potential penalties related to undisclosed tax liabilities are currently as follows.  The categories refer to jurisdictions with varying level sof perceived ‘secrecy’.  ‘Category 3’ jurisdictions typically have the lowest level of international information sharing agreements.

  Max. penalty if error is deliberate and concealed
(% of “potential lost revenue”)
Min. penalty if error is deliberate
(% of “potential lost revenue”)
Min. penalty if error is careless
(% of “potential lost revenue”)
Category 1 Voluntary n/a 30% 0%
  Prompted 100% 45% 15%
Category 2 Voluntary n/a 40% 0%
  Prompted 150% 62.5% 22.5%
Category 3 Voluntary n/a 50% 0%
  Prompted 200% 80% 30%

As might be expected, the rates of penalty are lower where disclosures are made voluntarily by taxpayers, as opposed to instances where HMRC prompt disclosure.  Similarly, the penalties for ‘careless’ as opposed to deliberate behaviour incur a lesser penalty, and the timeframe over which unpaid tax may be assessed can also be limited in such cases.

If you would like assistance with offshore issues and managing a disclosure under the WDF please contact us.