HMRC to hit offshore tax evaders with 200% fine

For the second time in as many weeks, the government has set out a major attack on those who try to dodge paying their fair share of tax.

The Treasury has published a consultation on new laws that would require offshore tax evaders to declare any unpaid levies going back up to 20 years and pay what they owe - plus any interest and hefty penalties.

The regulations will apply equally to individuals and companies using offshore structures, it says.

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In cases where the actions were deliberate and concealed, failure to come forward voluntarily could be met with a fine of up to 200 per cent of the amount owed, effectively tripling the back-tax bill.

The proposals set a September 2018 deadline for anyone in the UK who has reduced their tax bill illegally, whether by shifting income or profit outside the UK or by not declaring income arising offshore, to come forward.

This is the date by which the second phase of a transparency project involving up to 100 countries, including UK overseas tax havens such as the British Virgin Islands, will be in place. From then, HMRC has access to automatic data on overseas accounts held by UK citizens and on the beneficial owners of offshore companies and trusts.

The Treasury consultation adds that individuals and companies would have to declare any unpaid taxes dating back four years that came about by errors "despite taking reasonable care", rising to six years for underpayment brought about by carelessness and two decades for deliberate evasion.

The worst penalties relate to evasion in the tax years from 2011/2012 onwards.

The plans come after proposals last week to fine accountants and advisers up to 100 per cent of the tax their clients managed to dodge if they are found to have facilitated or promoted avoidance schemes that are later defeated in court.

Under the latest recommendations, individuals may also be forced to give information on "any third party that has enabled or facilitated their offshore non-compliance".

Parliament is currently working on new legislation to introduce penalties for offshore evaders for ongoing activities, including a fine up to ten per cent of the underlying assets on which they have avoided paying tax.

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Accountants and financial advisers found to be "enablers" of tax avoidance could face fines of up to 100 per cent of the amount dodged if new government proposals go through.

They also face being "named and shamed" for their involvement in promoting schemes that exploit unintended loopholes.

This could compromise their ability to get professional indemnity insurance and effectively put them out of business, Richard Murphy, a chartered accountant and academic at City University, told the BBC.

The new penalties are set out in a discussion document published by HMRC - a new front in the battle against tax avoidance heralded by former chancellor George Osborne and taken up by new Prime Minister Theresa May.

Tax avoidance and evasion is officially estimated to cost the taxpayer up to £3bn a year, but Murphy says the true figure could be much higher at around £10bn.

"Tax avoidance takes money away from public services and places disproportionate demands on the government’s resources," says Jane Ellison, the financial secretary to the Treasury, in the HMRC paper.

"Those who seek an unfair advantage, or who provide the services that enable it… should bear real risks and costs for their choices."

At present, accountants, financial advisers, law firms or others who are involved in schemes found to be in breach of tax laws face "little risk", says the BBC.

Under the new proposals, they would face fines of up to the full amount of tax deemed to have been avoided if the activity was "deliberate and concealed". This would be reduced in less serious cases and there would be no penalty where "reasonable care" was taken.

This marks a significant shift and places the burden on the avoider to prove their benign intentions. The penalties would not be linked to those faced by the person benefitting from the avoidance; instead, the trigger would be a court decision in favour of HMRC.

The Treasury has won a string of victories against schemes that seek to artificially benefit from reliefs intended for the likes of film investment, notes the Financial Times.