• Criminal prosecution could result from modest levels of undeclared share trading or other investments
• Risk also posed to non-doms
HMRC has thus week announced details of its plans to introduce a criminal offence for failing to declare offshore taxable income or gains. HMRC intends to introduce this as a "strict liability" offence which means there doesn't have to be any evidence that the individual intended to evade tax – the individual can be convicted even though they:
• failed to understand tax law
• were poorly advised by a friend or acquaintance
• genuinely forgot to report a relevant gain
HMRC wants the offence to come with a penalty of unlimited fines and up to six months in prison that could be imposed at a magistrates' court. The represents a slightly more measured approach than the original proposals for an offence which suggested the potential for much longer prison terms.
There is also the suggestion of a defence of reasonable care for individuals who have followed this professional tax advice.
Comments from James Bullock, Head of Litigation & Compliance, of Pinsent Masons, the international law firm:
"HMRC has more powers in its arsenal – and greater funding – than ever before and the tax take through their investigations is at a record level. Considering the success that HMRC is having in cracking down on tax evasion there doesn't seem to be the public policy requirement for these extra powers."
"The detailed proposals are more moderate than many had feared, but the principle remains that individuals shouldn't lose their liberty and be sent to jail because they have been careless or forgetful or allowed themselves to be misled over what taxes they had to pay. They can already be hit by massive fines."
"A criminal investigation with the potential consequences of going to jail turns lives upside down and where tax is concerned it should be used only where the individual had criminal intent."
James Bullock points out that the threshold that HMRC proposes could be just £5,000 of tax evaded, an amount of undeclared tax that could very easily accumulated through share trading or other investments held in an offshore account.
Pinsent Masons say that the proposed new criminal offence will also potentially put non-domiciles at risk of imprisonment if the offshore structures that they use to keep their wealth offshore are ever shown by HMRC not to work.
At present non-domiciles do not have to pay tax on their overseas assets or income unless it is remitted to the UK. However, if their income or assets are subsequently shown to fall within the UK tax regime then they may be guilty of a criminal offence for having failed to declare that income to HMRC. Pinsent Masons says that as a result, non-domiciles who hold their assets outside of the UK in "offshore" jurisdictions may need to have their tax structures audited before the new offence comes into force.
Adds James Bullock: "The raft of other civil deterrents that HMRC has also asked for today have the potential to really complicate tax law, creating a level of complexity that many accountants and lawyers are going to struggle to follow – let alone the taxpayer."