Policy paper

Increased civil sanctions for offshore tax evaders

Published 9 December 2015

Who is likely to be affected

Those with income or gains arising or transferred offshore who evade their UK tax responsibilities.

General description of the measure

This measure strengthens existing civil sanctions and introduces a new asset-based penalty for those who evade their UK tax responsibilities using offshore transfers and structures.

The measure will increase minimum penalties for deliberate offshore evasion, and require taxpayers to provide additional details on how the evasion took place to secure maximum penalty reductions where deliberate behaviour led to the evasion.

The measure will strengthen naming provisions in section 94 of Finance Act (FA) 2009, so that only taxpayers who make full unprompted disclosures are protected. The provisions will also be strengthened to allow naming of individuals who use a company or other entity to evade UK tax.

A penalty based on the value of the asset involved in the evasion will also be introduced by the measure. This levies a penalty on the value of the underlying asset involved in the offshore evasion, such as an offshore bank account where the interest was not declared, or an offshore property with undeclared rental income. It will apply in only the most serious cases of offshore evasion; the behaviour leading to the evasion must be deliberate. Draft clauses for the asset-based penalty will be published in early 2016.

Policy objective

Those who do not pay the tax due on income or gains which arise outside of the UK have a real impact on honest taxpayers. They deprive the government of much needed funds to run public services and place a greater burden on the vast majority of people who pay their fair share of tax.

In order to tackle offshore evasion there needs to be a strong deterrent against non-compliance. Civil sanctions, such as penalties and naming provisions, act as a deterrent to would be tax evaders, and as a sanction to those who do break the rules.

This measure will increase the civil sanctions that apply to those who evade their UK tax responsibilities using offshore transfers and structures. This increased deterrent will help HM Revenue and Customs (HMRC) tackle offshore non-compliance.

Background to the measure

This measure was announced in Budget 2015, and consulted on from July to October 2015.

Detailed proposal

Operative date

The measure will be included in Finance Bill 2016, but will be subject to a commencement order. The government will ensure that commencement is coordinated with the final disclosure facility which will provide a means for taxpayers to correct any tax non-compliance related to offshore income or gains. That disclosure facility is expected to run from April 2016 to September 2018.

Current law

The current law for penalties for deliberate inaccuracies involving an offshore matter is contained in Schedule 24 to FA 2007.

The current law providing naming provisions is contained in section 94 of FA 2009.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to amend the offshore penalty provisions, the naming provisions and introduce a new asset-based penalty for offshore non-compliance. The measure relates to income tax and capital gains tax. From the commencement of certain provisions in FA 2015, penalties for offshore non-compliance will also apply to inheritance tax and include domestic non-compliance where the proceeds are transferred offshore.

Minimum civil penalties for offshore inaccuracies involving “deliberate” and “deliberate and concealed” behaviour will be increased by 10% of the potential lost revenue. Penalties for careless behaviour will remain at the same rate.

Civil penalties can be reduced depending on the amount of disclosure a taxpayer provides to HMRC in establishing the correct amount of tax due. This measure will require taxpayers to provide ancillary details of the evasion to receive full reductions for disclosure in cases of deliberate offshore evasion. Ancillary details of the evasion may include; structures used, how the funds were transferred offshore, any enabler that facilitated the evasion.

The measure will amend section 94 FA 2009 so that in cases of offshore inaccuracies, only those who make full unprompted disclosures to HMRC will be protected from having their details published. Currently taxpayers can make either a full disclosure that is promoted or unprompted and not have their details published. The naming provision will also be amended so that where the offshore inaccuracy was carried out by an entity, such as a company or trust, for the benefit of an individual who has control of that entity, that individual will be named. Currently, the naming provisions only allow for naming of the entity.

The measure also introduces an asset-based penalty that will apply where an inaccurate return is made to HMRC and the inaccuracy relates to offshore income or gains. The asset-based penalty will only apply where the behaviour leading to the inaccuracy was deliberate, or deliberate and concealed. The penalty is based on the underlying asset, from which the income or gain that was subsequently evaded was derived. The government will be holding further, informal consultation on the draft clauses of the asset-based penalty, which will be published in early 2016.

Summary of impacts

Exchequer impact (£m)

2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
-	-	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact. This measure supports the Exchequer in its commitment to protect revenue.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

Tax compliant individuals may incur negligible administrative costs involving familiarisation with the new legislation and the cost of checking their affairs are compliant in response to the measure. Otherwise, this measure focuses on sanctions for non-compliant individuals and is not expected to have any impacts on tax compliant individuals. The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

Any affected equality groups are likely to be those represented amongst those of above average wealth. Individuals will only be affected if they have not complied with their tax obligations.

Impact on business including civil society organisations

This measure will have no impact on businesses and civil society organisations who are undertaking normal commercial transactions; it will only impact on businesses with income or gains offshore who evade their UK tax responsibilities.

Operational impact (£m) (HMRC or other)

HMRC will incur one-off IT costs amounting to £250,000.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through information collected during compliance work to ensure the legislation operates as intended.

Further advice

If you have any questions about these changes, please contact Timothy Holmes on Telephone: 03000 522637 or email: timothy.holmes@hmrc.gsi.gov.uk.