CH124655 - Offshore matters: penalties for enablers of offshore tax evasion or non-compliance: calculating the penalty: examples

The examples on this page are to help your understanding of how penalties are calculated. The penalty loadings given in the examples are purely indicative. Penalties must always be based on the specific facts of each individual case.

Example 1

In 2017 an enabler advised a taxpayer to divert income offshore via a series of trusts. In 2018 HMRC opened enquiries into that person’s tax position - these were focussed on the person’s offshore income. The enabler acted as the person’s agent throughout those enquiries. As part of their compliance check HMRC were also considering the enabler’s involvement in enabling evasion by the person.

Initially co-operation from the enabler was not good and disclosure was fragmented, slow and, ultimately, incomplete. In fact, 12 months after coming forward, the enabler had still not provided HMRC with the full details of the arrangements, nor step by step transactions, nor had they helped HMRC to quantify the tax evaded. The enabler, who was also the agent, had represented the person throughout this period. The evaluation of the quality of the disclosure in this period takes into account the enabler’s assistance in establishing the persons evasion and also the enablers assistance in establishing the extent of their enabling.

The HMRC officer continued with their enquiries despite the obstruction and poor cooperation from the enabler. The officer calculated a PLR for the person totalling £5,255,700. This was eventually confirmed by the First-tier Tribunal and at that point the person decided not to pursue their appeal any further and accepted the tribunal’s decision as final.

In 2021, after the person’s tax liability became final, the enabler contacted HMRC and provided some but still limited co-operation in establishing the extent of the person’s evasion. The enabler provided minimal cooperation into establishing their own role in enabling the evasion – for example providing only partial access to their files. The enabler argued that they should be given a low enablers penalty because they had started speaking to HMRC before an enquiry had been opened into their conduct. They argued that they had provided an unprompted disclosure and that they were cooperating with HMRC.

Prompted/Unprompted

The officer rejected the enabler’s request on the grounds that a disclosure can only be unprompted if it is made at a time when they had no reason to believe that HMRC had discovered or were about to discover the person’s offshore tax evasion. At the time of the enabler’s disclosure, the enabler was aware of HMRC’s enquiry into the person’s tax position and it was therefore prompted.

Quality of disclosure

Although the enabler had provided some co-operation once the tax evasion was established, their timing of disclosure was slow – in fact, they only told HMRC about their involvement after the tax liability became final, rather than in 2018 when HMRC first contacted them.

The nature and extent of the enabler’s disclosure was only partial – for example, providing incomplete access to files. HMRC had to take into account the enabler’s behaviour during the compliance check and the nature and extent of disclosure was deemed to be poor.

Methodology

The HMRC officer assessed the quality of disclosure reducing the 100% enabler’s penalty to a penalty loading of 95% to reflect that there had been a degree of disclosure by the enabler, but the quality and timing of the disclosure had been minimal. The calculated penalty was therefore

  • the offshore tax evaded (the PLR) is £5,255,700
  • the maximum penalty is the higher of the PLR or £3,000, see CH124630, - this is £5,255,700
  • the disclosure is prompted so the minimum penalty is the higher of 30% of the PLR or £3,000 - this is £1,576,710
  • the penalty loading is 95%, so the penalty to be charged to P1 is £4,992,915.

Example 2a

In 2021, an accountant became aware of HMRC charging a penalty on another accountant who had enabled offshore evasion. The accountant was concerned that HMRC might identify taxpayers they had advised in a similar way. The accountant approached HMRC and provided copies of all presentation materials, a comprehensive folder of documents describing the whole arrangements and all transactions, details of two clients that they had advised and details of the fees they had paid.

The accountant was aware that HMRC had already opened an enquiry into one of these clients. The accountant helped HMRC quickly calculate the tax that this client sought to evade, which was £1,330,000.

Prompted/Unprompted

In considering the facts and circumstances the HMRC officer concluded that the disclosure was prompted as it was made after HMRC had already opened an enquiry into the first client’s return and the accountant was aware of this.

Quality of disclosure

The accountant was aware of the enquiry into the first client, but had not been directly approached by HMRC. Once the accountant came forward to HMRC they provided full cooperation and good quality information as quickly as practicable; both in establishing the activity of the first client and the accountant’s role in this. In this respect, the quality of the disclosure was high.

Methodology

Therefore, in light of the high quality of the disclosure, the officer assessed the minimum enabler penalty for a prompted disclosure (30%) calculated as follows:

  • the offshore tax evaded (the PLR) is £1,330,000
  • the maximum penalty is the higher of the PLR, see CH124630, or £3,000 - this is £1,330,000
  • the disclosure is prompted so the minimum penalty is the higher of 30% of the PLR or £3,000 - this is £399,000
  • the penalty loading is 30%, so the penalty to be charged to P2 is £399,000.

Example 2b

The accountant’s second client was not under enquiry from HMRC and HMRC were unaware of any evasion on the second client’s part. The accountant helped HMRC quickly calculate the tax that the second client sought to evade, which was £1,550,600.

In considering the facts and circumstances HMRC concluded that the disclosure was unprompted as it was made before enquiries into the second client’s returns had been opened and the accountant had no reason to believe that HMRC were about to discover the second client’s evasion.

HMRC concluded there was full cooperation and high-quality information was provided promptly. Therefore HMRC assessed the minimum enabler penalty for an unprompted disclosure (10%), calculated as follows

  • the offshore tax evaded (the PLR) is £1,550,600
  • the maximum penalty is the higher of the PLR, see CH124630, or £3,000 - this is £1,550,600
  • the disclosure is unprompted so the minimum penalty is the higher of 10% of the PLR or £1,000 - this is £155,060
  • the penalty loading is 10%, so the penalty to be charged to P2 is £155,060.

Example 3

With the greater understanding of the behaviour employed by the enablers in Examples 1 and 2, HMRC was able to discover further enablers facilitating their clients’ evasion in a similar way. One of these enablers was approached by HMRC as part of a compliance check into their client’s evasion and their role in enabling this.

The enabler in this example was willing to help HMRC calculate the tax at risk as a result of their client’s evasion and encouraged their client to assist HMRC in their enquiries. This cooperation helped HMRC to swiftly and accurately deal with their client’s evasion. The officer established that this client had evaded £190,389 of tax.

HMRC made inquiries into the enabler’s role in facilitating this client’s evasion. At this point, the enabler became elusive. They were slow to respond to emails and when they did respond they only provided the bare minimum response, including avoiding answering some of HMRC’s questions.

Eventually, through other routes of enquiry, HMRC were able to evidence the role of the enabler in this client’s evasion.

Quality of disclosure

The quality of the enabler’s disclosure in establishing their client’s evasion was high, but the quality of the enabler’s disclosure in establishing their role in enabling this was of poor quality.

Prompted/Unprompted

HMRC approached the enabler to enquire about their client’s activity. Therefore the disclosure made by the enabler is prompted.

Methodology

As the enabler’s disclosure was prompted, the minimum level of penalty is set at 30% of the PLR or £3,000, whichever is greater. The quality of disclosure by the enabler was high for establishing the behaviour of their client but poor for establishing their own involvement in this. Accordingly, HMRC assessed a 50% penalty loading for the enabler.

The penalty assessed for the enabler is calculated as follows

  • the offshore tax evaded (the PLR) is £190,389
  • the maximum penalty is the higher of the PLR, see CH124630, or £190,389 – this is £190,389.
  • the disclosure is prompted so the minimum penalty is the higher of 30% of the PLR or £3,000 - this is £57,116.
  • the penalty loading is 50%, so the penalty assessed for the enabler was £95,194.

Example 4

The person in Example 3 was also advised by another enabler to evade tax through not declaring income from a business they run. This activity only involved this enabler – no other enablers were involved. As HMRC completed their investigation into this person, the behaviour of this enabler was also uncovered.

HMRC approached the enabler and they provided poor cooperation in establishing the tax evaded by the person and their role in this – for example, the enabler provided slow and evasive replies and was not forthcoming in sharing their business records.

HMRC was able to assess the tax evaded by the person was £2,000.

Quality of disclosure

The quality of enabler’s disclosure was poor – they were uncooperative in regards to establishing both the behaviour of the person and their behaviour in enabling this.

Prompted/Unprompted

As the activity of the person was already known to HMRC and the enabler was aware of it, the disclosure made by the enabler is prompted.

Methodology

As the enabler’s disclosure was prompted, the minimum level of penalty is set at 30% of the PLR or £3,000, whichever is greater. Their cooperation was poor and so a loading of 95% was applied.

The penalty assessed for the enabler is calculated as follows

  • the offshore tax evaded (the PLR) is £2,000
  • the maximum penalty is the higher of the PLR (£2,000), see CH124630, or £3,000 - this is £3,000
  • the disclosure is prompted so the minimum penalty is the higher of 30% of the PLR (£600) or £3,000 - this is £3,000
  • the minimum and maximum penalties that can be charged are the same and there is therefore no reduction, so the enabler is charged a £3,000 penalty.