HMRC’s Criminal Sanctions Expanded for Offshore Failures
HM Revenue & Customs (HMRC) are challenging taxpayers in respect of offshore income, gains and assets though little is said about the potential criminal sanctions.
The era of strict liability is upon us, does the future hold a potential prosecution for the unwary as well as the fraudster?
Criminal Sanctions? Surely Not?
It is not a joke or a gimmick, HMRC now possess criminal sanctions in respect of offshore tax failures.
What is more, the sanctions apply even if the failure is not premeditated. The offence is based on strict liability.
The Taxes Management Act 1970 was extended by the 2016 Finance Act in relation to offshore income, gains and assets to include:
- Failure to notify HMRC of chargeability to income or capital gains tax before the end of the notice period.
- Failure to deliver a tax return
- Filing a tax return which contains an inaccuracy
When do the Criminal Sanctions Apply?
2017/18 is the first tax year open to the new sanctions.
Failure to notify an offshore source of income by 6 October 2018 could render the 2017/18 tax return vulnerable.
Failing to file a 2017/18 tax return could likewise be vulnerable.
Not amending an inaccurate 2017/18 tax return should not yet be vulnerable to criminal sanction but is still open to civil enquiry.
Will HMRC Prosecute?
In most cases it is unlikely.
HMRC will apply its selective prosecution policy. Taking the chance of not being picked will be a gamble some should not take.
There is a defence of reasonable excuse. However, the burden shifts to the taxpayer to prove innocence not HMRC proving guilt.
What are the Sanctions?
It depends where the matter is heard.
A conviction for any of the new offences in England and Wales allows the Magistrates Court to impose a custodial sentence of up to 6 months and an unlimited fine.
In Scotland and Northern Ireland the custodial provisions are the same but the fine is limited to no more than £5,000.
If you believe the new provisions apply to you, don’t panic.
Whilst HMRC can prosecute, in most cases it prefers to settle matters on a civil basis. Any taxpayer that chooses to make a voluntary disclosure to remedy an offshore failing is unlikely to be prosecuted.
Yes there will be a financial penalty. Yes these have increased over recent years.
However, settling the tax, interest and a financial penalty appears to be better outcome than the same financial cost and a custodial sentence as well.