21st Jul 2015

New tax evasion plans revealed

Treasury officials announced plans to create a new strict liability offence for offshore tax evasion following Budget 2015 in March. Strict liability refers to a criminal offence where proof of intent is not required to convict the suspected individual.

Under current laws, taxpayers can only be found guilty of tax evasion if HMRC is able to prove that the failure to pay was deliberate. Under the new rules, failure to declare income and gains will alone be sufficient to convict taxpayers.

Under the draft legislation:

  • the offence will only apply to income and capital gains tax
  • it will apply to all offshore income and gains
  • it will only be used if the amount of undeclared tax exceeds £5,000
  • the threshold will not roll over into multiple tax years
  • convicted people will face a maximum 6 month prison sentence.

HMRC is currently consulting stakeholders about the viability of the draft legislation.

The Chartered Institute of Taxation (CIOT) has warned that the use of strict liability will result in criminal convictions of people who did not intend to evade tax and merely made mistakes on their tax returns.

Patrick Stevens, tax policy at the CIOT, said:

“It is easy to see why this is attractive to the tax authorities. But UK and international taxation is a minefield of complexity and, while some taxpayers do actively seek to hide their income by intentionally failing to declare it, there are others who simply make mistakes in their financial affairs without intending to act wrongly.

“It is not reasonable for someone to be convicted, let alone imprisoned, for offshore tax evasion without an intention to evade tax being proved beyond reasonable doubt.”

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