Research and analysis

Executive Summary: Research to review the effectiveness of the current offshore penalties regime

Published 17 July 2025

This report was commissioned under the Conservative administration (2010 to 2024), and conducted in 2023-2024.

HM Revenue and Customs (HMRC) Research Report 833.

1.   Introduction

The UK tax system includes a range of penalties and criminal offences to deter offshore non-compliance.

This research aimed to measure views of the current penalty regime for offshore non-compliance. It involved a multistage mixed-method approach, which included a survey and qualitative in-depth interviews with individuals who had reported offshore income or gains to HM Revenue and Customs (HMRC).

2.   Population characteristics

Dividends from overseas companies were the most common type of offshore income reported by individuals (49%), followed by interest from an overseas bank or building society (22%). Choosing to save or invest abroad was the most common circumstance by which individuals had acquired offshore income or gains (43%), followed by individuals having currently or previously worked for an organisation based overseas (25%) and individuals having lived overseas and still having financial interests there (17%).

Just over half (55%) of individuals that received offshore income were 65 or older. The South East had the highest representation of individuals with offshore income at 31%.

Three customer types emerged, based on their engagement with offshore income: ‘Eyes Open’, ‘One Eye Open’, and ‘Eyes Shut’.

The ‘Eyes Open’ group actively and deliberately invested offshore, while the ‘One Eye Open’ group had offshore income tied to work-related circumstances or former residence.

The ‘Eyes Shut’ group acquired offshore income passively and often perceived it as accidental or unintentional.

3.   Experiences when reporting offshore income

The qualitative research revealed variation in the extent to which individuals monitored their offshore income, ranging from low to high involvement. Overall, individuals did not perceive their offshore income to be different to their onshore income but did acknowledge that it was more complex and time consuming to deal with.

More than half of individuals (55%) found it easy to understand what they needed to do when reporting their offshore income to HMRC, but around one in five found it difficult (19%). The qualitative research found that individuals who found offshore reporting easy tended to have financial knowledge from their work or received support from an agent or accountant.

For those that found it difficult to understand what they needed to do when reporting their offshore income, the qualitative research revealed these individuals felt guidance on what they needed to do was not clear, which was compounded by a perceived limited access to support. Confidence in dealing with offshore tax was high across the population (82%), higher than ratings for ‘ease of understanding’.

Half of individuals (50%) with offshore income used an agent or accountant to help them deal with their requirements. Qualitative interviews found that individuals’ use of an agent or accountant varied according to their capability or circumstances. GOV.UK was the most frequently used source of information (51%) on offshore reporting requirements, closely followed by an accountant or tax agent (46%). The most positive view of HMRC guidance was that it ‘is relevant to my circumstances’ with 69% of individuals agreeing. The least positive view was towards HMRC guidance being ‘easy to understand’, with less than half of individuals agreeing (42%).

4.   Awareness and understanding of the offshore penalties regime

Evidence suggested individuals lacked detailed knowledge and understanding of the offshore penalty regime. Just over a third of individuals were aware of specific penalties that could be applied (37%). However, among those who were aware of a penalty, the most frequently mentioned ‘source’ of awareness was that they ‘just assumed there would be’ (38%). Individuals struggled to express a view on the complexity of the penalty regime, with 65% of those who were aware of at least one offshore penalty, unable to say whether it was simple or complex. Across the whole population, most individuals could identify at least one circumstance under which a penalty might be issued (96%).

The qualitative in-depth interviews found that individuals had little interest in understanding the penalty regime when they believed they were compliant. Some individuals who had received a penalty reported that the process had informed their view of it.

5.   Attitudes towards the offshore penalty regime and impact on behaviour

The majority of individuals believed that paying tax on offshore income is fair (76%) and non-compliant behaviour is never acceptable (86%). In the qualitative interviews individuals associated a social stigma to those who do not pay the full amount of tax they owe to HMRC. Half of individuals (51%) felt that offshore non-compliance was widespread.

Individuals spoken to in the qualitative interviews who had not received a penalty in general felt non-compliant behaviour was intentional, while those who had received a penalty claimed it was unintentional, for example not knowing how to report offshore income. Around a quarter (24%) of individuals were confident that HMRC could correctly identify when someone made a mistake, but 31% were not confident. Furthermore, just over a third of individuals (36%) were confident that HMRC could identify when someone intentionally provides inaccurate information or withholds information when reporting their offshore income, but 23% were not confident.

Across the population overall, individuals felt that intentional non-compliance and repeat offenders should incur harsher penalties, while first-time offenders or those who made unintentional mistakes should receive a small penalty or none at all. For example, 93% agreed that individuals who intentionally withhold information should receive a penalty, while 12% agreed that individuals who accidentally make a mistake should receive a penalty.

6.   Improving compliance in the future

Individuals believed that raising awareness, providing education, and improving understanding were key to driving future compliance. Just over a quarter (28%) of individuals thought that raising awareness of reporting requirements could encourage people to follow the rules, while around a quarter (24%) thought simplifying tax obligations would help.

Overall, more individuals thought changing the penalty amount would have no impact on the accuracy of reporting. Some thought increasing the standard maximum penalty amount to 300% would increase accuracy when reporting (27%), others thought it would decrease accuracy (9%), whilst most individuals thought it would have no impact (59%). A similar response was seen around decreasing the standard maximum penalty amount to 100%. The same percentage of individuals thought that decreasing the penalty would make reporting more (19%) or less (19%) accurate. 53% of individuals felt that decreasing the penalty to 100% of the tax owed would have no impact on reporting.

In the qualitative interviews individuals felt that changes to the penalty structure were less important than raising awareness of tax obligations to encourage greater compliance. They felt changing the penalty amounts would have no impact because they did not have an awareness of what they were. Therefore, specific penalty levels were unlikely to influence behaviour.