Policy paper

Tax administration: criminal offence for offshore tax evaders

Published 9 December 2015

Who is likely to be affected

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

General description of the measure

This measure introduces a new criminal offence for those who have income or gains outside of the UK and evade their UK income tax or capital gains tax responsibilities. The criminal offence does not require the prosecutor to prove intent.

The offence will not apply to excluded offshore income, assets or activities reportable to HM Revenue and Customs (HMRC). The offence only applies if the tax underpaid or understated in relation to those income, assets or activities in scope is more than a threshold amount. The offence cannot apply if the taxpayer can satisfy the court that they had a reasonable excuse for failing to comply with UK tax obligations.

Conviction can result in a fine or prison sentence of up to 6 months.

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 tax evasion there needs to be a strong deterrent against non-compliance. This needs to include both civil and criminal sanctions, and there needs to be a real risk of prosecution for those who do not comply.

This new criminal offence will be a valuable additional tool for HMRC and the Crown Prosecution Service, the Crown Office and Procurator Fiscal Service and the Public Prosecution Service for Northern Ireland in tackling offshore tax evasion and deterring would be evaders.

Background to the measure

The measure was first consulted on in August 2014. A second consultation on the measure was published on 16 July 2015 and closed on 8 October 2015.

Detailed proposal

Operative date

The measure is subject to a commencement order. There are a number of other HMRC changes taking place in relation to offshore tax evasion and it is important that this offence comes into force at a time which works alongside those changes.

The offence will not apply retrospectively but will first apply in respect of the tax year in which the offence is introduced. For example, if the offence comes into effect in September 2017 then returns filed in relation to the tax year 2017 to 2018 would be the first to potentially fall within the scope of the offence.

Current law

There is currently no directly comparable statute law. Prosecutions for offshore tax evasion of income tax and capital gains tax are principally brought under the common law offence of cheating the public revenue.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to insert new sections into the Taxes Management Act 1970 - sections 106B to 106H.

This measure introduces a new criminal offence where people fail to notify HMRC of their liability to pay tax, fail to submit a return or submit an inaccurate return.

Regulations made under powers given by the new legislation will ensure that the offence will not apply in relation offshore income, assets or activities reportable to HMRC in accordance with certain international arrangements such as the Common Reporting Standard. The offence only relates to income tax and capital gains tax that is charged on or by reference to offshore income, assets or activities. The offence only applies if the income tax and/or capital gains tax underpaid or understated exceeds a threshold amount. This threshold will be set in secondary legislation, but will not be less than £25,000 of tax lost per tax year.

There can be no conviction if the taxpayer can satisfy the court that they have a reasonable excuse for failing in their obligation to notify or file a return or to get the return right.

The offence is a summary only offence and can result in a fine or prison sentence of up to 6 months.

Summary of impacts

Exchequer impact (£m)

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

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

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

Impact on individuals, households and families

Individuals affected will be those who have not complied with their tax obligations. Tax compliant individuals may incur negligible administrative costs involving familiarisation with the new legislation. The measure is not expected to impact on family formation, stability or breakdown for tax compliant individuals.

For those who are non-compliant the measure could result in a criminal prosecution with a fine or custodial sentence. This could impact on family formation, stability or breakdown.

Equalities impacts

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

Impact on business including civil society organisations

This measure is not expected to have any impact on tax compliant businesses and civil society organisations. It will only impact businesses who have income or gains offshore which are liable to income tax or capital gains tax and who evade their UK tax responsibilities.

Operational impact (£m) (HMRC or other)

There will be no significant operational impact.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The 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 this change, please contact Timothy Holmes on Telephone: 03000 522637 or email: timothy.holmes@hmrc.gsi.gov.uk.