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HMRC internal manual

Compliance Handbook

Offshore matters: asset-based penalties: overview

This guidance covers penalties under Schedule 22 FA 2016 known as the ‘asset-based penalty for offshore inaccuracies and failures’. These penalties are different from Schedule 21 FA 2015 penalties known as ‘offshore asset move penalties’, which are explained at CH119000.

Aims of the asset-based penalty

The strategy for tackling offshore tax evasion is set out in HMRC’s ‘No Safe Havens’ document. This states that HMRC will take tough action against evaders and those who help others to evade tax.

In the March 2015 budget the Government announced its intention to legislate tougher financial penalties for offshore evaders, including a penalty based on the value of the asset on which tax was evaded, as well as wider public naming of offshore evaders. 

The asset-based penalty is an additional penalty to be charged in cases of serious non-compliance involving an offshore matter or offshore transfer.

The aim of this penalty is to deter those who use offshore jurisdictions with the objective of evading their UK tax liability.

The taxes that asset-based penalties apply to

Asset-based penalties apply to ‘asset-based Income Tax’, see CH122110, which are Capital Gains Tax and Inheritance Tax.

Commencement dates for asset-based penalties

This section of the act came into force on 1 April 2017. The penalty applies for tax years 2016-17 onwards or earlier years if charged in addition to a failure to correct penalty (see below).

Circumstances in which an asset-based penalty is chargeable

The asset-based penalty will apply for years 2016-17 onwards where all of the following conditions are met:

  • The person makes an inaccurate return, fails to notify a charge to tax, or fails to make a return on time.
  • The inaccuracy or failure relates to an offshore matter or offshore transfer.
  • The behaviour that led to the failure or inaccuracy is deliberate (whether concealed or not).
  • The person has been charged a deliberate or deliberate and concealed penalty in respect of that inaccuracy or failure under:

    • Schedule 24 FA 2007 paragraph 1 - Inaccuracy in taxpayer’s document.
    • Schedule 41 FA 2008 paragraph 1 - Failure to notify.
    • Schedule 55 FA 2009 paragraph 6 – Penalty for failure to make a return more than 12 months after the filing date.
  • The tax at stake is (or includes) capital gains tax, inheritance tax or asset-based income tax, see CH122110.
  • The potential lost revenue in relation to the offshore matter exceeds £25,000 in a tax year.

The asset-based penalty may also apply to earlier years when a person fails to correct their offshore tax non-compliance on or before 30 September 2018 (or as otherwise agreed with HMRC) and all of the following conditions are met:

  • The person fails to correct relevant offshore tax non-compliance, see CH123050 onwards.
  • The person has been charged a penalty in respect of that failure under Schedule 18 FA (No2) 2017 paragraph 1 – Failure to correct relevant offshore tax non-compliance.
  • The person was aware at any time during the requirement to correct period (6 April 2017 to 30 September 2018) that at the end of the 2016-17 tax year they had relevant offshore tax non-compliance to correct.
  • The income, gain or transfer of value that relates to the non-compliance has a clear link to the underlying asset.
  • The tax at stake is (or includes) capital gains tax, inheritance tax or asset-based income tax, see CH122110.
  • The potential lost revenue in relation to the offshore matter or transfer exceeds £25,000 in a tax year.

Human Rights Action during enquiry

You must tell the person about their rights under Article 6 of the ECHR by issuing the HRA message and Factsheet CC/FS9 as soon as you identify there is something wrong that gives you an evidence based reason to believe that a penalty may be due, see CH300500 and CH300900. You must tell the person about their rights before you ask them any questions about how or why something is wrong, or discuss penalties.

More detailed guidance

For more detailed guidance on:

  • circumstances in which an asset-based penalty is chargeable, see CH122020
  • definition of terms used about asset-based penalties, see CH122100
  • identification and valuation of assets, see CH122300
  • calculating the penalty due, including any reduction, see CH122500
  • assessing the penalty, see CH122700, and
  • dealing with appeals against the penalty, see CH122800.

There is also guidance on miscellaneous issues that may affect the penalty at CH84500.