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HMRC internal manual

Compliance Handbook

Offshore matters: penalties for enablers of offshore tax evasion or non-compliance: calculating the penalty: quality of disclosure determining if prompted or unprompted for penalty reduction

Reduction for disclosure

You may reduce the penalty depending on the

  • quality of the disclosure, see CH403203
  • if the disclosure was prompted or unprompted, see CH403202
  • if a special reduction is due, see CH403255.

The reduction may not reduce the penalty below the minimum amount except if a special reduction is applicable.

Unprompted disclosure

The minimum penalty is the greater of

  • 10% of the potential lost revenue, or
  • £1,000.

Prompted disclosure

The minimum penalty is the greater of

  • 30% of the potential lost revenue, or
  • £3,000.

A disclosure by an enabler can only be unprompted if it is made at a time when that enabler had no reason to believe that HMRC have discovered or was about to discover the offshore tax evasion committed by another person. The timing of the disclosure relates to the original evasion or non-compliance.

If a person tells us about an evasion or non-compliance committed by another person, but which they had enabled only when they had reason to believe that we had discovered the original evasion or non-compliance or were about to discover it, then this is considered to be a prompted disclosure.

A person who has enabled another person to carry out offshore evasion would have reason to suspect or believe an officer had discovered an inaccuracy, underassessment, or supply of false information, if they were aware that a compliance check has been opened into a return or document relating to that subject matter.

The particular facts and circumstances of any disclosure are the basis of the test, not the belief that it was either unprompted or prompted. You should apply a common sense approach in deciding whether or not a disclosure is unprompted.

When calculating penalties under this schedule, HMRC will take account of how long it has taken the enabler to come forward since the original evasion or non-compliance committed by another person had taken place.

Example 1

In 2017 P advised Q to divert income offshore via a series of trusts. In 2018 HMRC commenced enquiries into P’s affairs which were focussed on his offshore income. P acted as Q’s agent in those enquiries.  

Initially co-operation was not good and disclosure was partial, piecemeal and slow; in fact 12 months after coming forward P had not provided HMRC with the full details of the arrangements, nor step by step transactions, nor had he helped HMRC to quantify the tax evaded. P had represented Q throughout this period.

The HMRC officer persevered in the face of obstruction from the taxpayer (Q) and poor cooperation from the enabler (P) to raise assessments and penalties on Q totalling £5,255,700. These were eventually confirmed by the First-tier Tribunal and at that point the taxpayer decided not to pursue his appeal any further and accepted their decision has final.

Eventually in 2021 P contacted HMRC and provided full co-operation in establishing the extent of Q’s evasion and his own role in enabling that evasion. P argued that he should be given the minimum penalty for enablers because he had come forward before HMRC had opened an enquiry into his enabling and therefore his was an unprompted disclosure and he was cooperating with HMRC to the fullest.

The officer correctly rejected this and pointed out that a disclosure can only be unprompted if it is made at a time when P had no reason to believe that HMRC had discovered or were about to discover Q’s offshore tax evasion. At the time of P’s disclosure he was aware of HMRC’s enquiry and it was therefore prompted. Furthermore although P had provided good co-operation once the tax was established, HMRC had to take into account his behaviour, including during his involvement in the enquiry into Q’s affairs and when this was taken into account his helping, telling and giving were poor.

The HMRC officer recommended reducing the 100% enabler’s penalty to a penalty loading of 95% to reflect that there had been a prompted disclosure by P, but the quality and timing of the disclosure had been minimal. The calculated penalty was therefore:

  • the offshore tax evaded is £5,255,700
  • the maximum penalty is the higher of the PLR or £3,000, see above - this is £5,255,700
  • the disclosure is prompted so the minimum penalty is the higher of 30% of the PLR or £3,000 - this is £1,576,710
  • the penalty loading is 95%, so the penalty to be charged is £4,992,915.

Example 2

In 2021, following the conclusion of the case in example 1, P was concerned that HMRC might identify other taxpayers he had advised in a similar way. P approached HMRC and provided copies of all presentation materials, a comprehensive bible of documents describing the whole arrangements and all transactions, details of two clients he had advised and details of the fees they paid P.

The first client (Q2) was already under enquiry with HMRC. P helped HMRC quickly calculate the tax at risk of evasion. The tax that Q2 evaded was £1,330,000. In considering the facts and circumstances the HMRC officer concluded that the disclosure was prompted as it was made after enquiries into Q2’s returns had been opened.

P had not been involved in Q2’s enquiry before he approached HMRC and when he did become involved he provided full cooperation and quality information as quickly as practicable. Therefore the officer recommended the minimum enabler penalty for a prompted disclosure calculated as follows:

  • the offshore tax evaded is £1,330,000
  • the maximum penalty is the higher of the PLR (see CH124630) or £3,000 - this is £1,330,000
  • the disclosure is prompted so the minimum penalty is the higher of 30% of the PLR or £3,000  - this is £399,000
  • the penalty loading is 30%, so the penalty to be charged is £399,000.

A further client (Q3) was not under enquiry and HMRC were unaware of any wrongdoing. P helped HMRC quickly calculate the tax at risk of evasion. The tax that Q3 evaded was £1,550,600. In considering the facts and circumstances the HMRC officer concluded that the disclosure was unprompted as it was made before enquiries into Q3’s returns had been opened and P had no reason to believe that HMRC were about to discover it.

In considering the facts and circumstances the HMRC officer concluded that the disclosure was unprompted, with full cooperation and quality information provided as quickly as practicable. Therefore the officer recommended the minimum enabler penalty for an unprompted disclosure calculated as follows:

  • the offshore tax evaded is £1,550,600
  • the maximum penalty is the higher of the PLR, see CH124630, or £3,000 - this is £1,550,600
  • the disclosure is unprompted so the minimum penalty is the higher of 10% of the PLR or £1,000 - this is £155,060
  • the penalty loading is 10%, so the penalty to be charged is £155,060.

Example 3

The position is the same as for Q2 in example 2 except that the offshore tax evaded is £2,000. The penalty to be charged is calculated as follows:

  • the offshore tax evaded is £2,000
  • the maximum penalty is the higher of the PLR, see CH124630, or £3,000  - this is £3,000
  • the disclosure is prompted so the minimum penalty is the higher of 30% of the PLR or £3,000  - this is £3,000
  • the minimum and maximum penalties that can be charged are the same and there is therefore no reduction, so a £3,000 penalty is charged.