The offence will apply if a UK taxpayer fails to notify HM Revenue & Customs (HMRC) of his or her chargeability to tax, fails to file a return or files an incorrect return in relation to offshore income, assets or activities.
Unlike at present, the new offence will mean that there will be no need for HMRC to prove that the individual's actions were dishonest. However, the taxpayer can put forward a 'reasonable excuse' defence – but the burden of proof will be on the taxpayer to show the defence applies.
Tax investigations expert Paul Noble of Pinsent Masons, the law firm behind Out-Law.com, said: “This move once again signals the commitment that HMRC have to heavily punishing anyone that doesn’t take the opportunity in the coming months to correct any irregularities in their offshore tax affairs."
The new offence will apply from the 2017/18 tax year, which means that the earliest date an offence under the new legislation can be committed is 6 October 2018, following expiry of the tax return filing deadline for 2017/18.
The maximum sanction under the new offence is six months of imprisonment. The offence will not apply if the underpaid tax is less than £25,000 per tax year.
The new offence is part of a package of measures designed to come into force in connection with the Common Reporting Standard (CRS). The first exchanges of information take place this year, but by September 2018, the CRS will see information being provided to HMRC about accounts held by UK residents in around 100 countries.
Tough new financial penalties are being introduced from 30 September 2018 for those that have made errors in their UK tax returns relating to ‘offshore tax matters’. A new legal obligation will require taxpayers to correct any returns that fail to properly report offshore matters that would give rise to a UK tax liability.
Penalties will start at 200% of the tax liability. The penalty can be reduced to 100% of the tax liability, but no lower. In addition, in the most serious cases a further penalty of up to 10% of the value of a relevant asset can also be imposed and HMRC will be able to ‘name and shame’ on their website.
"The sanctions that will be in place both criminal and civil by this time next year are unparalleled, but there is still time to update someone’s affairs before these bite,” Noble said.
In June HMRC announced it had updated its worldwide disclosure facility to allow taxpayers with particularly complex tax affairs to apply for up to 90 additional days in which to make their disclosure. They also introduced a special route to apply for clearances in relation to complex issues connected with a potential disclosure.