The timing is significant as it comes just before the tax authority issues returns for the 2017/18 tax year, the first year to which the new offences are applicable, according to tax investigations expert Paul Noble of Pinsent Masons, the law firm behind Out-Law.com. A new 'requirement to correct' also applies to individuals and trustees, with draconian penalties available to HMRC in cases of non-compliance, he said.
Taxpayers are required to notify HMRC about their offshore income and gains either as part of their self assessment tax return, or separately in writing. A Worldwide Disclosure Facility is available to those who wish to disclose a UK tax liability that relates wholly or partly to an offshore issue, but unlike previous HMRC disclosure facilities this does not come with beneficial terms.
Three new 'strict liability' criminal offences for tax evasion with an offshore element were introduced from the 2017/18 tax year. They apply where a UK taxpayer fails to notify HMRC of their chargeability to tax, fails to file a return or files an incorrect return in relation to offshore income, assets or activities; provided that the amount of underpaid tax is £25,000 or more in any tax year.
The 'strict liability' nature of the offences means that, unlike previously, HMRC will not need to prove that the taxpayer's actions were dishonest. The taxpayer can, however, put forward a 'reasonable excuse' defence, although the burden of proof will be on the taxpayer to show that the defence applies. Should HMRC choose to pursue a criminal investigation in line with its criminal investigations policy, a custodial sentence of up to six months and an unlimited fine, or fine of up to £5,000 in Scotland and Northern Ireland, may be imposed.
The guidance confirms that the earliest date on which the new notification offence can be committed is 6 October 2018, or six months after the end of the 2017/18 tax year. The 'failure to file a return' offence will usually apply from two years after the end of the relevant tax year, while inaccurate returns must usually be corrected by the second 31 January following the end of the relevant tax year.
HMRC may also issue penalties starting at 200% of the tax liability where a taxpayer fails to correct errors in their tax returns relating to 'offshore tax matters', although penalties can be reduced to no lower than 100% of the tax liability. In addition, in the more 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' the taxpayer on its website.
The new offences are part of a package of measures designed to come into force in connection with the Common Reporting Standard (CRS), under which accounts held by UK residents in around 100 countries will be exchanged automatically with HMRC.
HMRC is currently consulting on extending the time limit for tax investigations involving an offshore element to 12 years from four years, or six where a suspected underpayment has been brought about due to carelessness, from April 2019. The time limit will remain 20 years where the taxpayer has acted deliberately or dishonestly. The consultation closes on 14 May 2018.