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Tackling Tax Evasion

In his Pre-Budget Report the Chancellor made a very clear statement that the Government was going to continue its war on tax evasion with consultation on three measures:

Penalties For Offshore Non-Compliance

It is proposed that all offshore non-compliance will, in future, attract penalties on the same scale as deliberate non-compliance. Subject to a right of appeal, or if there is a ‘reasonable excuse’, the minimum tax-geared penalties proposed to apply to tax periods starting from April 2011 will be:

  • 20% of tax unpaid for an unprompted disclosure
  • 35% for a prompted disclosure
  • 70% where there is no disclosure
  • Up to 100% where the non-compliance was both not disclosed and concealed.

Off-shore non-compliance is explored in the consultation document as being:

  • Centred around the holding or transfer of assets outside the UK on which tax due is not declared or paid.
  • The under-declaration of foreign earnings that are not completely taxed at source and the income and gains arising from offshore assets.
  • The transfer of UK income and gains offshore without the intention of paying the tax due.

These definitions are much broader than just the holding of offshore bank accounts. For example they can apply to the setting up of offshore trusts and the ownership of property outside the UK.

Requirement To Notify Overseas Bank Accounts

The Government is keen to ensure it receives information about offshore bank accounts held by UK resident individuals where it is unable to do so through the existing information sharing arrangements with other countries, such as the EU Savings Directive.

It proposes that individuals must notify within 60 days the existence of an offshore bank account together with an indication of the amount of funds introduced and the source(s) of those funds.

It has classified account holding jurisdictions into three divisions - Group A requiring no notification; B - all accounts to be notified regardless of the balance and notification only where the balance exceeds £25,000.

Those failing to comply with the notification obligations will be subject to a fixed penalty of £100, plus daily penalties and tax geared penalties of up to 100% of the tax due for continued failure. These penalties are in addition to penalties of up to 100% of any tax due arising from the existence of the account, so penalties could be in excess of 200% of the tax due.

It is proposed that those individuals adopting the remittance basis of taxation will not need to comply with this proposal.

Information Regarding Offshore Financial Structures

The Government has recognised that its domestic information powers are incapable of obtaining information from offshore based advisers and entities. It cites the use of offshore trusts and non-resident subsidiary companies as vehicles for holding assets offshore for the purposes of tax evasion.

It is looking at requiring the disclosure of non-resident trusts and subsidiary companies for income tax and corporation tax purposes to mirror existing obligations for IHT and CGT and also for UK resident settlors of such structures to notify every time they transfer value into them.

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