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LITRG sets out its views on HMRC’s recent offshore tax evasion consultation and the subsequent Budget announcement to increase the penalties for overseas non-compliance.

Introduction

Whilst acknowledging that overseas tax matters can be complicated, a recent HMRC consultation suggested that anyone getting them wrong should be penalised as if they had deliberately set out to commit tax fraud.

Having expressed significant reservations about this principle and the potential impact of the proposals on the low income population, we now (partly) welcome the more tolerant response confirmed in the Budget.

Let’s be clear that we have no interest in protecting those who deliberately seek to evade tax by, say, concealing funds in offshore accounts in countries which are commonly termed ‘tax havens’. But we are concerned that HMRC proposals to discover and deal with those people do not disproportionately impact on the law-abiding majority, or result in unfair treatment of people who get things wrong, perhaps out of ignorance.

The recent consultation

It is with this in mind that we challenged the proposals in HMRC’s consultation Tackling Offshore Tax Evasion. This appeared to be suggesting a form of legislative alchemy that would turn the base metal of non-compliance (with its spectrum of circumstances, including careless but not deliberate error, and genuine mistake) into the gold of fraudulent tax evasion, punishable as such.

HMRC justified their proposals in the consultation document by saying that public awareness of offshore tax issues should now be at an all-time high. In the rarefied corridors of the Treasury they may be aware of HMRC’s recent “Liechtenstein disclosure opportunity” but we suspect that the man on the Clapham omnibus would not have a clue.

The Budget announcement

It seems HMRC have listened to some of the concerns from us and other respondents to the consultation. The Budget on 24 March included an announcement that where a taxpayer fails to comply with a tax obligation in relation to an “offshore” matter, potential penalties for that failure will be either the same, 1.5 times or double that of an “onshore” failure depending on the country concerned. But HMRC have thankfully dropped the proposal to treat all non-compliance as akin to fraud.

This is an improvement on the original proposals and is perhaps not unreasonable in circumstances where tax has been evaded deliberately (or deliberately and with concealment). However, we remain concerned that there could be a disproportionate penalty on someone who makes a mistake in relation to an offshore tax matter through ignorance or a lack of care.

HMRC’s response to the consultation says:

‘We plan to review HMRC communications to ensure those affected by offshore tax issues are informed of their obligations, as well as of the potential sanctions for breaching those obligations.’

We will be especially interested to see how HMRC propose to make these suggested new rules known to migrants to the UK who just drop into our PAYE system and receive no meaningful information about wider obligations – particularly for those whose first language may not be English.

Useful links

Read LITRG’s full response to the consultation on their website.