HM Revenue and Customs has unveiled plans to make it easier to prosecute people who hide money offshore as part of its ongoing crackdown on tax evasion.

HM Revenue and Customs has unveiled plans to make it easier to prosecute people who hide money offshore as part of its ongoing crackdown on tax evasion. The proposals will also directly impact investors looking to move money to non-disclosure jurisdictions.

Under new rules published in a consultation document, failing to declare taxable offshore income and gains will be a criminal offence, HMRC said in a statement.

Currently, not declaring taxable offshore income and gains is a civil offence and not a criminal one.

The UK tax regulator said that a majority of offshore cases will continue to be dealt with through a civil approach.

A further consultation paper sets out the UK government’s plans to introduce tougher civil sanctions for offshore evaders, including those who move their taxable assets between offshore banks in different countries in an attempt to hide their wealth and evade tax.

The proposals tighten laws on moving assets from an offshore centre which has strengthened its tax information-sharing laws with a disclosure agreement to another which has not. HMRC will prioritise for criminal investigation those that move out of a jurisdiction with a disclosure agreement in place to escape scrutiny.

The 20-year rule limiting how far back HMRC can look at a taxpayer’s affairs could also be suspended.

David Gauke, financial secretary to the Treasury, said that the minority using offshore secrecy to evade UK tax were “making a big mistake”.

“There is nothing wrong with holding assets offshore but investors must pay the tax they owe here. Thanks to this government’s leadership, countries across the world have agreed to share information on offshore accounts,” said Gauke.

“Over 56,000 people have already told HMRC about what they owe offshore and HMRC has offered opportunities to clear things up as quickly and easily as possible. Those that don’t come forward must face tough consequences, including a criminal conviction,” he added.

Warning

Skandia International, part of Old Mutual Wealth, warned that investors need to think carefully about what actions they take as moving money to a non-disclosure country could be “very short sighted” and have serious criminal implications, even if they did not intend to avoid paying any tax.

Research by the firm has found that 38 per cent of advisors with clients holding offshore assets say their clients are starting to prefer other non-disclosure jurisdictions for investing their money.

Rachael Griffin, head of technical marketing at Skandia, said that investors with undisclosed overseas assets could not afford to “stick their heads in the sand”.

“HMRC are determined to tackle overseas tax evasion, regardless of whether there is any intent to avoid tax. Moving overseas assets to non-disclosure jurisdictions just delays the inevitable, and investors need to think carefully about their actions,” she added.

Effectiveness

However, despite HMRC's proposals for sweeping new powers to combat tax evasion, the jury is still out on what impact the changes will have in the ongoing battle to catch those that do not pay their taxes.

According to Ronnie Ludwig, partner in the private wealth group at accountancy firm Saffery Champness, the effectiveness of these new powers in the battle against tax evasion is far from certain.

“The results to date of HMRC’s wider efforts to tackle evasion using existing measures have fallen far short of expectations, as we saw with the Swiss tax agreement. The potential of handcuffs really represents more of a new scare tactic than anything else, as truly hardened evaders the world over are likely to continue to ignore or avoid the UK taxman,” said Ludwig.

Ludwig said that the proposed powers raised concerns for taxpayers and advisors alike, “given the relatively wide scope of who may end up in the firing line”.  

“By focusing on those who fail to ‘correctly’ declare offshore income and leaving behind the need for any intent to defraud, HMRC is delving into murky waters when it comes to maintaining proper checks and balances on these new powers. Extreme care and proper oversight will be required from HMRC when it comes to how these new weapons are deployed,” said Ludwig.

“To properly tackle the issue of tax evasion around the globe, it is painfully clear that a true ‘root and branch’ review of the system is required. In addition to prosecuting tax evaders themselves, those who provide professional advice specifically with the goal of tax evasion should not escape the long arm of the law,” he added.