The Finance Bill 2016 published today, 24 March 2016, confirms the Chancellor’s commitments to crack down on all forms of tax evasion, avoidance and aggressive tax planning as set out in the Budget 2016. A key part of the comprehensive package of measures are new proposals to tackle off-shore evasion using both civil and criminal means. These stem from a series of consultation under the banner of “No Safe Havens”. In particular, the HMRC departmental plan 2015-20 focuses on increasing the number of criminal prosecutions relating to serious and complex tax crime.

The Finance Bill 2016 introduces a new criminal offence that removes the need to prove intent for the most serious cases of failing to declare offshore income and gains. This controversial new “strict liability” offence has already caused consternation amongst practitioners. This measure introduces a new criminal offence for those who have income or gains outside of the UK and evade their UK income tax or capital gains tax responsibilities. During the consultation process, the government made it clear that it considers that the existing defences of reasonable excuse and reasonable care are sufficient safeguards. The offence cannot apply if the taxpayer can satisfy the court that they had a reasonable excuse for failing to comply with UK tax obligations. Conviction can result in a fine or prison sentence of up to 6 months.

Clause 154 of Finance Bill 2016 will insert new sections 106B to 106H into the Taxes Management Act 1970.

The key provisions are as follows:

  • The offence will apply if a taxpayer fails to notify HMRC of its chargeability to tax, fails to file a return or files an inaccurate return.
  • The offence will only apply to income tax and capital gains tax (although, this will be reviewed at a later date).
  • The offence will apply to all offshore income and gains, not just to under-declared investment returns.
  • There will be a minimum annual threshold amount of £25,000 of under-declared tax.
  • When setting fines, courts and tribunals should take into account the corresponding civil penalties to ensure that those subject to civil penalties are not liable to tougher sanctions.
  • Conviction can result in a fine or prison sentence of up to 6 months.
  • The offence will not apply to persons acting in the capacity of relevant trustees of a settlement, or as executor or administrator of a deceased person.

The Finance Bill will be making its way through Parliament and at this time there is no confirmed date of application as the measure is subject to a commencement order. The offence will not apply retrospectively but will first apply in respect of the tax year in which the offence is introduced.

The Finance Bill also introduces new civil penalties linked to the value of the asset on which tax was evaded, alongside increased public naming of tax evaders. Civil penalties will also apply to those who “enable” offshore tax evasion. With a focus on “enablers”, a proposal for a new corporate criminal offence of failure to prevent the facilitation of tax evasion was under consultation last year but no provisions have yet been introduced.

The Chancellor is anticipating that his comprehensive package of tax measures across the board (including tackling profit shifting and tax avoidance by multi-national corporations) should bring in £12bn within the next parliament. Whilst £12bn is the headline figure HMRC is planning to secure a compliance yield of £27m for this coming year. Whether this is a realistic target or just a headline grabbing figure is subject to debate - previous similar targets have had to be revised down in the recent past, such as the compliance yield relating to “tax repatriation from Jersey, Guernsey and the Isle of Man”.

That said, with re-affirmed commitments to tackle tax evasion - a target of 100 prosecutions of wealthy individuals and corporates by 2020 - HMRC look set to continue the trend of investigating and prosecuting individuals, companies and tax advisers.