The Government is stepping up its campaign against the use of offshore vehicles to evade UK tax and, to this end, has recently published two inter-linked consultations.

The first concerns the creation of a new strict liability criminal offence, namely failing to declare taxable offshore income and gains held in offshore accounts in certain countries. This will sit alongside the existing serious fraud offences. HMRC would only need to demonstrate that a taxpayer failed to correctly declare his income and gains, not that he did so with deliberate intent to defraud. The most serious offences will be punishable with up to 6 months in prison, plus financial penalties which will be more severe than the civil equivalents.

The proposals at first glance are alarmingly wide but there may be some sort of "de minimis" amount of tax loss below which the offence will not be prosecuted. The conduct and intention of the defendant will also be taken into account in sentencing.

Statutory defences may be introduced, for example that the individual took all reasonable precautions to avoid committing the offence, or that they sought and followed professional advice. This may help where income/gains have been mistakenly unreported but does put the burden of proof firmly on the taxpayer. The taxpayer may also, of course, be able to argue that the offshore funds are in fact non-taxable, for instance because they arose during a period of non-UK residence or were a gift.

The geographical scope of the new offence is a topic of discussion but it is likely that funds held in accounts in fiscally transparent jurisdictions which report under the Common Reporting Standard will not be affected.

In tandem with the new criminal offence civil penalties for offshore tax evasion will be significantly strengthened. The current regime is based on the taxpayer's behaviour and the territory in which income/gains arose. Undisclosed income/gains in territories with the least tax transparency will potentially be made subject to a higher penalty, the maximum being 200% of tax due.

The second set of proposals seek to extend the scope of the offshore penalty regime to unpaid IHT on undisclosed foreign assets and to undeclared income and gains arising in the UK but hidden offshore. Sanctions could also be strengthened or a surcharge introduced for those who deliberately move undisclosed assets from one jurisdiction to another to continue to hide them.

This article originally appeared in our Private Client & Tax Autumn Newsletter.