In Schedule 10 Finance Act 2010, a framework was introduced for the provision of increased penalties for the failure to disclose offshore income. The idea is that where there has been the failure to notify timely and accurate information regarding offshore income, the penalties for these defaults may be increased depending on the territory in which the income or gains arose. These new penalties come into force on 6 April 2011.
There are three categories of penalties:
Category 1: Where the normal penalty applies – 100% of the tax
Category 2: 150% of the tax
Category 3: 200% of the tax
These are of course maximum penalties, and there may be any number of reasons why the income was not disclosed at the right time. The existing defences on the grounds of reasonable excuse will continue to apply.
HMRC have now published a list of the countries in Category 1 and Category 3. They have not published Category 2, but they say that everything which is not in Category 1 or 3 will fall into Category 2.
One can only speculate about the reasons for being in Category 1 or Category 3. Obviously HMRC take a sufficiently unfavourable view of things in those countries in Category 2 to make the failure to disclose income in these countries to be worthy of a substantially increased penalty. I shudder to think about the countries in the Category 3 list.
Category 1 is largely represented by EU countries (but inexplicably not Austria or Luxembourg – what have they done?), and it includes Guernsey but not Jersey. Equally inexplicable are the inclusion of Anguilla, Aruba and Montserrat within Category 1, but not Antigua or Curaçao which are in Category 3. One wonders why poor Tonga is in Category 3, and I don’t suppose HMRC have done the UK any diplomatic favours by including the United Arab Emirates in Category 3. (It is also a bit tough on Belize, Brunei, St Lucia and Qatar who have recently been put on the OECD white list.)