Offshore tax evasion
A new penalty regime has come into force for tax periods commencing on or after 1 April 2011. The new regime introduces the possibility of larger penalties for taxpayers who fail to provide a full account of their income tax or capital gains tax liabilities, where the failure is linked to an offshore matter.
The new penalty regime is linked to the tax transparency of the territory in which the income or gain arises. There are three separate categories which correspond to the three new penalty levels:
- Where the income or gain arises in a territory in ‘category 1’, the penalty rate will be the same as under existing legislation.
- Where the income or gain arises in a territory in ‘category 2’, the penalty rate will be 1.5 times that in existing legislation – up to 150% of tax.
- Where the income or gain arises in a territory in ‘category 3’, the penalty rate will be double that in existing legislation – up to 200% of tax.
The breakdown of which territory is in which category can be found on HMRC’s website atwww.hmrc.gov.uk/news/territories-category.htm
In certain circumstances, HMRC may reduce the amount of penalties due. The largest reductions will be for unprompted disclosures. Taxpayers who currently have undisclosed taxable income (for example in accounts in offshore banks) are advised to notify HMRC as soon as possible.