Finance Bill Tracking Service 2010 | Budget 2010

BN68 REVIEW OF HMRC POWERS, DETERRENTS AND SAFEGUARDS: TACKLING OFFSHORE TAX EVASION

Who is likely to be affected?

1. Individuals and businesses with financial interests outside the UK that fail to declare the full extent of their tax liabilities.

General description of the measure

2. Legislation will be introduced in Finance Bill 2010 to provide for 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.

Operative date

3. It is expected that the new penalty framework will apply to tax periods commencing on or after 1 April 2011.

Current law and proposed revisions

4. Penalties for under-declaration of tax are determined by Schedule 24 to the Finance Act (FA) 2007 (penalties for inaccuracies in returns), Schedule 41 to FA 2008 (penalties for failure to notify) and Schedule 55 to FA 2009 (penalties for failure to make a return).

5. Each of these Schedules provides for tax-geared penalties. The level of the penalty is determined by the behaviour of the taxpayer and the quality of disclosure.

6. The mechanics of the penalty frameworks will remain the same, but the absolute level of the percentage used to determine the tax-geared penalty will be determined by the jurisdiction in which the non-compliance arises.

7. Where the non-compliance occurs in a jurisdiction which has provision to exchange information on savings income automatically with the UK, the penalty percentages will be the same as those in the current Schedules (i.e. the same as for non-compliance arising in the UK).

8. Where the non-compliance arises in a jurisdiction which has agreed to exchange information with the UK, but does not automatically share that information, the penalty percentages will be 1.5 times those set out in the existing Schedules.

9. Where the non-compliance arises in a jurisdiction which has not agreed to exchange information with the UK, the penalty percentages will be double those set out in the existing Schedules.

10. The safeguards built into the existing penalties legislation will apply equally in the case of offshore non-compliance.

11. The new penalty frameworks for offshore non-compliance will apply to income tax and capital gains tax.

Further advice

12. Proposals to tackle offshore evasion were the subject of a consultation published in December 2009. A summary of responses has been published today on the HMRC website.

13. If you have any questions about this change, please send an email to powers.review-of-hmrc@hmrc.gsi.gov.uk or contact Maria Richards on 020 7147 3223. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk