Offshore tax evasion and avoidance could have greater financial and personal consequences for UK offenders, in the wake of a series of changes that have been introduced in this year’s budget that give the UK tax authorities the ability to enforce criminal prosecutions and huge fines.
The 148-page Budget book, published on Wednesday to coincide with Chancellor George Osborne’s presentation of his 2016 Budget, confirmed that measures mooted last year are to be enforced fully this year, with ‘strict liability’, which effectively labels anyone deemed guilty of offshore tax evasion as a criminal.
Other long-standing investigations — relating to a loophole that led many non-UK resident property developers in Jersey, Guernsey and the Isle of Man to believe that they could avoid income or corporation tax on UK developments — have also been clarified, and will now be fully enforced, according to the document.
John Cassidy, Tax Investigations Partner at Crowe Clark Whitehill, pointed out that under the ‘strict liability’ offence for offshore evasion, it will be possible for a taxpayer’s actions to automatically be assumed to have been criminal in nature without HM Revenue & Customs actually having to prove it.
“This is a massive step,” Cassidy said. “Anyone found to have under-declared tax related to offshore assets will be guilty of a criminal offence, and therefore liable to prosecution if HMRC chooses that route.”
‘Unfair’ to let developers use ‘offshore structures’
The key clause relating to the new rules is No. 1.213, on page 57 of the HM Treasury Budget document. It states that the UK Government believes it is “unfair to allow property developers to use offshore structures to avoid UK tax on their trading profits from developing property in the UK”.
By enforcing the international rules on the taxation of trading profits derived from property, the Government says that it will “level the playing field between UK and offshore developers”.
Cassidy, meanwhile, warned of new and bigger financial penalties for offshore evaders also contained in the latest Budget proposals, including a new penalty that will take a portion of the asset that has been hidden.
“In the past, penalties have been based on a percentage of the tax due, whereas basing them on a percentage of the underlying assets inevitably leads to a greater figure so, even if HMRC decides not to prosecute under the new strict liability rule, a much greater financial penalty could be imposed,” he noted.
Cassidy added that retrospective legislation that has been implemented in similar cases could also become an issue for some property developers.
“There has been a ‘hoo-ha’ regarding retrospective legislation in these areas in the past, so this could be retrospective too,” he said.
“But I think that most of the guys affected are already under investigation, so the impact of this is more or less zero.”