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Tackling offshore tax evasion

By admin
01 Oct 2014
Tax Investigation

George Osborne stated “We will also target tax evasion and offshore tax havens…..Everyone must pay their share”. What has changed? What has been introduced? What will happen next?

The taxpayer’s charter sets out HMRC’s role succinctly as making “sure that the money is available to fund the UK’s public services by collecting taxes and duties as laid down by parliament” as well as helping “families and individuals with targeted financial support.”

The HMRC Vision, which can be found in the National Archives, is still relevant to understand how and why HMRC has evolved over the years. The HMRC Vision was launched on 3 November 2008 and states HMRC’s purpose, vision, and how it will deal with customers and with each other (being the two newly joined departments).

The HMRC vision in 2008 was:

  • To close the tax gap

  • For customers to feel that the tax system is simple for them and even-handed

  • To be a highly professional and efficient organisation

In 2008, professionals may have considered it highly unlikely that the somewhat joyful challenge of finding a tax loophole would be significantly reduced (if not prevented); although in 2014 loopholes are arguably becoming distinct. The tax system is strongly regarded as far from simple although if tax avoidance is squashed completely, maybe, just maybe, the tax system becomes simpler. The Inland Revenue has without doubt maintained itself as highly professional and made phenomenal progress towards a modern and efficient organisation – online filing and the award winning Connect software are testimonials in themselves.

The HMRC vision is otherwise interpreted as:

  • Promoting voluntary compliance

  • Preventing non-compliance

  • Responding to those seeking to cheat the system

In December 2012 HMRC issued a communication entitled “Closing in on tax evasion HMRC’s approach”. David Gauke’s Forward set out a number of actions including:

  1. Driving down the deficient

  2. Detecting tax evasion

  3. Penalising those hiding income and wealth to evade tax

That communication acknowledges the world’s technology driven transformation and the need to seize the opportunity to enforce tax policy:

  • “HMRC must become a market leader in the use of technology and data to drive its business”

  • “It also means using technology to detect and close in on those who try to break the law by evading their obligations”

  • “Using and analysing property purchase, tax returns, loans, bank accounts and employment data to identify property assets, spot and track suspicious financial transactions and highlight the connections that identify those trying to hide their income and wealth in order to evade tax”

Whilst technology would assist greatly to identify tax irregularities, it is likely that many opportunities to hide from the tax authorities would still be possible. At least that may have been true in 2012 but maybe not so true a couple of years later when exchange of information agreements have begun. The first automatic exchange of information agreement was entered into with the US in 2012.

The policy document No Safe Havens, setting out HMRC’s offshore evasion strategy, was published in March 2013 and the Government announced with unprecedented speed a significant number of automatic exchange agreements during 2013.

In summary HMRC has:

  • 137 agreements that allow the exchange of information on UK taxpayers with affairs handled by overseas banks, financial institutions, insurance providers, fiduciary service providers etc.

  • Bilateral agreements, for example those with Lichtenstein and Switzerland

  • Intergovernmental agreement with the USA

  • Allocated 2,500 extra staff to focus on combating offshore tax evasion

  • Set up the offshore co-ordination unit

  • Introduced penalties of up to 200% of the tax that was evaded under the offshore penalty regime

  • Committed to increase criminal investigations and prosecutions

Still not pleased with the tools at hand, HMRC published two consultations on 19 August 2014, which:

  • Introduce more civil deterrents

  • Counter those avoiding disclosure by moving assets

  • Propose to treat offshore tax evasion as a strict liability criminal offence

New civil deterrents

HMRC propose to:

  • Extend the offshore penalty regime to include inheritance tax increasing the maximum potential penalty on the omitted inheritance tax from a maximum of 100% to 200% if the assets omitted are offshore.

  • Broaden the offshore penalty regime so that the penalty is charged by reference to the country where the income or gains arose, the location of the assets or where the activities are carried out. There are three categories of penalties. The category a particular territory falls into depends on the quality of the information exchange arrangement it has with the UK.

On the move

There is a perceived opportunity for existing account holders to move funds rather than disclose.

Proposed counter measures include:

  • A new offshore surcharge in addition to existing penalties and interest on the monies moved from one jurisdiction to another to keep offshore assets hidden for longer

  • Removal of the 20 year restriction to collect evaded tax

  • Increase of the penalty rate for every movement of funds

  • Update of the offshore penalty regime to zone in on those who consider moving monies to try to outsmart the authorities

Pursuant to the Swiss tax disclosure facilities, the Swiss authorities provided HMRC in May 2014 with a list of the top ten destination territories receiving assets. Cross jurisdictional cooperation is improving rapidly so it will be interesting to see how the top ten jurisdictions respond in the coming year.

New criminal offence

The proposal is that non-compliant behaviour should be met with the threat of criminal sanctions. Currently, an intent to defraud needs to be demonstrated to be found guilty of a criminal offence. It is proposed that the courts will not have to ascertain the state of mind (mens rea) of the defendant before convicting. Failing to declare is all that would be required.

The key features of the proposed new criminal offence are:

  • It should be applied only to income tax and capital gains tax, although its scope may be extended later

  • It should be restricted to failing to declare income and gains that arise offshore

  • There will be a de minimis level

  • It will possibly be applied only to those who hide monies in countries that do not follow the Common Reporting Standard


The environment has dramatically changed and it appears it will continue to do so. In the past when HMRC have implemented measures to tackle avoidance and evasion, they have been partially successful although doors have remained open for those willing to walk through.

However, today is a very different day: the changes are part of a global push by sophisticated economies with significant political and economic power. The public’s opinion, which is enhanced by the media’s coverage, is firmly against anyone mitigating, avoiding or evading tax (unless it is them). Sophisticated forensic tools, new legislation and a forthcoming election are likely to assist not only the counteraction of tax evasion but the implementation of new law at an advanced pace. The only way to demonstrate the might of HMRC….a good public hanging (who will it be?).

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