There has been a raft of new proposals around HMRC’s powers over the last ten years, which culminated in the No safe havens document, released on 14 April. This outlines HMRC’s proposals for a new strict liability criminal offence for taxpayers found to have undeclared taxable offshore income.Such an offence would apply to behaviour whether it is intentional, by mistake or based on a different interpretation of tax rules, and will be sending shivers down the spine of anyone familiar with the UK’s increasingly Byzantine tax system.
I should stress that, as a firm, we fully support the government’s aim to crack down on tax evasion and egregious tax avoidance and we want to work with the government to find ways to deter such behaviour. However, we are concerned about the threat of an automatic criminal record, irrespective of the reason, for underdeclared income from a foreign source.
HMRC’s proposal is very widely drawn and could have broad implications for anyone coming to the UK, whether to invest in business or to take on employment.
This could be a nurse in the NHS, who retains bank balances or other assets in their home country (which is ‘offshore’ as far as the UK is concerned); internationally mobile individuals, whose role in supporting UK exports can be substantial; or international business people basing themselves and/or their businesses in London – which is now one of the ‘largest French cities’, following the rise in income tax rates in France.
People such as these could be threatened with imprisonment if they make a mistake in their UK tax return in connection with their offshore assets. Is it realistic to expect them always to get their tax affairs right? It seems that the government expects just that.
In many cases, the threat of a custodial sentence seems extreme – not least because of the labyrinthine rules around the taxation of non-domiciled individuals, especially around remittances. Even HMRC and the professional bodies struggle to agree on the interpretation of these.
Let’s consider other ways to tackle offshore evasion. For example, we could make better use of the many international agreements on the exchange of information to aid identification of genuine tax evaders. We also need some sensible de minimus figures relating to what qualifies as ‘criminal’, focusing HMRC’s resources to target tax evaders. The use of HMRC’s bulk data to help prepopulate tax returns could also reduce problems.
Only recently, the government announced that the failure to hold a television licence would be downgraded from being a strict liability criminal offence. So why has the introduction of strict liability criminal offences into the tax system met with significant opposition over the last week?
The concerns are manifold:
The latest document does not explore the necessary safeguards. Admittedly, the minister says in his introduction: ‘We will consult on the detail, such as the appropriate safeguards,’ but safeguards do not rank as mere ‘detail’. They should be central to policy design from the outset.
So what should the safeguards look like? There should be:
The No safe havens document demonstrates HMRC’s increasingly hard line attitude. This is also reflected in other worrying proposals, such as the proposed direct recovery of debts from bank accounts, together with follower notices and accelerated payments in avoidance cases. Increasingly, actions of the administration are based on guidance, as opposed to the rule of law that is subject to the scrutiny of Parliament.
Is the balance of power as against safeguards tipping too far? This requires a proper debate between the tax profession and HMRC.
Britain should be open for business. Taxpayers must pay their due. But we also need a fair and transparent system for all which includes giving adequate time for full consultation on far reaching proposals regarding tax legislation.
There has been a raft of new proposals around HMRC’s powers over the last ten years, which culminated in the No safe havens document, released on 14 April. This outlines HMRC’s proposals for a new strict liability criminal offence for taxpayers found to have undeclared taxable offshore income.Such an offence would apply to behaviour whether it is intentional, by mistake or based on a different interpretation of tax rules, and will be sending shivers down the spine of anyone familiar with the UK’s increasingly Byzantine tax system.
I should stress that, as a firm, we fully support the government’s aim to crack down on tax evasion and egregious tax avoidance and we want to work with the government to find ways to deter such behaviour. However, we are concerned about the threat of an automatic criminal record, irrespective of the reason, for underdeclared income from a foreign source.
HMRC’s proposal is very widely drawn and could have broad implications for anyone coming to the UK, whether to invest in business or to take on employment.
This could be a nurse in the NHS, who retains bank balances or other assets in their home country (which is ‘offshore’ as far as the UK is concerned); internationally mobile individuals, whose role in supporting UK exports can be substantial; or international business people basing themselves and/or their businesses in London – which is now one of the ‘largest French cities’, following the rise in income tax rates in France.
People such as these could be threatened with imprisonment if they make a mistake in their UK tax return in connection with their offshore assets. Is it realistic to expect them always to get their tax affairs right? It seems that the government expects just that.
In many cases, the threat of a custodial sentence seems extreme – not least because of the labyrinthine rules around the taxation of non-domiciled individuals, especially around remittances. Even HMRC and the professional bodies struggle to agree on the interpretation of these.
Let’s consider other ways to tackle offshore evasion. For example, we could make better use of the many international agreements on the exchange of information to aid identification of genuine tax evaders. We also need some sensible de minimus figures relating to what qualifies as ‘criminal’, focusing HMRC’s resources to target tax evaders. The use of HMRC’s bulk data to help prepopulate tax returns could also reduce problems.
Only recently, the government announced that the failure to hold a television licence would be downgraded from being a strict liability criminal offence. So why has the introduction of strict liability criminal offences into the tax system met with significant opposition over the last week?
The concerns are manifold:
The latest document does not explore the necessary safeguards. Admittedly, the minister says in his introduction: ‘We will consult on the detail, such as the appropriate safeguards,’ but safeguards do not rank as mere ‘detail’. They should be central to policy design from the outset.
So what should the safeguards look like? There should be:
The No safe havens document demonstrates HMRC’s increasingly hard line attitude. This is also reflected in other worrying proposals, such as the proposed direct recovery of debts from bank accounts, together with follower notices and accelerated payments in avoidance cases. Increasingly, actions of the administration are based on guidance, as opposed to the rule of law that is subject to the scrutiny of Parliament.
Is the balance of power as against safeguards tipping too far? This requires a proper debate between the tax profession and HMRC.
Britain should be open for business. Taxpayers must pay their due. But we also need a fair and transparent system for all which includes giving adequate time for full consultation on far reaching proposals regarding tax legislation.
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