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Failure To Declare Taxable Offshore Income And Capital Gains To Become A Criminal Offence

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HMRC has launched a consultation on a Government proposal to introduce a new strict liability criminal offence for failing to declare taxable offshore income and gains. Currently this is a civil offence only.

A strict liability offence is a criminal offence where it is not necessary for the court to ascertain the state of mind of the defendant before convicting. The act in itself warrants the imposition of a criminal sanction, regardless of why the individual broke the rules. Consequently the prosecution would need only demonstrate that a person failed to correctly declare the income or gains, and not that they did so with the intention of defrauding the Exchequer.

Initially the offence will only relate to income tax and capital gains tax, although it may be extended to inheritance tax later.

There will likely be a de minimis threshold - yet to be decided.

There is also the proposal for the sanction of a custodial sentence for the most serious offences. The Government is 'minded' that the maximum sentence should be six months imprisonment.

Tackling offshore tax evasion: A new criminal offence

Edit: typo

Edited by FreeTrader

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As ever, thanks Free Trader for taking the time to post this. Hopefully the fact of the consultation will be enough to chase some of the more astute hot money off to pastures new.

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Sorry, I have not bothered to examine the minutia of UK tax law for the 20-years I have been overseas. I am assuming however, that this does not apply to permanent expat UK passport holders?

Thanks to anyone who knows..

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Strict liability is an abomination that should be abolished - it violates the fundamental legal principle of mens rea.

At the moment it is mainly used for trivial motoring offences so that you cannot get off by saying, "I didn't know my brake light was broken."

Very worryingly possession of a firearm is also a strict liability offence, with a mandatory 5 year jail term. So if someone slips a gun into your bag and you carry it around all unknowingly you cannot defend yourself in court by saying you didn't know there was a gun in there. You were carrying it - 5 years in prison.

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HMRC has launched a consultation on a Government proposal to introduce a new strict liability criminal offence for failing to declare taxable offshore income and gains. Currently this is a civil offence only.

A strict liability offence is a criminal offence where it is not necessary for the court to ascertain the state of mind of the defendant before convicting. The act in itself warrants the imposition of a criminal sanction, regardless of why the individual broke the rules. Consequently the prosecution would need only demonstrate that a person failed to correctly declare the income or gains, and not that they did so with the intention of defrauding the Exchequer.

Initially the offence will only relate to income tax and capital gains tax, although it may be extended to inheritance tax later.

There will likely be a de minimis threshold - yet to be decided.

There is also the proposal for the sanction of a custodial sentence for the most serious offences. The Government is 'minded' that the maximum sentence should be six months imprisonment.

Tackling offshore tax evasion: A new criminal offence

Edit: typo

All Western governments are about to start swapping data about foreign account holders

Read up about the Foreign Account Tax Compliance Act in the US and its equivalents within the EU based on the Model Intergovernmental Agreement to Improve International Tax Compliance

http://www.hmrc.gov.uk/fatca/

I believe HMRC are planning to implement these requirements in full from April 2015

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Strict liability is an abomination that should be abolished - it violates the fundamental legal principle of mens rea.

At the moment it is mainly used for trivial motoring offences so that you cannot get off by saying, "I didn't know my brake light was broken."

Very worryingly possession of a firearm is also a strict liability offence, with a mandatory 5 year jail term. So if someone slips a gun into your bag and you carry it around all unknowingly you cannot defend yourself in court by saying you didn't know there was a gun in there. You were carrying it - 5 years in prison.

Things get even worse with the RIPA IT legislation - IIRC you can get a couple of years for failing to reveal the password to an encrypted file - and clearly you can't prove you don't know it!

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Things get even worse with the RIPA IT legislation - IIRC you can get a couple of years for failing to reveal the password to an encrypted file - and clearly you can't prove you don't know it!

Steganography is your frriend.

When forced hand over the sacrificial password and deny there is any other.

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Steganography is your frriend.

When forced hand over the sacrificial password and deny there is any other.

That is a good idea if the encrypted file is actually yours, but what do you do if the fuzz actually send you the file that only they know the password to, or even just a pile of random numbers? There doesn't need to be a password for you to fail to provide one!

So, getting back on-topic, HMRC could actually send you an encrypted file called my_cayman_islands_stash.xls and then do you for failing to provide a password!

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Tax evasion has long been a criminal offence. Not disclosing income earned offshore is tax evasion as far as I can see.

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Tax evasion has long been a criminal offence. Not disclosing income earned offshore is tax evasion as far as I can see.

I think the key point is that under existing criminal sanctions the prosecution has to prove that the taxpayer deliberately intended to evade tax. If, for example, the taxpayer could show that he/she was badly advised by his/her agents then a criminal prosecution might be hard to secure.

Under the proposed offence no such standard of proof will be required of the prosecution. They will merely have to show that the taxpayer failed to declare offshore income and/or gains - a much easier task for HMRC.

Irrespective of this, HMRC has said that it still expects most cases to be settled via civil penalties.

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I think the key point is that under existing criminal sanctions the prosecution has to prove that the taxpayer deliberately intended to evade tax. If, for example, the taxpayer could show that he/she was badly advised by his/her agents then a criminal prosecution might be hard to secure.

Under the proposed offence no such standard of proof will be required of the prosecution. They will merely have to show that the taxpayer failed to declare offshore income and/or gains - a much easier task for HMRC.

Irrespective of this, HMRC has said that it still expects most cases to be settled via civil penalties.

I spent a decade as a Collector of Taxes back in the 1980s and in my experience there were very few criminal prosecutions for tax evasion.

In most cases the government simply wants the back tax, interest and penalties

The main exceptions I can think off are

  • Individuals who failed to make a full declaration of income to the Inland Revenue when negotiating a back duty settlement (ie those who had been caught fiddling but who still tried to dupe the taxman when reaching a settlement). Lester Piggott springs to mind as the classic example of this type of case as he was rumbled when he tried to pay off a settlement using a cheque drawn on a foreign bank account he had not declared and got sent down at Her Majesty's pleasure as a result.
  • Individuals involved in the fraudulent use of tax certificates in the construction industry. Many of these cases were linked to the funding of paramilitary activity in Northern Ireland so had other criminal aspects.
  • Individuals jailed for failing to pay tax liabilities covered by a Judgement Summons granted by a court. In these instances the criminal activity was not the non payment of the tax liability but the ignoring of a court order

http://news.bbc.co.uk/onthisday/hi/dates/stories/october/23/newsid_3755000/3755282.stm

Given that what the state wants is cash not to increase the prison population I expect this legislation to be used to encourage speedy and early settlement of arrears rather than to bang large numbers of people up in jail.

Edited by stormymonday_2011

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So, getting back on-topic, HMRC could actually send you an encrypted file called my_cayman_islands_stash.xls and then do you for failing to provide a password!

Slightly tangental, by whenever I delete a file on my home PC I don't drag to the recycle bin or right-click-delete, I use a program which makes sure every byte is scrubbed clean before being released back to the disk's free space. (The really paranoid would rename the file to a generic name before scrubbing it, just in case the name, when scavanged off the disk, contains something meaningful to someone.)

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