New offence could criminalise taxpayer error

Tax professionals have warned that a proposed “strict liability” criminal offence of failing to declare offshore income and gains could result in taxpayers who have no criminal intent being sent to jail.

James Bullock, head of litigation and compliance at the law firm Pinsent Masons, said the detailed proposals are “more moderate than many had feared”, but the principle remains that “individuals shouldn't lose their liberty and be sent to jail because they have been careless or forgetful or allowed themselves to be misled over what taxes they had to pay”.

HMRC is consulting on the design of the new offence, first announced in April. David Gauke, financial secretary to the Treasury, said then that the government “will introduce a new strict liability criminal offence that could mean jail for those who do not declare taxable offshore income”.

Pinsent Masons noted that the consultation launched on Tuesday outlines a number of possible defences, including the taxpayer being able to demonstrate that "appropriate professional advice" was sought and followed.

But the Chartered Institute of Taxation (CIOT) warned that the “hugely controversial” new offence meant the tax authorities “would no longer need to show the person had acted dishonestly or with criminal intent”.

CIOT spokesman Gary Ashford noted that HMRC already has the power to launch a criminal investigation where it can show there has been a deliberate failure to declare untaxed funds.

“The new offence would enable criminal convictions, potentially with custodial sentences, to be made without any requirement to show the defendant wilfully acted in a criminal way,” he said.

“This new offence would go against the general presumption that mens rea (guilty mind) is required to impose criminal liability. Strict liability offences have up until now mostly been used for matters with immediate risk to the public such as speeding offences or selling contaminated food. It’s hard to see how non-declaration of tax fits into this category.”

Mistakes

Ashford added: “UK and international taxation is a minefield of complexity, and the government must recognise that there will be individuals who make mistakes in their financial affairs without intending to act wrongly. Not everyone who under-declares their tax is acting with criminal intent.”

In its immediate response to the consultation KPMG merely noted that the proposed new offence would apply “regardless of the intention to evade tax” and that the government is considering an exclusion for income and gains reported under the new OECD Common Reporting Standard for exchange of tax information.

HMRC’s consultation paper said there are “hundreds of offences” that do not require demonstration of the mens rea. Where a strict liability offence is found, Parliament has determined that “the state of mind of the defendant has no bearing on whether they should be liable to a criminal sanction”. Examples include driving and firearms offences as well as some offences relating to indirect taxes, HMRC said.

The new tax offence would mean that 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”.

HMRC invited views on whether the “harm” that could be caused by non-disclosure is “sufficient that a custodial sentence could be justified in the most serious cases”.

It added that if a custodial sentence is justified, the government is “minded to provide for up to six months imprisonment, allowing the courts to impose this significant sanction in the most serious of cases.”

The report No safe havens, published in April, set out HMRC’s offshore evasion strategy for 2013 and beyond. A separate report, No safe havens 2014, said HMRC would consult on the new offence. Responding to that report, Bill Dodwell, head of tax policy at Deloitte, told The Times: “It’s horrifying. People should not be put in prison unless you can prove intent. I’m shocked to find that an offence which could lead to a prison sentence could be decided on a strict liability basis.”

Civil sanctions

In a second consultation paper published on Tuesday, HMRC is seeking views on options to strengthen civil sanctions to “more effectively deter tax non-compliance linked to income and gains arising and assets held offshore”.

The consultations close on 31 October.

Comments

If this was a Labour    9 thanks

0098087 | | Permalink

If this was a Labour government bringing this in I can assure you all that the screams from the press would force a massive climbdown. It would have been the same with the plans to raid tax payers bank accounts. Because it's Osborne and his little gang of mates at the Treasury who know nothing about economics they get away with it  all.

Use disclosure routes now    1 thanks

allsaintchris | | Permalink

Anyone who has offshore income and hasn't declared it has plenty of opportunities at the moment to make disclosures which provide an immunity from prosecution if a complete disclosure is made. 

 

I imagine these proposed new rules will be timed to come into effect once the current LDF deadline of 2016 expires. 

 

In all honesty, anyone who has offshore income and are not sure about whether it needs to be declared should have taken advice by now to determine whether it is taxable or not in the UK.  If they have chosen not to, then the chances of pleading ignorance (which is not allowed by HMRC as an excuse anyway) become very slim and HMRC will assume they chose to hide the money offshore.

Not aimed at the lower earner    1 thanks

posty133 | | Permalink

It seems harsh, but in reality the vast majority of people with offshore income and gains are most likely to have complicated tax affaris already and seek profesional advice or are fully aware of what they are doing.

The two concerns I would have are will it stop at the target audiance and be applied sensably in the long run? My guess is this will extend to absured regulations being passed based on approvel of this as a precedant.

The second is what is the penalty will there be for advisors, lets face it if a client proves they have obtained advice will that be sufficent to prove they have transfered there responsability regardless of the level of disclousure given to an advisor? 

Even with exclusion causes around full disclousre and scope how many advisors will we end up defending themselves through the courts?

glynisbm's picture

Oh dear... will Osborne and    1 thanks

glynisbm | | Permalink

Oh dear... will Osborne and his ilk be caught out by this new legislation I wonder?

 

http://leftfootforward.org/2010/10/george-osborne-andrew-mitchell-philip...

Think    1 thanks

The Black Knight | | Permalink

Think the offenders have had enough warnings.

BUT

HMRC don't prosecute,even serious cases,anyway so these headlines are all bluster anyway.

 

Be sweot under the carpet. Of    4 thanks

0098087 | | Permalink

Be sweot under the carpet. Of course David Cameron's father made his money offshore..

The end of democracy as we knew it

Casterbridge Ha... | | Permalink

You are absolutely correct save, and except, that this bunch of politicians are only labour in different clothes.

CHAOS    6 thanks

tedbuck | | Permalink

With the mindset of HMRC at present they will stuff the prisons full of petty offenders and do a deal with the big boys.

Who has to pay for the prisons? -the taxpayer.

As these guys won't be working there will be a loss of UK revenue. Who pays for this? - the taxpayer.

Who will pay for the court costs etc and the inevitable box ticking that accompanies it? - the taxpayer.

It seems stupid and unnecessary to me - what is wrong with the existing system of penalties?  Everybody gains but the evader.

Usual story of politicians - cannot look beyond their noses and see the unforeseen consequences.

This is the same crew who invented auto enrolment estimated to cost £9100 in admin per firm and at the same time they are wittering on about loss of productivity. Mindblowing!  They couldn't run a teashop.

 

 

Dick Lloyd's picture

Chaos    2 thanks

Dick Lloyd | | Permalink

Totally agree with you, Tedbuck.

I was reading the article and decided to post a comment that it will defeat the objective of increasing the Treasury net "take" for exactly the reasons you have outlined above.

listerramjet's picture

agendas

listerramjet | | Permalink

It does appear that HMRC is after a big power grab over people's lives.  Don't recal seeing this in anyone's manifesto.  Perhaps  Nanny was the slippery slope towards Big Brother?

Why do I waste my time ...    5 thanks

SimonP | | Permalink

... reading posts littered with spelling and grammatical errors.

It reflects extremely badly on the poster.

Possibly there are good points being made but I cannot be bothered trying to decipher them.

If only people would take the time to read through what they have typed before hitting the 'send' key.

 

posty133 wrote:

It seems harsh, but in reality the vast majority of people with offshore income and gains are most likely to have complicated tax affaris already and seek profesional advice or are fully aware of what they are doing.

The two concerns I would have are will it stop at the target audiance and be applied sensably in the long run? My guess is this will extend to absured regulations being passed based on approvel of this as a precedant.

The second is what is the penalty will there be for advisors, lets face it if a client proves they have obtained advice will that be sufficent to prove they have transfered there responsability regardless of the level of disclousure given to an advisor? 

Even with exclusion causes around full disclousre and scope how many advisors will we end up defending themselves through the courts?

Won't just apply to the wealthy..    2 thanks

Tomazaan | | Permalink

What about a Polish worker who has been living here long enough to be on the arising basis but who is paid via PAYE and doesn't think about the bank interest/ rental income that he is receiving in Poland.  I should think that there are a lot of relatively low paid people in this country with some foreign income.

It is also easy for people not to realise that they have assessable foreign income - the income may not be paid to them and the assets may not be in their names.  For eg income arising in a foreign company and they are a participator in the company because Dad gave them some shares ages ago. 

That said, I have nothing but contempt for those who try to hide money away and lie about what they have.

davidwinch's picture

Historical note    2 thanks

davidwinch | | Permalink

There is a long history to innocent errors in tax matters being (strictly speaking) criminal offences.  For example look at s167(3) Customs & Excise Management Act 1979 which reads:

If any person —

 

(a) makes or signs, or causes to be made or signed, or delivers or causes to be delivered to the Commissioners or an officer, any declaration, notice, certificate or other document whatsoever; or

(b) makes any statement in answer to any question put to him by an officer which he is required by or under any enactment to answer

being a document or statement produced or made for any purpose of any assigned matter, which is untrue in any material particular, then, without prejudice to subsection (4) below, he shall be liable on summary conviction to a penalty of level 4 on the standard scale.

Also under s72(3) VAT Act 1994 (repeating a similar provision from earlier legislation) which reads:

"If any person . . . in furnishing any information for the purposes of this Act . . . recklessly makes a statement which is false in a material particular he shall be liable . . . on conviction on indictment, to a penalty of any amount or to imprisonment for a term not exceeding 7 years or to both"

Just saying . . .

David

It Takes Two to Tango    5 thanks

redboam | | Permalink

If we are going to criminalise tax returns any further, it would need to be properly balanced. That would also mean making it a criminal offence for government ministers responsible for the nation’s finances to spend beyond the country's means thereby taking on increasingly unsustainable debt in the name of the tax payer.  By that token Gordon Brown would now be in jail where many feel he belongs.

davidwinch's picture

The statistics    2 thanks

davidwinch | | Permalink

redboam wrote:

If we are going to criminalise tax returns any further, it would need to be properly balanced. That would also mean making it a criminal offence for government ministers responsible for the nation’s finances to spend beyond the country's means thereby taking on increasingly unsustainable debt in the name of the tax payer.  By that token Gordon Brown would now be in jail where many feel he belongs.

According to official statistics there have only been 3 years since 1990 in which there was a budget surplus (i.e. public sector net borrowing for the year was negative).  Those years were 1998/99, 1999/00 & 2000/01.  The Chancellor of the Exchequer at the time was Gordon Brown.

Taking a longer view there have been 7 years in the past 50 years in which there has been a budget surplus - 1969/70, 1970/71, 1988/89, 1989/90, 1998/99, 1999/00 & 2000/01.  In 4 of those 7 years Labour were in government, in 2 the Conservatives were in power, and 1970/71 straddles the change from Labour to Conservative in June 1970.

However it would appear that Redboam's suggestion could have resulted in the imprisonment of every Chancellor of the Exchequer in the past 50 years (including of course the present incumbent).

Having said that I would not myself accept the (implied) view that a budget deficit is a bad thing.  Indeed I would suggest that under normal circumstances a budget surplus is undesirable as it indicates the government is sucking the lifeblood out of the economy by excessive taxation.  A budget deficit is a normal (and in my view, healthy) position in which to be.

David

Budget deficit data source: www.parliament.uk/briefing-papers/SN05745.pdf

Locutus's picture

Budget deficit

Locutus | | Permalink

davidwinch wrote:

A budget deficit is a normal (and in my view, healthy) position in which to be.

Except that eventually all loans have to eventually be repaid (or refinanced) ... as countries like Greece have found out.

I have no problem with deficits in bad times, so long as there are surpluses in good times, but it seems that we are virtually in perpetual deficit.

davidwinch's picture

Confidence    1 thanks

davidwinch | | Permalink

I agree that eventually most government borrowing has to be refinanced or repaid (that may not be the case in respect of undated gilt edged stocks) but refinancing the debt is not a problem so long as confidence is retained in government loans.

In much the same was as the "promise to pay the bearer on demand" which appears on every UK banknote is, in practice, a meaningless promise, and in the same way that a bank would be unable to pay up if every depositor attempted to withdraw his money (but neither of these truths matter so long as confidence is retained), so it does not matter that government debt could never be repaid.

A budget deficit means that government is providing some stimulus to the economy.  That is why successive Chancellors have operated habitually in that way (and why other countries' governments act in the same way).  There will be times when a government will have to throw a bucket of iced water onto the economy by taxing out of the economy more than it puts in.  But one would expect that not to be the norm (as economic history shows).

IMHO any politician who says he aims to change patterns of taxation & government expenditure to routinely create a budget surplus is issuing a terrible threat not making an attractive promise!

David

Allsaintchris is wrong

Montrose | | Permalink

There is a significant number of ordinary taxppayers, who have been on PAYE all their lives and have no significant investment income who  do not have to file an SA return but who have inherited messy accounts outside the UK. It is quite common for these heirs to leave what they have 'inherited' untouched..

Are they criminals- with strict liabilty such as applies to owning premises where drugs are found?

civil liberties taken away

colinsimo | | Permalink

So if someone unknowingly failed to declare offshore accounts and gains they potentially could go to prison. I add go to an overcrowded prison population, resulting in the following;

  • Cost of imprisonment of the offender
  • Reduced space in prisons = more people being released early (heaven forbid who would be released early)

So will this result in the tax being paid and a fine as well being paid? Is it is just another power for HMRC again?

I’m going with the latter, I’m sure the Victorians did something not to indifferent, that was it people who couldn’t pay back money they owed were thrown in “prison”. I grant you it’s not the same, but what is the point of the new proposed law????

Montrose?

allsaintchris | | Permalink

Montrose, I think you have misunderstood me, (totally).

 

I am not saying they are criminals, my point is HMRC will have little leniency for anyone who has offshore accounts and has not taken advice on whether they should have declared the income in the UK, especially if they were unsure of their position with it.

 

Is that not a fair point in light of HMRC’s activities at the moment and the publicity surrounding offshore accounts?

 

If they have inherited ‘messy’ accounts, then surely they should be getting advice to make sure they are not vunerable to HMRC coming in and asking about the accounts?   Simply thinking that because the account is offshore and ‘untouched’, it means they have no liability would not be an excuse HMRC would accept.

 

I doubt such a person would be subject to criminal prosecution on the assumption the amounts are small, but having done many LDF’s, COP9’s and voluntary disclosures, many are surprised how large their tax liabilities are in respect of offshore accounts they thought were insignificant.

allsaintchris    1 thanks

Montrose | | Permalink

I didn't misunderstand . Having dealt with LDF disclosures for dozens of taxpayers of all sizes[their funds, not their height or weight !] I have seen all kinds of situations. With all due respect you are overestimating the ordinary taxpayer's understanding of the tax system.  Interest and  appropriate penalties can and do follow failure to declare such income and gains.

 

What  I am  querying  is whether this new propsosal  is necessary or appropriate, and nothing you have said has changed my opinion. I cannot see why mens rea is  to be disapplied here.

davidwinch's picture

Strict liability offence

davidwinch | | Permalink

Montrose wrote:

Are they criminals- with strict liabilty such as applies to owning premises where drugs are found?


Mere ownership of premises in which drugs are found is not of itself a criminal offence in England & Wales.
Permitting premises which you own to be used for e.g. smoking of cannabis or wilful blindness to such an activity would be an offence.
A better example of strict liability is driving a vehicle on a public road without insurance.
David

to Montrose

allsaintchris | | Permalink

I would hope the new rules would only apply to those where it is clear there was intent to hide the funds for the purpose of avoiding tax.

 

If you also deal with the new CDF’s, as you will know the rhetoric HMRC set out about criminal prosecution for non-disclosure  etc etc is very strong, but the actual number that get prosecuted for not complying with the CDF isn’t really that high. 

 

I would expect that this new approach by HMRC to try and criminalise this issue will be limited and those who maybe had genuine reason to think there was no tax due (even where they didn’t get advice) would still simply be liable to the tax, interest and appropriate penalty, as they are now.

 

In the wide open world, many offences that are technically criminal, are dealt with by fines, cautions etc etc.  I would expect that any real chance of a prosecution by HMRC would still have to show that there was a deliberate and criminal intent to avoid the payment of tax.

 

Strict liabilty    1 thanks

Montrose | | Permalink

Allsaintchrius.

But by introducing strict liabilty HMRC would specifically not have to show deliberate or criminal intent. That is what strict liability means.

To be fair to Gordon...

ds | | Permalink

See below

To be fair to Gordon...

ds | | Permalink

Gordon Brown only really started in his stride as the meddling Chancellor, including the dismantling of the UK economy, a few years in and had inherited a very successful economy (for the UK anyway) from the out-going Tories.It is understandable that the years 1998 to 2001 were still in surplus. I seem to remember they said that for the first term Labour would not do too much to upset that and behave like good Tories. However early on in his reign Gordon removed the tax credit on  dividends paid to pension schemes, which was to have massive effects much further down the line and was spun as being an improvement.

Gordon's best work came later on, the effects of which we are still seeing today and forward into the future of a basket -case UK economy heavily in debt, with low investment and even lower productivity. Personally I would not have jailed him as given the over-crowding in UK prisons again partially due to New Labour policies, places there are best kept for violent and dangerous individuals. Gordon Brown and his meddling should really be a lesson to us but I am sure such folly will be repeated again in my life-time.
 

davidwinch wrote:

redboam wrote:

If we are going to criminalise tax returns any further, it would need to be properly balanced. That would also mean making it a criminal offence for government ministers responsible for the nation’s finances to spend beyond the country's means thereby taking on increasingly unsustainable debt in the name of the tax payer.  By that token Gordon Brown would now be in jail where many feel he belongs.

According to official statistics there have only been 3 years since 1990 in which there was a budget surplus (i.e. public sector net borrowing for the year was negative).  Those years were 1998/99, 1999/00 & 2000/01.  The Chancellor of the Exchequer at the time was Gordon Brown.

Taking a longer view there have been 7 years in the past 50 years in which there has been a budget surplus - 1969/70, 1970/71, 1988/89, 1989/90, 1998/99, 1999/00 & 2000/01.  In 4 of those 7 years Labour were in government, in 2 the Conservatives were in power, and 1970/71 straddles the change from Labour to Conservative in June 1970.

However it would appear that Redboam's suggestion could have resulted in the imprisonment of every Chancellor of the Exchequer in the past 50 years (including of course the present incumbent).

Having said that I would not myself accept the (implied) view that a budget deficit is a bad thing.  Indeed I would suggest that under normal circumstances a budget surplus is undesirable as it indicates the government is sucking the lifeblood out of the economy by excessive taxation.  A budget deficit is a normal (and in my view, healthy) position in which to be.

David

Budget deficit data source: www.parliament.uk/briefing-papers/SN05745.pdf

Off shore income

AndrewV12 | | Permalink

There is only reason anyone uses off shore income and off shore vehicles...... to avoid tax.  I am glad they are tightening up on the rules.