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Tax underpaid: strict liability and other changes

/ 23 March 2015

Readers will be aware that over the past few years HMRC has increasingly been given a range of powers in order to tackle tax evasion and tax avoidance. In the recent Budget, further powers have been passed to HMRC to aid it in its efforts.

One such power is the introduction of a “strict liability” criminal offence of failing to declare taxable income and gains arising offshore. “Strict liability” means, essentially, that the act itself becomes criminal regardless of the intentions or state of mind of the offender. “I didn’t know”: “I forgot”: “I was told it was OK” all alike cease to be excuses.

Although strict liability has existed in other areas of the law for some years (unauthorised possession of a firearm or driving while disqualified, for example) it’s never previously applied to any direct tax matter. When it was first raised by HMRC in a consultation document, many professionals voiced their concerns, removing as it does the burden of proof from HMRC and making criminals of the forgetful, the ill-advised and the merely careless. It may also be seen as a start of a process which could in time be extended to purely domestic tax matters. As Danny Alexander said, “Strict liability will bring an end to the defence of ‘I knew nothing, it was my accountant, my lord'”. Which seems fair enough until you reflect on the effect on cases where such a claim is in fact true.

It is therefore imperative that any individual who has – for whatever reason – failed to declare taxable overseas income or gains should seriously consider availing themselves of one of HMRC’s disclosure facilities with immediate effect.

In relation to such facilities, HMRC have, in a surprise announcement, shortened the period for which the facilities will remain open. Both the Liechtenstein Disclosure Facility (LDF) and the Crown Dependency Disclosure Facilities will now close on 31 December 2015, to be replaced by a new limited-time “last chance” disclosure facility on very much less favourable terms than those currently available including a harsher penalty regime and no guaranteed immunity from prosecution.

In a further move against tax avoiders (as distinct from evaders), the government will introduce legislation for tougher measures for those who persistently enter into tax avoidance schemes which fail (so-called “serial avoiders”), including a special reporting requirement and a surcharge on those whose latest tax return is inaccurate as a result of a further failed avoidance scheme. Additionally, HMRC has continued to review cases after the Accelerated Payments legislation took effect and HMRC will now be issuing an additional 21,000 Accelerated Payment Notices over and above the original estimated number.

All this goes to demonstrate that HMRC really are on the war path against tax evaders and avoiders (and increasingly inclined to conflate the two). There are still options for individuals to take to resolve any tax problems they may have, and to secure key benefits, but the door to these will fairly shortly be closed.

For any advice and assistance regarding unpaid taxes, disclosures and generally regularising tax affairs, please get in touch with your usual BKL contact or use our enquiry form.