UK budget extends clampdown on offshore tax evaders but Liechtenstein Disclosure Facility offers cheaper get out

News - Tax

Written by Ray Clancy

Thursday, 25 March 2010 10:08

UK chancellor Alistair Darling is extending the government clampdown on tax evasion with penalties of up to 200% of the tax due for individuals caught squirreling away money offshore.

The new measures will raise an additional £1.5 billion a year and protect a further £4 billion of tax receipts by 2012 to 2013, the chancellor said. They will be implemented through the next Finance Bill 2010 and apply to tax periods commencing on or before 1 April 2011.

The extent of the penalty levied for ‘deliberate and concealed evasion’ will depend on the opacity of the jurisdiction in which the money is held. Where a jurisdiction only exchanges information with HMRC on request, any inaccuracies arising offshore will be subject to penalties at 1.5 times the existing rate.

Those found guilty and convicted will be named and shamed with their identities published in the London Gazette. But this has been dismissed as a gimmick. ‘Tax evasion is illegal and should be prosecuted. If that doesn’t put offenders off, will they really care about having their names published?’ said Louise Somerset, tax director at RBC Wealth Management.

But Paul Harrison, UK head of tax investigations at KPMG said that the changes will provide future government’s with a big stick for dealing with offshore tax evasion. ‘If you choose to deliberately evade UK tax by using a jurisdiction which is not transparent from HMRC’s perspective, you will run the risk of being penalized twice as heavily, from 1 April 2011. Clearly any reasonable attempt to stamp out tax evasion must be a good thing for all UK tax payers,’ he said.

But he added that HMRC needs to take care that they differentiate between those who have deliberately withheld tax from them, and those who may have unwittingly fallen foul of the notoriously complex tax legislation which governs offshore income and gains for UK residents.

The government also reiterated its support for the Liechtenstein Disclosure Facility, which allows people with unpaid taxes linked to investments or assets in Liechtenstein to settle their liabilities, including interest and penalties. Darling said this is likely to bring in £940 million.

But under the Liechtenstein Disclosure Facility, penalties have been fixed at 10% of tax due, a rate that could encourage far more individuals to shift their funds to the principality, according to some experts.

‘You will definitely see more people opening a facility in Liechtenstein and moving funds as it is now the only opportunity to reduce their exposure,’ said Chris Oates, tax investigations partner at Ernst & Young. He added that as the disclosure facility will be available until March 2015, so ‘people have plenty of time’.

He also questioned whether HMRC would have the resources to enforce its new powers.He said that HMRC would be very dependent on using its powers to gain information, and that increased publicity, including high profile prosecutions, would encourage others to declare offshore income.