It is now a criminal offence not to declare overseas income

It could have been omitted because you did not realise it was taxable, or because you did not know that you had become entitled to the income, or even because it is not income but is deemed to be income under an obscure tax provision. No matter! If you have not declared the income, you are a criminal!

HMRC issued a consultation paper last August. The consultation closed at the end of October. However it should be stressed that the consultation was not on whether the creation of such a crime would be desirable. The starting point was that the government has decided to introduce such an offence. The consultation was not about whether; it was solely about how. In his foreword to “No safe havens 2014”, the minister, David Gauke, said: “We will introduce a new strict liability criminal offence that could mean jail for those who do not declare taxable offshore income. We will consult on the detail, such as the appropriate safeguards, later in the year”.

Some commentators have suggested that as the outcome of the consultation was not referred to in last December’s Autumn Statement, the government has changed its mind and dropped this proposal. 

Read more about the Autumn Statement:

• Key announcements for SMEs in under 500 words
• Fair amount of banter this year
• What entrepreneurs and business builders want George Osborne to announce

That is not so. It was not in the Autumn Statement because HMRC did not feel that they had enough time to consider the consultation results and decide what safeguards might be appropriate. It is still possible that we might get draft legislation in the coming weeks so that the provision can be included in the next Finance Act. A new government might not share Gauke’s fervour/contempt for human rights – take your pick at which you feel best describes criminalising ignorance or mistakes!

As we have a general election on 7 May and Budget day is not until 18 March, there is not much time available to enact the Finance Bill. The government has already published a draft bill – 566 pages of legislation interleaved with explanatory notes – so there must be a risk that they will ask parliament to enact the bill quickly on the basis that most or all of the provisions have been exposed for consultation and amendments have been made to reflect the major issues arising from such consultation.

What safeguards did HMRC propose? 

Well, actually they are not keen on safeguards. They see the purpose of the offence as to make it easy to successfully prosecute criminals. Currently we have a concept that everyone is innocent until proved guilty. That requires the Crown to show not only that a person did not declare the income, but that he did so intentionally in the knowledge that the amount was taxable. HMRC say that it is very difficult to prove that a person who does not declare overseas income intended to evade the tax on it. 

By rendering knowledge and motive irrelevant, prosecution becomes easy. Of course it’s a shame about the innocent but surely people know that they can trust HMRC and the DPP. They don’t need the protection of the law because nobody who is obviously innocent is likely to be prosecuted. HMRC are convinced that they can themselves distinguish between the innocent and the guilty and this offence is aimed only at the guilty. The innocent have nothing to worry about. As they say in the consultation, “the availability of [a statutory] defence could make it more difficult to secure successful prosecutions, undermining the case for introducing the new offence”.

If there has to be a safeguard, they have put forward two possible ones.

• The taxpayer can demonstrate that he had taken reasonable care in conducting his tax affairs; and
• The taxpayer can demonstrate that they had sought and followed appropriate professional advice.

They also propose that the offence should not apply at all if there is no significant tax loss. This needs to be approached in the context that they appear to regard a significant loss of tax as being around £2,000 and that they generally regard tax paid late as equivalent to tax lost. Thankfully they do accept that the de minimis should apply for each year, so not declaring, say, £500 of income each year for six years would not trigger the offence.

In a follow-up article, I will look at the sort of people who seem likely to be wrongly criminalised as a result of this offence.

Robert Maas is a consultant at CBW Tax, chairman of the ICAEW tax faculty’s enquiries and appeals subcommittee, and author of ‘Guide to Taxpayer Rights and HMRC Powers’.

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