Offshore non-compliance - new maximum penalties from April 2011
18 February 2011 in International, Investigations Finance Act 2010, s35 and Sch 10 provides for increased levels of penalty for those UK individual taxpayers who fail to declare income or capital gains arising in certain non-UK jurisdictions. The increases, over the present maximum of 100% of the tax concerned, apply to income or gains arising from 6 April 2011.
The increased maximum rates, of 150% or 200%, depend upon the source jurisdiction and its so-called "secrecy" when it comes to information exchange with the UK.
There are three categories of non-UK jurisdictions for this purpose.
Category 1 jurisdictions have full exchange provisions and the maximum penalty for avoided UK taxes remains at 100%.
Category 3 jurisdictions have little, or no, information exchange agreements with the UK. The maximum penalty for UK taxes avoided on income or capital gains sourced in these countries will be 200%.
Any jurisdiction not listed in either categories 1 or 3, will be a Category 2 jurisdiction. The maxmium penalty will be 150% of the avoided tax.
The lists of non-UK jurisdictions in Categories 1 and 3 is here.
These increased penalties, whilst advertised, predictably, by HMRC as being penalties for evasion, reflect only a multiple to be applied to the existing penalty regime for civil offences.
For example, the penalty for tax on a source of income or gains undeclared due to deliberate inaccuracy will fall to be negotiated at between 20% and 70% where the income or gains arose in the UK, and between 30% and 100% if, rather than deliberate inaccuracy, the under-declaration arose due to deliberate and concealed inaccuracy. Should the same circumstances apply but the source is Panama (a Category 3 jurisdiction) the equivalent penalties will, from April 2011, now be between 40% and 140%, and between 60% and 200%, respectively.