Tax avoidance and evasion come under fresh assault

Tax avoidance and evasion are under siege as the government introduces a range of measures to clamp down on both practices, including a doubling of the maximum penalty for offshore evaders.

The measures are likely to to put pressure on holders of secret offshore accounts to register by January 4 for an “amnesty” offering tax evaders reduced penalties and a lower risk of prosecution.

Under the Revenue’s first proposed anti-avoidance measure, failure to disclose offshore income and gains – even through careless oversight – would result in the same penalties as those for deliberate failure to pay tax on onshore funds. This means that the minimum penalty would be 20 per cent of the undeclared tax, even if a full unprompted disclosure is made. Penalties could be as high as 70 per cent, even where no concealment is involved, according to Paul Harrison, a tax partner at KPMG.

Under the Revenue’s second proposal, UK residents with bank accounts in certain jurisdictions would be required to inform the Revenue of their existence within 60 days of opening them. Those who fail to comply face an upfront fixed penalty followed by a period of daily penalties and then by tax-geared penalties. These penalties would come on top of any penalties paid for under-declaring tax liabilities. “So that in the most serious cases, the aggregate penalty could be as high as 200 per cent of the evaded tax,” said Harrison at KPMG.

Jason Butler, an adviser with Bloomsbury, said the anti-avoidance measures announced this week suggest that any tax planning requiring a disclosure of tax avoidance scheme (Dotas) number to be entered on the tax return will lead to a Revenue investigation.

“Taxpayers shouldn’t just roll over and do no tax planning, but they need to remember that planning which was previously ‘amber’ is now probably ‘red’ in terms of risk,” he said.

Taxpayers will have to collect up to 20 years of data on their offshore accounts to meet the end of January amnesty deadline for paper submissions and March 12 for online disclosures.

Tax evaders who come forward under the initiative face a fixed penalty of 10 per cent of the tax owed – unless they were customers of the five high street banks targeted in a 2007 amnesty, who face a 20 per cent penalty.