New offence risks penalising careless mistakes, warns Tax Institute

The Chartered Institute of Taxation (CIOT) has criticised yesterday’s Government announcement that it will be pressing ahead with the introduction of a new ‘strict liability’ offence for offshore tax evasion.

Whilst welcoming the announcement that the offence will be targeted at only the most serious offshore tax evaders and that there will be a threshold of £5,000 of under-declared tax before the new offence can be used, the CIOT believes this does not alter the fundamental wrongness of creating this criminal offence which will require no proof of intention.

Patrick Stevens, CIOT Tax Policy Director, commented:

“Tax evasion is a serious crime. The Government are right to have put additional resources into investigating and combatting it. There is already tough legislation in this area, but if the Government feel it needs strengthening further in particular areas then it is reasonable of them to look at how this can be done.

“However any new measures should be based on sound legal principles. One of these is that in order to make a criminal conviction it should generally be required to show that the act was committed with criminal intent unless there is potential for an immediate threat to public safety. The proposed strict liability offence for failing to declare overseas income and gains fails this test. A taxpayer may fall within the ambit of the offence without any intention or knowledge on their part.

“It is easy to see why this is attractive to the tax authorities. But UK and international taxation is a minefield of complexity and, while some taxpayers do actively seek to hide their income by intentionally failing to declare it, there are others who simply make mistakes in their financial affairs without intending to act wrongly. It is not reasonable for someone to be convicted, let alone imprisoned, for offshore tax evasion without an intention to evade tax being proved beyond reasonable doubt.

“The Government’s announcement that there will be a de minimis threshold of £5,000 of under-declared tax before the new offence can apply is welcome. This is something we argued for during consultation. It will at least ensure that those making errors over relatively small amounts of tax will not get caught by this new offence. The announcement that there will be ‘reasonable excuse’ and ‘reasonable care’ defences is also welcome.

“However these defences and thresholds do nothing to change the fact that someone who has no intention to evade tax could still be liable to criminal sanctions, and we think this is wrong.”

The Government also announced yesterday that it will be going ahead with the introduction of a new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion. It will also be introducing new civil penalties for those who facilitate evasion.

Commenting on these proposals, Patrick Stevens said:

“There is already plenty of law in this area. If a bank employee, for example, has knowledge of or suspects (or has reasonable grounds for knowing or suspecting) money laundering, which can include tax evasion, they can already be liable to a criminal offence under the Proceeds of Crime Act 2002. Additionally, they commit an offence if they are involved in any arrangements which they know or suspect facilitate money laundering by another person.

“But the Government clearly feel criminal sanctions need to be strengthened in this area so we will look closely at the consultation documents they have published and seek to work with them to try to frame proposals that will effectively achieve this.”

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