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HMRC Outlines Higher Offshore Tax Avoidance Penalties

by Jason Gorringe, Lowtax.net, London
11 October, 2016

The United Kingdom's taxation authority, HM Revenue and Customs, has detailed the higher penalties for offshore tax evasion and non-compliance in a recently published fact sheet.

The penalties regime covers any inaccuracy, failure to notify, or deliberate withholding of information that relates to:

  • Income arising from a source in a territory outside the United Kingdom;
  • Assets situated or held in a territory outside the UK; and
  • Activities carried on wholly or mainly in a territory outside the UK

if they result in a potential loss of revenue or a liability that should have been shown on a tax return.

Typically HMRC will charge a penalty of no more than 100 percent of the tax due for an inaccuracy in a return or document; a failure to notify chargeability to tax; or the deliberate withholding of information where a tax return is more than 12 months late, when they involve offshore matters in certain categories of "territory." Otherwise, the maximum penalty HMRC may charge is 100 percent.

For the purposes of determining penalty rates, there are three categories of territory:

  • Category 1 covers those territories that have agreed to exchange information with HMRC automatically. The maximum penalty is 100 percent of the tax for these territories.
  • Category 2 covers territories that will exchange information only on request. The maximum penalty is 150 percent of the tax.
  • Category 3 covers those territories that haven't agreed to share information with HMRC. The maximum penalty is 200 percent of the tax.

The higher penalty rates for categories 2 and 3 apply only to Income Tax, Capital Gains Tax, and Inheritance Tax.

The full rules are set out in Compliance checks series – CC/FS17, which was updated on October 10, 2016.

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