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UK: Information exchanges driving up serious tax evasion cases


Added on 31/05/2018

(Out-Law.com) -- The number of serious tax evasion cases identified by HM Revenue and Customs (HMRC) increased by over one fifth last year, as HMRC has begun to receive more information about taxpayers with offshore bank accounts.

HMRC identified 3,809 'serious' tax evasion cases, which it defines as those involving potential evasion of more than £50,000 in tax or where prosecution is possible, in the year to 31 March 2018. It identified 3,216 such cases in 2016-17, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com.

The first information exchanges by 'early adopter' countries, including the UK, under the Common Reporting Standard (CRS), took place in September 2017. Since September 2016, HMRC has been receiving similar information about UK residents with bank accounts in the UK Crown Dependencies and British Overseas Territories, including the Channel Islands, British Virgin Islands and Bermuda.

HMRC's ability to identify tax evasion cases will be further strengthened once the next wave of countries begin exchanging information about offshore bank accounts under the CRS in September 2018, according to tax expert Jason Collins of Pinsent Masons. This second wave of countries includes Switzerland, the UAE, Hong Kong and Singapore.

A new mandatory disclosure regime is also due to come into force across the EU, under which member states will automatically share any information they receive from tax advisers, in-house counsel and other intermediaries involved in cross-border tax arrangements. New strict liability criminal offences for those who fail to declare offshore income, and UK corporate criminal offences of failing to prevent the facilitation of tax evasion, will also drive up HMRC activity in this area, Collins said.

"The dramatic increase in serious tax evasion cases identified by HMRC shows that its rolling crackdown is far from over," he said.

"HMRC is receiving plenty of political encouragement in this crackdown as it looks to increase prosecutions across the board. Both HMRC's local offices and its specialist directorates are on the lookout for any transaction out of the ordinary that might lead them to a big-ticket tax evasion case," he said.

"Governments believe that some professionals and banks are still helping clients to be non-compliant, especially by devising ways to avoid reporting. The EU and OECD have set out 'mandatory disclosure regimes' to tackle this perceived abuse, meaning professional services firms and banks need to be vigilant that they are not being embroiled in serious non-compliance. Businesses may also end up in court if their employees have helped others to evade tax," he said.

Two new offences introduced by the Criminal Finances Act 2017 effectively make a business vicariously liable for the criminal acts of its employees and other "associated persons" who facilitate tax evasion by others, even if the senior management of the business was not involved or aware of what was going on. A business will, however, have a defence if it can show that it had reasonable prevention procedures in place, or that it was not reasonable in the circumstances for it to have such procedures. Previously, companies could only be found liable if their board members were implicated.

Warning businesses of the importance of putting appropriate procedures and policies in place, Collins said that HMRC would be "looking to see if it can get a business on the hook for the corporate criminal offence" if it found serious cases of tax evasion by individuals.

"Prosecuting a business will send a very strong message to businesses to clean up their act," he said.

The new strict liability criminal offences for tax evasion with an offshore element apply from the 2017/18 tax year where an individual fails to declare offshore income of more than £25,000. HMRC will find it "much easier to secure a criminal conviction" under the new regime, as it will not have to prove intent, Collins said.

"As a result, HMRC is likely to further ramp up its crackdown as it looks to hit its prosecution targets," he said.