Accountants are warning that the penalties in place for offshore tax evasion are too severe and run the risk of being applied to those who genuinely had no intention of cheating their way out of paying what they owe to HM Revenue and Customs. The ‘strict liability’ aspect of the offence of offshore tax evasion means that those found guilty could be imprisoned, even if there is no demonstrable proof that they had any intent to avoid paying tax.
Currently the statutory minimum threshold of tax evaded is set at £5,000 and the Chartered Institute of Taxation has criticised this as being too low, especially for those involved in the most complex cases. The level is set by HMRC to ensure that those who have committed the most minor offences, which could include errors involving relatively small sums, would not be subject to a potential six month prison sentence.
However, the CIOT believe that a threshold of £25,000 would represent a more appropriate level, based on the assumption that the department is only intending to pursue the most serious cheats who are knowingly engaged in evading tax. They have recommended that there is a post-implementation review of the measures which should include a so-called ‘sunset clause’ in the legislation that would require the agreement of parliament in order to extend the legislation.
John Cullinane of the CIOT believes that it is vital to limit the scope of the offence covered under the heading of offshore tax evasion. He is pleased to note that ‘reasonable care’ will be considered a statutory defence, but he is concerned that the burden of proof should be on HMRC to prove that reasonable care has not been taken as opposed to the taxpayer being required to prove that they did take reasonable care. He believes that a shift in the focus would provide a more effective safeguard for those who are accused and ensure that HMRC investigate cases effectively and assess the merits of each one on individually.
The CIOT are also keen to point out that HMRC could benefit from a change to the limit as they believe that the current measures dissuade those who believe that they may be prosecuted from coming forward voluntarily. If people believe that they could be prosecuted without any proof of intention on the part of HMRC, then they are less likely to make any attempt to rectify them of their own volition for fear of the repercussions.
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