New offence risks criminalising careless mistakes

Government's plan to proceed with a criminal offence of failing to declare offshore taxable income or gains that threatens people with a prison sentence of up to six months - even if there is no intent to cheat the system - risks criminalising careless mistakes.

The Chartered Institute of Taxation (CIOT) has said that it is opposed in principle to the creation of a new strict liability offence for offshore tax evasion which will require no proof that the taxpayer deliberately intended to evade tax. John Cullinane, CIOT Tax Policy Director, said: "We do not support this proposal because it cannot be right that an individual who simply makes a mistake in their tax affairs, without any intention to act wrongly, should be charged with, and possibly convicted of a criminal offence; think of an elderly person who does not realise that funds are taxable in the UK because they have already been taxed in an overseas jurisdiction; or someone who inherits an offshore account without any direct knowledge of it. Taxpayers in these situations should absolutely not face criminal charges.

"We do not think that it is reasonable for someone to be convicted, let alone imprisoned, for offshore tax evasion without guilt being proved beyond reasonable doubt.

"In addition, we question whether a new offence is necessary at all since HMRC already has wide criminal investigatory powers at their disposal. In view of the concerns raised during the first consultation process by us and many other respondents, it is right that HMRC has focussed on ensuring that the offence is targeted at only the most serious evaders."

Threshold

In the CIOT's view, however, the proposed statutory minimum threshold of tax evaded of £5,000 is not high enough for complex cases - a threshold of £25,000 would be a more appropriate level.

The CIOT also suggests that there should be a comprehensive post-implementation review of the measures and a 'sunset clause' in the legislation so that HMRC would have to revert to Parliament to extend it.

John Cullinane said: "We are pleased to note that there will be a statutory defence of reasonable care in the legislation. This will be vital in limiting the scope of the offence. But it would be a stronger safeguard for the taxpayer if the burden of proof was on HMRC to prove that reasonable care had not been taken, rather than being on the taxpayer to prove they took reasonable care.

"We are also concerned that this proposal could be counterproductive for HMRC because the fear of prosecution, with no need to prove intention on HMRC's part, could discourage taxpayers from coming forward voluntarily."