PROPOSALS to toughen penalties for tax evasion have been published, as the authorities prepare to receive a big tranche of new data on offshore accounts.

The government is proposing legislation requiring taxpayers with outstanding offshore tax liabilities to come forward by September 2018, after which they will be subject to a new set of sanctions for ‘failing to correct’.

The move is part of a broader toughening of sanctions for all those involved in offshore tax evasion. It comes as HM Revenue and Customs prepares to take advantage of a new transparency initiative that will help it track down individuals who have hidden money offshore.

“Every penny of tax that people evade deprives our public services of essential funding and we are focused on collecting all tax that is due,” said Jane Ellison, financial secretary to the Treasury.

“From October we will start to receive data on the offshore finances of UK taxpayers. This is a game-changer in the fight against evasion and it’s time for anyone who is evading tax to do the right thing and pay what they owe.”

Plan for tougher sanctions launched as the UK authority gets ready to sift accounts data

Chas Roy-Chowdhury, head of taxation at ACCA, the accountancy body, described the proposals as ‘a measured response’. He added: “There needs to be strong measures against evaders. They should be looking at custodial sentences in some of these cases.”

The proposed legislation is aimed at prompting taxpayers to review any offshore holdings as HMRC’s research suggests that many did not realise they were not compliant. It is also aimed at sending ‘a strong message around getting tougher on offshore tax evasion’ as it will have a swift impact, unlike most new penalties, which are normally levied on future offences.

The consultation put forward different models for the new penalty regime that the Treasury said could result in people paying fines of up to three times the tax evaded.

Investors with undeclared income in places including Jersey, Guernsey and the Cayman Islands have a far greater chance of being detected from October when HMRC starts to receive information on income, dividends and account balances for UK residents with assets in the Crown Dependencies and Overseas Territories.

In September next year it will receive even more data when the Common Reporting Standard (CRS) — a global agreement to share financial account information automatically with other countries — starts to operate. A total of 101 countries have agreed to collect and exchange information on bank accounts by September 2018.

HMRC will make it easier for taxpayers wanting to come forward about a previously undeclared account when it opens a new ‘worldwide’ disclosure facility on September 5.

Even though the new disclosure facility, announced in the 2015 Budget, will offer no special terms, HMRC wants to encourage evaders to come forward voluntarily to reduce investigation costs.

Its limited ability to take on extra cases was one reason why in March, the Office for Budget Responsibility cut its expected yield from a drive to detect undeclared accounts in the Crown Dependencies and Overseas Territories. The initiative was originally expected to raise £1.05bn in the 2013 Budget but the target has been lowered to just £270m after there were far fewer disclosures than expected.

HMRC has come under pressure to punish tax cheats harder. In April, the public accounts committee called on HMRC ‘to increase the number of investigations and prosecutions, including wealthy tax evaders, and publicise this work to deter others from evading tax and to send out a message that those who try will not get away with it’.

Jennie Granger, director-general of enforcement and compliance, said: “HMRC is getting tougher on tax evasion. We will find those who think they can dodge paying tax in this country.”

Published in Dawn, Business & Finance weekly, August 29th, 2016