Penalties to tackle offshore tax evasion

HM Revenue & Customs (HMRC) applies a higher level of penalties for offshore non-compliance. These apply to Income Tax and Capital Gains Tax. They affect Self Assessment returns for the 2011-12 tax year, and later years.

Deadlines for sending in your tax return

How the offshore penalties work

The penalties are an extension of the standard penalties for

  • failure to notify
  • inaccuracy in a return
  • failure to file a return on time

These penalties are linked to the tax transparency of the territory in which the income or gain arises. Where it is harder for HMRC to get information from another country, the penalties for failing to declare income or gains arising in that country are higher.

The legislation (in Schedule 10 of Finance Act 2010) lists which territories are in 'category 1' and 'category 3'. All other territories (except the UK) are in 'category 2'.

Categories of territory for offshore penalties

There are three levels of penalty:

  • where the income or gain arises in a territory in 'category 1', the penalty rate is the same as the standard penalty
  • where the income or gain arises in a territory in 'category 2', the penalty rate is 1.5 times the standard penalty - up to 150 per cent of tax
  • where the income or gain arises in a territory in 'category 3', the penalty rate is double standard penalty - up to 200 per cent of tax

All the usual safeguards, including a right of appeal, apply. There is no penalty if you can show you have taken reasonable care to get your tax right. You will not receive a penalty if you have a reasonable excuse for:

  • failing to tell HMRC you have taxable income or gains.
  • Not filing your tax return on time.

If you do owe penalties, HMRC can reduce them depending on how much help you give them to establish the correct amount of tax due. HMRC give the largest reductions for unprompted disclosures. Unprompted means you tell HMRC about a tax issue when you have no reason to believe they have discovered or are about to discover it.

Please contact HMRC now if you need to get your tax affairs in order.

Contact HMRC

More useful links

Offshore Penalties - questions and answers (PDF 48K)
Liechtenstein disclosure Facility
Check if your asset sale is liable for tax
Review of HMRCs powers for tackling offshore tax evasion
Take care to avoid a penalty (PDF 271K)
Take care to tell us about your tax on time (PDF 94 K)
Appeals against HMRC tax decisions