New offshore penalties regime

HM Revenue & Customs (HMRC) have announced their next phase of attack on ‘offshore’ tax evasion. Previous action by HMRC in the area of ‘offshore’ evasion has included circular letters sent to possible ‘Offshore’ evades followed by amnesty periods.

The new approach will come into force from 6 April 2011 and will apply to Income Tax and Capital Gains Tax. The new penalty enhances the penalties already in place for:

• failure to notify;
• inaccuracy on a return; and
• failure to file a return on time.

These penalties are geared towards the transparency and cooperation of the ‘Offshore’ territory in question. Territories which HMRC have difficulty with when obtaining tax information will fall in the higher penalty regime. The penalties are split as follows:

• category 1 countries: the penalty will be as current legislation
• category 2 countries: the penalty will 150% of the current legislation
• category 3 countries: the penalty will 200% of the current legislation.

A list of Category 1 and 3 countries can be found at HMRC's website.

All other territories (except the UK) not listed in the two lists are by default category 2 territories.