Guilty until proved innocent?

By Jamie Waddell, 29 April 2014

Is HMRC’s proposed new approach to offshore finances too heavy-handed?

With international agreements on taxation transparency failing to net HMRC anywhere near the projected figures, the Treasury has published plans to expedite and simplify the process of bringing criminal prosecutions against those with undeclared offshore assets. However, industry experts claim that these changes are a step too far, assuming guilt rather than innocence on the part of those whom HMRC investigates.

Whilst attending the International Monetary Fund’s conference in Washington, Chancellor George Osborne said the proposals laid out in No Safe Havens 2014 (PDF, 775 KB) “[will] change the balance of the law so the burden of proof falls on those who are hiding their money offshore, and we don’t have to prove they intended to do so”.

Michael Brinksman, of expat financial publication WhichOffshore, questions the legitimacy of such a heavy-handed approach to catching tax-evaders:

“HMRC forecast billions of pounds to be regained through prosecution of offshore tax evaders, but in reality the figure has been in the hundreds of millions. This new approach appears to be a hard-line attempt to rectify this shortfall, but to automatically criminalise those with offshore assets is overstepping the mark. There are many instances in which an innocent person could be caught up in a situation where they are wrongfully burdened with further tax responsibilities.

“British expats with undeclared offshore assets will have to prove their ignorance of the new rules or face significant charges from HMRC.”

Many industry experts believe that this new legislation reveals HMRC’s desperation at the failure of its mutual taxation agreements with foreign governments, hoping that over-extending HMRC’s powers will reap the benefits it previously forecast.

Mike Down, head of tax and investigations management group at Baker Tilly, suggests that even if these measures did come into play HMRC would be unable to handle the workload.

“Already the number of such investigations resulting in the taxpayer being charged has risen from just 165 in 2010/11 to an anticipated 1,174 in 2014/15, so will HMRC have adequate resources once the proposed new criminal sanctions become law?”