Harsher penalties for offshore tax evasion

On 6 April 2011 new penalties came into force for offshore non-compliance relating to income tax and capital gains tax (CGT). Under the new rules, 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 will be higher.

All offshore jurisdictions are divided into three categories and the classification determines the level of the penalty that is applied, as shown in the table below. Details of which territories are in 'category 1' and 'category 3' can be found at www.hmrc.gov.uk/news/territories-category.htm. All other territories (except the UK) are in 'category 2'.

Category	Transparency of territory	Penalty (from 6 April 2011)
1	UK and territories with automatic exchange of information on savings with the UK	The penalty remains the same - up to 100%
2	Territories which exchange information on request with the UK. Least developed countries without information-sharing agreements with the UK	The penalty is now 1.5 times that due under the previous rules - up to 150%
3	Territories which do not exchange information with the UK	The penalty is double that due under the previous rules - up to 200%

If a person can demonstrate that they have taken reasonable care to get their tax right, they may escape a penalty. Similarly, HMRC may not apply a penalty where an individual has a reasonable excuse for a failure to notify taxable income. Where penalties are due, HMRC can reduce them depending on how helpful the individual is in assisting it to establish the correct amount of tax due.

The first Self Assessment returns affected will be for the 2011/12 tax year, with paper returns due to be filed by 31 October 2012, and electronic returns by 31 January 2013.