HMRC Introduces Strict Liability Offence For Non-Disclosure Of Tax

HMRC has recently closed a consultation into the scope of the proposed new criminal offence of failing to declare taxable offshore income and gains. The Government has already determined that such an offence will be enacted (on the current timetable in 2015) and, critically, that it will be one of strict liability. This means that guilt can be proved simply by the fact of non-disclosure, regardless of the state of mind of the taxpayer, whether the failure to disclose was careless, deliberate or concealed; even ignorance of the income generating asset will not constitute a defence. The issue of mens rea will only be relevant to the prosecutorial discretion exercised when the charging decision is made and to sentence.

This is a radical step. There are many strict liability offences on the statute book but they mainly relate to driving, technical regulatory compliance or failing to meet express demands to provide information. Occasionally there are cases of the offence meeting an overwhelming public interest, such as the possession of firearms without a licence. At present there are very few strict liability offences in tax law and none in the field of direct tax. The proposed penalty is unclear. HMRC has consulted on the option of imprisonment. If the proposed changes to the level of fines imposed across the board for criminal convictions in the magistrates' courts are enacted, the maximum fine is likely to be up to £20,000.

It is certainly arguable that the social, economic or practical case for the new offence has not been made out. On HMRC's own figures on a sample of offshore disclosures in which civil penalties were charged, 98% involved deliberate non-compliance. That statistic supports an argument for imposing mens rea not a strict liability offence. There remain 2% of taxpayers who failed to comply and who did not do so intentionally. Whilst those figures obviously beg the question of the proportion of undisclosed gains which are deliberate, they are hardly indicative of a vast resource of unpaid tax due to carelessness or ignorance. Another factor is the endorsement of the Common Reporting Standard by over 45 countries, which will surely include those jurisdictions where the unwitting - as opposed to criminally minded - taxpayer is most likely to harbour taxable gains. If the purpose...