HM Revenue & Customs (HMRC) has revealed the details of a new criminal offence aimed at trapping offshore tax dodgers.
The tax man is urging people with undeclared income from offshore bank accounts and investments to come forward and settle their financial affairs or face prosecution.
HMRC has launched a consultation on the new measure which is undoubtedly destined to become law.
The tax man wants legal and tax professionals to help fine tune the new legislation by offering views on the details and safeguards for taxpayers under the new law.
Although most offshore tax evasion investigations will face civil penalties, the government wants to upgrade the penalties.
20-year rule scrapped
The main target is wealthy investors who switch cash and assets between different offshore financial jurisdictions to mask the extent of their holdings so they pay less tax.
Under specific scrutiny is how to deal with taxpayers who transfer their wealth from a country with taxation treaties with the UK to a financial jurisdiction that does not report financial information back to HMRC.
HMRC also wants to scrap the rule that limits tax investigations to a 20-year window.
The new rules will make failing to declare offshore wealth an absolute offence – meaning if a taxpayer is found to have tried to evade tax without reasonable excuse, they will be guilty of a crime and could face significant fines or even time in jail.
Both consultation periods end on October 31, 2014.
The likelihood of tax cheats evading HMRC is shrinking with the introduction of the US Foreign Account Tax Compliance Act (FATCA) and the UK equivalent that covers former tax havens like the British Virgin Islands, the Cayman Islands, the Channel Islands and the Isle of Man.
The US law allows the Internal Revenue Service (IRS) to report back to HMRC about the financial affairs of any UK taxpayer with bank accounts or investments in the United States.
Britain is also part of a major Organisation of Economic Cooperation and Development (OECD) tax information swopping network that already has already been joined by almost 50 countries, with around the same number again expected to sign up.
David Gauke, Financial Secretary to the Treasury, said: “This new law will only affect a minority of taxpayers who persist in hiding their wealth offshore in an attempt to pay the tax they owe.
“More than 56,000 taxpayers have already volunteered to sort out their tax issues and HMRC is tracking down those that have failed to take this opportunity to come forward.”