A new criminal offence of failing to declare offshore income to HM Revenue & Customs (HMRC) will be introduced by the British government in a bid to stem tax evasion.
Chancellor George Osborne has announced a consultation on the new law will start soon.
The measure will reverse the current tax declaration situation in the UK.
Currently, HMRC must show a taxpayer with undeclared offshore income failed to disclose the money on a tax return to evade any tax due before launching a prosecution.
Under the new law, failing to declare offshore income becomes a criminal offence.
This means HMRC merely has to prove a taxpayer has undeclared offshore earnings that are liable for tax to gain a conviction.
Claiming taking advice from an accountant or tax consultant not to declare offshore earnings will be barred as a defence against conviction.
The new offence will attract stiff penalties – this lifts the current penalty of 200% of tax owed plus interest to unlimited fines and gives courts the option to jail offenders.
The move will include income tax, capital gains tax and possibly inheritance tax as well.
In a new twist, Osborne is also looking at US whistle-blower laws that pay people rewards for tipping off the Internal Revenue Service (IRS) about possible offenders. The rewards could be a flat rate amount or a percentage of the recovered lost tax.
HMRC says 56,000 taxpayers have already come forward to tell them about undeclared offshore income under special deals and amnesties.
New powers for HMRC
“This is a significant amount of people and has resulted in hundreds of millions of pounds of unpaid tax being recovered,” said an HMRC spokesman. “Nevertheless, we believe there are still thousands more taxpayers who have not come forward.
“They should volunteer to bring their tax affairs up-to-date as soon as possible or they could face serious consequences.”
The new criminal offence adds to other new HMRC powers to tackle tax avoidance.
Other new laws will allow HMRC to grab money from business and personal bank accounts when tax is owed and to demand tax paid upfront from anyone joining a registered tax avoidance scheme.
Tax experts like the Chartered Institute of Taxation and accountants claim the new laws are taking away the British tradition of assuming an offender is innocent until proven guilty and are worried HMRC may have too many powers that infringe human rights laws.