HMRC has issued a reminder of the forthcoming new penalties for “offshore” non-compliance. These new penalties appear to be associated with other activities, for instance developments in the Tax Information Exchange Agreements network.
The new penalties come into force from 6 April 2011 and will, at the outset, apply to Income Tax and Capital Gains Tax. Therefore the first SA 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.
According to the HMRC notification, whilst these new penalties are an “enhancement” of the existing penalties for failure to notify, inaccuracy on a return and failure to file a return on time, these particular penalties will also be linked to the tax transparency of the territory in which the income or gain arises. Therefore, if it is more difficult for HMRC to get information from that other country, the penalties for failing to declare income or gains arising in that country will be higher as a result. As highlighted elsewhere in Chartered Acccountants Ireland News, tax transparency is the key factor in determining whether a country operates as a tax haven or otherwise.
There will be three new levels of penalty:
- where the income or gain arises in a territory in category 1, the penalty rate will be the same as under existing legislation. Note that Ireland falls into this category for these purposes;
- where the income or gain arises in a territory in category 2, the penalty rate will be 1.5 times that in existing legislation - up to 150 per cent of tax;
- where the income or gain arises in a territory in category 3, the penalty rate will be double that in existing legislation - up to 200 per cent of tax;
HM Treasury has already laid legislation before Parliament which describes which territories are in 'category 1' and 'category 3'. All other territories (except the UK) are in 'category 2'.
The new legislation also provides for all existing safeguards to still apply.
Where penalties are due, HMRC can also reduce these depending on how helpful the individual is in assisting HMRC to establish the correct amount of tax due. The largest reductions will be for unprompted disclosures.
The enacting legislation in respect of these new penalties can be found in Schedule 10 Finance Act 2010. For more information see here.