Tax Evasion: Time for New Penalties in 2017

Despite the concerns generally expressed by the Law Society amongst others, newer and tougher sanctions recently came into force which target lawyers and advisers who enable offshore tax evasion. The new sanctions are aimed at individuals through to corporates who help or assist parties to evade tax and themselves face fines of up to £3000 or 100% of the tax which is being helped to evade (whichever is the greater amount). What’s more, the enabler will be publicly named by the taxman.

In a first for the UK, and being one of the first countries globally to introduce these powers, the HMRC can charge penalties on those who provide the planning, evasion or advice, or actually and move the funds offshore. The plans were announced in 2015 and finally legislated in the Finance Bill of 2016. In a response published from the Treasury, the regime focuses on the party or parties who enable avoidance and also distinguishes them apart from others who provide second option advice about arrangements designed or enabled by others, and those who recommend against the arrangement. However, following the consultation, the Law Society has expressed its concerns that it would, at first instance, hinder the ability of solicitors to give their honest advice on what are complex and legal questions. Punishing solicitors could lead to an increase in the number of taxpayers who become unwittingly engaged in unacceptable tax avoidance schemes.

Objections were also raised by the Treasury in proposals to ‘reverse the burden of proof’, which requires parties to prove they undertook reasonable care on their arrangements. This obviously brings into question whether a lawyer could defend any allegations without the consent of their client to waive the legal profession privilege and that ‘no penalty regime should rely on an assumption that clients will waive privilege’.

Clearly the government recognise that there are ways in which the terms and condition on how the advice is given could be drafted to remove the issue of legal profession privilege; they state that “it is appropriate to show they [lawyers] do not fall within the scope of the penalty provision as without disturbing the LPP rights". The HMRC have further expressed that they will ‘consult on wording to ensure it was robust and compliant with the LPP’.

The measures and sanctions only apply to advice provided from 1st January 2017, at the same time as an introduction of a new corporate criminal offence of failing to prevent the facilitation of tax evasion. This will hold companies liable for an individual, employee or contractor acting on its behalf who facilitates tax evasion. Anyone who, by 30th September 2018, also fails to correct past tax evasion will also face tough new penalties.

Written by Jason Green - Senior Negotiatior

Jason Green


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