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Postponed: a new system of enhanced late filing penalties where tax information is deliberately witheld from HMRC by failing to file returns on time.

  • This measure was proposed by government in the July 2018 version of the draft Finance Bill 2019.
  • It was dropped in the November 2018 version.

Why? The Budget 2018 overview of tax legislation says:

At Autumn Budget 2017, the government consulted in summer 2018 on draft legislation for new late payment and late submission sanctions. The government remains committed to the reform and intends to legislate in a future Finance Bill, to allow for more time to consider further the communications needed for successful implementation. The government will provide notice before these measures are implemented.


The original proposals were as follows:

The new regime: a start date will be set by parliament.

  • The amount of the penalty is calculated according to whether the failure is judged to be deliberate or deliberate and concealed.
  • This regime targets offshore offences however it will apply to UK tax offences.
  • The penalty is calculated by taking the relevant % according to the category of the offence (UK or different classes of offshore income or gains), subject to a £300 minimum penalty.
  • The normal reductions apply to reward good taxpayer behaviour in making the disclosure.
  • Where no return is filed HMRC may assess the penalties based on what they suppose that the liability on the return will be, to ‘the best of HMRC’s information and belief’.
  • Partnership penalties under this schedule will be charged on each relevant partner.
  • HMRC may, by written notice, transfer up to 100% of a penalty charged on a company to an officer of that company who was responsible for the deliberate withholding of information.

Penalties

Type of behaviour

Penalty

Relevant %

Deliberate

Higher of:

Relevant % of any liability  to tax on the return or

£300

Category 0 70%

Category 1 87.5%,

Category 2 105%

Category 3 140%.

Deliberate & concealed

Higher of:

Relevant % of any liability  to tax on the return or

£300

Category 0 100%

Category 1 125%

Category 2  150%

Category 3 200%

Categories of information

Category 0

Category 1

Category 2

Category 3

(a) it involves a domestic matter,

 (b) it involves an offshore transfer and the territory in question is a category 0 territory,

(c) it involves an offshore matter, the territory in question is a category 0 territory and it is information which would enable or assist HMRC to assess the person’s liability to income tax, capital gains tax or inheritance tax,

or

(d) it involves an offshore matter and it is information which would enable or assist HMRC to assess the person’s liability to a tax other than income tax, capital gains tax or inheritance tax.

(a) it involves an offshore matter or an offshore transfer,

(b) the territory in question is a category 1 territory,

(b) the territory in question is a category 2 territory,

(b) the territory in question is a category 3 territory,

and

(c) it is information which would enable or assist HMRC to assess the person’s liability to income tax, capital gains tax or inheritance tax.

Draft legislation (as issued 6 July 2018) 

(5) Information “involves an offshore matter” if the liability to tax which would have been shown in the return includes a liability to tax charged on or by reference to—

(a) income arising from a source in a territory outside the UK,

(b) assets situated or held in a territory outside the UK,

(c) activities carried on wholly or mainly in a territory outside the UK, or

(d) anything having effect as if it were income, assets or activities of a kind described above.

(6) If the liability to tax which would have been shown in the return is a liability to inheritance tax, assets are treated for the purposes of sub-paragraph (5) as situated or held in a territory outside the UK if they are so situated or held immediately after the transfer of value by reason of which inheritance tax becomes chargeable.

(7) Information “involves an offshore transfer” if—

(a) it does not involve an offshore matter,

(b) it is information which would enable or assist HMRC to assess the person’s liability to income tax, capital gains tax or inheritance tax,

(c) by failing to make the return, the person deliberately withholds the information (whether or not the withholding of the information is also concealed), and

(d) the applicable condition in paragraph 5 is satisfied.

(8) Information “involves a domestic matter” if it does not involve an offshore matter or an offshore transfer.

(9) If the information which the person withholds falls into more than one category:

(a) the person’s failure to make the return is to be treated for the purposes of this Schedule as if it were separate failures, one for each category of information according to the matters or transfers which the information involves, and

(b) for each separate failure, the liability to tax which would have been shown in the return in question is taken to be such share of the liability to tax which would have been shown in the return mentioned in paragraph (a) as is just and reasonable.

(10) For the purposes of this Schedule—

(a) paragraph 21A of Schedule 24 to FA 2007 (classification of territories) has effect, but

(b) an order under that paragraph does not apply to a failure if the filing date is before the date on which the order comes into force.

(11) In this paragraph and paragraph 5—

(a) “assets” has the meaning given in section 21(1) of TCGA 1992, but also includes sterling;

(b) “UK” means the United Kingdom, including the territorial sea of the United Kingdom.

Liability to a penalty Offshore transfers

(1) This paragraph makes provision in relation to offshore transfers.

(2) Where the liability to tax which would have been shown in the return is a liability to income tax, the applicable condition is satisfied if the income on or by reference to which the tax is charged, or any part of the income—

(a) is received in a territory outside the UK, or

(b) is transferred before the relevant date to a territory outside the UK.

(3) Where the liability to tax which would have been shown in the return is a liability to capital gains tax, the applicable condition is satisfied if the proceeds of the disposal on or by reference to which the tax is charged, or any part of the proceeds—

(a) are received in a territory outside the UK, or

(b) are transferred before the relevant date to a territory outside the UK.

(4) Where the liability to tax which would have been shown in the return is a liability to inheritance tax, the applicable condition is satisfied if—

(a) the disposition that gives rise to the transfer of value by reason of which the tax becomes chargeable involves a transfer of assets, and

(b) after that disposition but before the relevant date the assets, or any part of the assets, are transferred to a territory outside the UK.

(5) In the case of a transfer falling within sub-paragraph (2)(b), (3)(b) or (4)(b), references to the income, proceeds or assets transferred are to be read as including references to any assets derived from or representing the income, proceeds or assets.

(6) In relation to an offshore transfer, the territory in question for the purposes of paragraph 4 is the highest category of territory by virtue of which the information involves an offshore transfer.

(7) “Relevant date” means the date on which the person becomes liable to a penalty under this Schedule.

But the standard percentage may not be reduced to a percentage that is below the minimum shown for it—

(a) in the case of a prompted disclosure, in column 2 of the Table, and

(b) in the case of an unprompted disclosure, in column 3 of the Table.

(3) But HMRC must not under this paragraph reduce a penalty below £300.

 

Summary of reductions

Special reduction

  • If HMRC think it right because of special circumstances, they may reduce a penalty under this Schedule.

Normal reductions

HMRC must reduce the standard percentage to one that reflects the quality of the disclosure

Standard percentage Minimum percentage for prompted disclosure Minimum percentage for unprompted disclosure

70%

87.5%,

100%

105%

125%

140%

150%

200%

 

45%

53.75%

60%

62.5%

72.5%

80%

85%

110%

 

 

30%

35%

40%

40%

50%

50%

55%

70%

 

 

Small print and links

Budget 2018 OOTLAR

Published 6 July 2019

 

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