Offshore schemes: HMRC cracks down on tax evasion enablers

The government is closer than ever to closing the loophole of offshore schemes. In addition to existing penalties for users and providers of offshore schemes for the purpose of tax evasion, including prison sentences for conviction, there are now civil penalties for the enablers of offshore tax evasion.

Effective 1^st January 2017, the government passed legislation that allows civil penalties for enabling tax evasion, which would be payable by the person who enables someone to commit tax evasion via an offshore scheme.

When an enabler of an offshore scheme is aware that their actions would allow someone to evade tax, and the user of the scheme is convicted or found liable for evaded tax, the enabler will face the following penalties:

• Up to 100% of the tax evaded, or
• £3,000 – whichever is highest

Furthermore, HMRC will now be able to publish the names of those who have enabled tax evasion via offshore schemes.

The new penalties prove that the government is gunning for the outlaw of offshore schemes for individuals living in the UK, working in the UK, and getting paid for work done in the UK. If you are a contractor in the UK who works via your own UK limited company or an umbrella company, this applies to you as well.

Tax evasion is a criminal offence punishable by monetary fines or a prison sentence, however the government also has a way to recoup the tax from those who commit tax avoidance.

Tax avoidance is not illegal, however with regards to offshore schemes, HMRC can retrospectively apply tax legislation which will require individuals who used offshore schemes as a way of avoiding tax, requiring them to pay fines and backdated taxes.

This means that if you are a contractor who has used an offshore scheme to avoid tax in the year 1987 or later, at some point HMRC might come knocking for the tax you owe.

So with all of the above said, the question you should ask yourself is:

Are offshore schemes worth the risk?

If your contract work is mostly in the UK and you predominantly live in the UK, you must pay UK taxes. Therefore if you use an offshore scheme to try to avoid or evade tax, HMRC will eventually catch you and you will eventually have to pay up.

There are ways you can legally increase your take home pay with the help of compliant, UK-based contractor accountants. Look for an accountant who has a perfect compliance record with HMRC – they will give you peace of mind so you won’t need to worry if you will owe backdated taxes in the future. Furthermore, a good contractor accountant will still be able to maximise your take home pay through personalised tax planning.

Find out more about being the Director of your own legitimate UK limited company by contacting us on 01707 871622 or email enquiry@churchill-knight.co.uk.