Tax dodging: George Osborne plans to strengthen criminal law

Chancellor wants to make it easier to impose fines and jail terms on tax avoiders exploiting offshore havens

The Guardian, Phillip Inman in Washington, Saturday 12 April 2014

George Osborne during the IMF/World Bank 2014 Spring Meetings in
Washington Photograph: Joshua Roberts/Reuters

George Osborne is planning to make it easier to impose jail terms or heavy fines on British residents using offshore tax havens to cheat the exchequer out of billions in revenue.

The chancellor, who is in Washington at the International Monetary Fund's spring meeting, has drafted a criminal offence of failing to declare offshore income as he steps up a long-running campaign to crack down on tax dodging.

At present, HMRC has to prove a British resident has deliberately sent funds abroad to dodge tax. The need to prove intent has undermined several prosecutions and allowed those under investigation to escape with only light fines, Treasury officials said.

HMRC estimates £5bn a year is lost to the exchequer from tax evasion by wealthy individuals, out of a £35bn overall loss to evasion and non-payment.

"It is totally unacceptable for people not to pay tax that is due in the UK," Osborne said between meetings at the IMF spring conference. "The vast majority of wealthy people pay their taxes and their share of tax income has been going up. HMRC believes it has been difficult getting the outright tax evader."

The UK government is working with 50 other countries in a pilot project to share information about potential tax avoiders. The project is co-ordinated by the Organisation for Economic Co-operation and Development, which has laid out rules for information sharing between governments on potential tax dodgers.

Osborne said previous governments had failed to put rigorous rules in place. "It has been a problem in the British crown dependencies, which have not done enough in the past to be transparent. But we have been tough and as a result they have fallen into line."

While much of the discussion of tax havens has focused on the British Virgin Islands and the Cayman Islands, ministers believe a larger proportion of untaxed cash is in Lichtenstein, Luxembourg and Switzerland.

In a document available for consultation from Monday, the Treasury says: "Our published criminal investigation policy will still apply, meaning criminal investigation will be pursued where there is a need to send a strong deterrent message or where conduct is serious enough that only a criminal sanction is appropriate.

"We have committed to increase the number of investigations fivefold. This will result in over 1,000 additional prosecutions for tax evasion by the end of the 2014-15 financial year."

In 2010-11, HMRC secured only 165 prosecutions, compared with a projected haul of 1,174 next year.

The government has a chequered history in its pursuit of tax avoidance and evasion. Osborne said £1.5bn in extra tax was recovered in the last two years after HMRC stepped up the number of investigations. But last year HMRC came under fire after it recovered less than £800m following a deal with Switzerland that was expected to reap £3.1bn in extra tax.

Margaret Hodge, chair of the public accounts committee, criticised the original estimate as "completely unrealistic".

HMRC's tax assurance commissioner, Ed Troup, blamed the constraints of Swiss bank secrecy even though the deal was billed as overcoming previous restrictions on disclosure by Swiss bank account holders.

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