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HM Revenue and Customs Brief 14/11


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Issued 6 April 2011

Penalty for failure to disclose offshore income or gains


This brief explains how legislation in Schedule 10 to 2010 Finance Act allows for a higher penalty rate where income or gains that arise outside the UK are underdeclared. People who do not declare income or gains arising offshore could face penalties that are up to 200 per cent of the tax owed.

The new penalties for offshore non-compliance came into force on 6 April and will apply for the 2011-12 tax year onwards to Income Tax and Capital Gains Tax.


The offshore penalties legislation is part of the continuing review of HMRC’s powers, deterrents and safeguards which aims to align and modernise the framework for the taxes HM Revenue & Customs (HMRC) administers.

The offshore penalty

The new offshore penalty is an enhancement of three existing penalties for:

  • failure to notify – where you fail to tell us that you have a source of income or a capital gain that may be taxable
  • inaccuracy on a return – where your Self Assessment tax return is incorrect
  • failure to file a tax return on time – where you send your tax return late

Schedule 10 to Finance Act 2010 introduced a new link between these penalties and the tax transparency of the territory in which the undeclared income or gain arises. Where it is harder for us to get information from another country, the penalties for failing to declare income or gains arising in that country will be higher.

Each territory has been placed into one of three categories. The criteria used (PDF 48K) and the list of territories are on the HMRC website.

There will be three new levels of penalty:

  • Category 1 territories: the penalty rate is the same as for existing penalties, up to 100 per cent of the tax due.
  • Category 2 territories: the penalty is 1.5 times the existing penalties, up to 150 per cent of tax due.
  • Category 3 territories: the penalty is double the existing penalties, up to 200 per cent of tax due..

All existing safeguards will still apply. There will be no penalty if a person can demonstrate they have taken reasonable care to get their tax right or have a reasonable excuse for a failure to notify taxable income or gains.

Where penalties are due, HMRC can reduce them depending on how helpful the individual is in assisting us to establish the correct amount of tax due. The largest reductions will be for unprompted disclosures. Unprompted means when you tell us about a tax issue you have no reason to believe we have discovered or are about to discover it.

The existing penalties

A full explanation of these penalties, and the percentage rates attached to each type of behaviour and disclosure, is available on the HMRC website using the links below.

More information

Offshore penalties internet page (Opens new window)
Understanding penalties – agents and advisers
Q&A briefing on the offshore penalty (PDF 48K)
Liechtenstein Disclosure Facility – runs from 1 September 2009 until 31 March 2015
How to take care and avoid the inaccuracy and failure to notify penalties

About the Author

© Crown Copyright 2011.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.

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Article Published/Sorted/Amended on Scopulus 2011-04-08 10:11:21 in Tax Articles

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