HMRC Fails to Fine a Single ‘Enabler’ of Offshore Tax Fraud in Five Years

HMRC has not fined any enabler of offshore tax fraud in the past five years, despite possessing landmark powers to impose significant penalties. Critics argue these powers are ineffective without enforcement.

The UK’s tax authority, HM Revenue and Customs (HMRC), has not fined a single “enabler” of offshore tax evasion in the past five years, despite possessing landmark powers to impose substantial fines.

This revelation raises concerns about the efficacy of the measures introduced to tackle tax evasion.

In 2017, new laws were introduced allowing HMRC to pursue accountants, lawyers, and bankers who facilitate offshore tax evasion, with potential fines reaching millions of pounds. These laws aimed to create a level playing field and strengthen HMRC’s ability to combat tax evasion.

However, figures disclosed under freedom of information laws to the Bureau of Investigative Journalism reveal that no fines have been issued under these powers since their inception. Dan Neidle, founder of the independent think tank Tax Policy Associates and former head of tax at Clifford Chance, criticised the lack of enforcement, stating, “New HMRC powers are pointless if the powers aren’t then used.”

Tax evasion and avoidance are pivotal issues in the forthcoming election, with both major parties hoping to raise billions of pounds from clamping down on these activities to fund their manifesto pledges. The Conservatives propose using £1bn to support a national service scheme, while Labour plans to cut NHS waiting lists and introduce free primary school breakfast clubs.

The UK’s tax gap, the difference between tax paid and tax owed, stood at £36bn for 2021-22. Labour has accused the Conservatives of weakening the deterrent effect of prosecutions and penalties.

HMRC defines an enabler as anyone who knowingly helps a client to avoid or evade tax. Targeting enablers, alongside taxpayers, became a key component of HMRC’s strategy. The offshore enabler penalty, introduced in 2017, includes fines of £3,000 or 100% of the dodged tax amount, whichever is larger.

Despite these powers, no fines have been issued. Michelle Sloane, a tax disputes partner at Reynolds Porter Chamberlain, remarked, “Enablers were and still are a big focus for HMRC. But these figures show their rhetoric on tackling enablers is clearly not being followed through with action.”

HMRC’s annual report last year claimed it had raised an additional £34bn through tackling tax avoidance, evasion, and other noncompliance. However, the authority has faced criticism for not effectively deploying new laws to address tax avoidance.

Stephen Daly, a tax academic at King’s College London, described the absence of penalties for offshore enablers as “bizarre.” He questioned the rationale behind introducing such powers only to leave them unused.

The issue adds to the pressure on HMRC following revelations that it does not know how much is lost to offshore tax evasion each year. HMRC estimates that it collects 95% of all tax owed in the UK. Figures disclosed to Tax Policy Associates in 2021 revealed that UK taxpayers held £850bn in foreign accounts in 2019, with £570bn in tax havens.

In June 2022, then Financial Secretary to the Treasury, Lucy Frazer, indicated that HMRC would produce data on the “offshore tax gap” in 2023. However, this data has yet to be published.

An HMRC spokesperson defended the authority’s record, stating, “We have a strong track record in tackling offshore noncompliance. Since the launch of our ‘no safe havens’ strategy in 2019, we have secured almost £700m from offshore initiatives.”

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HMRC Fails to Fine a Single ‘Enabler’ of Offshore Tax Fraud in Five Years