HMRC fines zero ‘enablers’ of offshore tax evasion in five years

The UK’s tax authority has not fined a single “enabler” of offshore tax evasion or non-compliance in five years despite landmark powers introduced in 2017, new figures reveal.

Industry experts criticised HMRC’s approach as “bizarre” and “bloody pointless” in light of the data, which was released under freedom of information laws to the Bureau of Investigative Journalism (TBIJ).

They say it shows HMRC’s enforcement is failing to target the architects of offshore schemes while it aggressively pursues the clients, some of whom say they are the victims of schemes sold to them as lawful.

The findings follow revelations by TBIJ and the Observer that prosecutions for tax crimes have plummeted. HMRC has also not charged a single company or partnership for enabling tax evasion since laws introduced in 2017 provided expanded powers to crack down on the “enablers” of tax dodging.

Tax evasion and avoidance are key battlegrounds in the forthcoming election. Both Labour and the Conservatives have made ambitious pledges to raise billions through targeted pursuit of tax dodgers and the elimination of tax breaks for non-doms, people living in the UK who claim their permanent home is overseas.

“The neverending stream of new HMRC powers … are bloody pointless if the powers aren’t then used,” said Dan Neidle, the founder of the independent thinktank Tax Policy Associates and former head of tax at global law firm Clifford Chance.

He said in primarily penalising the taxpayers, who in some cases believed the schemes were legal because they were misleadingly marketed, HMRC is failing to address “the root source of the problem: the people offshore pimping these schemes”.

HMRC defines an enabler as “any person who knowingly helps their client to avoid or evade tax”. Targeting them, not just the tax evader, became a central pillar of HMRC’s strategy during the 2010s.

“Enablers were and still are a big focus for HMRC,” said Michelle Sloane, a tax disputes partner at law firm RPC. “But these figures show their rhetoric on tackling enablers … is clearly not being followed through with action.”

Before 2014, HMRC struggled to crack down on offshore tax dodging due to limited data on accounts overseas. But that year saw the approval by tax authorities around the world of the Common Reporting Standard, a measure that made financial institutions share information across borders. That allowed HMRC and other tax authorities unprecedented oversight of where taxpayers had stashed money overseas.

HMRC also began cooperating with other major tax authorities through the J5, a coalition of tax authorities founded to tackle tax evasion and money laundering.

Meanwhile, the revelations in the Panama Papers in 2016 marked a turning point in HMRC’s pursuit of the middlemen who helped to hide money from tax authorities. The offshore enabler penalty was introduced in 2017, alongside a raft of new powers to make it easier to punish perpetrators.

The penalty could include a £3,000 fine or 100% of the amount of tax that was dodged, whichever was larger.

But the new figures show compliance enforcement is “not what you’d be expecting, based on their focus on enablers and all the sources of information that they have available to them”, said Sloane. “It’s an area I expect the next government will wish to concentrate on.”

Stephen Daly, a tax academic at King’s College London, called the lack of any offshore enablers penalties “bizarre”. “Why would the government want to introduce such a power only to leave it sitting idly by?”

The findings compound pressure on HMRC after revelations that the authority does not know how much is lost to offshore tax dodging each year.

HMRC estimates that it collects 95% of all the tax owed in the UK, but the remaining 5% accounted for about £36bn in lost revenue in 2021-22.

And figures HMRC disclosed to Tax Policy Associates in 2021 revealed that UK taxpayers held £850bn in foreign accounts in 2019, of which £570bn was in tax havens.

However, HMRC said in a freedom of information response to the thinktank that it had not “produced or received any estimates” on how much is being lost to unlawful offshore schemes.

In June 2022, Lucy Frazer, then financial secretary to the Treasury, said HMRC would produce data on the “offshore tax gap” in 2023. But still no data has been published.

Whoever wins the election, some experts say they will need to make substantial investments in HMRC’s investigative teams if they want to raise funds for the public purse by closing the tax gap.

Commenting on the scale of revenue lost offshore, Dan Neidle said, “On the evasion side, we don’t really know, because we’ve got no data – [while] on the avoidance schemes offshore, HMRC seem ineffective at stopping the promoters.

“If it’s as much as single-figure billions, that’s a good result. But it’s going to take criminal sanctions on promoters to stop this.”

An HMRC spokesperson said: “We have a strong track record in tackling offshore non-compliance. Since the launch of our No Safe Havens strategy in 2019, we have secured almost £700m from offshore initiatives.”