It could actually be a confession of an electrician, plumber, property tycoon or virtually anyone. Although you may note that there is not a Politicians Tax Campaign despite the well documented abuse of expense claims. At the appendices we set out the settlement campaigns and the amount of revenue generated from them. We await the Employee Benefit Trusts Settlement Opportunity (EBTSO) and Contractor Loan Settlement Opportunity (CLSO) figures with interest.
Given so many have entered the settlement opportunities, been the subject of an enquiry, received a letter suggesting that they enter a settlement opportunity, or received accelerated payment notice (APNs), it is unlikely that a reasonable person of sound mind would actually believe HMRC will never find out about unpaid tax or undeclared assets.
Tax authorities around the world are helping each other. HMRC have their award winning software, Connect which receives information from government bodies, third parties and across the web. Risk and Intelligence Service (RIS) look after Connect and then identify campaigns to run and who should be the subject of an enquiry etc. before sending this down to the responsible teams. As reported previously, these teams include criminal investigators, lawyers and other specialists.
We offer our network of advisers a no obligation enquiry review and feedback service.
Should someone disclose?
No one wants to ask HMRC to look at their tax affairs. However, a voluntary disclosure of a tax irregularity can have a lot of positive outcomes:
- A case could be presented to HMRC instead of them investigating on their own account
- The person disclosing will obtain peace of mind that it is being dealt with rather than looking over their shoulders wondering when HMRC will knock
- If managed carefully, the possibility of criminal prosecution will be alleviated
- The person disclosing should avoid being named and shamed by HMRC
- It should be possible to significantly reduce penalties
- Where a payment plan is required, negotiations are likely to be easier
Consequences of tax offences
Where it is identified that tax should have been paid and it has not, it will need to be paid along with late payment interest. In certain circumstances, HMRC may have been provided with full information and may be out of time to seek tax for a particular tax year. However, where fraud has been committed, HMRC may go back up to 20 years ago.
Where there has been a serious fraud, the person or persons may be subject to a criminal investigation. In most serious cases, Code of Practice 9 (COP9) is issued to encourage a complete disclosure of tax irregularities. Although, where COP9 is issued and a material fact omitted, HMRC are likely to escalate the position to a criminal investigation leading to prosecution.
The correct amount of tax
Presenting a disclosure to HMRC allows the tax position to be set out in a favorable manner. It may be that the law in a particular area is unclear and presenting the lower tax position provides a starting point for negotiation. The representations need to be realistic and expectation should be to negotiate a compromise.
Some settlement opportunities, such as the EBTSO set out the precise tax treatment that would be adopted under that opportunity and HMRC have declined negotiated settlements instead suggesting they would prefer to litigate. The stance is likely to be similar where future opportunities are launched for schematic planning. It may therefore be more advantageous to consider disclosing ahead of the launch of an opportunity, although some find it difficult to believe that HMRC will catch up.
Paying the tax
Often the tax liability may be overwhelming for those that have enjoyed a better lifestyle by virtue of not paying the tax. It these situations there is often a fear that HMRC will force the sale of property or commence bankruptcy proceeding. However, HMRC are often flexible with payment and timing especially where the taxpayer is cooperating.
The tax liability would have arisen in a previous tax year and the due date passed. Therefore, expect interest on any tax liability, although the rate is not penal.
Not only will there be tax and interest but penalties are likely to be sought in most cases. A new penalty regime was introduced from 1 April 2009. The most important point is that in respect of tax irregularities spanning a long period, there are two penalty regimes that need to be considered.
For periods prior to 2009, the penalty started at 100% and was mitigated as follows:
- Up to 20% for disclosure or 30% if the disclosure was voluntary
- Up to 40% for co-operation
- Up to 40% subject to the nature of the tax offence
It is necessary to determine what is culpable and what is not as well as consider the guidance for each mitigating factors.
Post 2009, S97 Finance Act 2007 set out the provisions for penalties for errors:
Schedule 24 contains provisions imposing penalties on taxpayers who—
make errors in certain documents sent to HMRC, or
unreasonably fail to report errors in assessments by HMRC
Schedule 24 sets out the penalties as follows:
|Careless action||Deliberate but not concealed||Deliberate and concealed|
A reduction of penalties is achievable from the the standard penalty by disclosure. The disclosure of an inaccuracy is defined in Schedule 24 as:
Telling HMRC about it
Giving HMRC reasonable help in qualifying the inaccuracy or under assessment
Allowing HMRC access to records for the purpose of ensuring that the inaccuracy or the under assessment is fully corrected
A higher discount is available if the disclosure unprompted. The potential discounts are set out in Schedule 24. The standard percentage may not be reduced to a percentage that is below the minimum shown for it as set out in the following table:
|Standard %||Minimum % for prompted disclosure||Minimum % for unprompted disclosure|
Name and shame
Maybe one of the strongest deterrents is the fear of being named by HMRC as a deliberate tax defaulter. This can only happen in certain circumstances although the tax hurdle is not that high and we are likely to see an increase as settlement opportunities come to an end.
The impact of being named on HMRC’s website is not quantifiable although it could significantly affect reputation both for business and personal relations.
Making a disclosure
If someone is subject to an enquiry and has tax irregularities, it is not sensible to wait for HMRC to find it. At worst, it could result in a criminal investigation although more likely it will just result in higher penalties. It would be prudent to tell a specialist adviser of the irregularity and obtain their view on how HMRC are gathering information and how they will most likely establish or even confirm (they may already know) the irregularity.
There is only one chance to make a full and complete disclosure. It is important it is accurate, complete and effective. If material facts are later discovered affecting a tax liability, HMRC are considerably more likely to criminally investigate. In serious cases HMRC may decide to prosecute if materially false statements are provided.
HMRC on steroids
Maybe the steroids haven’t fully kicked in although HMRC is a totally different beast today than it was a decade ago. Here are some highlights:
Information is collected and pooled from different government sources as well as third parties without the tax payer knowing
The gap of technical knowledge and expertise once considered significantly wide between the profession and HMRC is not anymore
HMRC sit with Queens Counsel also
The penalty regime is revamped and HMRC use it
Disclosure of tax avoidance schemes and the general anti abuse rule exists now
Promoters of tax schemes can face significant penalties and monitoring
Serial users of tax avoidance can face monitoring
Prosecution targets have virtually doubled in a year!
|Campaign||Total Revenue as at 31 January 2015 £|
|Tax Health Plan||70,961,034|
|Tax Catch Up Plan||2,968,808|
|Value Added Tax Outstanding Returns||38,696,945|
|Plumbers Tax Safe Plan||22,166,777|
|Electricians Tax Safe Plan||15,803,609|
|Tax Returns Initiative||86,279,162|
|Offshore Disclosure Facility||512,190,000|
|Offshore New Disclosure Opportunity||156,923,070|
|Campaigns Consequential Disclosures||5,536,921|
|Health Well Being Tax Plan||936,315|
|Second Income||Update due 2015/16|
|Credit Card Sales||Update due 2015/16|
|Solicitors Tax Campaign||Update due 2015/16|