The Night Before Christmas

The lead up to Christmas through to the end of February is when we receive the largest number of calls by other professionals and clients regarding new HMRC enquiries. Since September, we have seen an increase in nudge letters regarding those holding offshore assets although HMRC have been poised to release letters in the lead up to Christmas.

It may seem a bit unfair to cast a shadow over Britain’s festive period of over indulgence. It may also feel particularly unpleasant with the backdrop of recession, increased cost of living, higher mortgage interest and next year’s 43% increase in fuel costs.  HMRC can’t really not enforce the collection of taxes just because the Government, whilst having illegal wars, pontificating over leaving the European Union, leaving the European Union and partying through the pandemic, helped kill our economy. At least they can hide behind the war in Ukraine although one may also consider they’ve done very little to make the UK attractive to grow.

In the absence of changing my career from tax adviser to politician, we reflect on the impending letters of doom to be issued ahead of and beyond Christmas. These letters are not going to be without reason. HMRC now collect a significant amount of information from third parties to compare against taxpayer’s returns (or absence of returns) as well as adopt a risk based approach. If you are higher risk, you get a letter (not a text message from a random number – that’s a scam) or very worse a visit.

One area HMRC are keen to clamp down on is the use of avoidance schemes. The front page of HMRC’s website has a lovely link to an explanation about what is avoidance and not getting caught out. It’s been on the website for a long time and focuses on those benefitting from schemes purporting to offer tax free remuneration. These have historically included employee benefit trusts, remuneration trusts, bonus incentives over tax free assets, share arrangements, and unregulated pension arrangements to name a few.

If you dig a little deeper on HMRC’s website, you will find they issued  on 6 December guidance titled ‘Ten things about accelerated payment notices’ (‘APNs’). APNs were introduced through the Finance Act 2014. That is eight years ago and apart from the onslaught of notices in the two years that followed, we’ve not seen many since. Suspiciously, HMRC choose to publish guidance, which would indicate something is on its way. You don’t expect guidance to be published unless it’s going to have some relevance that is unless the officer preparing the guidance just took a long time to prepare it!

So if you are someone has participated in an avoidance scheme, they are more likely to receive a letter or even an APN.

As detailed above, HMRC has already been busy sending out letters to those with offshore income, gains or assets. These letters are generally an invitation to make a disclosure under the world wide disclosure facility. Some avoidance schemes use offshore structures so an overlap is entirely possible. However, these letters will more likely target those benefitting from property, investments, bank accounts, trusts, foundations or companies in other jurisdictions. The information about the beneficial interest would have passed from the financial intermediary to the tax authority in the overseas country and then to HMRC. The electronic submission simply links the interests with the taxpayer’s identification number and the machine pumps out a letter if nothing is included on your tax return. The invitation to a disclosure is not a formal enquiry and therefore even if you do make a disclosure, there may not be finality on the years in question. HMRC may be able to look again!

HMRC can obtain information from digital sources and interestingly a number of recent enquiries have related to taxi drivers (Uber and similar platforms), take aways (Deliveroo/Just Eat and similar platforms),  online sales of goods (Amazon/eBay), Cryptocurrency trades and other investment trading platforms. The approach is targeted and given the digital footprint, evidence of activity is easy to identify.

HMRC state that they are ‘targeting tax evasion by residential landlords’.  The let property campaign was launched in 2016. Many landlords have not come forward to make a disclosure. It would appear that providing an opportunity to make a disclosure which is not taken up, changes the potential irregularity to ‘evasion’. Tax evasion is illegal and can result in imprisonment. We would normally expect prosecution to be reserved for the more serious offence although it is interesting how HMRC state ‘evasion’ and invite taxpayers to make a disclosure. They can do this themselves although making a disclosure and getting the lowest tax and penalty outcome is not easy. The HMRC officer is unlikely to assist the taxpayer to legally pay the least!

New powers were introduced earlier this year to combat till fraud. Sophisticated Electronic Sales Suppression systems reduce the value of till sales. HMRC visited 30 businesses earlier this year. Given the tills are likely to be ringing a little more, any users of the software will be at higher risk during December and January.

As the sales in January fade out and the reality of overspending and the increased cost of living take their toll of the family’s purse strings, self-assessment tax returns will be submitted and payments of tax made or payment arrangements entered into.  HMRC will have identified those they wish to enquire into before the returns are submitted as well as the big computer at HMRC identifying those at greater risk. February through to April will see more enquiries being opened as case officers work through their allocation for the next year.

So for those specialising in handling tax disputes, this is hunting season. We have the lead up to Christmas which is a good time to get the taxpayer’s thinking – they normally have more time to think about rectifying any irregularities and (some) HMRC officers go on extended holidays. A refreshed and invigorated HMRC workforce return normally after the first week in January to begin opening enquiries before the enquiry window closes and then sets about opening more as newly submitted returns are identified as a little bit risky.

Support is always nearby and we understand the need to speak with an adviser quickly after a letter is received (or there is a knock at the door).

Ten tips if under tax investigation | Edge (edge-tax.com)

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