Q. Following on from the Election and recent Budget, can business and taxpayers expect to see H M Revenue & Customs becoming more aggressive?
A.Now the dust has settled on the Election and the recent Emergency Budget, all attention seems at present to be centered on the Governments proposed spending cuts and its implications to our every day life.
However, whilst savings are seen as an essential part of addressing the budget defecit we must not forget the other side of the coin which is increasing revenue. At present, beyond the tax changes recently annouced little seems to have been publicised about the potential for ensuring the Treasury coffers are filled.
H M Revenue & Customs (HMRC) will no doubt come under increasing pressure to ensure that tax reciepts from all sources are maximised. Whether this be by ensuring compliance, tax enquires or targeted iniatives, HMRC will no doubt use all the powers available to them to achieve their aims.
Under the recent new HMRC powers of enquiry and penalty regime, the primary focus is on encouraging people to voluntarily regulate their tax affairs by providing taxpayers with an incentive to do so. However, for those who do not take the opportunities, the threat of harsher treatment simply increases. If HMRC later discovers irregularities in their tax affairs, they risk severe penalties. Below are the range of penalities available to HMRC. The percenatges shown are applied to the understated tax and are in addition to interest for late payment.
|TYPE OF DISCLOSURE
||DELIBERATE & CONCEALED
Over the last two years we have seen several initiatives or amnesties, including one which is specifically designed for those with offshore income and another targeting the medical profession.
Amnesties offering lower penalties to those who come forward isn’t the only way HMRC is targeting tax evaders. In August 2009 HMRC obtained leave from the new Tax Tribunal to serve information notices on all banks with a UK presence, requiring these banks to provide information in their “power or possession” in relation to UK residents with offshore accounts. This will provide HMRC with sufficient information to enable it to mount an investigation into anybody whose name appeared on the lists provided by the banks.
If an individual or business does have irregularities in their tax affairs, the best way to minimise the chances of prosecution and secure a civil settlement with HMRC is to disclose all errors voluntarily and assist the Revenue in calculating the amount of the tax liability. If voluntary disclosure is not possible because HMRC has already opened an investigation, the key to a successful outcome is cooperation. Under no circumstances should an individual – or their agent – knowingly decieve HMRC. At the least such behaviour would result in a higher settlement being sought whilst at worst it could result in the criminal prosecution of the taxpayer.
Many people who are investigated by HMRC focus on the need to minimise the penalty percentage when arriving at a civil settlement. Whilst this is important taxpayers and their agents should be aware that since the level of penalty is tax geared, it is essential in the first instance to keep focused on minimising the tax liability.
In most cases, this makes far more difference to the final liabilty than reducing the penalty loading. However, the penalty is an important aspect of any settlement and you should remember that the new penalty regime, as shown by the above table, is governed by the behaviours of taxpayers.
It is therefore important for the taxpayer to demonstrate that problems with their tax affairs have not arisen as a result of a deliberate attempt to evade tax and that they have taken reasonable care to ensure full tax compliance at all times.