Chartered Accountants and Professional Business Advisers

Final chance to come clean with HMRC

HMRC have launched four tax disclosure facilities in a final attempt to offer favourable terms to those who haven’t been entirely accurate about their tax affairs.

The worldwide disclosure facility, let property campaign, credit card sales campaign, and second incomes campaign have been (re)launched pending the Common Reporting Standard (CRS) coming into full force next year.

The CRS is an exchange of information agreement - it gives HMRC the power to collect information from banks and other financial institutions on everyone, and share that with the rest of the world. Other countries will be reporting offshore information to HMRC in return. Also, HMRC have introduced new criminal penalties for offshore tax evasion – up to 300% of the tax due - and a new offence for tax advisors who ‘enable tax evasion’. Furthermore, they are no longer obliged to use incentives to encourage tax evaders to come forward, and can instead rely on the threat of much harsher penalties, whether criminal or financial.

These disclosure facilities offer the chance to come clean with HMRC in a prescribe format before they find out about it themselves. Whilst the attractions offered by previous disclosure arrangements of limited penalties and no threat of criminal prosecution do not apply this time, under the current arrangement the penalties and potential for criminal proceedings are significantly less than with a voluntary disclosure.

The worldwide disclosure facility

Anyone who wants to disclose a tax liability arising from an offshore issue can use this facility. It is far from perfect as it is a digital disclosure and therefore complex structures are unlikely to be easily disclosed on the online forms, but anyone with simple investments etc offshore which have previously gone undeclared, should consider this as the easiest and safest means to disclose them.

For those who have significant undisclosed offshore wealth, using this opportunity is the ideal way to correct matters and be able to plan into the future, with the minimum of invasion by HMRC.

Let property campaign

First launched in December 2013, this is aimed at individuals who let residential property and have not declared some or all of their rent. It does not apply to trustees or companies, or commercial property.

HMRC have a computer system called ‘Connect’ which is used as an intelligence tool to gather information on an individual from a wide range of digital sources including Companies House to The Land Registry. Using this tool HMRC identify owners of multiple properties and look to understand how the properties are being used. We have seen this used in many cases involving inheritance tax where not all properties are disclosed, and HMRC are looking to expand its use to other areas.

They have a specific tool for finding residential property landlords and with their increasing use of ever more powerful computers, they are looking to mine that data to catch landlords who do not declare. HMRC have also been serving statutory notices on lettings agents to declare the owners of let properties they manage.

It all adds up to HMRC catching up with those who are less than fully compliant.

Credit card sales campaign

HMRC have new powers to demand details of debit and credit card transactions from card providers, with an aim to catch those traders who are under-declaring, or not declaring these at all.

In advance of fulling implementing the new regime, this is another opportunity for those individuals and companies to disclose under the favourable arrangements that were introduced in in October 2014.

Second incomes campaign

This is closely linked to the credit card sales campaign above, but also includes those people who use other means to generate a second income. HMRC’s examples include:

  • fees from consultancy or other services such as public speaking or providing training
  • payment for organising parties and events or providing entertainment
  • income from activities such as taxi driving, hairdressing, providing fitness training or landscape gardening
  • profits from spare time activities such as making and selling craft items
  • profits from buying and selling goods, for example regular market stalls, boot sales, Ebay, Amazon, etc

This campaign was launched in April 2014 but, again, the details they will now get from banks under CRS, credit card providers and more generally from their increased use of online analysis to search out Ebay and Amazon traders will mean many who have not disclosed to date are far more likely to get caught in the future.

In all of the above there is a common theme of HMRC using advances in transparency and technology to catch tax evaders. Voluntarily approaching HMRC invariably results in a far more favourable outcome than if they come to you, and these HMRC initiatives offer additional incentives to take action now.

Any income undeclared which does not fall into the above targeted areas should still of course be disclosed, and it is still far better to do that on a voluntary basis before HMRC catches up with you.

The increased penalties and more litigious nature of HMRC now and going forward may make this the final opportunity to come clean on anything other than very expensive terms.

Specific advice should be obtained before taking action, or refraining from taking action, on the basis of this information.

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