HMRC targets VAT cheats - or rather, it will do soon...

At last HMRC have decided to take advice BEFORE they announce a new plan to crack down on tax evasion.

Previous campaigns have targeted offshore investments, medical professionals, the restaurant trade and people working in the plumbing industry. In the latter case though, anyone could take the opportunity to 'come clean' under the terms offered by HMRC.

The latest initiative will focus on those individuals and businesses who are trading above the VAT threshold (£73,000) but who have not yet registered for VAT. It is likely to start "late summer".

This time around HMRC's initial announcement is simply that they are holding talks with interested parties. These will include the accountancy and tax professional bodies which have all been critical of elements of previous initiatives behind the scenes. This is implicitly accepted in HMRC's press release which states that:

“Our aim is to get as much input as possible into our future campaigns so that the views and experience of people and organisations outside the department play a fuller part in what we design for customers."

In due course, this VAT related campaign is likely to offer taxpayers simple, straightforward opportunities to put their records in order on favourable terms. As previously noted on this blog though the focus is on capping the penalties payable. All tax and interest on late paid tax is always collected.

After the 'amnesty' period HMRC activity will focus on the non-compliant who choose not to take up the opportunity. HMRC typically use new technology and legislation to gather and analyse data, from internal and external sources, to identify people who should come forward. This has provided thousands more investigations, now being worked through, including a number of criminal investigations.

If you regularly report turnover figures just below the threshold - watch out! You may genuinely manage your business to avoid the need to register for VAT, but HMRC will not know this. They suspect that plenty of people falsely report lower than true turnover figures and are pocketing the VAT they are charging illegally as they're not registered for VAT.

Last chance for tax cheats to get their tax affairs straight

Last week HMRC published a statement about how they are going to manage deliberate defaulters by a new programme of special rules. The intention is that anyone who is identified as a deliberate tax defaulter will will have their tax affairs closely scrutinised - not just when they are caught but for the next five years too.

This week HMRC announced the Plumbers Tax Safe Plan (PTSP) - which I mentioned in an earlier blog post. This Plan contains a very useful facility. ANYONE can ask to get their tax affairs straight - and benefit from the same offer of a 20% cap on the penalties that will be charged. This should mean you can avoid being subject to ongoing scrutiny for the following five years.

Previous tax disclosure facilities have been criticised as they were specific to people in certain situations or businesses. This time round though the paperwork is very clear and HMRC says:

Customers who voluntarily come forward and put right their tax position can expect very similar terms to those on offer through PTSP. If you do not come forward and HMRC later find that you owe additional tax, you may face higher penalties or even criminal investigation.

I doubt that there will ever be a better time to take specialist advice to help you bring your tax affairs in order. Anyone who wants to use the PTSP to come clean on past tax arrears must register for the scheme by 31 May and will need to pay any back taxes plus interest and penalties by 31 August.

The maximum penalty under this scheme, of 20%, will be reserved for cases where more serious and “deliberate” irregularities have occurred. In such circumstances, the taxman will seek back tax over 20 years. This is why it is so important to work with experienced tax specialists who have plenty of experience of negotiating settlements with HMRC in respect of previously undeclared taxable income.

Anybody with extra income or gains to disclose, whether in the plumbing industry or not, should seriously consider coming forward now. Those who do not and who are subsequently found out will be liable to penalties of between 35% and 100% of the tax evaded. And may well be subject to increased scrutiny for the next five years. The rules are changing. Tax cheats - whether local tradespeople, property owners, entrepreneurs or anyone else are all in the same boat. Make sure yours has a paddle - or even a motor!

Tax amnesty for Plumbers is a good thing but it's not an amnesty

You'll see lots of reference to this so-called tax amnesty' for plumbers over the next few days.

HMRC says:

The Plumbers Tax Safe Plan (PTSP) is designed for people working within the plumbing industry who have not told HM Revenue & Customs (HMRC) about all their income in the past and who now want to get back on track. It is intended to cover people who work (or worked) in the plumbing, heating or gas installation trades and this includes anyone who installs and repairs pipes and fixtures for water, drainage or gas systems in a building.

This is part of HMRC's plan to catch up with everyone who has been doing cash in hand work and who wants to get straight with the taxman. There is NO TAX AMNESTY though.

Everyone who 'fesses up' will be required to pay all of the taxes they had hoped to avoid, plus interest on the late paid tax and a penalty. The 'Plan' simply means that the penalty will be limited - in most cases to 20% of the late paid tax.

As HMRC says:

It's basically a 'fresh start'. If you decide to take advantage of PTSP, you can stop worrying about what might have happened had HMRC found out that you'd not been telling them about all of your income. It's a chance to start getting things right from now on, whilst knowing exactly how much it's going to cost to sort out things for the past.

The guidance around the Plan is quite complex and many people will benefit from professional help especially if their confession covers many tax years.

Is there any future for tax amnesties in the UK?

It seems that only 5% of those doctors and dentists, targeted by the amnesty dubbed a 'Tax Health Plan' (THP), actually came forwards to voluntarily settle any outstanding tax liabilities.

The BBC has recently reported that:

Tax officials have harvested £9m in unpaid tax from 1,500 medical professionals, although 30,000 were approached in a disclosure campaign.

Pockets of the medical profession are accused of failing to declare payments for consultations, medicals and other fees, backed by details of payments that HMRC has received from sources such as National Health Service trusts, private hospitals and medical insurance companies. So what can we surmise from this development?

Medical professionals have either been unaware of this 'tax amnesty' or have ignored the facility. Or maybe they have been advised to do so by their accountants.

The situation is just as bad, if not worse, for offshore disclosures where the reported takeup is again very low. The first such 'facility' was announced in April 2007. Over 3 years ago. Since then has there been any publicity given to tax fraudsters who failed to play ball? More recently we've had the ODF and the LDF.

Amnesties only work if people think they are seriously at risk of penalty if they fail to comply. Does anyone really believe that HMRC have the resources to pursue more than a small fraction of the remaining medical professionals who have not come forward voluntarily? Or all the holders of offshore accounts? Maybe most of them have nothing to hide and thus nothing to fear? Maybe some of those targeted by the 'amnesties' have simply put their house in order and hope thereby to escape attention in the future.

Do people make a reasoned judgment over the odds of being caught? And of the consequences?

In my view there are 3 possible reasons for the failure of recent tax amnesties:

1- HMRC over-estimating the scale of the problem. Maybe the typical sums unreported by medical professionals are too small per head. Rather than 'fess up' the taxpayers simply get it right going forwards. Maybe much of the interest on the offshore accounts has been properly reported or is legitimately not subject to UK tax.

2- Inadequate PR. Has HMRC relied too heavily on accountants and tax advisers to tell their clients, the majority of whom are already compliant? Where were the radio and tv adverts encouraging people to comply - like the ones that are broadcast re tax credit claimants and benefit fraudsters?

3- Insufficient numbers of HMRC staff. Gordon Brown's disastrous plan to decimate HMRC staff numbers means there is a tide of departing investigation officers. They cannot easily be replaced. Most were experienced, able and fair. Without them many advisers consider HMRC's threats to be empty. Here's the latest - again only in the professional press. Accountancy Age reports a spokesman from HMRC who has issued a "stark ultimatum":

“We’re only 50 yards into a marathon. Those who don’t come forward will face naming and shaming and in the most extreme cases will be prosecuted.We always win in the end.”

My inclination is to respond: "If only that were true". What's your view?