Insights

Whatever your circumstances it's imperative to know what you should do if you have a tax shortfall to declare.  The good news is that HMRC has several initiatives up and running aimed at helping you out; the bad news is that it is more determined than ever to crack down not just on tax evasion but on poor record keeping as well.

HMRC has stated that as well as their usual operations they will be conducting ‘intensive bursts of compliance activity’ in an attempt to collect the tax that they believe is owed to them. Strategies employed even include utilising 'web robots' to trawl cyberspace to root out potential tax cheats. So the advice is: use what help is available from HMRC and make sure you disclose to them first, before they come to you!

Whilst there are a number of campaigns aimed at specific business sectors and individuals, the general message is that HMRC’s investigations and checks are on the increase and their aim is to make sure that where additional tax is due, it is collected.

A small sample of the campaigns and new investigation approaches are set out below, however the message from advisers remains the same, if you hear from HMRC regarding an enquiry your first step should be to seek help from an experienced adviser.

The Tax Catch Up Plan - TCUP
HMRC’s latest plan, for example, the Tax Catch Up Plan (TCUP), gives people with undeclared income the opportunity to bring their tax affairs up to date. It is aimed at those with income from tuition or coaching as a main or secondary income. It covers people providing private lessons, regardless of whether they have a teaching qualification, and could include, for example, fitness/dance/lifestyle coaches through to national curriculum subject tutors and others.There are two stages to be aware of. You must notify HMRC by 6th Jan 2012 of your intention to make a disclosure, the actual disclosure and payment of tax due must then be made by 31st March 2012.

Avoiding heavy penalties
If you do make a disclosure under this plan, the incentive for doing this is reduced penalties. Careless but non deliberate mistakes will incur a penalty of 10% of the tax owed while deliberate mistakes incur 20% of the tax owed. These penalty rates are significantly reduced from the levels that HMRC are usually able to apply.

Be warned, after January 6th 2012, HMRC will start to pursue those it thinks should be using TCUP but who haven't notified them with an intention to disclose.

TCUP is the latest in a string of initiatives from HMRC; another is the VAT Initiative, which was launched earlier this year. It is aimed at individuals and businesses operating at or above the VAT threshold who are not VAT registered. If you registered with the scheme by 30 September 2011 you now have until 31st December 2011 to return a completed VAT registration application form (VAT1) to the VAT Initiative team. If you have not yet done so it may still be beneficial for you to do so before the VAT Initiative ends, as the penalty you pay will still be lower than if HMRC comes to you first.

Country-wide 'Taskforces'

In a further attempt to focus on potential areas of tax evasion and following the Government’s £900m spending review re-investment which aims to raise an additional £7bn each year by 2014/15, HMRC is to send five taskforces across the country. In the North West and North Wales, one taskforce will target tax evasion amongst landlords who own and/or rent more than three properties and the second will be focused on construction traders who are self employed or who run their own companies, where suppression of sales or over-claiming expenses is identified.In the South East, the taskforce will be focussed on taxpayers not submitting their statutory returns across Corporation Tax, Income Tax, Self Assessment, PAYE and VAT.

In Scotland, the taskforces will target two separate areas. The first is scrap metal dealers who are deliberately suppressing their income or inflating expenditure to evade paying the correct liabilities and any that may not have registered their business with HMRC. The second is fast food outlets deliberately falsifying their records and under-declaring the true sales levels to avoid paying the right amount of tax.HMRC has announced it is planning a total of 12 taskforces in 2011/12, with more to follow in 2012/13.

Offshore issues

Last month an historic agreement was signed with the Swiss tax authorities that will impact anyone with a bank account, trust or company in Switzerland. The agreement comes into force on January 1st 2013 and gives the UK authorities unprecedented access to information held by the Swiss tax authorities. Based on information now available to HMRC, letters are being sent out to anyone who HMRC believes (rightly or wrongly), may have a tax liability arising on the income earned from funds in a Swiss account. If you are in receipt of a letter from HMRC on this matter it is imperative you get advice in dealing with the queries.

BRC

Meanwhile there is much consternation within the profession over the Business Record Checks regime that has recently been rolled out.The Business Records Checks (BRC) programme enables HMRC to inspect the adequacy of the business’s record keeping by carrying out checks in the current accounting period, rather than raising an enquiry into a tax return once it has been filed. In theory the programme is still in a 'test and learn' period and, following consultation, HMRC confirmed that during this period it will only apply penalties for ‘significant’ record-keeping failures in ‘exceptionally serious’ cases.

This latest campaign highlights the value that HMRC places on good record keeping and signals an intent to impose penalties if the record keeping is not deemed to be acceptable; it will not be necessary for HMRC to demonstrate that a tax return is incorrect or that the wrong amount of tax has been paid.If you have any questions about making a declaration to HMRC or any aspect of business record keeping, please contact Anne Eager at RJP, emailing ae@rjp.co.uk.