Latest disclosure amnesty offers opportunity for all to ‘come clean’

If you are not a plumber (or even if you are!) you might be forgiven for not being aware of the current tax amnesty being offered by HMRC.  Plumbers, gas fitters, heating engineers and other associated trade members are all being given the chance to notify HMRC of any tax underpayment by 31^st May 2011.  Provided certain conditions are met, any penalties payable will be at a greatly reduced rate.

So far around 50 thousand registered professionals have received a letter explaining the terms being offered by the so-called Plumbers Safe Tax Plan (PTSP). This is the 5^th such initiative operated by HMRC and their other campaigns have been highly successful.  The Offshore Disclosure Facility alone, run in 2007, netted £400million in additional revenues.

Why is it worth taking more than a cursory interest in the latest trade to be investigated?  Because if you take a closer look at the legislation surrounding the initiative, this latest amnesty is drafted to be open to any UK tax payer who may have made ‘mistakes’ with their tax returns in the past and have an undisclosed tax liability.   This is because HMRC could potentially be challenged by the European Court of Human Rights if they did not make the opportunity open to everyone – including ex-UK residents.  If you think you may have under paid tax, you should be taking note of this latest amnesty.

What are the rules governing the PTSP?

The notification deadline to alert HMRC of an underpayment is 31^st May 2011.

Anyone notifying HMRC prior to 31 May then has until 31^st August 2011 to disclose their previously undeclared income, the tax and interest arising and also the penalties they feel are appropriate.  After this timeframe, normal penalties will apply.

What ‘mistakes’ are covered by the tax amnesty?

Potential ‘irregularities’ might include undeclared income, non registration for VAT when at the threshold, incorrect claims for expenses from home working or subsistence costs, reclaims for training costs that are not allowed.  In return for honesty, HMRC is offering lower penalties.

Is there anyone who can’t use PTSP?

Taxpayers who could previously have come forward as part of an earlier amnesty.  This includes for instance people who had an offshore account before 4^th January 2010, or were in a profession already targeted, (eg doctors).  If this is the case, you will not be eligible to take advantage of the reduced penalty offer unless you are able to submit a very good reason for not doing so at an earlier time.

Also outside the scope of the disclosure are taxpayers already under investigation or individuals suspected of a serious organised crime, eg carousel fraud.

What are the published penalties?

In each case, the penalty will depend upon whether the tax underpayment arose because of a genuine mistake, carelessness, or through deliberate error, with  rates applicable of 0% – 20%. In a new development, HMRC are asking those using the scheme to ‘self assess’ the rate of penalties that should be paid and effectively decide themselves what penalties should be charged.

There are very specific (if complicated) guidelines on this and beware of adopting a rate that is too low as this could lead to HMRC rejecting the disclosure which could result in additional problems ranging from greater penalties being applied through to criminal investigation.

What’s our advice?

Where you have undeclared income and underpaid tax it is well worth taking advantage of the amnesty because of the guarantee of reduced penalties and the implied protection of immunity from prosecution.

The Chartered Institute of Tax Advisors has warned taxpayers that if they are considering making a notification, they should discuss the situation with an expert beforehand because the fine print relating to the amnesty is particularly complex.

If no notification and disclosure is made by a taxpayer when HMRC consider it should have been (based on information from industry sources and related third parties) they will investigate. Where penalties are then payable these are likely to be charged at the full rate (100% of the unpaid tax) and in the most severe cases there is potentially the prospect of criminal prosecution.

Anne Eager specialises in helping business owners and individual tax payers deal with HMRC enquiries.  To discuss any of these issues in more detail, contact Anne on ae@rjp.co.uk

www.rjp.co.uk