Time to Make a Voluntary Disclosure?

It's rarely easy to admit mistakes. When it’s admitting something to HMRC its even harder, regardless of whether there are genuine errors, some careless activity or fraud/deliberate behaviour. 

There can be any number of reasons for committing fraud, although many people associate it with greediness. This is not always the case. Sometimes people feel they are left no option when the financial position they are in means they can't pay their mortgage for example or can't provide for their families. We’ve also seen false claims on the Job Retention (Furlough) Scheme by people desperate to keep their businesses going.  Sometimes, clients might get things wrong by leaving out income or increasing expenses but don’t view it in the same way as HMRC, who will suggest fraud or deliberate behaviour. At inTAX, we don't judge. We try to help resolve matters quickly and efficiently and reduce the stress on the client.

In deciding whether or not to make a disclosure to HMRC, people are generally concerned as to how HMRC will react, how they will be treated and other people’s perceptions. They are unsure of the amount that will need to be paid or how long they can have to pay. They are scared of being named and shamed or having permanent marks put on their records, or losing their business/home. The longer it has gone on for, the harder it is for people to put matters right. It’s really not uncommon.

However, HMRC always prefers people to make a voluntary disclosure because it saves them time and money. Right now, in the midst of the Coronavirus pandemic, it’s the perfect time to come forward. Many HMRC inspectors are working on the Job Retention Scheme helpline or checking other claims. HMRC simply doesn't have the time to open many new enquiries, but this moratorium will be over before you know it. Although we've seen a slowdown of enquiries during April and May, we are predicting a catch up probably during the months of August and continuing. Coming forward before HMRC makes the first move often means reduced penalties and bearing the pandemic in mind, potentially a longer time to pay.

HMRC has a relatively strict penalty regime for inaccurate returns or failing to make returns. Penalties are based on the client’s behaviour and broadly fall into one of three categories; reasonable care, careless and deliberate.

The rates of penalty vary for each category and take into account what type of income has given rise to the inaccuracy. For example, penalties for failing to declare offshore income are considerably higher reaching up to 200% of the undeclared tax. Where the income relates to UK tax matters the maximum penalty is 100% of the undeclared tax.

These amounts seem shocking and indeed they can be. However, penalties can be reduced. The reduction is determined by the quality of the disclosure and broadly represents cooperating with HMRC. Quality of disclosure is measured by the three categories; telling, helping and giving. That is telling HMRC what has gone wrong and how it happened, helping HMRC workout the liabilities that are due and giving HMRC the information required to ensure a correct disclosure is being made.

One further way to ensure the minimum penalty is applied, is to make a voluntary disclosure to HMRC before it contacts the taxpayer. If the taxpayer comes forward “without fear of early discovery” then additional reductions are given, and these can be sizable. In the case of careless behaviour, penalties can be reduced to nil.

Deliberate behaviour is split into two categories; deliberate and not concealed, and deliberate and concealed. For UK income offences the range of penalties for deliberate but not concealed is 35% to 70% of the tax. If a client comes forward before being approached by HMRC it is often possible to achieve a further reduction meaning the minimum penalty would be 20%. This may still feel harsh, but it is certainly better than 35%.

Deliberate and concealed refers to a situation where a taxpayer has made an error in a return or document and then tried to hide it. For example, if a client had claimed excessive expenses supported by a false invoice, this would be regarded as deliberate and concealed. It does not relate to, for example concealing stock out of sight or hiding sets of records in a safe. Deliberate and concealed usually means the ultimate penalty is between 50% and 100% of the tax, but with the possibility of reducing it to 30% if the client comes forward first.

Where a client doesn’t get the full reduction for telling, helping and giving, and the error was a result of deliberate behaviour either by them or someone acting on their behalf, they run the risk is being published as a deliberate defaulter on HMRC’s website. To see the current list, follow this :

https://www.gov.uk/government/publications/publishing-details-of-deliberate-tax-defaulters-pddd/current-list-of-deliberate-tax-defaulters

So what is the advice of inTAX? Don’t go it alone.  If you’ve made a mistake in relation to tax, come forward quickly, before HMRC makes its approach. Make a voluntary disclosure but use a specialist to help. HMRC often have a different view on what is deliberate and what is not, and are naturally cynical. Specialists like inTAX are very familiar with how to deal with this. The client doesn’t want to pay more than they need to or risk the other sanctions that come with incorrect behaviour categorisation. And, from a psychological point of view, when its all finished, the client will no longer have to look over his or her shoulder. They can get on with business and life.

inTax is a boutique firm, specialising in all types of tax investigation, no matter how serious. Headed by Jacqui Fleming, our aim is to help clients get the best results and leave them free to focus on what matters to them. Call us on 020 3137 7915 for a free consultation.