If HMRC find that you have filed an incorrect tax return, there are probably two things that you want to happen (aside, perhaps, from hoping that HMRC permanently lose your file…). The first is to settle the enquiry as quickly as possible for as low a cost as possible. The second is to keep your misfortunes confidential: in particular to keep your name off HMRC’s published list of “Deliberate Tax Defaulters” which includes names and addresses together with the tax and penalties charged, in certain cases where the tax understated exceeds £25,000.
Sadly, this didn’t happen for a leading England cricketer, who appears on HMRC’s latest list as having settled an HMRC enquiry at a cost of over £100,000 in tax and the better part of £40,000 in penalties. We won’t add to his woes by naming him.
So: if you are investigated and found wanting, how do you achieve those two objectives? Actually, the answer is the same in both cases.
If there are in fact irregularities, working proactively with HMRC to identify and quantify them (in HMRC jargon, “affording maximum disclosure”) is by far the best way to secure the least costly and least stressful outcome. This is because the level of penalties charged by HMRC is determined (within statutory ranges) by the degree of “disclosure”. That certainly doesn’t mean caving in to every HMRC demand: reasoned argument is not “failure to disclose”. But openness, providing information and actively working towards as prompt a settlement as is possible is key.
Furthermore if, by dint of optimal “disclosure” you have qualified for the smallest penalty within the range the law allows, you will, as of right, be excluded from the “Deliberate Tax Defaulters” list in all cases bar one. The exception is if an HMRC enquiry brings to light a deliberate understatement respecting offshore matters or offshore transfers: regardless of how much you co-operate or disclose, you can in those circumstances expect (if the tax exceeds £25,000) to be “named and shamed”.
It may be possible to persuade HMRC that any understatement that comes to light is not deliberate but is attributable to nothing worse than your carelessness. This can, depending on the facts, sometimes be difficult; but if HMRC are so persuaded then the “Deliberate Defaulters” list will not be in point at all – and the penalties charged will be significantly lower to boot.
We should also say that the best way to deal with an enquiry is to avoid its ever starting: if there are things in your tax history that would cause difficulty should HMRC investigate, consider making a voluntary disclosure. Penalties may still be exigible, but they will in all cases be lower than if problems come to light in the course of an HMRC enquiry.
For more information, please get in touch with your usual BKL contact or use our enquiry form.
To protect yourself against the costs of an HMRC investigation, we offer a tax fee protection service to BKL clients. Find out more here.
Above all, keep well.