Voluntary tax disclosures and investigations

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Tax disclosures

Disclosure of any arrangement that may, directly or indirectly, reduce the tax payable to HMRC is essential to avoid the potential consequences of HMRC finding out for themselves. 

• Disclosure facilities, such as DOTAs (Disclosure of Tax Avoidance Schemes) are designed to encourage their use, with the benefits that come from be publicly compliant and, essentially, “coming clean”;
• alternatively, disclosure is an excellent method to seek validation of a scheme, rather than entering into it with the hope that it is legitimate.

A voluntary disclosure to HMRC can be made in a variety of ways. e.g. using HMRC’s Digital Disclosure Service. The Digital Disclosure Service is for disclosure of non-payment of Income Tax, Capital Gains Tax, National Insurance Contributions and Corporation Tax.

Examples of HMRC’s Disclosure Facility include:

Worldwide disclosure facility

On 5 September 2016, HMRC announced the launch of a worldwide disclosure facility. This allows disclosure online by notifying HMRC of an error and how the mistake arose. The process will allow for calculation of how much tax is payable to HMRC and what interest and penalties will also be applied. This process encourages an agreement with HMRC surrounding the payment of unpaid taxes.

Disclosure through this process is for a UK tax liability that relates wholly or in part to an offshore issue.

Contractual disclosure facility

The contractual disclosure facility allows disclosure by those who have deliberately failed to pay tax.

An individual can either make a disclosure voluntarily at any point or alternatively, following a letter from HMRC. HMRC will write to individuals that they suspect are guilty of committing tax fraud and offer a contract through the contractual disclosure dacility. This Facility is for individuals suspected of tax fraud and not companies.

Advice should be taken surrounding whether disclosure through this scheme is the right option.

Where disclosure is made through the scheme and where an agreement is reached within the timescales set by HMRC, HMRC will agree not to pursue a criminal investigation in respect of the disclosed conduct.

If an agreement is not reached with HMRC through the Contractual Disclosure Facility, HMRC may begin a criminal investigation in to the conduct concerned.

What are the benefits of using disclosure to HMRC?

Voluntary disclosure to HMRC will often result in lower penalties than those applied as a result of a HMRC enquiry.

In addition

• HMRC tend not to pursue criminal prosecutions where a voluntary disclosure has been made, although there is no guarantee on this and the terms of each disclosure scheme will need to be considered carefully;
• finally, disclosure assists to bring tax affairs up to date and to give the tax payer the peace of mind that this brings.

Investigations by HMRC

HMRC may initiate an investigation surrounding non-payment of an individual’s taxes. The investigation may be focussed on Income Tax, National Insurance Contributions and Capital Gains Tax amongst other liabilities. An investigation may follow an unusual return, inconsistencies in returns or persistent late filing of returns.

An individual should work with their accountant and respond to HMRC’s enquiries. Accountants will be used to dealing with HMRC enquiries and be able to provide advice and assist in relation to the enquiries.

The outcome of the investigation might be that HMRC declare that tax has been over or under paid. Alternatively, it might be that HMRC find that there has been deliberate wrong doing on the part of the tax payer.

Where there has been wrong doing, we recommend the early engagement of Solicitors. If an individual is aware of wrong doing, it is sensible to obtain legal advice during HMRC’s investigations. 

FWJ did precisely what it set out to do. I am extremely grateful for its assistance.

A client who had received a Request for Security from HMRC for a sum that would have caused their company severe financial difficulties. We helped them to have the entire bill withdrawn

Andy Lynch at FWJ was literally a life saver for me. I ran in to some tax issues with HMRC and I suffer from mental health issues as well so I was a complex case. Andy took his time to professionally and accurately layout my case and assist me with finding a resolution. I researched a lot of tax advisers before making my decision and I am glad I did and relieved that I chose Andy and FWJ.

Chris Kitchen

At Francis Wilks & Jones we have considerable experience of assisting in relation to voluntary disclosure and tax investigations. This is particularly in relation to unpaid tax investigations arising out of insolvency or claims for breach of a director’s fiduciary duties.