Disclosure of arrangement can be beneficial in reducing tax payable to HMRC. There are serious consequences of HMRC taking action in the absence of a disclosure. Our team is led by accountant and lawyer Stephen Downie and assisted by Andy Lynch formerly 18 years working for the investigations team at HMRC. Don't settle for second best. Call us today.
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
1. 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 allows for calculation of how much tax is payable to HMRC and what interest and penalties will also be applied;
- it 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.
2. 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 facility;
- 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, it 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 a business’s taxes.
The investigation may be focused on corporation tax, VAT, income tax and capital gains tax.
- an investigation may follow an unusual return (for example, a small company makes an unusually large claim for VAT) or it may follow persistent late filing of returns, inconsistencies in returns or the business being in a sector that HMRC has decided to target;
- a business 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 by the business. 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 wrongdoing, we recommend the early engagement of solicitors. If a business is aware of wrong doing, it is sensible to obtain legal advice during HMRC’s investigations.
At Francis Wilks & Jones we have considerable experience of assisting directors and business owners with regard to voluntary disclosure and tax investigations. This is particularly with regard to unpaid tax investigations arising out of insolvency or claims for breach of a director’s fiduciary duties. Should you require any assistance, please contact our Director Services team who can discuss such matters with you.