Are you thinking it may be time to confess all to HMRC?
Are you being kept awake at night due to unresolved tax problems? Then it may be time to consider making a disclosure to HMRC. However, before you hastily decide, it would be a sensible to arm yourself with some relevant information.
We will be looking at the following areas:
- the different types of disclosure;
- how to choose the right HMRC disclosure for you; and
- the implications of making the right choice.
What is a prompted HMRC disclosure?
A prompted disclosure is defined by information volunteered to HMRC during any ongoing compliance intervention. To be clear this is when HMRC has already written to you advising that a check on your self-assessment or compliance check has begun, and you disclose information that may not have ordinarily been found. HMRC take the stance that if they had not started the investigation then the information may not have been offered, which is why it is a prompted HMRC disclosure.
What is an unprompted HMRC disclosure?
An unprompted or voluntary disclosure is a process whereby you come forward and notify HMRC that you have identified irregularities in your tax affairs and it has led to unpaid tax.
A disclosure that is voluntary is often looked upon more sympathetically than where they discover tax irregularities and launch an investigation. There are several types on civil tax investigations launched by HMRC:
- HMRC Compliance checks
- Check on self-assessment return
- VAT investigations
- Contractual disclosure facility
- Code of Practice 9
Is a HMRC disclosure right for me?
There are key things you should be asking yourself before making a HMRC disclosure. Why do you have these concerns? Do you have previously undisclosed source of income? Have you claimed expenses relative to your business? Have you told HMRC about all your income? An experienced and reputable tax advisor will be able to identify where a disclosure is necessary.
How does HMRC find out about me?
You might be weighing up whether you should make a disclosure or just hope HMRC don’t catch up with you, but it’s important to understand how HMRC collect their data on people. The chances of HMRC catching you have dramatically increased over the years. HMRC throw a lot of resources at designing systems to gather data. The biggest HRMC interrogation tool available is a super computer known as ‘connect’. This computer system is designed to collate, absorb and critically analyse information and data across a range of platforms available to HMRC. It is becoming extremely effective at screening merchant websites to identify who is selling goods and services online.
HMRC has further powers to attain information that might shock some. Some have likened their gaze to the television show ‘Big Brother’. It’s a case of ‘when they find out’, rather than ‘if they find out’.
HMRC is watching – there really has never been a better time to come forward and make a disclosure.
Why offer those not paying tax the opportunity to make a HMRC disclosure?
It’s all about the carrot and the stick! HMRC know they will never be able to identify every taxpayer that is working outside of the law. Even if it was possible, they wouldn’t have the manpower or finances to investigate them all. So instead HMRC adopt the policy come forward and make a voluntary disclosure in advance of us catching up with you and we will treat you more leniently.
E- Trading and the HMRC disclosure process?
Over recent years E-trading has become a subject of scrutiny. The ‘connect’ system is powerful enough to analyse the enormous amount of transactions running across trading websites (such as eBay and Amazon) and identify who the seller is. It will then cross reference that seller’s self-assessment and highlight any irregularities to a specialised operator of the software.
If you are trading in any way on the internet and have not notified HMRC, and you are earning over the £1,000 trading allowance, you should certainly come forward. A disclosure will save you the time and money associated with a full blown tax investigation.
What are the benefits of a HMRC disclosure?
There are several clear benefits to making a HMRC disclosure, providing it is done properly. How do you make a disclosure? You seek professional advice from a tax advisor who has experience in dealing with them. A tax advisor can prepare the disclosure professionally and to the correct department standards. A poorly prepared disclosure can be counterproductive and more costly.
A disclosure is the final chance to come forward and clear up your tax affairs in one go – it must be robust and complete. If you achieve all of this, then your disclosure will result in you receiving:
- Immunity from prosecution
- Favourable penalties to reflect the fact you have come forward
- Time to pay any tax you owe
Can a HMRC disclosure make things worse?
If you do not disclose everything to HMRC, it will lead to a loss of good will and an expensive investigation. You can find yourself in worse trouble for making false statements, however well meaning your intention. It could also open you up to possible prosecution.
Can I be prosecuted if I make a HMRC disclosure?
If the disclosure you make is complete, correctly presented and honest then you will not be criminally investigated or prosecuted. Your disclosure will only lead to a criminal matter if it is not truthful and complete. Making deliberate, materially false statements could lead you to more troubled waters.
HMRC have the capability to remove your immunity from prosecution at any stage of the process if they feel they are not presenting the whole picture. Appointing the right disclosure specialist is vital as they will manage everything to do with the process and will ensure it is up to HMRC’s standards.
Can I submit a disclosure if I do not have complete records?
HMRC expect there to be gaps in information or documents when dealing with historical matters. Reports are often prepared on a best evidence basis. This is a complex area where your tax advisor will be able to offer you more guidance with how to resolve this issue.
Can we help?
Edge Tax are a private tax company with decades of experience in dealing with HMRC disclosures. We are sure by reading this article it will have bought up more questions. It’s key you get them all answered before you do anything. Please feel free to contact a member of the team who will be able to answer your questions and show As a tax practice we have seen it all before, so don’t worry about what you are going to tell us. We don’t judge. If you would like to discuss anything in this article then please contact the team today