When the coronavirus crisis began, HMRC publicly announced that they were not going to commence any proceedings against taxpayers, either civil or criminal, during the pandemic.
They then announced that existing investigations were to be put on hold. This was to be done by mutual agreement and on a case by case basis, by email at best. Some taxpayers weren’t even told – their investigation just stopped. It didn’t matter if the investigation was into tax evasion or tax schemes.
Now HMRC is beginning to stir. Those taxpayers that want to reach a settlement with HMRC are advised to seize the initiative now and take specialist advice to get things moving and avoid the sting in the tail.
Why should taxpayers take any action?
HMRC have a number of ways of extracting extra funds from a taxpayer. Interest will run on any unpaid tax debt from the date it should have been paid to the date it is paid, on a daily basis.
So a tax debt that should have been paid by say 31 March 2017, but isn’t paid until 31 March 2021, will attract interest currently at 2.60% (but it was as high as 3.25% p.a.).
So keeping the money in the bank will not earn anything like as much interest for a taxpayer.
What about penalties?
The current regime of penalties came into force in April 2009 and are based on a taxpayer’s behaviour. Ignoring HMRC is an example of what they would deem as bad behaviour.
The sting in the tail
HMRC can always “name and shame” a taxpayer on their website where they are deemed to be a deliberate tax defaulter and the amount of the settlement exceeds £25,000.
This is a very low threshold. Appearing on this list can have a catastrophic (if not fatal) impact on any business.
By adopting certain key measures from the outset, I have helped a number of taxpayers avoid being “named and shamed” even though the settlements were six and seven figure sums.
These taxpayers had deliberately understated their tax liabilities for a number of years but having been issued CoP9, they listened to my advice and followed it. Whilst they still had to pay the tax, interest and a penalty, their business was left intact. Life got back to normal.
What should taxpayers do next?
Take specialist advice and follow it to the letter. The UK Government has incurred a significant amount of debt that needs to be paid off. I suspect that penalties will be applied more frequently and more severely.
You have been warned.