Voluntary Tax Disclosures
If you are having sleepless nights about not paying the right amount of tax and worried the tax people might catch up with you, then you need to read on.
HMRC have voluntary disclosure opportunities where you could find yourself immune from prosecution and with less severe financial penalties. Our tax expert, Steve Tetley, explores these further.
Contractual Disclosure Facility
This is an opportunity to disclose to HMRC if you have been involved in tax fraud. Tax fraud is an admission that you have deliberately evaded tax. If you decide to make a disclosure under the Contractual Disclosure Facility (CDF) and HMRC accept you within this facility, then HMRC will agree not to criminally investigate with a view to prosecution. This is providing you make a full disclosure of the irregularities.
If you wish to make a voluntary disclosure under the CDF, you need to complete form CDF1. HMRC will then review this and consider whether the CDF is appropriate. If they agree it is appropriate, then you will need to make a full disclosure via a report and a statement that you have made a complete and accurate statement of the tax irregularities.
CDF is also commonly known as a Code of Practice 9 (COP9) investigation and is sometime instigated by HMRC. CDF only applies to individuals and is therefore not suitable for companies. HMRC strongly recommend that independent advice is sought before making a responding to a CDF.
Digital Disclosure Service
The Digital Disclosure Service (DDS) is an opportunity for individuals and companies to make a disclosure about tax irregularities. It applies to income tax, capital gains tax, National Insurance, corporation tax and Annual Tax for Enveloped Dwellings. It does not apply to VAT.
If you wish to make a disclosure to HMRC, then you must first of all notify HMRC via the DDS form. At this stage, you only notify that you are making a disclosure and do not need to provide any specific details of the undisclosed income. HMRC will then allocate a Disclosure Reference Number (DRN) and Payment Reference number.
A disclosure then needs to be made within 90 days. This should include details of all irregularities together with calculations of the additional tax liabilities. HMRC provide a calculator to help people work out the interest and penalties that will be due. That will form part of the offer to be made to HMRC to settle past liabilities.
The number of years covered by the DDS will depend upon the reason why you have failed to disclose all of your tax liabilities. If you have taken reasonable care, it will be 4 years. It will be 6 years if it is as a result of careless behaviour, and up to 20 years if you deliberately evaded tax. You will be asked to make a declaration to HMRC that you have made a full and accurate disclosure. HMRC expect to accept most disclosures and will do so if they are satisfied that a full disclosure has been made.
At various times HMRC launch campaigns aimed at particular trades or sectors. The aim of these campaigns is to encourage voluntary compliance in relation to past liabilities and to ensure that taxpayers comply with their tax obligations going forward. To encourage participation, HMRC offer the best possible settlement terms.
The only current campaign at the time of writing is in relation to Let Property. This campaign is open to all residential property landlords, but not commercial lettings. This does not prevent a commercial landlord making a voluntary disclosure; they would just need to use one of the other disclosure facilities outlined above.
The Let Property Campaign works in a similar way to the DDS in that a customer is expected to notify HMRC and once allocated a DRN, a full disclosure should be made of all tax irregularities within 90 days along with a formal offer to settle. Payment should also be made as soon as possible or if you are unable to pay the full amount, discussions will need to take place with HMRC to agree an instalment arrangement.
The disclosure is not limited to tax due from let property. You should also include any other income (such as profits from another business) that you have not previously told HMRC about. The following cannot be formally included in this campaign:
· Employer Duties
· Inheritance Tax
· Trust income
However, you should indicate in your disclosure that you wish to resolve these issues and HMRC will pass this on to the relevant department.
Previous campaigns have had set time windows to make disclosures, but there is no specific date set for the Let Property Campaign.
As with the DDS, HMRC anticipates that it will accept the vast majority of disclosures under the Let Property Campaign.
Other disclosure facilities
In addition to the above, HMRC also have disclosure facilities in relation to:
Whilst these are not covered in any detail in this blog, rradar can provide valuable advice should you be considering making such a disclosure.
How can rradar help?
Steve Tetley, our tax advisor at rradar, is very experienced in dealing with HMRC investigations from his many years working for the department, and from experience gained advising clients on how best to mitigate their tax liabilities. rradar can work with you to ensure the best possible outcome.