History was made 21 February 2013. HMRC published its first ever list of people who have fiddled their taxes but not been prosecuted.
Up to now if you were caught fiddling then in over 99% of cases HMRC just took a lot of money off you – and your secret was safe. Only HMRC, your accountant and you would know. Only a tiny number of people are taken to court each year.
The gloves are off now and HMRC today used its new law for the first time. They held back on spoiling Valentines Day last week!
HMRC hopes that by naming and shaming tax-fiddling businesses, some of which might be in your town, people will be encouraged to be more careful to declare all that they earn. By the way when I say fiddling I am also referring to people who have failed in their tax obligations, and as a result HMRC did not get its tax when it should, and as a result HMRC charged penalties.
I will give a link to the list shortly, but firstly I want to set out the ground rules, and explain why the list will get much longer each quarter that it is published. The ground rules:
The tax has to be paid late as a result of failing to declare it, or understating one’s income
The inaccuracy or failure must be for a period after 31 March 2010. (For individuals this mainly means the 2010/11 or 2011/12 tax years).
The offence can relate to income tax, Capital Gains Tax, corporation tax or VAT.
This one’s important – even when coming clean to HMRC the person still did not make a FULL disclosure. In other words they were silly enough to continue to play cat-and-mouse with the tax-man.
If HMRC had not found out about the problem, the loss of tax would have been at least £25,000. Note this must all be after 31 March 2010.
The law states that once the name and shame details have been published for 12 months the publication must cease.
The inaugural list 21 Feb 2013 of significant tax defaulters can be read at http://www.hmrc.gov.uk/defaulters/defaulters-list.pdf
What should you be aware of when reading this list?
- Firstly the list shows the name and address, at the time of the offences, plus the tax which wasn’t declared on time, plus the penalty levied. It shows the period after 31 March 2010 for which the penalties applied.
- Secondly when you add up the tax and the penalty you will know some of what HMRC needed paid, but you may not have the whole picture. For example there may be interest added as the tax is paid late.
- Much more significantly – the traders may owe an awful lot more. This is because HMRC can only tell us about the tax owed after 31 March 2010. Most tax investigations go back a number of years – even up to 20 years. Just because HMRC says they owed £30,000 and paid a £15,000 penalty doesn’t mean that’s the lot. The trader might owe tax from 1992 to 2012 of £500,000, of which only £30,000 relates to the last year or two.
Why do I say the list is going to get longer every quarter a new one is published?
Even though names only stay on the list for 12 months, I know the list will get longer as the years go by.
At the moment HMRC can only publish where £25,000 of tax would have been lost since 1 April 2010 – less than three years. Think forward two years to May 2015. By then HMRC can name and shame you if you owe £25,000 in tax over a 5 year period. So the bar is getting lower every year.
£25,000 in 5 years – is that a lot? Well if you pay tax at 40% and you failed to declare £20,000pa of your income then the tax and National Insurance would be at least £5,000 per year. So if caught in May 2015 you could find your name address and tax amounts published.
Do you think the local papers might run a wee story about the tax defaulters in their area? You bet they will!
What lessons can we draw from HMRC naming and shaming tax defaulters?
If you yourself are fiddling – then if you stop now then chances are your tax after March 2010 will never exceed £25,000. So even if you are caught, or come clean, your name will not be published.
If you go forward to HMRC to admit something – or HMRC catches you – then tell them the whole story. Don’t hold back or fail to admit to some assets or bank accounts. If you do the local press may come sniffing!
If you have something to confess to HMRC, or if they are onto you, seek tax specialist help NOW. We often take on cases from the regular accountant, settle the tax investigation, then hand the case back to the accountant for ongoing normal accounts work.
I have already had to advise some of our tax investigation cases about the naming and shaming rules, and consider whether our client stands to have their name publicised.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.