Enter Your E-mail

Brian Redford, Acting Director, Business Customer Unit, explains HM Revenue & Customs’ (HMRC's) new approach to tax evasion.

Introduction

From February 2011, sole traders and small businesses who have deliberately tried to pay less tax than they should, could find their businesses singled out for extra inspections by HMRC for up to five years. Deliberate evaders identified since 6 April 2009 will also be put under this additional scrutiny.

Managing Deliberate Defaulters

Most people pay the right amount of tax. Some make mistakes and end up paying the wrong amount. However, some people deliberately pay the wrong amount of tax – deliberate evaders or deliberate defaulters. And it’s these people we are taking action against.

HMRC has set up a new programme, Managing Deliberate Defaulters (MDD), to monitor the tax affairs of individuals and businesses who have deliberately tried to evade tax. The aim is to ensure that those who have defaulted in the past, change their behaviour and start paying their fair share of tax.

We’ve worked closely with the accountant community to develop this programme and their help has been invaluable in getting the detail right. The message we want to get out is: ‘Play by the rules or face greater scrutiny’.

We want to deter people from evading tax in the future and reassure honest taxpayers that we will penalise tax evaders.

Monitoring People who Deliberately Pay the Wrong Amount of Tax

The level of monitoring will depend on the seriousness of the tax evasion. HMRC will continue to check that returns are filed on time and that any tax that is due is paid on time. But there will also be regular reviews of a deliberate defaulter’s tax affairs to check that they have put right any errors or failings.

HMRC can monitor a deliberate defaulter’s tax affairs in a range of ways, including by:

• announced or unannounced inspection visits to check business records;
• requesting certain records;
• asking for additional information or documents to accompany a person’s tax returns;
•  conducting in-depth compliance checks into any part of a person’s tax affairs; and
• observing or recording a person’s business activities and cross-checking details in their accounts. HMRC may make test purchases or inspect the records of suppliers or customers.
• For VAT-registered customers HMRC may also take the following action to monitor compliance:
  • require submission of quarterly or monthly VAT returns;
  • require the same accounting periods for VAT and Income Tax or Corporation Tax; or
  • withdraw the use of certain schemes such as flat-rate scheme, cash accounting, annual accounting or retail schemes, if it’s considered necessary to enforce compliance.

Evaders who fail to keep their Tax Affairs in order will face increasingly intrusive intervention from HMRC and if deliberate evasion continues after monitoring has taken place, HMRC may start criminal proceedings. If a deliberate defaulter starts a new business, this may also be monitored.

For more information about managing deliberate defaulters, see Managing Deliberate Defaulters Programme