HMRC clocks up another win over NT Advisors

Press Release  •  Jul 30, 2014 11:33 BST

HM Revenue and Customs (HMRC) has secured its eighth tribunal win in a row against tax avoidance schemes run by NT Advisors.

Between them, HMRC’s court successes against NT Advisors have now protected over £750 million in tax, defeating five of the promoter’s schemes. Among them is the Working Wheels scheme, where participants claimed to be second-hand car dealers.

In this latest case, the Upper Tribunal dismissed NT Advisors’ latest appeal that a scheme which used complex financial arrangements involving alleged overseas securities worked. The ruling upholds an earlier First-tier Tribunal judgment in HMRC’s favour.

In total there were 305 users of the scheme and this ruling alone is expected to protect £156 million in tax that would otherwise have been lost. HMRC will now pursue the other users of the scheme to make sure all the taxes that are due are paid.

The Financial Secretary to the Treasury, David Gauke, said:

“While the vast majority of people pay the taxes they owe, this victory shows HMRC’s determination and effectiveness in clamping down on those who seek to avoid their responsibilities.

“Users of NT Advisors schemes, or those considering using their schemes, should know by now that HMRC is very successful at defeating them, and give serious thought to ending their involvement.”

HMRC has a dedicated helpline – 03000 530435 – for those who have engaged in tax avoidance schemes but now want to settle their affairs. Further information can also be found atwww.hmrc.gov.uk/avoidance/tempted.htm

HMRC is writing to users of many of NT Advisors’ schemes to make sure they know how successful the department is at beating their schemes in court. In the last two months the department has written to more than 1,000 users, and users of the Bluebox scheme will be contacted shortly.

Notes to Editors

  1. The Upper Tribunal ruling in Andrew Chappell versus The Commissioners for HM Revenue and Customs can be found athttp://www.tribunals.gov.uk/financeandtax/Documents/decisions/Chappell-v%20HMRC.pdf
  2. This complex scheme devised by NT Advisors used a series of circular and self-cancelling transactions involving alleged overseas securities. These purported to create substantial tax losses where, in reality, no economic loss had been suffered.
  3. HMRC will be writing soon to investors in the scheme this decision applies to so they know what action will be taken and what this means for them. HMRC wants to make it easy for those users to settle and will take strong decisive action for those who do not.
  4. Details of HMRC’s three most recent tribunal wins over NT Advisors’ schemes:
    Bluebox (May 2014) – protected £21 million in tax –

https://www.gov.uk/government/news/hmrc-defeats-nt-advisors-again-at-a-tax-tribunalWorking Wheels (February 2014) – protected £290 millionhttps://www.gov.uk/government/news/second-hand-car-dealer-tax-scheme-scrapped

Barnes – Court of Appeal (January 2014) – protected £100 millionhttps://www.gov.uk/government/news/nt-advisors-loses-100m-offshore-tax-avoidance-bid

5.   HMRC has a number of tools at its disposal to tackle tax avoidance. These include Accelerated Payments powers introduced this month as part of the Finance Act. Under these powers, HMRC is able to seek upfront payments of disputed tax from members of avoidance schemes.

6.   Follow HMRC Press Office on Twitter @HMRCpressoffice

 

 

 

 

 

 

 

Issued by HM Revenue & Customs Press Office

HM Revenue & Customs (HMRC) is the UK’s tax authority.

HMRC is responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support.

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VAT pharmacy fraudsters jailed

Press Release  •  Jul 31, 2014 11:12 BST

Two pharmacists, who lied about exporting life-saving cancer and HIV medicines to Nigeria, have
been jailed for a total of six and a half years for fraudulently claiming £300,000 in VAT repayments.

HM Revenue and Customs (HMRC) investigators found that pharmacists Benedict Babundo and Louis Ovonlen, of Addison Healthcare (UK) Ltd, who ran a Harlow pharmacy, had a contract with the NHS to operate a prescription service to the public. But they created false invoices for the drugs they claimed to export, to support fraudulent VAT repayments.

Paul Barton, Assistant Director, Criminal Investigation, HMRC, said:

“This was a blatant attack on the tax system. Their only aim was to line their pockets at the expense of the taxpayer. They thought they could get away with providing false records to claim VAT refunds, but they are now counting the real cost of their criminality.”

They obtained falsified documents to help make their fake export business look legitimate by appearing to show that the medicines had been exported.

Recorder Ian Glen said on sentencing Babundo:

“You embarked on submitting false claims and only stopped when HMRC reviewed the business in 2011. The fraud was driven by you, without any doubt, you have a long list of company failures. For tactical reasons you kept your distance – employing others to do your work.”

Notes for editors

1. Images of the defendants are available from HMRCs Flickr channel www.flickr.com/hmrcgovuk or on request.

2. Details of the defendants sentenced yesterday (30 July 2014) at Ipswich Crown Court:

  • Benedict Babundo (DOB 08.05.64) of Plumstead Common, London, was found guilty and sentenced to four years in prison and disqualified as a company director for seven years.

Babundo was a locum pharmacist and suspected of being a director of Addison Healthcare (UK) Limited. Evidence showed he made or permitted fraudulent claims for the repayment of VAT to be made on behalf the companyand creating and/or providing false evidence in support of those
fraudulent claims.

  • Louis Ovonlen (DOB 17.12.70) of Purford Green, Harlow, Essex, was found guilty and sentenced to 30 months in prison and disqualified as company director for four years.

Ovonlen was the director and senior pharmacist of Addison Healthcare (UK) Limited. Evidence showed he made or permitted fraudulent claims for the repayment of VAT to be made on behalf of the company and creating and/or providing false evidence in support of those fraudulent claims.

Both were charged with Cheating the Public Revenue contrary to Common Law.

3.  Follow HMRC on Twitter @HMRCgovuk

Issued by HM Revenue & Customs Press Office

HM Revenue & Customs (HMRC) is the UK’s tax authority.

HMRC is responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support.

Businessman sentenced in £10m money laundering fraud

Press Release  •  Jul 28, 2014 12:23 BST

A Nottingham man, whose business was used to launder £10 million of money obtained by criminals, has been sentenced following an investigation by HM Revenue and Customs (HMRC).

Rizvan Mian, 35, was the owner of Imperial Escrow Ltd based in Nottingham. HMRC investigations revealed that Mian had allowed his company to be used to transfer over £10 million between companies in the UK and overseas, in an attempt to hide the money’s criminal origins and
to facilitate further criminality.

Stuart Taylor, Assistant Director, Criminal Investigation, HMRC, said:

“Mian ignored his legal obligations to conduct measures to identify potential risks that his business was being used to launder money by criminals, in an attempt to hide their criminal
profits and avoid detection by law enforcement.

“Any business dealing in large cash transactions has a responsibility to report those they consider suspicious to the National Crime Agency (NCA). Anyone failing to adhere to these regulations may
find themselves subject to a range of sanctions, including criminal prosecution.”

Confiscations proceedings to recover the proceeds of the criminality will follow.

Notes for editors

1.  Rizvan Mian, DOB 12/05/1979, of Edward Road, Nottingham pleaded guilty to four counts of breaching the Money Laundering Regulations 2007, when he appeared at Nottingham Crown Court on 23 July 2014. He was sentenced to five months imprisonment, suspended for two years, 180 hours
unpaid work and has been disqualified from being the director of a company for four years

2. Under the Money Laundering Regulations (MLS), HMRC ensures that relevant businesses have appropriate policies, procedures and controls in place to prevent  their business from being used for money laundering. Money Laundering Regulations and guidance can also be found atwww.hmrc.gov.uk/mlr

3.  HMRC’s press office on Twitter @HMRCpressoffice

4. A photograph is available at www.flickr.com/hmrcgovuk

 

Issued by HM Revenue & Customs Press Office

HM Revenue & Customs (HMRC) is the UK’s tax authority.

HMRC is responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support.

Pay up time for offshore loan schemes

Press Release  •  Jul 24, 2014 10:32 BST

HM Revenue and Customs (HMRC) is today giving around 16,000 tax avoidance scheme users the opportunity to pay the tax they owe or risk facing bigger tax bills and heavy legal costs.

On average, each of the users of the contractor loan schemes covered by this settlement opportunity owes £11,000 a year in tax.

The schemes, used by a small minority of contractors to avoid paying their fair share, involve complex arrangements with individuals signing a contract of employment with an offshore employer.

The contractor then receives their pay through the offshore company or trust as what is claimed to be a non-taxable loan, rather than income.

These are particularly aggressive schemes and their users will have until January 2015 to take up the settlement opportunity. If they do, they will pay the tax and interest due on the sums they received as loans under the scheme.

If they continue to challenge HMRC in the courts, they risk having to pay additional tax charges and penalties – as well as the costs of litigation if they lose.

Jennie Granger, HMRC Director General for Enforcement and Compliance, said:

“Many people regret ever getting involved with complex aggressive tax avoidance schemes and HMRC is providing an opportunity for contractors to come forward and straighten out their tax affairs.

“This is an important opportunity and we are working hard to encourage users to withdraw from such schemes. We also want to ensure they’ve understood our position. They can choose to continue to litigate for a better outcome but they risk a worse result. HMRC has a strong track record of winning tax avoidance cases in court, with around 80% of decisions in our favour. The costs for users are high, potentially resulting in penalties, charges and significant legal costs for scheme users.”

Notes to Editors

  1. The total amount of tax owed by these users is £430 million.
  2. Contractor loan schemes are complex arrangements which involve individuals signing a contract of employment with an offshore employer. They then receive their remuneration from contracts in the UK through an offshore company or trust in what are claimed to be non-taxable loans, rather than as income. These are particularly aggressive schemes, used by the 1% of contractors who really do not want to pay their fair share.
  3. This settlement opportunity applies to schemes used before the Disguised Remuneration rules were introduced in April 2011. Around 16,000 users can use the opportunity. However, HMRC will discuss settlement of all scheme use with anyone who comes forward during the settlement opportunity period.
  4. HMRC offers settlement opportunities like this for some types of marketed tax avoidance schemes that have large numbers of users and where there is a range of possible outcomes in law.
  5. They are one of a number of tools HMRC uses for tackling tax avoidance. These also include the new Accelerated Payments powers introduced this month as part of the Finance Act. Under these powers, HMRC is able to seek upfront payments of disputed tax from members of avoidance schemes.
  6. More information on what HMRC is doing to tackle tax avoidance is available athttps://www.gov.uk/government/policies/reducing-tax-evasion-and-avoidance
  7. HMRC is writing to all users who are being offered the settlement opportunity, explaining how they can resolve their case.  More information is available atwww.hmrc.gov.uk/avoidance/contractorloans.htm. If any users want to speak to HMRC about their case they should call the dedicated helpline on 03000 534226.
  8. Follow HMRC Press Office on Twitter @HMRCpressoffice.

Issued by HM Revenue & Customs Press Office

HM Revenue & Customs (HMRC) is the UK’s tax authority.

HMRC is responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support.

HMRC gains record revenues with crackdown on tax dodgers

Press Release  •  May 27, 2014 13:12 BST

New figures published today show that HM Revenue and Customs (HMRC) secured a record £23.9 billion in additional tax revenue over the last year as a result of increased activity to make sure people pay the taxes they owe.

The additional tax – which HMRC secures as a result of investigations, on top of the tax collected from those who pay their taxes on time – is up £3.2 billion on the previous year, up £9 billion on three years ago and nearly £1 billion above the target set at Autumn Statement 2013.

More than £8 billion has been secured from large business, over £1 billion from criminals and £2.7 billion from tackling avoidance schemes in the courts. HMRC’s compliance activity has resulted in a number of tribunal wins, and also seen corporation tax and stamp duty land tax loopholes closed, protecting the Exchequer from tax going unpaid.

Exchequer Secretary to the Treasury David Gauke said:

“The government supports the hardworking, honest majority of taxpayers who play by the rules, and is determined to tackle the minority who seek to avoid paying the taxes they owe.

“We set HMRC ambitious targets to increase its yield and the figures published today demonstrate that HMRC is successfully meeting these challenges. It also sends a clear signal – HMRC will pursue those seeking to avoid their responsibilities and will collect the taxes that are due.”

The record-breaking tax revenue comes as HMRC publishes “HMRC fast facts: Record compliance revenues for the UK”.

Providing an overview of HMRC’s compliance activities, the document highlights the actions HMRC has already taken to tackle tax avoidance. These include launching taskforces, publishing the details of deliberate and serious defaulters and challenging tax avoidance through the courts.

The document also provides information on future steps as the tax authority continues its fight against those who try to cheat the system. These include tackling high-risk promoters and employment and offshore tax avoidance and issuing accelerated payments for users of tax avoidance schemes.

Notes to editors

  1. “HMRC fast facts: Record compliance revenues for the UK” can be read athttps://www.gov.uk/government/publications/hmrc-fast-facts-record-revenues-for-the-uk
  2. Follow HMRC on Twitter @HMRCgovuk
  3. HMRC’s flickr channel www.flickr.com/hmrcgovuk

Issued by HM Revenue & Customs Press Office

HM Revenue & Customs (HMRC) is the UK’s tax authority.

HMRC is responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support.

 

 

HMRC secures record £4.6m minimum wage arrears for underpaid workers

Press Release  •  Jun 05, 2014 10:51 BST

Over £4.6 million in wage arrears has been paid to more than 22,000 workers following a successful year for HM Revenue and Customs’ (HMRC) National Minimum Wage (NMW) enforcement teams.

New figures show that, in 2013/14, HMRC:

  • conducted 1,455 investigations
  • issued 652 financial penalties, worth £815,269
  • found arrears in 47 per cent of cases – the highest strike rate since NMW was introduced
  • recovered average arrears of around £205 per worker.

Business Minister Jenny Willott said:

“Paying less than the minimum wage is illegal and, as HMRC’s record shows, if employers break the law they will face tough consequences.

“We want to issue a clear warning to employers who fail to pay the minimum wage: under the Government’s new rules you will be named and shamed and face a stiff financial penalty.

“If anyone suspects they are not being paid the wage they are legally entitled to they should call the Pay and Work Rights helpline.”

Examples of underpayment cases where HMRC has taken action in the past year include:

·  A Premier League football club was ordered to pay arrears of over £27,500 to over 3,000 workers after it made deductions for uniforms and travelling time for staff working in hospitality.

·  A social care provider found to have not paid its staff for travelling time and other hours worked was told to repay over £600,000 in arrears of wages to almost 3,000 workers.

·  A recruitment agency was ordered to pay over £167,000 to workers, including some it had classified as unpaid interns.

·  A multi-outlet retailer, which required its employees to attend work before and after opening hours without pay, was ordered to repay almost £77,000 to more than 1,300 workers.

Jennie Granger, Director of Enforcement and Compliance at HMRC, said:

“Paying the National Minimum Wage is not a choice – it’s the law. HMRC will continue to ensure that workers get at least the wage to which they are legally entitled.

“Where an employer ignores these rules, we will ensure that any arrears are paid out in full and the employer is fined. Rogue employers be warned – we will find you and you will pay.”

Notes to Editors

1.  The vast majority of NMW cases are dealt with using civil penalty powers, as this route is usually the most appropriate and provides the most cost-effective resolution for taxpayers. However, in more severe cases, HMRC will take criminal action and seek a prosecution.

2.  Anyone who believes they are not being paid the NMW can call the Pay and Work Rights Helpline on 0800 917 2368. Calls to the helpline from interns who are working for nothing or for “expenses only” are being fast-tracked to HMRC enforcement officers for investigation.

3.  Follow HMRC on Twitter @HMRCgovuk

4.  HMRC’s Flickr channel: www.flickr.com/hmrcgovuk

Issued by HM Revenue & Customs Press Office

HM Revenue & Customs (HMRC) is the UK’s tax authority.

HMRC is responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support.

The fraud, the bookkeeper and the wardrobe

Press Release  •  Jun 13, 2014 15:21 BST

A Dungannon woman at the centre of a £140,000 VAT fraud, who hid in her bedroom wardrobe to avoid arrest, has been jailed after an investigation by HM Revenue and Customs (HMRC).

Donna Magee (44) from Hollyfields, Dungannon, was arrested by HMRC in February 2012, as officers investigated her fictitious business and fraudulent VAT repayments for the construction of non-existent new business premises. When officers raided her address Magee was found hiding in a wardrobe in an attempt to avoid arrest.

Officers also uncovered false VAT invoices, bank statements and computer records that Magee had used to reclaim VAT amounting to £140,749, relating to costs she had never incurred.

Mike Parkinson, Assistant Director, Criminal Investigation, HMRC, said:

“As a book-keeper Magee knew full well she was breaking the law, yet chose to overlook it for the opportunity of what she wrongly assumed would be easy money, at the expense of the taxpayer. She manipulated a system that exists for the benefit of legitimate companies with the sole purpose of lining her own pockets.

“This investigation shows that tax fraudsters have no place to hide and we will not stop in our pursuit of those involved in this type of criminal activity.”

Magee appeared at Dungannon Crown Court today and was sentenced to nine months in prison and nine months on licence.

Notes for editors
1. Donna Magee, DOB 21/12/1969, of Hollyfields, Dungannon, pleaded guilty to nine counts of dishonestly making false representation with the intention of making a gain in relation to VAT repayment claims under the Fraud Act.

2. Anyone with information about people or businesses involved in tax fraud can contact HMRC through the Tax Evasion hotline on 0800 788 887 or at www.hmrc.gov.uk/reportingfraud/online.htm

3. Follow us on Twitter @hmrcgovuk.

4. HMRC’s Flickr channel www.flickr.com/hmrcgovuk

 

Issued by HM Revenue & Customs Press Office

HM Revenue & Customs (HMRC) is the UK’s tax authority.

HMRC is responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support.

No tax relief for McLaren fine

Press Release  •  Jun 18, 2014 10:42 BST

Formula 1 racing giant McLaren has lost its claim that a £32 million fine imposed against it by the sport’s governing body should be tax deductible.

McLaren took legal action after HM Revenue and Customs (HMRC) disagreed that it could deduct the fine in computing its taxable profits.However, a tax tribunal has now supported HMRC’s view.

HMRC’s Director General of Business Tax, Jim Harra, welcomed the ruling:

“We’re very pleased the Upper Tribunal agrees that the fine should not be given tax relief, which supports our view that most fines are not allowable as deductions against trading income.”

“This case shows that we won’t hesitate to go to court to make sure the right tax is paid.”

The £32 million penalty was imposed on McLaren by the sport’s governing body, the Fédération Internationale de l’Automobile (FIA), in 2007 for breaching its International Sporting Code.

A First-tier Tribunal ruled the penalty was tax deductible. However the Upper Tribunal has now supported HMRC’s appeal against that decision by ruling the penalty was not incurred wholly and exclusively for the purposes of McLaren’s trade and so was not an allowable deduction for tax.

Notes to Editors

The Upper Tribunal decision is available from the HMRC Press Office
Follow HMRC on Twitter @HMRCgovUK
HMRC’s Flickr channel www.flickr.com/hmrcgovuk
Issued by HM Revenue & Customs Press Office

HM Revenue & Customs (HMRC) is the UK’s tax authority.

HMRC is responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support.

Bank of England cuts mortgage support to avoid housing bubble

 

Out of control house prices are the biggest risk our economy faces – and the Bank of England has now acted to try and bring them to heel.

Bank of England Governor Mark Carney listens during the bank’s quarterly inflation report news conference …

 

By David Milliken and Huw Jones

 

LONDON (Reuters) – The Bank of England moved to head off the risk of a bubble in house prices on Thursday, making a surprise announcement that it would put the brakes on a scheme launched last year to boost mortgage lending.

 

Shares in British construction firms tumbled after the central bank said it would refocus the Funding for Lending Scheme (FLS) on helping small firms that find it hard to borrow.

 

Britain’s economy and its housing market have staged an unexpectedly strong turnaround since FLS was launched by the Bank and finance ministry in July 2012 to spur lending to home-buyers and businesses.

 

Another, much-criticised, government programme to aid the housing market, Help to Buy, remains in place.

 

“We did not see an immediate threat coming from the housing market but we are concerned about the prospective evolution of the housing market,” BoE Governor Mark Carney said.

 

 

“The concern is where this could go. We definitely see some short-term momentum,” he said, adding the Bank was prepared to take “larger measures” to tame rising house prices if needed.

Carney said it would “no longer be appropriate or necessary for us to have our foot on the accelerator” in terms of spurring mortgage lending. “It’s better to shift into neutral.”

 

Sterling rose after the announcement, while construction firms lost more than 1 billion pounds ($1.63 billion) in value. Barratt Developments, Britain’s biggest housebuilder by volume, saw its shares slump by as much as 9.6 percent.

 

The Chancellor George Osborne said he backed the changes to the FLS scheme.

 

British house prices are likely to rise nearly 6 percent in 2014 on top of a similar a increase this year, according to a Reuters poll of economists published earlier this week.

 

James Knightley, an economist with ING, said the shift in policy was not a precursor to an interest rate hike by the Bank, which has kept borrowing costs at a record low since 2009.

 

“Such measures have been undertaken elsewhere, and there the sense is that by taking such action it can actually limit the need for direct monetary policy tightening,” Knightley said.

 

A representative of British mortgage lenders said the industry was well placed to cope without the scheme’s support.

 

“Although the changes to the FLS may be a surprise, they are not a shock. Mortgage lenders are well equipped to meet their funding needs, as wholesale funding market conditions have improved and retail deposits are robust,” said Paul Smee, director general of the Council of Mortgage Lenders.

 

Carney said the changes to the FLS did not have implications for Help to Buy, which aims to lift construction and aid home-buyers without large mortgage deposits, and which the Bank will review next September.

 

CONCERNS ABOUT CREDIT

 

Earlier this week Carney faced questions from lawmakers worried that a house price bubble is forming, and that a lack of lending to small firms is hampering Britain’s economic recovery.

 

“We should refocus the FLS so that it continues to support lending to the business sector, without adding further broad support to household lending at a time when that is no longer necessary,” Carney said in a letter to Osborne.

 

Economic growth in the three months to September was the fastest in three years, banks have far easier access to finance, and house prices are rising at their fastest for three years.

 

 

Most of the increase in house prices has been concentrated in London and nearby areas, but Carney said price rises now seem to be spreading more broadly across the country.

Under the FLS, banks and building societies can access cheap credit from the Bank in proportion to how much they lift lending.

 

On Thursday, the Bank said banks would not be able to claim the cheap funding for new lending to households from January 1, 2014, although existing entitlements would not be affected. Fees charged to banks for business finance would be reduced to the lowest point on the existing scale, 0.25 percent.

 

The Bank also said that favourable capital treatment for new home loans made under the FLS would end on December 31. Five, mainly small, lenders benefit from this at present.

 

Carney also said he was ready to take further action to cool housing if need be, including recommending a cap on how big mortgages can be relative to property values and borrowers’ salaries.

 

Currently the Bank lacks the power to force banks to follow its recommendations on such caps, but it could instead require banks to hold extra capital against risky lending – another option that it outlined.

 

Away from housing, the Bank said a stronger economic outlook meant that risks to financial stability appeared lower.

Risks remained, however, as many countries, firms and individuals were highly indebted and vulnerable if a sharp rise in interest rates outpaced any increase in their incomes. ($1 = 0.6144 British pounds

Penalties imposed by HMRC!

    Penalties for mistakes or errors on tax returns are NOT always due

·      Penalties may also be “suspended”

Introduction

This article looks at tax penalties that may be charged following an enquiry or investigation – and how they can often be reduced or avoided. Enquiries are often complex and tax adjustments may be required for different reasons. For simplicity, we refer to penalties in the context of ‘errors’ or ‘mistakes’.

Oops!

It’s a simple fact of life that we all make mistakes. When it comes to tax enquiries, those errors can of course prove very expensive – even more so when penalties and interest are charged on top of the tax itself.

Out of the blue..?

The addition of penalties and interest frequently comes as a surprise to taxpayers. This is perhaps understandable, because while HM Revenue & Customs (HMRC) will almost certainly mention the possibility of penalties, etc., when they first open an enquiry, it may be several months (or even years) before an enquiry is concluded and any penalties are actually calculated. Numerous letters will have passed to and fro in that period, often without referring to penalties at all.

How bad can penalties be?

Basically, penalties can vary from nil to 100% of the tax found to have been underpaid. In fact the penalty can rise to 200% of the tax, if there is an ‘offshore aspect’ to the liability.  For the most part, however, penalties tend to fall in a ‘band’ between 15% and 30% of the additional tax charge.

To put things in perspective, under the previous penalty regime it was quite unusual to see a penalty of much more than 10%.

Penalties fall into higher bands if the taxpayer has deliberately understated the liability, and worse, tried to conceal the inaccuracy. For further information on how to reduce a penalty to the bottom of a ‘band’, see “How to reduce the penalty” below.

HMRC says that the current penalty regime is intended to promote full, prompt and accurate disclosure of any mistakes but to discourage delay or incomplete disclosure by the taxpayer (it is a shame that more is not said on delay by HMRC itself – a common cause of frustration for taxpayers and agents).

How to avoid a penalty

1.Be reasonable!

No penalty is due if the taxpayer takes “reasonable care” when making the return. The level of care HMRC deems reasonable varies with the person and the circumstances, for instance: 

•lower if the taxpayer has no adviser or his business/financial affairs are relatively simple 

•higher if the taxpayer has an adviser, or if the matter is so complex or unusual that advice should be sought or better financial systems should be in place

“Reasonable care” covers:

•Adopting a common / reasonable tax treatment which is later found to be wrong (say in a tax tribunal)

•Minor book-keeping errors

•Following advice from HMRC or a competent adviser which was based on full and accurate details given at the time but later found to be incorrect

2.Be quick!

Referred to as an ‘unprompted disclosure’, this is where the taxpayer makes a complete and accurate disclosure of the error, when he had no reason to expect that HMRC were about to uncover it anyway. While strictly speaking a penalty is due, it can be reduced to nil if the steps below are followed.

How to reduce the penalty

HMRC has the discretion to reduce a penalty from the maximum in the relevant band where the taxpayer:

•Tells HMRC about the mistake, and the details which caused it

•Helps HMRC to quantify the extent of the inaccuracy

•Allows HMRC to see the underlying records to verify the nature and extent of the error

 

These steps can only reduce the penalty for an unprompted careless error to nil. If the disclosure has been prompted by an enquiry, or relates to the more serious deliberate / concealed inaccuracies, then a minimum penalty remains chargeable – although those steps will help to reduce the penalty to the bottom of the band.

Be…suspended?!

HMRC has the power to “suspend” a penalty for careless (not deliberate) errors. Broadly, the taxpayer is on probation, and provided he can prove that he has obeyed the conditions imposed on him and no further careless errors are made during the suspension period (which can be up to 2 years), the penalty is cancelled.
This is valuable because a substantial number of careless mistakes come to light during the enquiry process: as such, even if the taxpayer makes a full disclosure, etc., then the penalty cannot normally be reduced below 15%. In such cases, suspension may be the only route to (eventually) reducing the penalty to nil.
 
Not only does HMRC have the power to suspend those penalties, its own manuals say inspectors must consider suspending errors for careless mistakes (see HMRC’s Compliance Handbook manual at CH83110).
 
This is important because there have been tax tribunal cases which have found in the taxpayer’s favour, at least partly because HMRC did not properly consider whether or not a penalty could be suspended.
 
Conditions for suspension
HMRC’s guidance manual requires:
•A “generic condition” that all tax returns (for any tax) must be filed on time within the probationary “suspension period” (CH83155).
•At least one condition tailored to the case that helps the taxpayer avoid a further inaccuracy penalty (CH83154).
• “One-off” mistakes that are unlikely to happen again cannot be suspended (CH83143).
The legislation states:
•HMRC may suspend all or part of a penalty only if compliance with a specified condition will help the taxpayer avoid further careless error penalties
•…that’s about it!
The legislation does not require all tax returns to be filed on time (HMRC’s “generic condition”) although it is easy to see why HMRC might want to impose the condition.
The legislation does not say that a “one-off” mistake cannot be suspended.
 
The tax tribunal says…
There have admittedly been some cases that have followed HMRC’s line and rejected the suspension of penalties for one-off errors; but the more recent case of Testa v HMRC should help. The judge happily found that the penalty for omitting a redundancy payment from the taxpayer’s return (which everyone agreed was unlikely to happen again in the near future) could be suspended provided a meaningful condition could be set to avoid careless errors in future – in this case, having the returns prepared by a qualified professional adviser.
Practical Tip :
In enquiries, penalties can catch out the unwary – do keep them in mind.
We have set out a number of possible routes above to counter the imposition of penalties – or to reduce them by taking prompt action.
Even if a penalty is charged, it can often be suspended, potentially more often than HMRC currently accepts – but do bear in mind that telling HMRC “it’ll never happen again” might then mean they will try to argue it cannot be suspended!