HMRC have published further information concerning the controversial Managing Deliberate Defaulters (MDD) regime.
This was first alluded to in Budget 2009, with a brief reference to ‘new reporting requirements for tax defaulters’, in Press Notice 03.
HMRC’s recent publications on the programme can be accessed from their website – http://www.hmrc.gov.uk/about/tax-defaulters.htm
There are several separate sources of information: the press notice of 22 February 2011 (‘Tax cheats will face up to five years detailed scrutiny’), together with PDF documents of Q & As and Factsheet CC/FS14.
Who is covered?
Question 4 of the FAQs states ‘any person (individual or business) who has deliberately evaded tax’ can be included in the programme. In addition, where the default involves unpaid tax of more than £25,000, HMRC intend to publish the names of defaulters.
Question 6 addresses how ‘deliberate defaulters’ are identified. Penalties applied under the FA 2007 penalty regime for deliberate action and also deliberate action with concealment are identified as trigger points. Deliberate defaulters can be identified without a compliance check being carried out – examples given refer to criminal conviction, identification through CIF (Code 9) enquiries and also specific disclosure campaigns.
Question 14 refers to exclusion from MDD where a full unprompted disclosure is made without fear of discovery.
What is covered?
The scope of the MDD programme covers all obligations to HMRC. The factsheet CC/FS14 suggests a risk-based approach, taking into account the seriousness of the original evasion. The practical steps indicated by HMRC include:
- Checking all Returns for accuracy and filing deadline compliance;
- A regular review of the tax affairs, including announced and unannounced inspection visits, stipulating additional information to be provided with Returns, an ‘in-depth’ check of all or part of a person’s tax affairs and perhaps most extreme, observing business activity, possibly via the defaulters suppliers/customers.
The answer to Question 19 indicates a typical period of between 2 and 5 years, but ultimately, it is until HMRC are satisfied that the person or business is fully compliant and has changed their behaviour.
Irregularities during MDD review period
In the factsheet and at Q.27, HMRC advise that they will use statutory powers to enquire into the irregularity and take appropriate action, including criminal proceedings if necessary. The MDD regime will also remain in place. Other measures mentioned as arising from a failure to meet obligations during the imposition of MDD terms are; a demand for security for VAT, CCJs being obtained, full statutory penalties being applied for late filings and payment, plus the full £3,000 record keeping penalty.
During the MDD review period, affected persons will not be entitled to use informal reporting (e.g. three line accounts for low turnover businesses) in addition to which, additional information and documents can be requested to supplement Returns made.
As we have pointed out, this programme is highly subjective, relying as it does on HMRC interpretations. There is no formal right of appeal against an MDD notice (though there is a complaints procedure).
It is obviously hoped that the programme will be used proportionately. There is now no minimum penalty limit as originally envisaged – so relatively small defaults which are viewed by HMRC as deliberate are in theory at least, within its scope.
It is not quite clear whether the purpose of the plan is to punish or to rehabilitate – in the current political climate, that point appears to have been lost amongst the ‘tax cheat’ headlines. Perhaps the ultimate concern is that ‘tax cheat’ in this context includes businesses or individuals that have simply made errors, of whatever degree.
An MDD notice must be treated with utmost urgency.
The exact grounds for the issue of the notice should be requested from HMRC. How much detail their explanation will provide is another matter, but their response needs to be reviewed critically. The MDD programme revolves around establishing deliberate tax avoidance, and there will be borderline cases – it is known that one MDD notice has been revoked following representations made.
We would recommend that you consider seeking specialist help, on receipt of an MDD notice, while there is at least some hope of having it revoked. If you have any questions or need help, please do not hesitate to contact us.
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