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HM Revenue & Customs are getting tougher on taxpayers who aren’t paying their tax on time or who they think are deliberately avoiding tax. (We're sure this has something to do with the government’s budget cuts and plans to reduce the country’s deficit!)
A range of measures are being introduced to collect more outstanding tax, including chasing outstanding debts quicker and more aggressively, potentially collecting unpaid debts directly from taxpayers’ bank accounts, and the introduction of Advance Payment Notices for enquiries into tax avoidance schemes.
There are plans in progress to give HMRC the power to collect unpaid tax liabilities directly from taxpayers’ bank accounts. Currently, HMRC require a Magistrate’s Warrant to take possession of taxpayers’ property but this could be changed in next year’s Finance Bill. Many believe that the proposal is simply a modernisation of the debt collection system but there is also a great deal of alarm in the tax profession that these powers could be open to ‘error’ by HMRC.
More notices are being issued under HMRC’s ‘Managing Serious Defaulters’ programme. Any taxpayer (including directors and officers of companies) can be monitored under the MSD rules where the Revenue believe they have deliberately evaded tax, which can include deliberate non payment of tax liabilities or failure to lodge accurate tax returns on time.
Monitoring under the MSD programme can last for 2 to 5 years and can also apply to any new businesses set up by the taxpayer. Under the rules, HMRC will monitor whether all future tax returns and liabilities are made on time, may make announced or unannounced visits to the business premises to inspect books and records and can also make other checks on the business, such as making ‘test purchases’ or inspecting the records of one or more of the business's suppliers and customers.
A penalty of £3,000 can be levied for failure to maintain adequate records in a tax year, and criminal proceedings can follow if HMRC can provide evidence that the failure to pay tax was deliberate.
These new measures may be of particular concern to any taxpayers who participated in tax avoidance schemes. HMRC are already enquiring into many of these schemes, and have issued a list of 1,200 schemes that they believe may be at risk of receiving Advanced Payment Notices (APN) – where the tax ‘underpayment’ is being collected now, even though the enquiry hasn’t been concluded!
Taxpayers will have only 90 days to settle any liability demanded through the APN. This doesn’t leave them much time to fund (often significant) liabilities. Failure to pay can also lead to penalties of up to 50% of the debt if the courts eventually find in favour of HMRC.
We’ve also found it’s been much more difficult to agree payment plans with HMRC for those clients having financial difficulties. As a general rule, payment plans will only be granted where there’s clear evidence that the taxpayer will be able to pay within a reasonable timescale (often 6 months or less), and only if the taxpayer can demonstrate that they are taking steps to rectify the position so that future tax liabilities will be paid on time. Payment plans are still possible but they can take a bit more negotiation than they used to.
Given this toughening stance, now more than ever, taxpayers need to ensure their affairs are in order, with tax liabilities calculated accurately and paid on time.
If you need further advice on any of this or would like us to review your affairs to limit your exposure to these measures, please contact firstname.lastname@example.org