Tag Archive | "HMRC investigation"

Serious defaulters rise again; the taxman means business


This time two years ago, HMRC had close on 1,100 individuals and businesses on its MSD programme. Come the end of the 2014/15 fiscal year, that number stood at five-and-a-half times that amount.

In total, 6,051 taxpayers are under extreme scrutiny, according to Baker Tilly. The accountants requested the data under the freedom of information act, publishing their findings earlier this week.

What does being on the MSD programme mean?

The underlying message is that the taxman is using all the tools in his armoury to thwart tax avoidance and evasion.

Don’t forget, the Conservative government promised no rises in income tax, NICs or VAT this term. So expect similar (or greater) levels of enforcement across the spectrum of HMRC’s tax collection arm ahead.

What it means for the individual or business upon whom the department’s keeping a stern eye is more disconcerting.

For starters, the taxman can let the business know in advance if he’s planning a visit. But he’s under no obligation to do so and can turn up unannounced to carry out a site audit.

The audit itself could investigate anything connected to the defaulter’s accounts:

  • transactions the business has carried out in that fiscal period*;
  • company assets;
  • all aspects of compliance to ensure the defaulter is meeting their tax obligations.

What’s the point of the programme?

The objective is to ensure that the tax owed, past or future, is protected. There is no minimum or maximum threshold for this.

But there are possible stricter measures if the amount adjudged deliberately evaded is in excess of £5,000.

* Should HMRC wish, they can change your VAT date to suit their investigations.

In addition, they can also stop you trading in cash, submitting accounts annually or remove you from the flat VAT rate or retail schemes.

You can write to HMRC to explain why you think you shouldn’t be included in the MSD programme if you think you have just cause. But their website states categorically that there’s no appeal procedure for inclusion therein.

Who will HMRC monitor and for how long?

It’s worth pointing out that it’s not only deliberate evasion that qualifies you for the MSD programme. The full list of possible offences that could get you drafted are on the Government’s MSD web page.

And similar to monetary value, there’s no limit on how long the taxman can monitor you. Until they’re satisfied you’re meeting your taxation obligations, you’ll be an unwilling conscript.

For the majority, this will mean surveillance for between two-five years. The taxman may base this duration on the extent of the deliberate evasion in question:

  • less than ‘£X’ amount, say, and a fine will suffice;
  • more than ‘£X’, and your case may call for harsher punitive measures than simple monitoring;
    • (those are pure suppositions, not factual statements).

With regards to the who the MSD can monitor, they can investigate anyone connected to the defaulting business. They’ll first look to identify who the serious defaulter is in person. This may include examining the affairs of individuals, partners or company directors.

If that approach doesn’t identify a culprit, the whole partnership or company can fall under the taxman’s watchful eye.

A change of business type will make no difference

It won’t help to start another company or change the way you trade, either. HMRC will put insolvent businesses and their owners on the radar.

Changing to a limited entity or starting up under a new name won’t cut the mustard. That’s bore out in the second snippet of information uncovered by Baker Tilly.

Mananging Serious Defaulters 3-year trend

Mananging Serious Defaulters: 3-year trend

In the 2012/13 tax year, HMRC handed out just over five thousand individual penalties for deliberate underestimation of self-assessment figures. During 2013/14, the number of penalties they issued rose almost 280% to 14,401, including those on the MSD programme (see graph).

It’s harsh, but feasible, to think that many freelancers and contractors unfamiliar with running a business will fall into this trap over the coming years. If you’re concerned about self-assessment, get help. It’s not just IR35 you have to worry about in the taxman’s toolbox.

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When is a tax-efficient arrangement too good to be true?


Contractors, whether new to contracting or experienced hands, will often be approached by salesmen for tax-efficient pay structures.

You will hear claims such as ;

• We can guarantee you 90% take-home pay
HMRC compliant
• Guaranteed legal
• Approved by leading Tax Counsel

Great – where do I sign?” might be your first thought. However, you might want to reflect and find out a few things before committing yourself.

How long has the company been around?

Claims are often made that ‘we have been providing contractor solutions for 6 or 7 or 8 years’. Check with Companies House and you may find that the company is relatively newly formed. This could mean that :

a) The company will have little or no track record with HMRC.
b) The company may have no asset base so nothing to fall back on should there be difficult times such as an HMRC investigation.

How can you guarantee take-home pay percentages?

The real answer is that you can’t. It is very dependent on personal issues such as your tax code, previous income and other income. Also, measuring take-home pay is one thing but there is often hidden higher rate tax to be paid via your Self Assessment Tax Return after the end of the tax year. You will also find that a large proportion of the sum that you don’t take home is taken in advisers fees with very little actually paid in tax.

HMRC compliant – surely that’s a good thing?

This may not be as impressive as it sounds. Compliant may mean as little as the fact that the company has registered a PAYE Scheme with HMRC, which is something that it must do to employ people in the UK. They have therefore complied with the basic rules of employing people. Not quite the same as the impression they are trying to portray – that HMRC have looked at, and are happy with the overall way that the company operates.

Guaranteed legal – can’t go wrong with that can you?

Businesses don’t normally state this – only if you are sailing so close to the wind do you think it’s necessary to state it. It may also just appear to be legal – until HMRC proves otherwise, that is.

Approved by leading tax counsel – surely you can trust the opinion of a QC?

Yes, of course you can. But was the QC given a full disclosure of all facts and what was the actual opinion? It is rarely as simple as ‘Yes, that works.’ And also very unlikely that it would be something that you could rely on in Court if you needed to.

So what do I do?

Be cautious and take professional advice from someone you can trust, like your accountant. Only proceed if you are absolutely sure about the scheme. If you get it wrong it’s you that pays the tax, and the interest, and the penalties.

John Mumford is the Accounting Director of Carrington Accountancy
© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited

Image: Seems too good to be true by mattymatt

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