Tag Archive | "managing serious defaulters"

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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