TAXMAN UPS ANTE TO CLAW BACK TAX (Summer 2011)

“You can run, but you can’t hide.” This is the clear message from HM Revenue & Customs, which continues to up the ante in its fight to bring tax avoiders to justice - and bolster the Government’s coffers.

Alongside a host of new campaigns over the next year targeting VAT defaulters, private tutors, tradespeople and e-marketplaces,  HMRC says it will use cutting-edge tools such as ‘web robot’ software to search the internet and find targeted information about specified people and companies. Using the software, the department can pinpoint more accurately people who have failed to pay the right tax.

For every campaign, HMRC suggests that anyone who wants to ‘come clean’ will be treated more favourably. “We will use the information we gather to pursue people who choose not to use the opportunities we provide for them to put their affairs in order on the best possible terms,” said Mike Wells, HMRC's director of risk and intelligence.

“It will be more expensive if we come and find people, so I urge them to come forward and disclose voluntarily.”

For example, HMRC announced last month that a campaign targeting VAT rule-breakers trading above the £73,000 turnover threshold but who have not registered for VAT will be launched in the summer. It will be sending more than 40,000 letters out over the next few weeks informing businesses how to register for VAT.

The letters will tell businesses that those that have not registered will face a "low penalty rate" of 10% on unpaid VAT if they register by 30 September. The businesses contacted will also be invited to disclose other unpaid tax and face penalties lower than the standard charge of 100% they would have to pay if they were caught by HMRC.

Other campaigns that will be launched in 2011/12 will focus on those who provide private tuition and coaching. HMRC says this addresses the risk posed by all professionals who, because of their field of expertise, are able to earn money from providing tuition and coaching – either as a main or a secondary income.

It covers people providing private lessons, regardless of whether they have a teaching qualification, and could include, for example, fitness/dance/lifestyle coaches through to national curriculum subject tutors and others.

Another target is e-marketplaces. This will cover those who are using e-marketplaces to buy and sell goods as a trade or business and who fail to pay the tax owed (websites such as eBay are the most common platforms for this activity). People who only sell a few items and who are not traders are unlikely to be liable to tax and will not be targeted by this campaign.

The new campaigns are the latest in a long list of ‘tax targets’. Dentists, doctors, health professionals, and anyone with offshore bank accounts have already been targeted.

Earlier this year, HMRC revealed the plumbers' tax safe plan (PTSF) agreement which allowed people in the profession and the associated trades to declare their unpaid taxes for the past five years.

Most recently, HRMC said it would be looking into the tax affairs of restaurant businesses in London, before starting a national campaign . In total, nine areas of the country will be targeted this year, with more to follow in 2012/13.

Specialist teams have been set up to investigate businesses, including restaurants and their suppliers, in an "intensive burst of compliance activity".

Mike Eland, director general enforcement and compliance, said: “These task forces are a new approach which uses HMRC's resources to identify and tackle rule-breakers and evaders swiftly and effectively.

“Only those who choose to break the rules, or deliberately evade the tax they should be paying, will be targeted. Honest businesses have absolutely nothing to worry about.

“But the message is clear – if you deliberately seek to evade tax HMRC can and will track you down, and you’ll face not only a heavy fine, but possibly a criminal prosecution as well.”

HMRC’s first big ‘amnesty’ was the Offshore Disclosure Facility (ODF) launched in 2007, which arose as a result of HMRC successfully obtaining consent from the Special Commissioners to serve production orders against the UK’s five leading high street banks requiring them to provide details of UK residents' overseas bank accounts.

An estimated 100,000 taxpayers were targeted by the first amnesty, of which 60,000 voluntarily disclosed information under the terms of the scheme. It netted HMRC approximately £400m, with the penalty applied capped at 10% of the outstanding tax owed plus interest.
 
Although labeled a tax amnesty, it is important to note that, under the previous ODF, disclosing undeclared income to HMRC did not guarantee that further investigation would not occur. While the vast majority of disclosures were accepted without further review the most serious cases were subject to detailed investigation and, potentially, prosecution in serious fraud cases. A second ODF was the announced in 2009.

Subsequently, the government unveiled details of a “groundbreaking” agreement to recover lost tax from Britons holding bank accounts in Liechtenstein.

The deals meant UK taxpayers with undisclosed accounts in the Alpine jurisdiction now had an opportunity to disclose income at a reduced penalty - or face having their accounts shut down.

The so-called Liechtenstein Disclosure Facility (LDF) agreement allows penalties on unpaid tax to be capped at 10% of tax evaded over the last 10 years providing that the account holder makes a full disclosure to HMRC.

Those who fail to make a full disclosure by March 31, 2015, will have their accounts closed, HMRC has said. They may also face penalties on any unpaid tax of up to 100%.

Liechtenstein was once seen as one of the most secretive jurisdictions, favoured by the wealthy looking to shelter money from their own tax authorities.

Under the new agreement, Liechtenstein financial intermediaries will have to review all clients, identifying those who need to confirm their tax position with HMRC and advising them to do so within a specific time frame.

HMRC has estimated that Britons may have funds somewhere in the region of £2-3 billion held in Liechtenstein accounts.