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UK Government will Publicise Names where Tax is Deliberately Underpaid
Since the start of the recession, global leaders have focused on taxpayers who deliberately evade paying the correct amount of tax. From 1 April 2010, the UK tax authority, HM Revenue & Customs (HMRC), is able to "name and shame" serious tax defaulters on their website, as well as charging penalties and late payment interest. Interesting cases are likely to be picked up and publicised by the national, regional and internet press and could result in serious reputational issues for those companies, businesses, partnerships, trustees and individuals who are caught. A similar weapon has been used by the Irish tax authorities for over ten years to try to prevent tax evasion and it will be interesting to see what impact it will have in the UK. Taxand UK discuss the details of the scheme and identify who will be caught.
Where HMRC discover a taxpayer has "deliberately" underpaid tax of over ?25,000, has not fully cooperated with their enquiries, and is charged a tax geared penalty of over 20%, they will publicise the name and details of the wrong doer. Examples of non-compliance include submitting incorrect returns and failing to notify HMRC of becoming chargeable to tax. This applies to all taxes including corporate tax, PAYE, NIC, VAT, income tax, capital gains tax, and inheritance tax. No publication will result from late tax return filing or late payment of tax.
A "deliberate" inaccuracy is where a person knowingly and intentionally gives HMRC an inaccurate document so as to understate the tax due. It does not include using a reasonable, uncertain view of a tax situation which is subsequently not upheld (for instance, a tax avoidance/planning scheme that is disclosed to HMRC). Examples of deliberate inaccuracies include consciously describing transactions inaccurately or in a way likely to mislead, systematically paying wages without operating PAYE/NIC, or knowingly failing to record all sales. HMRC have made it clear that the names of those who have merely made an innocent mistake or failed to take reasonable care in assessing the correct amount of tax due (i.e. have been negligent) will not be published.
The legislation will apply for return periods or failures starting on or after 1 April 2010. The ?25,000 unpaid tax threshold can cover more than one period, tax or default. However, it cannot include unpaid tax arising before 1 April 2010 and it must result from the same investigation or compliance check.
All taxpayers will be able to escape publication if they make a full disclosure to HMRC, either unprompted or prompted, thereby encouraging those who are caught to make a full disclosure. HMRC are able to reduce penalties down to set, minimum thresholds based on the quality of disclosure which is measured on three categories: telling HMRC about what happened (30%), proactively assisting HMRC with quantifying the inaccuracy (40%) and allowing inspectors access to relevant records (30%). The taxpayer needs to obtain 100% of the penalty reduction available for all deliberate penalties arising from the enquiry/compliance check in order to avoid publication.
The following safeguards are to be applied by HMRC:
- no publication is possible until all appeal opportunities are concluded or expired
- the taxpayer must be notified in advance and given reasonable opportunity to make representations
- HMRC must send the taxpayer a copy of the details they intend to publish in advance
- HMRC must publish within 12 months of the penalty becoming final and remove material 12 months later.
The details to be published will be the minimum necessary to correctly identify the person and the default: name, address, nature of business, period covered, amount of tax and penalty. If HMRC can identify the person correctly and avoid any confusion without the address, then this will be omitted.
HMRC will publish a quarterly list on their website, with an accompanying press notice.
There may be exceptional circumstances where HMRC will not publish details, and the representations made by the taxpayer will be taken into account. Examples include prejudice to an ongoing criminal investigation or risk to a person's security.
In Ireland, the list of tax defaulters is published quarterly in the Government Gazette (Iris Oifigi?il) and on the Revenue Commissioners website. Noteworthy additions such as sports stars, politicians, restaurateurs and entertainers get front line attention. Our Irish Taxand colleagues say that they are so used to it by now that nobody really cares anymore, although the policy has been very effective in encouraging voluntary disclosures. The quarterly lists generally include roughly 300 names. The majority of names belong to builders, taxi drivers, farmers etc and we assume that many of the taxpayers are unrepresented and have not made the most of opportunities to reduce the penalty. Tax defaulters in rural areas of Ireland have been more affected within their community by publication of their details than those in large, anonymous, cities such as Dublin. If repeated in the UK, this is likely to perpetuate the image that HMRC pursues the "little guy" instead of the "big fish".
We suspect that publication is likely to affect employability, credit rating, business activities, spouses, and may lead to the potential bullying of children or even the possibility of the public taking matters into their own hands. However, there is no research to verify this.
We note that the focus on "deliberate" non-compliance is wider than cases of pure tax fraud, i.e. where non-compliance is deliberate and concealed. Therefore, it will be easier to fall into the category than might initially be appreciated. For instance HMRC may view someone who has adopted an inappropriate accounting system as a deliberate defaulter, or someone who has consistently made the same error or a very large error. The threshold also seems very low for large corporates or individuals who have accumulated defaults over a number of years.
With few prosecutions, we feel HMRC is in urgent need of a publicity tool to assist them with non-compliance. However, HMRC must undertake robust due diligence to avoid publication errors and falling foul of data protection laws. Publication should only be applied in appropriate circumstances. There is a risk that a genuine argument with HMRC about the treatment of a transaction might lead to HMRC using this new power as a threat in the course of negotiating a settlement.
Those who receive penalty notices from HMRC should consult their nearest Taxand Advisor as soon as possible to minimise the tax at stake, to avoid the categorisation as a "deliberate" error and to achieve the maximum penalty reduction for disclosure. It may even be possible to negotiate a deal with HMRC to highlight special circumstances so that a taxpayer might pay more but will not be publicised.
Your Taxand contact for further queries is:
T. +44(0) 207 715 5214
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