HMRC announced a number of measures to counter late compliance and tax evasion including a ‘name and shame’ policy for deliberate defaulters and changes to penalties for late returns, but little on the anticipated second offshore tax ‘amnesty’.
Baker Tilly analysis
HMRC have confirmed that the long awaited second offshore tax ‘amnesty’ will take place in the Autumn. The delay in the timing of the amnesty and lack of detail are disappointing; it had been anticipated following the 2008 Pre-Budget Report that this would be launched this Spring.
The announcement of a list of tax defaulters is part of a bigger package, through which HMRC are seeking to come down hard on those who don’t comply and this is supported by a proposal to scrutinise more closely the tax affairs of those who have previous tax irregularities on their record. But there is a fear that insufficient safeguards will be built into the new rules for late filing penalties so that accidental late filers will be penalised.
In detail
From April 2010, individual and business taxpayers face a much harsher penalty regime where tax return filing deadlines are missed. Under the proposed changes, late filing penalties will not be linked to tax payments, instead there will be stand alone penalties for late compliance running alongside interest and surcharges for late payment of tax and potentially doubling up on the financial burden for late compliance. The new rules will cover a wide range of direct taxes including income tax, corporation tax and inheritance tax and in particular, late filing of monthly returns such as those covering PAYE/NIC and Construction Industry returns.
In addition to the immediate penalty of £100, there will be daily penalties which may increase the penalty to £1,000 in only three months, followed by a fixed 5% of tax irrespective of the tax already paid.
The Chancellor confirmed his Pre-Budget Report announcement that there is to be a second tax ‘amnesty’. The ‘New Disclosure Opportunity will be launched in Autumn 2009 and present a window, until March 2010 to disclose previously untaxed income connected to an offshore account. Further details, for example the level of the penalty, will be provided by HMRC in the months ahead. HMRC have indicated that the level of penalty will be less than their errant ‘customers’ would normally pay.
This introduces a problem for anyone contemplating making a disclosure. HMRC must provide assurance that anyone coming forward before the Autumn disclosure window opens will not be treated more harshly than those who delay disclosure.
Where HMRC identifies deliberate understatements which give rise to a penalty of £5,000 or more, they will closely monitor the tax affairs of the taxpayers concerned for up to five years. Taxpayers will have to provide much more information when filing their tax returns during this period of increased scrutiny.
Additionally, HMRC are set to ‘name and shame’ deliberately non-compliant taxpayers. Legislation will be introduced under which those who fail to disclose irregularities amounting to tax of more than £25,000 and who refuse to co-operate when the taxman investigates will find themselves appearing on a “register of tax evaders”, details of which will be publicised for a 12 month period on HMRC’s website.
Those customers of HMRC who voluntarily come forward to put their tax affairs in order will be spared this public humiliation. It seems that HMRC are trying to attach a stigma to tax evasion. However, this may backfire if a ‘tax ASBO’ becomes a mark of street credibility in certain circles.