If you don’t declare or don’t pay the tax you owe to HMRC, it’s likely you will receive significant penalties and in some cases be criminally prosecuted. But did you know that HMRC can publish your details, or enter you into a programme to monitor your affairs more closely if HMRC consider you to be a serious tax defaulter?
These HMRC measures are designed to deter deliberate non-compliance and reassure the public that HMRC are serious about tackling non-compliance. They can apply to individuals and businesses alike.
Publishing Details of Deliberate Defaulters (PDDD)
HMRC publish details of taxpayers who have deliberately defaulted on their tax obligations, by deliberately providing inaccurate documents, deliberately failing to comply with an HMRC obligation e.g. failing to notify HMRC that a tax return is due, or by committing a VAT or excise wrongdoing, where the loss of tax (potential lost revenue or ‘PLR’) is more than £25,000.
HMRC will publish the taxpayer’s name, address, the nature of their business, the amount of lost revenue and penalties that were due to HMRC, and any other identifying details HMRC consider to be necessary. The details will be online on gov.uk for a maximum of 12 months (but will not be posted to the national archives).
The Managing Serious Defaulters (MSD) programme
HMRC can enter a taxpayer into the MSD programme where deliberate penalties have been issued (whether concealed or not), or where civil or criminal investigations have taken place and been settled. There is no right of appeal to being entered into the programme.
The timeframe a taxpayer will be monitored for is between two and five years, and during the time in the programme taxpayers will need to submit accurate returns and declare and pay tax on time, and they will be required to submit additional breakdowns of income and expenses to HMRC. In some cases taxpayers may be subjected to unannounced HMRC inspections and additional compliance checks for no reason other than them being in the MSD programme.
The scheme is therefore quite intrusive for the taxpayer, presenting additional administrative burdens as well as meaning additional fees may need to be incurred on professional advisers, but it gives an important opportunity to HMRC to intervene in case of reoffenders, or otherwise gain assurance that a taxpayer has changed their behaviour.
Can a taxpayer avoid PDDD or MSD?
The good news is that a taxpayer can avoid having their information published, or avoid being entered into the MSD programme, where early and full disclosure is made to HMRC which results in the maximum reduction in penalties.
In the case of PDDD, the taxpayer must make a full and immediate disclosure to HMRC upon the beginning of any HMRC investigation, or, ideally, prior to their investigation. Coming forward voluntarily will mitigate the overall liabilities due, as unprompted disclosures attract lower penalties than prompted disclosures.
A taxpayer will not be entered into the MSD programme where a full unprompted disclosure has been made, and where full reductions to penalties have been given for the quality of disclosure. It is therefore advisable to seek professional advice before coming forward to HMRC to ensure that any disclosure made is as accurate and detailed as possible.
What should I do if I am concerned about PDDD or MSD?
Where deliberate behaviour has led to the loss of tax, i.e. the taxpayer intended to act dishonestly, the course of action we recommend is to apply for the Contractual Disclosure Facility, also referred to as Code of Practice 9 or the ‘COP9’ process. Where a taxpayer makes a full and honest disclosure, COP9 is the only way to guarantee protection from criminal prosecution.
The benefits of applying for COP9 rather than waiting for HMRC to find out include mitigating financial penalties, reducing the risk that your details will be published and the risk that you will be entered into the MSD programme, and being in overall control of the process.
The consequences of not coming forward can include criminal prosecution. Read more on COP9 and whether it’s right for you in our article here.
If you would like to discuss voluntary disclosures including COP9 in more detail, or the risks of the PDDD and MSD programme, please contact Menzies Tax Disputes and Disclosures team below: