HMRC have upped their game...Have you?

The Revenue have upped their game…. Have you?

HM Revenue and Customs are in the news more often than at any time in living memory at the moment, whether it is clamping down on tax evasion and tax avoidance or seeking extra powers or being questioned by the select committee of MPs at the House of Commons. It is clear that they are under significant pressure from government to increase the amount of tax that they collect.

This is resulting in an increasingly aggressive attitude being taken by HMRC which many taxpayers will feel the effect of in the future.

We set out below some of the recent developments which make it even more important than ever to be on top of the paperwork and to be aware of HMRC’s approach.

Investigation

HMRC have the power to enquire into the tax affairs of any individual or business. The majority of these enquiries are not just targeted at people purposefully evading tax, HMRC can open an enquiry if they merely suspect you have undeclared income or have claimed too much tax relief.

We have experienced HMRC getting information from the land registry and directly from banks and then writing to the taxpayer. It is very important to check that everything has been disclosed. A small omission can open the door to a fuller enquiry.

Tax planning

Reports in the media and from government often confuse legitimate tax planning with tax evasion. Tax evasion is the deliberate evasion of tax through illegal methods, e.g. not declaring and hiding income. Tax planning however is completely legal and covers a very wide range of areas from simple every day activities such as making payments to a charity or to a pension scheme to the more aggressive use of tax avoidance schemes. The whole spectrum is perfectly legal but different tax payers will have different attitudes to risk and what they are comfortable with. Many of the most common tax planning options available are actually supported by HMRC guidance, forms and procedures but the average taxpayer would not know this from current press reports. Before undertaking any kind of tax planning you need to know what HMRC’s attitude is so that you can evaluate the risk of attack.

Undeclared income

Although having undeclared income could be considered tax evasion, we have found most cases to be due to honest mistakes and steps can be taken here to rectify these mistakes early ensuring any penalties are minimised. Often it is only a matter of time before HMRC enquire into a person’s tax affairs where there is undeclared income.

Tax coding errors and delays

Although HMRC issues updated tax codes each year to people in the PAYE system, please be aware that these are not always correct and we often find codes incorrect being based upon incomplete or out of date information from the prior year. An example of this includes non-taxable business expenses from a submitted P11D showing as taxable in your tax code. Please be aware HMRC are no longer notifying appointed tax advisors of individuals when a tax code changes, therefore it is vital you do not ignore updated coding notices.

Of increasing concern in this area is HMRC’s current proposal to delay sending employee tax code notices for 30 days after informing the employer.

Employers will be legally required to use the tax code and no-one will know what the amendment is for. This could cause hardship for employees. Many low paid part time workers who have more than one job and therefore split their tax allowances are potentially exposed to sudden tax charges and the threat of real hardship as a result.

HMRC accessing your bank account

Of concern is the proposal for HMRC to be able to access individual’s bank accounts and withdraw money to cover outstanding tax liabilities without needing the authority of the person concerned or approval from the courts. Part of this proposal also includes HMRC having access to 12 month’s bank statements.

While in principal we can see that there is merit in the idea the lack of independent review and the number of errors made by HMRC gives us great concern about these proposals. It is more important than ever to deal with any HMRC letters promptly and if you have moved house, ensure HMRC are aware of your current address.

Summary

The message is that the Revenue have new powers and are not afraid to use them. You must not ignore any correspondence with the Revenue and take advice before undertaking any tax planning activity. For further information contact Calvin Healy or Jon Miles on 01225 325580.