Tag: tax disputes

Careless behavioural penalties: Taxation Magazine

Posted on by Katie Trower

Penalties are applied when a taxpayer fails to take reasonable care to get their tax affairs in order. At the end of an HMRC enquiry, if errors are found, the taxpayer and HMRC must agree the penalty position. Danielle and Riocard note that agreeing the penalty position is not as straightforward as you might think. HMRC penalties are categorised by ‘behaviours’ and it is these behaviours which determines the penalty range a taxpayer faces.

It is crucially important however to seek the assistance of an experienced professional adviser to ensure careless penalties are suspended where possible and fully mitigated where they cannot.

You can read the full article on Taxation here (subscription needed).

We have also commented on the nature of careless penalties in the case of former Conservative Party Chair, Nadhim Zahawi, and his settlement with HMRC in February 2023.

If you need assistance with an HMRC enquiry, or if you need further information or advice, please get in touch with Danielle Ford or Riocard Hoye.

 

 

Nudging up the pressure: HMRC’s increase in nudge letters

Posted on by Anna King

HMRC continues to widen its nudge letter campaigns with new communications. HMRC’s nudge letters are designed to remind taxpayers of their legal obligation to review and declare their tax affairs and correct any errors or omissions.

Nudge letters represent HMRC’s ‘One to Many’ approach – a single communication is sent to a large number of taxpayers who have been identified in respect of a specific tax risk. Nudge letters are therefore a cost-effective way for HMRC to communicate with many taxpayers, as HMRC does not have the resources to open full enquiries on each taxpayer it identifies through the information it receives.

To date, HMRC has ‘nudged’ taxpayers who they suspect have paid insufficient tax in regard to an extensive list of matters including, but not limited to: Overseas income and gains, Coronavirus Job Retention Scheme (CJRS), Annual Tax on Enveloped Dwellings (ATED) and Capital Gains Tax (CGT) on property disposals.

Nudge letters in circulation 

HMRC’s recent campaigns have focused on:

  • Those with an interest in offshore entities following the offshore entity register
  • Business Asset Disposal Relief (BADR) lifetime allowance
  • Research and Development (R&D) tax relief
  • Income from short term property letting
  • ATED filings which may have used incorrect bands used on returns
  • Online traders
  • Creating content on digital platforms such as TikTok, Instagram and YouTube
  • Self-Employment Income Support Scheme (SEISS) grants
  • Super-deduction

We have seen nudge letter campaigns becoming ever more specific, focusing on smaller groups of taxpayers, as the approach becomes more refined, and the number of sources providing detailed financial information to HMRC increases.

The campaigns are based on accurate sources of information which have been provided to, and reviewed by, HMRC. For example, the nudge letters sent to online content creators were generated by financial information given to HMRC by TikTok, Instagram and YouTube respectively. In a small number of cases, we have seen errors in HMRC’s interpretation of the information it receives.

The nudge letter campaign relating to the register of overseas entities also shows HMRC is utilising information it collects internally. This data is processed quickly, increasing the chances of HMRC identifying lost tax in a timely manner.

Nudge letters are not statutory – but they still need a response 

A nudge letter is not a statutory enquiry into a taxpayer’s affairs. However, these letters should not be ignored, and appropriate action must be taken. This does not mean signing and sending the requested certificate of tax position to HMRC – there is no statutory requirement to do so.

If HMRC subsequently opens an enquiry and finds an error, failure to take action following receipt of a nudge letter could lead to higher penalties being charged.

Disclosures and penalties 

If you have found an error or omission in your tax return, disclosing this before HMRC sends a nudge letter, or opens an enquiry, will have a more favourable outcome. It can result in the form of lower penalties, as the disclosure would be considered ‘unprompted’. If you have received a nudge letter, HMRC will deem your disclosure as ‘prompted’, meaning potentially higher penalties. For example, a prompted penalty for an offshore omission can be as high as 200%.

We have also noted that HMRC has started follow-up communications to nudge letters which have not been responded to. HMRC will have a database of taxpayers to whom it sends a nudge letter, a record will be kept noting those who have not acted. If HMRC finds an error, we expect action to be taken following an unsuccessful nudge to be much stronger and carry higher potential penalties.

Given the vast amounts of information HMRC has in its possession, its ability to review this using its dedicated teams and Connect software, and dedicated resource to ensure HMRC targets those identified, it means the risk of receiving a communication from HMRC has never been greater.

When to seek advice

If you have received a nudge letter from HMRC, a statutory enquiry notice, or believe you have made an error or omission in your filing to HMRC, we recommend taxpayers immediately seek professional advice. This will help to mitigate any penalties which may be due, and an experienced professional advisor can help navigate the disclosure or enquiry process. In addition, your advisor can assist with related issues, such as agreeing a payment plan with HMRC for the liabilities concerned.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC. We have a proven track record in obtaining the most favourable result for clients, allowing you to draw a line under the matter and move forward without further intrusion from HMRC. To see how we can help, contact Danielle Ford, Head of Tax Disputes, or Riocard Hoye, Senior Manager.

Euro Pacific Bank – HMRC arrest two with further action to follow

Posted on by Katie Trower

We previously addressed HMRC’s use of nudge letters sent to UK taxpayers who were believed to have held or controlled accounts with Euro Pacific Bank (EPB), which can be found here. On 20 February 2023, HMRC issued a press release announcing that two arrests had been made in the UK, for suspected tax evasion and money laundering, in respect of this.

HMRC are in possession of detailed information regarding those believed to have used EPB; we expect these arrests to be the start of HMRC’s action against those who have not yet come forward. It is likely HMRC will not make arrests in all cases, but criminal investigations and fraud enquiries are expected.

When the nudge letters were first sent, HMRC recommended the use of the Worldwide Disclosure Facility (WDF) to make a disclosure, in order to bring a taxpayer’s affairs up to date. In our article, we also suggested the Contractual Disclosure Facility (CDF), under Code of Practice (COP) 9, as an option for those who may have committed tax fraud and would benefit from the immunity it offers from criminal prosecution.

Interestingly, HMRC’s press release has now also suggested both the WDF and CDF as options for making a disclosure. This is a clear sign of HMRC’s intention and assessment of the behaviour of those who have used EPB.

Further action to follow from HMRC

As part of the press release, Zoe Gascoyne, Deputy Director of HMRC’s Fraud Investigation Service said: “When we launched this probe, we were clear that customers of this bank should come to us before we came to them. These arrests prove we’re true to our word. Anyone who is not sure they paid the right amount of tax, must come forward and tell HMRC as soon as possible.”

The time to bury your head in the sand has now gone. If you have previously interacted with EPB, but have not yet been contacted by HMRC, or have previously received a communication from HMRC, but have not yet taken action, it is essential to act now – please contact Danielle Ford, Head of Tax Disputes or Riocard Hoye, Senior Manager.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC, under the CDF and WDF. We have a proven track record of obtaining the most favourable result for clients, allowing them to draw a line under the matter and move forward, without further intrusion from HMRC.

Careless penalties and deliberate tax errors: Accountancy Daily

Posted on by Katie Trower

In January 2023, Mr Zahawi reached a settlement with HMRC in respect of undeclared Capital Gains Tax relating to disposals of shares in YouGov, the polling company which he co-founded in May 2000. The settlement amount is unknown but is believed to be in the region of £5m including a 30% penalty. It also led to him losing his job as the Conservative Party Chair.

Danielle and Riocard provided an analysis on Mr Zahawi’s case. Their analysis highlights that expert advice should be sought with careless penalties, as these can often be mitigated and even suspended.

In their Accountancy Daily article, Danielle and Riocard deep dive into HMRC’s position on careless penalties, why careless penalties are unique in having suspension conditions, and whether Mr Zahawi could still have his job as Conservative Party Chair if his penalty was mitigated.

Read Danielle and Riocard’s insights in more detail in the full Accountancy Daily article here (subscription needed).

If you have any kind of dispute with HMRC then please contact Danielle or Riocard. Our team have a proven track record in representing our clients in tax disputes with HMRC to reach the best possible outcome for them.

Nudge letter theory: STEP Journal

Posted on by Katie Trower

Whilst HMRC has access to more information than ever before, it lacks the resources to open full investigations into each taxpayer it identifies as a risk. Therefore, nudge letters are a cost-effective way for HMRC to communicate with a large number of taxpayers when it believes that a taxpayer’s affairs are not in order, and has identified a potential loss of tax. Our STEP Journal article explains why taxpayers with connections to Euro Pacific Bank must act quickly and seek professional advice as soon as possible.

There are some key things to note with nudge letters:

  • An advisor may not always receive nudge letters on behalf of their client.
  • A nudge letter is not a statutory enquiry into a taxpayer’s affairs.
  • Making a disclosure before receiving a nudge letter from HMRC leads to the most favourable outcome.

Read Danielle and Riocard’s insights in more detail in the full STEP Journal article here (subscription needed).

HMRC’s use of nudge letters is ever expanding and they have used nudge letters to cover a wide range of topics. We recommend that taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.  If you have any kind of dispute with HMRC then please contact Danielle Ford or Riocard Hoye.

HMRC compliance activity greatly increasing

Posted on by Katie Trower

We have seen a huge increase in enquiries issued by HMRC since the turn of the New Year.

Enquiries by HMRC can be stressful, intrusive and long running. In addition, enquiry settlements can be costly and present financial challenges.

We strongly recommend seeking professional advice upon receipt of an enquiry notice. The right professional advisor can guide you through the process and ensure HMRC are acting within their legal boundaries. In addition, an experienced professional advisor will mitigate and suspend penalties where possible.

If you, your company, trust or charity receives an enquiry notice, then please contact Danielle Ford, head of Tax Disputes or Riocard Hoye, Senior Manager for a confidential initial discussion. Our team has a proven track record in successfully representing our clients in disputes with HMRC, resulting in the best possible outcome for them.

For more on HMRC’s recent enquiries and our analysis, read on below:

Conservative Party Chair HMRC tax settlement: Analysis

Posted on by Katie Trower

As widely reported in the mainstream media, Nadhim Zahawi, the current Conservative Party Chair and former Chancellor of the Exchequer has reached a settlement with HMRC. This was in respect of Capital Gains Tax relating to disposals of shares in YouGov, the polling company which was co-founded by Mr Zahawi in May 2000. The amount is unknown but is believed to be in the region of £5m including a 30% penalty.

Careless penalties

The report quotes that Mr Zahawi has said this penalty was “careless and not deliberate”. Careless penalties are charged where reasonable care has not been taken in respect of a submission to HMRC.

’Careless’ penalties fall within a range. Either:

  • 0% to 30% where the discovery of the loss of tax is unprompted or voluntarily disclosed; or
  • 15% to 30% where the discovery of the loss of tax is prompted by the action of HMRC.

We do not have enough information to determine whether Mr Zahawi’s penalty was prompted or unprompted, but it appears he was charged the maximum careless penalty allowable as per the penalty ranges. Penalties can be mitigated based on three criteria: telling, helping, and giving HMRC access to records. The size of the penalty suggests HMRC were not willing to mitigate the penalty charged, based on engagement throughout the dispute.

Please note that the above analysis is on the basis that this is an error within the UK, with no offshore element. In some cases, the penalty range can be higher for offshore matters, depending on the jurisdiction involved. It has been reported that Mr Zahawi co-founded YouGov before entering politics, with shares held in Balshore Investments, a Gibraltar-registered family trust. There could be an associated offshore element involved here, however penalties appear not to have been fully mitigated with the potential minimum remaining at 0% for offshore penalties.

Seek expert advice

We strongly recommend taking experienced professional advisers with knowledge of HMRC processes to appropriately manage a dispute with HMRC. Expert advisers can ensure that if any penalties are to be charged, that they are mitigated where possible to ensure the most cost-efficient settlement.

Careless penalties can be suspended in most cases, subject to certain conditions being agreed. This means the penalty will not actually become payable providing the agreed conditions are met and the individual is tax compliant during the suspension period. Reports infer that the penalty was actually paid and comprises part of the overall settlement, rather than being suspended.

This again highlights the importance of the right professional advice, to ensure that careless penalties are suspended where possible. Suspension is intended to be an incentive for future compliance and Mr Zahawi could have avoided paying the penalty, had his advisers been able to agree suspension with HMRC.

Based on the figures reported, Mr Zahawi’s penalty was a seven-figure sum. Penalties are often not considered until it is too late, however they can clearly have a significant financial impact. If you have any kind of dispute with HMRC then please contact Danielle Ford, Head of Tax Disputes or Riocard Hoye, Senior Manager. Our team have a proven track record in representing our clients in disputes with HMRC to reach the best possible outcome for them. You can read about one of our previous successes here.

 

 

Code of Practice 9 (COP9)

Posted on by Katie Hiddleston

The COP9 process

An outline disclosure needs to be made to HMRC within 60 days of the COP9 enquiry being opened. This needs to contain as much detail as possible about all deliberate and non-deliberate tax irregularities. This document is of paramount importance as only irregularities disclosed here will be immune from criminal prosecution. Following this, an in-depth meeting will be held with HMRC to discuss the outline disclosure and in most cases, a full disclosure report will be commissioned after in which all irregularities will need to be fully explained with supporting evidence and disclosed to HMRC.

Seek professional tax advice

Taking professional advice in relation to COP9 is essential, given the fine margins which could lead to a criminal prosecution for an incomplete or incorrect disclosure. Our team includes Danielle Ford, Partner and Head of Tax Disputes & Resolutions, who has over 20 years’ experience in getting the best results for her clients, including resolving COP9 enquiries, and Riocard Hoye, Senior Manager and a former HMRC Fraud Investigation Service (FIS) senior inspector, who can also offer unique insight into the process. We have a wealth of COP9 experience, helping our clients achieve their main aim of avoiding criminal prosecution but also assisting in negotiating a more favourable settlement in terms of penalty rates and payment arrangements.

We’ve written in detail about the COP9 process so if you have any queries, please contact Danielle or Riocard.

HMRC new guidance for football agents

Posted on by Sara McKenzie

The guidance covers HMRC’s position where football clubs use the services of an intermediary (an agent) to negotiate with players, particularly where there is dual representation. Dual representation is typically where the agent negotiates a new contract or where the agent acts for both a club and the player in negotiating a transfer deal.

Prior to the release of the new guidance, fees payable on dual representation contracts were split 50:50 between the player and the club. With the services for the player taxable as employment income on the player.

As of April this year HMRC will no longer accept the default 50:50 split. Under the new guidance, the club is required to split the payment of agent’s fees to reflect the extent the agent represented the club and the player. Significant emphasis has been placed on clubs to retain evidence of the nature of the arrangements and commercial justification of the payments made. The records HMRC recommend the club to keep are particularly onerous and include:

  • The specific reasons for engaging an agent for the specific transaction
  • Contemporaneous evidence of the engagement of the agent, the instructions given, and the level of fee discussed
  • Contemporaneous evidence of the work done for the club
  • Evidence to support the basis of any split in the agent’s fee paid between club and player services
  • Evidence to support any variation of the fees shown in the player/agent representation agreement and the subsequent tri-partite agreement
  • Evidence to substantiate the work conducted by all the agents where multiple agents are used in respect of the same player for a transaction
  • Evidence to demonstrate that the fees paid to agents are commensurate with the services they provided

In practice, the club could evidence the purpose of the fees paid through submitting copies of all communications ranging from contracts through to text messages. However, there are another set of concerns related to this course of action. Whilst the recommended records to be maintained by agents and players are not so onerous, we recommend that all parties to a new contract or transfer retain all of their records (emails, text messages, notes to the contract, etc) as they could be required should HMRC investigate the agent allocation paid by the club.

The change in guidance is not welcome to clubs nor players, especially when they are in the process of agreeing new deals on deadline day in the transfer window.  For the players, the fees allocated to them by the club will attract a tax liability of up to 45%, as it will in effect be treated as their income. It is unlikely the allocation of agents’ fees to players will reduce. The allocation is only likely to go one way – up. It is also useful to bear in mind that, in practice, the payment to the agent on behalf of the player is a benefit-in-kind and declared by the club on form P11D. This means that unless the parties arrange for the PAYE code to include the BIK, the payment will not be taxed through the monthly payroll, but will become payable on 31 January following the end of the tax year. We also recommend players’ tax returns to be prepared as soon as the forms P11D are available; this will assist with proactive tax planning.

HMRC, having set out these new guidelines, will undoubtedly be taking an active interest in all payments which the clubs make to agents. They have stated that there are several ‘indicators of risk’ that may cause them to give further and more detailed review of arrangements entered into by clubs, agents and players. The indicators HMRC consider in relation to the payments made by football clubs to intermediaries, include, but are not limited to, the following:

  1. Payments treated as a benefit to the player that are lower than the amounts those players are:
  2. Due to make to agents under existing player/agent agreement
  3. Agents acting for both clubs in the same transaction
  4. Payments to individuals who are connected with the players (eg family members)
  5. Payments to corporate (or other) entities that are controlled by individuals who are connected with family members of players
  6. Payments to those acting as sub-agents
  7. Payments that are said to be 100% for club services where it is not clear that another party is acting for the player
  8. Payments to agents where they are said to act for corporate entities (typically based in tax havens) that appear to have little or no substance

Following the redeployment of HMRC staff at the start of the pandemic, the investigation teams are now returning to normal and we have started to see a number of HMRC communications and new enquiries. You should now be ensuring that you have the evidence in place to robustly defend and refute any allocations proposed by HMRC which do not, in your opinion, reflect the reality.

Danielle Ford is Partner and heads up haysmacintyre’s Tax Disputes & Resolutions team. The team are focused on defencing clients who find themselves the subject of any form of tax dispute or enquiry with HMRC. Get in touch with Danielle today for further guidance and advice.

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