HMRC’s latest trawl of self-assessed taxpayers, which focused on landlords, high net worth individuals and online traders, has reaped high rewards for them, namely £845million in 2013-14, an increase in revenue of 39% (Financial Times 15/11/2014).

This is quite an achievement, considering the draconian budgetary cuts that HMRC have suffered, so how have they done this?

Quite simply, they have invested some £80 million in a computer system called CONNECT, which analyses information from the internet, other government departments , various data bases, social media, and overseas tax authorities. Additionally, in 2013 HMRC paid £400,000 to whistle-blowers who gave information on tax avoidance schemes and membership thereof. The Telegraph reports that meant a 30% increase in payments to whistle-blowers in 2013. It is as well to note that the majority of whistle-blowers were divorcing spouses and former business partners.

Recent years have also seen the strongest clampdown ever on tax avoidance schemes by HMRC; they have won most (but by no means all) of the tribunal decisions in relation to these schemes, though the current battle with Ingenious remains of real interest.

According to International Business Times, HMRC intend to issue 43,000 Accelerated Payment Notices to individuals they believe to have been involved in these schemes. They expect the average payment due will be £155,000 and believe the overall sum due will be some £7.1billion. The taxpayer will receive 90 days notice to pay, and the notices will be issued where there has been a DOTAS notification or where a GAAR counteraction has taken place.

HMRC will also issue Follower Notices where they believe to be a final tribunal/court decision in a case that is similar to the tax scheme claimed by the taxpayer.

What do you do if you receive any of these notices or notification of an investigation into your tax affairs?

All tax professionals would advise you to sit down with HMRC and negotiate. That is not as easy as it used to be. Since HMRC brought in their Litigation and Settlement Strategy (LSS) it has been found that many of the Inspectorates lack the authority to reach a compromise. Essentially HMRC are seeking consistent resolutions of disputes and individual authority has been curtailed. Certainly, a number of our clients embroiled within tax avoidance disputes have been told that HMRC will only deal with groups of taxpayers and not individuals.

The ultimate solution for HMRC is a criminal prosecution, and it is not to be taken lightly. The courts are handing down longer custodial sentences and any remaining assets will be confiscated. HMRC are on target to prosecute 1,165 cases in 2014-15. So far, they have prosecuted the smaller cases.

Radical changes in the COP9 procedure now mean that the taxpayer can either admit to the fraud and co-operate, or refuse to co-operate and face prosecution.

HMRC’s Summer 2014 Consultation on the highly controversial (and potentially problematic) proposal of a strict liability criminal offence of failing to declare offshore income has resulted in its quiet disappearance from the draft Finance Bill 2015 (see the Financial Times 11/12/2014). Instead, there will be more emphasis upon civil deterrence and financial penalties. For example, those taxpayers who avail of more sympathetic tax regimes in other jurisdictions will face a further 50% penalty in addition to the penalty for non-compliance.

There will also be amendments to the DOTAS regime that will further protect whistle-blowers who give information about proposed or existing tax avoidance schemes. HMRC will also publish details of the ‘hallmarks’ of such schemes e.g. premium fees and tightly drawn non-disclosure agreements in order to warn tax payers.

There will be a further consultation published by HMRC in 2015, focusing on potentially ‘naming and shaming’ serial tax avoiders who have entered various tax avoidance schemes.

This article is for informational purposes only and does not constitute legal advice. If you require any advice please contact Jeffrey Lewis or Siobhain Egan on 020 7387 2032, or complete our online enquiry form here.