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KEY POINTS
- Having supporting information for follow-up is a key part of disclosure facilities.
- BMA expected medics’ disclosure to be alongside other groups.
- HMRC take on board problem of higher penalties for those who come forward before a facility is announced.
- Possibility of announcing groups to be targeted before facility is launched.
We are used to round table discussions on various aspects of tax, where tax advisers and government officials are brought together, and the CIOT has facilitated these before.
On Wednesday last week (3 March) the institute convened a round table on the disclosure deal for doctors and dentists where representatives of their professional bodies and trade press were added to the mix. The results were very interesting.
The round table started with Andrew Hubbard, president of the CIOT, outlining the basic format, and introducing the two initial speakers: Dave Hartnett, permanent secretary for tax at HMRC, and Gary Ashford, chair of the management of taxes subcommittee of the CIOT.
First among equals?
Hartnett explained that the Tax Health Plan (THP) was the first in a new iteration of what he referred to as ‘campaigns’, stressing that they were not ‘amnesties’.
The essential features of a campaign (to which he returned at the end of the round table) were that:
- they addressed an area, or a sector, or a group of taxpayers,
- where HMRC knew there was under-declaration of tax, and
- where they had information that they could use to target taxpayers in the follow-up.
He cited the New Disclosure Opportunity (NDO) as a good example, where there was a ‘wall of data’ waiting to be used. He said that HMRC constantly learn from their campaigns, and in particular that they can now buy data which goes into their risk profiles.
Ashford welcomed the collaborative approach, but pointed out both that agents have a major role to play in ensuring compliance, and that HMRC cannot remove themselves from policing the system altogether, as there will always be people who simply do not take up these offers to come forward.
Why me?
Once the debate was opened up, there were some intriguing reactions and revelations from those representing the medical profession.
Carole Slingsby, finance editor from GP Newspaper, asked why doctors had been targeted – were they thought to be worse than other taxpayers?
Hartnett confirmed that they were just the first to be chosen, on the basis that risk-assessment showed there was likely to be non-compliance. Having already recounted one experience from his Special Compliance Office days of dealing with a comedian who successfully claimed he did not know that interest on offshore accounts was taxable if not remitted (how tickled we were to hear of that), he now added in a couple of medical horror stories; e.g. the doctor with £3 million hidden offshore, and the four doctors who had invented ‘locums’ to whom they paid fees.
For good measure, he commented on Antipodean dentists ‘crashing the tax system’ for a couple of years and then disappearing without ever having met their liabilities.
It was left to Mike Wells, HMRC’s director of risk and intelligence, to be rather more emollient, pointing out that the undoubted risks posed by medics were neither unique to them, nor found in the majority of the profession.
HMRC were, instead, working their way through defined populations at a sensible pace, so that they had the resources to follow up.
More haste, less speed?
Derek Allen, taxation director at ICAS, picked up on the ‘sensible pace’, pointing out that the time limits for disclosure were very tight – the final date of 30 June to provide all the details was impractical, given that there were 20 years to work through.
He also suggested it would be better to tell tax advisers two years in advance of the sectors they were going to target, and the advisers could then ensure voluntary disclosure as the returns for the current years were submitted.
Derek Machin, chairman of the BMA’s private practice committee, had been involved in the process of discussion with HMRC prior to the announcement of the THP and had obviously not been happy with the process.
He said the BMA had been called to a meeting at very short notice in November 2009, and told that the whole disclosure process had to be completed before 5 April 2010 because of the new penalty levels.
The original date for completion was therefore 12 March, which was negotiated back to 30 June. However, at this point he felt HMRC had seemed to lose interest for a while, and the BMA had been chasing HMRC to get the THP underway.
He felt the BMA had been left in the unenviable position of knowing that something was on its way which would affect its members, but not being able to tell them about it.
He also said that the BMA was under the clear impression that all the trades and professions to be targeted would be announced at the same time, and having doctors and dentists announced on their own had been very sensitive for the representative bodies.
Again, because of the emphasis in the initial discussions on the work all having to be done by the end of the tax year they understood that all the groups to be targeted would have similar deadlines. Wells apologised if the BMA had felt poorly treated, but said there had never been any intention of dealing with all groups at the same time.
Picking up on the issue of timescale, Ashford said it would be a missed opportunity if, in several years time, we looked back and saw that there had been several disclosure facilities, but that take-up had been too low because the window for declaration had been too short.
They needed a period of education to maximise the impact before people would come forward.
Who’s next?
David Rodney, from the Bar Council, said that it was surely more difficult to negotiate such disclosure facilities when the groups concerned were not represented, as many trades would not be. Hartnett pointed out that hod carriers have trade unions, and trade associations.
Always willing to lend a hand to get HMRC out of a spot of bother(!) your editor then queried whether it was true that gas fitters were the next in line (as reported by Tim Good of PTP).
Hartnett said that ‘I may have started this one’; he had thought that they would be, but now could only say that they ‘may or may not be’ the next group to be targeted.
Mike Eland, HMRC’s Director General, Enforcement and Compliance, picked up the general theme by saying that they were going to mix up the various groups. This was back to the issue of targeting and being able to follow up.
He appreciated that being first was difficult, but confirmed that there would be a range of groups, and that they were talking to trade associations, not just professional bodies.
Penalty levels
Although there was a general view around the table that these disclosures were a good idea (personally I always thought that one disclosure was a good idea, but now we’ve started I suppose we’ll have to finish), Andrew Gotch, chair of the CIOT’s OMB subcommittee, said he was less sure about the rolling campaign of sector-specific opportunities.
In his view, the normal level of penalty for a prompted disclosure such as this would be 35%, and then only for a perfect record of co-operation during the disclosure.
Hartnett later disputed these penalty levels, and in particular disputed any suggestion that people were being bankrupted by them.
For an unprompted disclosure, Gotch said the level would be 20% - surely this should now be reduced to 10%? He also thought it would be better to have one single two-year disclosure opportunity rather than a series of separate ones.
How long?
Eland again came back to the issue of follow-up. They did not have the resource to follow-up if there was one blanket opportunity; by spreading it in this way they did.
He seemed more interested in the possibility of flagging in advance that a particular group was to be targeted, and referred to the Australian Tax Office, which produces an annual compliance plan, stating what work it aims to do.
He also confirmed that they were currently still following up names and addresses from the ODF where disclosures had not been received, and had not yet started on those from the NDO.
However, Wells pointed out that they had learned people tended either to come forward very quickly or very late.
Having a long period to come forward and disclose that you have a problem would probably not help, although he seemed to be more amenable to the idea of extending the subsequent deadline for submitting full details.
In his summing up, later, Hartnett said that to his knowledge no one had ever been refused more time as part of a disclosure facility, once they had come forward. They still had cases from the ODF where information was not yet complete (and, by implication, where the original ODF terms of a 10% penalty would still apply).
Future perfect
Hubbard then moved the discussion on to look specifically at future disclosure facilities – how should they be structured in terms of time, communications and penalties.
On timing, John Whiting, Tax Policy Director at the CIOT, praised the system of having one deadline for notification and then a later one for giving full details. There were several comments that the time for sending in full details, in particular, needed to be longer, probably somewhere between three and six months.
Hartnett said that there were several issues to consider here, and that the results of the previous facilities would be analysed with an open mind.
Allen said that if there had been a period of education about the improved information that HMRC was using, three months would be enough for notification.
Hartnett interjected that he had never met a doctor who was fiddling his taxes and didn’t know it, so there should not be a need for a long notification window.
Machin distinguished between those who were truly dishonest, those who were very disorganised, and those who didn’t know that they had underpaid. The BMA had been told that the facility would include those who had been given the wrong tax code and had not checked it. If HMRC were able to identify this group, they should be told, because otherwise they would not know they had to come forward.
On communication, the general message was more, in as many places as possible, using real-life examples if possible.
Hartnett pointed out, however, that HMRC were not, and never had been, in a position to dictate when and how much they were allowed to use media advertising.
(You might infer that, immediately before an election, the government is keen to see repeated but useless advertisements about the ‘Police pledge’, but less keen to see those about how the taxman is getting tougher – I couldn’t possibly comment, except to stress that it would be an inference, and not an implication.)
On penalties, the problem raised by several speakers was that a disclosure facility was typically offering a 10% penalty for those not previously targeted (although Hartnett indicated that this was not necessarily fixed for future disclosures), but someone coming forward now outside a disclosure facility was not guaranteed such a good rate.
Now it was clear that there would be more disclosure facilities to come, this made it difficult to advise clients in a way that met both the client’s best interests and the ethics of the tax adviser.
Wells highlighted the fact that we are in the odd situation of having both old and new penalty regimes in force. Within that, the disclosure facilities need to offer a simple and certain regime for those who make a full, accurate and complete disclosure.
However, if someone wanted to come in from the cold, it would be perverse if there was a disincentive. HMRC tried to ensure this wasn’t the case with the ODF, but it was more difficult going forward; they would have to look at it.
Conclusion
Summing up for HMRC, Hartnett thanked the participants for a good discussion which was very helpful for HMRC. He said that he had not been persuaded of the need for a general disclosure facility.
This was partly the issue of resources previously raised, but also because (as he had said at the beginning) each facility was backed by special and specific knowledge.
People have come forward because they think that HMRC know something that has not been disclosed.
The structure of the penalties regime had been informed by talking to taxpayers, who would probably have supported ‘immeasurably larger’ penalties on deliberate defaulters.
He also thought that there might be misunderstandings about the way that the new penalty regime works, which he would address in writing.
HMRC had also held anonymous focus groups with people who were cheating on their tax liabilities, where the participants were hidden from HMRC view, to establish what would make them come forward.
HMRC were aware that reducing the years covered from the current standard of 20 years would help.
Hubbard said that it was good that there was proper engagement now on the structure of these disclosure facilities. There was a technical issue of how to structure penalties so that they did what we all wanted them to do, on which more work was needed.
There was more work also to be done on when and how to publicise them, and he was particularly interested in the idea of saying that certain groups were to be targeted in the future, giving people time to think about it in advance of announcing what could then be a three month window.
