No Tax Immunity Through Deliberate Insolvency

HMRC to tail insolvency tax evaders for five years

HMRC have announced that the Managing Deliberate Defaulters (MDD) programme will be replaced by the Managing Serious Defaulters (MSD) programme.

From the 1st April 2013 the MSD programme will include those people who try to escape paying their taxes by becoming insolvent. Only those where Insolvency Practitioners pursue claims for recovery of money or assets on behalf of HMRC will be brought within the programme.

Serious defaulters will be:

  • charged any tax owing;
  • charged interest and penalties on any tax owing;
  • be asked to give HMRC financial security when there is a high risk that they will not pay what they owe; and
  • have their tax affairs monitored more closely for between 2 – 5 years.

Those monitored can be individuals or businesses. If a business is a partnership or a company then HMRC may monitor:

  • the individual partners, directors or officers of the company; or
  • the partnership or company if:
  • the serious defaulters are not partners, directors or officers of the company, or
  • where the serious defaulters are partners, directors or officers of the company but cannot be specifically identified.

In some circumstances HMRC may monitor the company or partnership as well as individual directors, officers and partners.

As to what HMRC monitor will depend on the gravity of the offence and how much of a future risk the person poses to the Revenue. Certain obligations will have to be met which HMRC will keep a close eye on. As standard, the following obligations will have to be fulfilled:

  • Ensure all returns are complete and accurate.
  • Ensure all returns are filed on time.
  • Ensure all payments are made on time
  • Any registrations are made on time.

Depending on circumstances, additional obligations may also be imposed, such as providing a greater level of detail with future tax returns.

As well as HMRC supervising people's obligations, the department will scrutinize tax returns more closely and will carry out further reviews.

HMRC will monitor a person’s tax affairs in a variety of ways depending on whether or not they are in business. This may include:

  • Making announced or unannounced inspection visits to businesses to check business records or assets relating to the current accounting period.
  • Carrying out a rigorous compliance check into all or any part of a person’s tax affairs.

Once HMRC decide that they no longer need to continue monitoring a person's tax affairs they will inform them in writing and remove them from the MSD programme.

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