Increase in bad behaviour more closely scrutinized
Since April 2013 when the Managing Serious Defaulters (MSD) programme took over from the Managing Deliberate Defaulters (MDD) programme there has been a staggering rise in the number of individuals and businesses that have been placed on it.
From figures obtained via a Freedom of Information request by one of the UK’s leading accountancy groups, Baker Tilly, in 2012/13 there were 1,094 on MSD. The numbers shot through the roof the following tax year however when there were 4,624 on the programme. A whopping 423% increase! By comparison, a more modest rise of 31% was seem in 2014/15 bringing the total number to 6,051.
Who is a serious defaulter?
HMRC considers serious defaulters to be those people who have:
- Been charged a penalty because of their deliberate behaviour under specific taxes. legislation. The number of such penalties rose from 5,162 in 2012/13 to 14,401 in 2013/14.
- Been identified during a civil investigation of fraud, as presenting a continuing high risk.
- Been charged a civil evasion penalty for dishonesty.
- Paid a security for VAT, Environmental Taxes, PAYE or NIC.
- Tried to get out of paying what they owe by becoming insolvent -HMRC will only bring into the programme, people who are pursued by Insolvency Practitioners for recovery of money or assets on behalf of HMRC.
- Been successfully prosecuted in the UK or by another prosecuting authority for a tax matter.
HMRC can monitor any person or business they consider to be a serious defaulter. If a business is a partnership or a company the Revenue may monitor the:
- individual partners, directors or officers of the company
- partnership or company if they can’t identify which partners, directors or officers of the company are serious defaulters.
In some circumstances, HMRC may monitor the partnership or company as well as the partners, directors or officers of the company. HMRC may also monitor any other businesses that a serious defaulter is involved with. This includes new businesses that start under a new name or in a new capacity. For example, if a sole trader becomes a limited company or directors of an insolvent company start a new one.
If a company or partnership stops trading HMRC may monitor individuals who controlled it, or had a controlling interest. HMRC can also monitor the tax affairs of any other businesses that those individuals are involved with.
How are defaulters monitored?
How HMRC goes about monitoring a person depends on what was wrong with their tax affairs. They will keep checking to ensure that all tax returns are filed on time along with tax payments.
The Revenue can also make announced or unannounced inspection visits to a business to check the records or assets for a current accounting period, and carry out a rigorous compliance check into all or part of a defaulter’s tax affairs.
For VAT, HMRC may change a businesses VAT accounting periods or stop a business using schemes such as cash accounting, annual accounting or flat rate schemes.
Whilst there is no monetary limit for being monitored, where someone has been charged a penalty for deliberately evading tax over £5,000, HMRC can force that person to provide more information on their Self Assessment Tax Returns, meaning that detailed accounts and balance sheets will have to be supplied.
Where a person persistently defaults, HMRC can impose penalties and even initiate criminal proceedings. That person can also be named and shamed if their behaviour was deliberate.
Time limits
HMRC will continue to monitor a defaulter until they are satisfied that the taxpayer is fulfilling their obligations and they have been redeemed. Typically this can last between 2 – 5 years.
Notification
When someone is placed on the MSD programme HMRC will write to them telling them what they must do whilst under the close scrutiny of the Revenue. Whilst there is no right of appeal against being included in MSD it is possible to lodge a complaint against such a decision or with any part of the Revenue’s monitoring.
As more austerity measures are imposed and the pressure on HMRC intensifies to collect every last penny of tax, more people could be forced onto MSD.
Leave a Reply