A simple question but if it is answered the wrong way, it can have a devastating effect. “Do you have anything to disclose?” is a question that is regularly asked by HM Revenue & Customs (HMRC) at the outset of an investigation. But it is worrying how many taxpayers fail to appreciate its significance or having a professional adviser engaged to help them answer it properly.
Not everyone though, will have something to disclose.
So what is the right way?
If the taxpayer knows they have done wrong then some form of disclosure may be appropriate. This is particularly the case where the taxpayer may have to admit to tax evasion. When entering into the ensuing Contractual Disclosure Facility, a written Outline Disclosure is required.
The right way clearly depends upon the facts and also appreciating what may happen next as a result of the answer being given. Lying or deliberately misleading anyone will trigger the most severe outcomes. The vast majority of tax investigations are undertaken on a civil basis rather than criminal basis. So for some, the prospect of being prosecuted and going to jail may have been averted. However, this can be a very fine line and it can still be crossed at any time.
The civil remedies are financial. The level of tax-geared financial penalties can be draconian and can result in the loss of the business. Being “named and shamed” by HMRC can be the death knell for even the strongest of businesses. The stress of a tax investigation can lead to a family breakup.
Today, financial penalties are based on a taxpayer’s behaviour
A taxpayer’s behaviour is considered for the whole period. From the time the irregularity was first committed through to when the irregularity was corrected after an investigation. Consequently, this can cover many, many years. It is not possible to go back in time and change the behaviour of the past. But HMRC will take note of any positive change in that behaviour.
Putting things right
The sooner a taxpayer starts to put things right, the lower the tax geared penalties. Moreover, for most taxpayers there is also a sense of relief. This can have a positive knock-on effect on home life. Reaching a Settlement and paying for any past misdemeanours can be a financial burden on any business.
It is unlikely that any bank or other financial institution will lend money to a business to pay HMRC. Consequently the business owner is likely to have to introduce personal funds to the business in order for the business to survive.
The sooner a taxpayer stops digging, the sooner they can get out of the hole that they may have dug for themselves.
Help is at hand
Taking that first step can be difficult. If you have a matter that you wish to discuss, please call me on 07979 313 010 or email me at firstname.lastname@example.org for a free no obligation consultation.