Being challenged by HMRC can be a major distraction to any taxpayer. It can impact on life both at work and at home. It is therefore often uppermost in any taxpayer’s mind to seek a Settlement as soon as possible. Then they can get on with their lives.
HMRC has been busy in recent weeks in sending out not just nudge letters but letters giving a Statement of Liability. Taxpayers can be forgiven for being confused by some of the terminology being used.
What is a Settlement?
A Settlement is reached at the conclusion of any investigation or challenge. HMRC may issue a Settlement Agreement to summarise what the taxable adjustments are for each tax return. The Settlement Agreement puts in writing what has been agreed in terms of any additional tax, interest and any penalty.
The length and complexity of any Settlement Agreement can vary depending upon the areas covered. However, suffice is to say that though it is an important stage in proceedings. On the basis it is signed by both the taxpayer and HMRC, it is to be kept in a safe place. All the terms are binding on both parties.
What is a Statement of Liability?
In contrast, a Statement of Liability is just that – a statement. HMRC has been issuing these recently in a bid to catch up on paperwork. Individual taxpayers may not appreciate the fact that in resolving many of the larger tax avoidance schemes, all the dialogue is typically between HMRC and the Designated Partner.
You can imagine that some of the larger tax avoidance schemes can involve hundreds of individual taxpayers who are all in partnership together. Instead, one taxpayer is nominated to deal with HMRC as the Designated Partner. Otherwise the process can become an administrative nightmare if HMRC has to deal with each partner separately.
When the matter has been concluded between HMRC and the Designated Partner, that’s when all the paperwork begins for all the other partners.
If, for example, a Film Partnership has to accept that the scheme does not work and therefore none of the tax deductions are valid, after concluding a Settlement with the Designated Partner, HMRC then has to issue a Statement of Liability to each partner showing what they now owe.
What should you do?
Certainly don’t ignore it. It may be accompanied by a Letter of Offer. If you are seeking a Settlement, additionally you may want to ask for Time to Pay.
The Designated Partner should have kept all the other partners up to speed with developments. Such Settlement should therefore not be a shock to anybody. Unfortunately out of sight is often out of mind. Any communication seeking a payment can come as a bit of a shock.
What’s the issue?
Trying to keep tabs on whether HMRC is following the correct procedures is difficult.
Taxpayers are finding out years after the event that they have a tax liability – with interest.
It is possible that HMRC may have invited taxpayers to settle on an individual basis earlier. But we are talking about almost a different era when few taxpayers saw the need to reach a Settlement. Now, 5, 6 7 years or more down the line, those same taxpayers are now receiving a Statement of Liability. This time with even more interest added.
Help is at hand
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