British taxpayers are urged not to ignore tax investigation letters from HM Revenue & Customs (HMRC) following a change in the way their responses are considered.
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Taxpayers facing a serious tax fraud inquiry under the Contractual Disclosure Facility (CDF) no longer have the right to deny the offence.
HMRC says suspected fraudsters seemed confused over what they were denying – an offer to settle, the tax fraud or irregularities in their financial affairs.
To try to make the issues clearer, alleged tax cheats can either accept or refuse a settlement offer from HMRC.
If they decide to reject the offer, HMRC can continue with an investigation regardless of whether the taxpayer cooperates with the inquiry.
Uncertainty for taxpayers
Failing to respond will be considered a rejection of the offer.
Tax experts say the move is another sign that HMRC is cracking down on tax evasion and eroding taxpayer rights.
James Bullock, head of litigation and compliance at lawyer Pinsent Masons still leaves uncertainty in the taxpayer’s response to a tax investigation.
He explained taxpayers under investigation for fraud could deny the offence under the old rules but still cooperate with the inquiry. This avenue did not stop a prosecution, but allowed someone to admit tax irregularities but still deny fraud.
“Now a taxpayer has no certainty over the outcome of an inquiry and may not even be allowed to engage with an investigation,” said Bullock.
“The likely result is more chance of prosecution and higher penalties.”
Hard core tax cheats
HMRC said removing the denial option would not make matters worse for any taxpayer believing they have nothing to disclose.
“Taking away the denial option makes the tax system fairer and easier to operate for everyone,” said an HMRC spokesman. “Anyone who has something to disclose has nothing to fear, while hard core tax cheats will find they face a tough investigation regime.”
Meanwhile, Gary Ashford of the Chartered Institute of Taxation (CIOT) is concerned about HMRC will treat taxpayers who are not fraudsters under the new rules.
“These people seem to have nowhere to go,” he said. “HMRC are labelling taxpayers under investigation fraudsters, but some do not accept they committed an offence but merely failed to declare their financial circumstances properly.
“We’re not sure HMRC understands this and has the resources or systems in place to deal with the situation. Only time will tell.”
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