If you do not pay your tax there are a number of actions HMRC may take in order to recover unpaid tax debt. Depending on the circumstances this could take the form of either a tax investigation or HMRC debt enforcement action. By not paying your tax this will mean that you will have to repay more over the course of time as HMRC will often demand that you pay interest on top of the unpaid tax. In serious cases, fines and financial penalties can also be imposed.
Reasons Why You Haven’t Paid Tax
There are all sorts of reasons as to why individuals do not pay tax. HMRC, to make sense of the different reason as to why a person or business has not paid their tax, break them down into behavioural classifications. These classifications range from innocent error to deliberate and concealed.
The three main areas are: careless errors; tax avoidance and tax evasion.
‘ Careless errors
’ takes consideration of the majority of the reasons for underpaid tax and mistakes, failing to take reasonable care with your tax affairs usually covers omissions made on your company or individual tax return forms, and non-deliberate or negligent reasoning for having not paid tax.
Another key area that HMRC will look into in this context is in relation to tax avoidance
schemes, which allow scheme participants to mitigate their tax liabilities. You will have no doubt seen many articles in the press relating to celebrities and sports stars who have used such schemes, but these have often been used by wealthy private individuals and contractors over the years. In more recent times HMRC have actively investigated and litigated participants over their use of these schemes. In the majority of cases recovering the mitigated tax plus late payment interest.
Tax evasion
is the most serious area of non-payment of tax as HMRC takes into account the deliberate under or non-declaring of tax. Tax evasion can take place in several ways, but mainly due to not telling HMRC about any tax that you should be paying. This could be through hiding money and / or investments overseas, or dealing in cash and deliberately not keeping records when under reporting to HMRC
Often in tax evasion cases fines and penalties are imposed on individuals under investigation by HMRC, and in more serious cases criminal prosecution can be brought.
I Have Received A Letter From HMRC
HMRC will very often contact people by written letter. HMRC prefers not to make outbound phone calls or send emails unless there is an established line of communication – these along with direct text messages are often used as tactics by fraudsters to target unsuspecting taxpayers.
If you have received a letter from HMRC it will explain why they are writing to you and generally outline that it is either going to open an investigation into your tax affairs, or it will advise of debt enforcement action to recover the unpaid tax.
If you have received a letter from HMRC, talk to our team in confidence.
Tax Investigations by HMRC
Over the years HMRC has been granted more powers in order to clampdown on unpaid tax. With additional resource and advances in technology, HMRC has many options at its disposal.
In more recent times, the Automatic Exchange of Information agreements made between HMRC and other tax authorities around the world allows the exchange of financial information such as bank accounts and investments held by individuals and businesses in order to assist in fighting tax evasion. Over 100 countries have now committed to this, which is also termed as the Common Reporting Standard.
If you receive a letter from HMRC advising you that there will be an investigation into your tax affairs, it would be prudent to seek professional advice from an independent tax investigations professional.
How long a take investigation will take will depend on the circumstances, and the same can be said about how much this could cost to bring the investigation to a conclusion.
How far back a tax investigation could go will also depend on the circumstances and will also take into account whether HMRC alleges whether a person’s behaviour is deliberate or careless.
In cases involving deliberate action, HMRC can investigate your tax affairs as far back as 20 years. Where a person’s behaviour was deemed to have been careless, the investigation by HMRC could go as far back as 6 years if this relates to UK based tax issues, or as far back as 8 years for overseas tax issues. There is a third category for unpaid tax, and this is referred to as ‘failure to notify’. If an individual has a taxable source of income and has not told HMRC about this income by way of a tax return, then HMRC are able to assess them for the amount of tax they owe for up to 20 tax years. This type of category is often referred to as the hidden economy. Those people that operate outside of the tax system.
Being the subject of a tax investigation is a stressful time regardless of the circumstances. Our tax investigations team have considerable experience in assisting individuals and businesses through to the conclusion of HMRC investigations. Our team will liaise with HMRC on your behalf throughout the investigation and ensure that the amount of tax to be repaid is accurately calculated. We can also assist in negotiations over settlement structures and repayment terms.
HMRC Enforcement Action
If you have not paid tax you may face enforcement action by HMRC to recover the money that you owe.
As outlined earlier, HMRC will often apply interest to the amount of tax that is due, and in serious cases you may receive a financial penalty. There are a number of ways in which HMRC can bring enforcement action, such as:
- Collecting through your PAYE or pension.
- Instructing debt collection agencies and bailiffs to collect.
- Confiscating possessions and assets in order to sell them.
- Collecting money from your bank account or building society.
- By taking you to court.
- Making you bankrupt.
- Closing down your business.
Depending on your circumstances, HMRC may agree to allow you more time to pay and by way of instalments.
Receiving notification of HMRC enforcement action will no doubt be worrying. However, there are options available to you to help bring your tax affairs up to date, and we would recommend that you seek advice from an independent tax professional in order to discuss your affairs. One of these options is through a voluntary tax disclosure.
Making a Tax Disclosure
If you have unpaid tax, you can bring your tax affairs up to date with HMRC by making a voluntary tax disclosure, and there are a number of options available to you depending on your circumstances.
As a general rule, HMRC is more favourable of those looking to make a voluntary tax disclosure as compared to those facing a tax investigation. By entering into a tax disclosure facility, you are agreeing to bring your tax affairs up to date with HMRC.
There are a number of tax disclosure facilities currently offered by HMRC and the most appropriate one for you will depend on your circumstances. Our team will discuss these with you and advise which is the best one for you.
An insight into the difference options available can be found under the Tax Disclosure Facilities section on our website.
Our team have considerable experience in assisting individuals and business to the successful conclusion of tax disclosures. We have assisted clients across the world from countries such as Australia, USA, South Africa, New Zealand, China, Hong Kong, Singapore, Spain and many more.
Once you have made a tax disclosure, our team can also assist you with your ongoing tax compliance to ensure that you keep up to date with your tax affairs.
Regular feedback from our clients is that they are thankful for making the decision to engage ourselves to assist them with their tax problems, which are often stressful and worrying. We aim to work with you and HMRC to draw a conclusion as smoothly as possible.
We offer a no obligation consultation to discuss your circumstances, which you can arrange by calling us on 0113 387 5670 or by filling out a Contact Form and we will contact you directly.
For many, the time to act is now rather than putting the issue off, as this often compounds the issue further and ends up costing a lot more over time!
