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How HMRC monitors you if you’ve broken tax rules

Posted on 22 Apr 2016 by - Personal Tax

HM Revenue & Customs (HMRC) has a programme to manage customers who deliberately do not pay their taxes. This is known as the Managing Serious Defaulters (MSD) programme.

This guide tells you what happens if you are included in the programme and the civil or criminal powers HMRC can use to penalise customers who avoid paying tax.

What is a serious defaulter?

HMRC considers as serious defaulters people:

  • charged a penalty because of their deliberate behaviour under specific taxes legislation
  • identified during a Civil Investigation of Fraud, as presenting a continuing high risk
  • successfully prosecuted by the Director of Revenue & Customs Prosecutions or another prosecuting authority for a tax matter
  • charged a civil evasion penalty for dishonesty
  • who have paid a security for VAT, Environmental Taxes, PAYE or NICs
  • who 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

Who will be monitored?

HMRC can monitor any individual or business they consider to be a serious defaulter. If a business is a partnership or company HMRC may monitor:

  • the individual partners, directors or officers of the company
  • the 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 offices 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 starts 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 will I know if this affects me?

HMRC will write to you if they put you on to the MSD programme. They will also tell you what you must do while you are on the programme. HMRC will closely monitor you for up to five years to make sure you meet all your tax obligations. If you fail to meet your obligations and keep up to date, HMRC will review your tax affairs using their inspection and information powers.

If you keep failing to meet your tax responsibilities and keep deliberately defaulting HMRC may impose penalties. They can ultimately take criminal proceedings against you. If what you did or failed to do was deliberate HMRC may also publish your details.

How will I be monitored?

How HMRC monitors you depends on what was wrong with your tax affairs. They will keep checking that you file all your returns and make all your payments on time. HMRC can also:

  • make announced or unannounced inspection visits to your business to check business records or assets for your current accounting period 
  • carry out a rigorous compliance check into all or part of your tax affairs

For VAT HMRC may change your VAT accounting periods. They can also stop you using schemes such as cash accounting, annual accounting, flat-rate or retail schemes if HMRC believes tax is at risk.

There is no monetary limit for being monitored but if someone has been charged a penalty for deliberately evading tax over £5,000 or more HMRC can make them give more information on their Self Assessment returns. This means you may have to supply detailed accounts and balance sheets.

Time limits for monitoring

HMRC will continue to monitor you until they are satisfied that you are meeting your tax obligations and you have changed your previous non-compliant behaviour. This includes you putting right any errors identified. For most people this can last for between 2 to 5 years.

Complaining about HMRC’s decision to include you

If you disagree with HMRC’s decision to include you in the programme, or with any part of the monitoring you should contact HMRC’s Serious Defaulters Management Unit. You can find their contact details on the letter you received from HMRC.

If you are still unhappy with the decision you can write to HMRC at:

HM Revenue & Customs
Complaints Central Clearing
Team Manager
Ground Floor
1 Munroe Court
Leeds
LS11 0EA

Information you’ll need to provide

When you write to HMRC you will need to give:

  • your reference number
  • the address of the last HMRC office that contacted you
  • reasons why you think you should not be included on the programme
  • what you think HMRC should do to put things right

In the event of any investigation, if you have taken out our Tax Enquiry Fee Protection you will at least have peace of mind in terms of the professional fees associated in advising and representing you.

For more information and advice please email tax@streetsweb.co.uk 

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