Tagging Tax Dodgers: Managing Serious Defaulters

The taxman’s Managing Serious Defaulters programme, (MSD) is a method for HMRC to keep a close ‘watching brief’ on known tax evaders, for up to 5 years following the closing of a tax investigation.

HMRC say the purpose of the Managing Serious Defaulters programme is “to ensure compliance with tax obligations and a permanent change of behaviour…keeping known tax cheats on the straight and narrow through close monitoring”.

The key features of the MSD are:

•A defaulter is someone who deliberately pays the wrong amount of tax.   HM Revenue & Customs say this includes people and businesses “who deliberately choose not to pay what they owe”, i.e. bankrupts, and insolvent companies and their directors.

• A serious defaulter will usually be someone who has been charged a tax-geared penalty for behaviour in the ‘deliberate’ or ‘deliberate with concealment’ categories.

•Defaulters can be individuals, partnerships or companies.

•The taxman will decide who goes into the MSD programme.

•Taxpayers who made a full disclosure (whether voluntarily, or following a tax investigation), and had their penalty reduced to the statutory minimum (due to the high quality of the disclosure), will not be put on the MSD programme.

•There is no minimum figure of tax evaded for the taxpayer to be included in MSD.

•HMRC will tell taxpayers if they are subject to the Managing Serious Defaulters programme, and will explain what is required of them.

•There is no right of appeal against inclusion in MSD, although the taxpayer can discuss it with the taxman or make a formal complaint.

•MSD can be used in addition to the power which HMRC has to publish details of deliberate defaulters where the tax lost is £25,000 or more (i.e. Naming and Shaming).

•A defaulter will be monitored for between 2 and 5 years.

•The degree of monitoring will depend on the gravity and nature of the original offence.

•HMRC will monitor whether the taxpayer keeps their tax return filing and payments, etc up to date.

•The taxman will check if returns are accurate, and that any system errors or failings have been put right.

• Extra scrutiny under MSD can include tax Compliance Officers: making inspection visits (which might be unannounced); requesting further documentation to support returns; using their information and inspection powers to obtain and check records; conducting in-depth compliance checks; surveillance of businesses and individuals; observing and recording business activities and cross-checking to the business records and accounts; checking with third parties (e.g. suppliers or customers).

•Businesses in the MSD must provide full accounts (i.e. not three-line ones or the short version of the Self-employed pages) with their tax returns.

•Monitoring will extend across all the defaulter’s activities, not just the area where the tax evasion occurred. E.g. A builder who under declared rental income could have his Construction Industry Scheme records checked.

•If defaulters try to escape scrutiny by closing a business and starting a new one, HMRC can monitor the new business and/or the individuals who controlled the old one.

•Defaulters will come out of the programme once HMRC is satisfied they are meeting their obligations, and are no longer a high risk.

•If the taxpayer fails to meet the required standards, HMRC may use its formal powers to investigate.  The taxman warns that “Tax Defaulters who fail to keep their tax affairs in order may face criminal proceedings”.

How can Lynam Tax Enquiry Specialists help me?
If you are undergoing a tax investigation or a compliance check then specialist help from Lynam Tax Enquiry Experts could save your blushes and your business.  Plus, our massive experience will almost certainly save you tax and penalties as well. We have a superb track record in obtaining the minimum penalties for our clients under investigation.  So far, none of our clients have been put on the Managing Serious Defaulters programme.

*For a free, confidential chat about your tax affairs, don’t delay, call:

Paul Lynam 0845 643 9997

Andrew Nutbrown: 07718 778710