As well as offering peace of mind that one’s tax affairs are up to date, the disclosure plan provides the opportunity to settle for a much lower penalty than that which apply if HMRC later find there is undisclosed income.
Although the deadline for making notifying the intention to make a disclosure under the plan was 31 May 2011, similar terms will be offered to anyone, plumber or otherwise, who voluntarily disclose undeclared liabilities to HMRC.
Key Features of the Plan
There are various stages in the disclosure process. The first stage is to notify HMRC that you want to take part in the disclosure opportunity. The deadline under the plumber’s plan was 31 May 2011. The second stage is to tell HMRC about the undeclared income and tax and to pay the tax, interest and penalties that are due.
This must be done by 31 August 2011. The onus is on the person disclosing to work out the tax, interest and penalties due. Although the guidance notes explain how to do this, it may be prudent to appoint an accountant or tax adviser to do the sums. If the tax cannot be paid in full by 31 August, it may be possible to agree a payment plan with HMRC.
Disclosures will not be accepted without question and HMRC will look at disclosures to see if they believe them to be correct. However, in most cases HMRC expect to accept the disclosure made.
Advantages of Disclosing
Prior to launching the Plumber Tax Safe Plan, HMRC have been using their legal powers to obtain information about the plumbing industry and people working within it. After the end of the plan, they will use that information to target those who they believe owe tax.
If the notification has been missed it is still better to come forward and to tell HMRC about undeclared income than to wait for them to find you.
The plumbers’ plan offers advantageous terms to those who come forward. HMRC have the power to charge penalties of up to 100% of the tax due. However, under the disclosure plan, the maximum penalty is 20% and, depending on the circumstances may only be 10% or even zero. The savings offered under the plan can therefore be significant. HMRC have stated that they will offer similar terms to those offered under the plan to those who have undeclared income in return telling HMRC about that income.
Interest on tax paid late can be considerable and depending on how late the tax is paid may exceed the penalties. It is therefore beneficial to pay any overdue tax as soon as possible to stop the interest clock running.
If you know you owe tax, making a payment on account as soon as you are able can significantly reduce the interest payable. While it may be tempting to wait for HMRC to find you, it should be remembered that aside from the higher penalty rates, the costs and stress involved in handling a HMRC investigation are high. The opportunity to get one’s affairs straight for a low penalty rate and minimal hassle is indeed an opportunity and one which should not be thrown away lightly.
By Sarah Bradford