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You may or may not be aware of this, but HMRC publishes the names of deliberate tax defaulters on their website. This is commonly referred to as ‘naming & shaming. A deliberate tax defaulter is a taxpayer who has been investigated by HMRC and charged a penalty for deliberate errors in their tax returns or who has deliberately failed to comply with the tax rules.
HMRC can decide to publish information about a deliberate tax defaulter where an investigation results in a ‘deliberate’ penalty and the tax on which the deliberate penalty is charged is £25,000 or more.
You can still avoid being ‘named & shamed’ if you are charged with a deliberate penalty of £25,000 or more but only if your conduct during the investigation and the nature of the tax irregularities (or as HMRC call it telling, helping, giving) enables you to receive a maximum reduction of the penalties within the permitted range for a deliberate penalty. The penalty range for a deliberate penalty starts from 35% (or 20% for an unprompted voluntary disclosure) up to 100% and is charged against the ‘Potential Lost Revenue’ or, in other words, the tax undeclared.
If you are caught by the naming & shaming regime, your details, including your personal or trading name, address, and the amounts of tax and penalty charged, will appear on the HMRC website for 12 months.
If you review the current list of deliberate tax defaulters, this can provide for some interesting reading. For example, the amounts of tax undeclared and ensuing penalty can be fairly substantial.
A motor company in Birmingham received the red light from HMRC after being charged a hefty £2.4m fine, let alone an additional tax of £3.4m after failing to declare all their income from the sale of used motor vehicles.
Similarly, a London-based Cash and Carry business was also served with an additional £3.4m tax demand and a penalty of £2.1m.
Penalty levels can differ depending on the amount and level of co-operation provided during the course of an investigation, or more appropriately, the lack of it. The above two examples, which both charged the same amounts in tax, are a case in point as the penalty charged differed by £300,000.
It is fairly unusual to be charged a penalty even close to the maximum 100% but take the case of a takeaway restaurant in Luton who took their own delivery of a penalty loading of 95%. The amounts of tax undeclared were relatively low at £37,000, but a penalty of £35,000 was charged.
Similarly, another takeaway restaurant in Lincoln received a penalty charge of 88% on tax undeclared of £1.4m – an eye-watering £1.2m.
Of course, it is not just takeaway restaurants that HMRC Officers target. It appears that HMRC investigators may have undertaken a project to review traders in luxury watches. One such luxury watch business based in Huddersfield were left strapped with a hefty tax bill of £1.2m and a penalty of £870,000.
Another from London were apparently buying and selling high value watches but, on the face of it, failed to declare the proceeds to HMRC. They were handed an additional tax bill of £2.4m and a penalty charge of £1.7m.
There are inevitably businesses on the list who you feel should possibly know better. For example, a payroll solutions company in Oldbury were charged a deliberate penalty of £43,000 and an accounting services company from Luton were charged a deliberate penalty of £15,000.
E-Bay traders get a mention, too, and there are a couple of significant deliberate defaulters that owe HMRC tax, interest and penalties of £6.2m and £3.5m, respectively.
In summary, HMRC’s penalty powers are extensive, and the move to publicise the details of businesses and individuals who are deliberate tax defaulters on their website can also have more severe implications with e.g. banks, business suppliers and customers, than just the ‘naming & shaming’ on HMRC’s website.
If you have any further questions about your specific circumstances, please contact HW Fisher.