Adviser Q&A: HMRC's health and wellbeing tax plan

HMRC has recently announced a new campaign centred on those working in the health and wellbeing sector. The first stage is a voluntary disclosure facility to bring tax affairs up to date, followed by a second stage of investigations into those who did not come forward. This is a chance for clients to settle overdue tax liabilities and gain certainty that their affairs are on the correct footing for the future before HMRC embarks upon enquiries.

What’s the latest campaign about?

For those who have not returned income, gains or other tax liabilities in the past, the health and wellbeing tax plan is an opportunity to proactively disclose this to HMRC with lower penalties than if under investigation. The facility is open to those who work in healthcare fields, such as physical therapy, alternative medicines and other therapeutic professions.

It is not open to medical professionals who were eligible for the previous HMRC tax health plan (i.e. doctors and dentists).

The next stage for HMRC is to gather and use third-party information focused on the same target population, then compare this with disclosures received, investigating any material differences or non-disclosure. It is undoubtedly better to step forward and submit a disclosure than to be investigated by HMRC at a later date.

How does it work?

Those with something to disclose, and who qualify, need to notify HMRC by 31 December 2013, and make a full disclosure and payment by 6 April 2014 either online or by post. Disclosures can be personal or on behalf of a company, a trust or a deceased person.

The facility has a standard set of forms that lay out the information HMRC expects to receive – these include year by year analysis of untaxed income and gains, along with interest and penalties and a declaration that the disclosure is full and complete. If tax liabilities are the result of a mistake or careless behaviour rather than a deliberate attempt to evade tax, the disclosure need only go back a maximum of six years. Taxpayers coming forward are expected to ‘self-report’ the amount of penalty due, based on the published penalty bandings for mistakes, carelessness or deliberate behaviour.

HMRC has said that they will consider time to pay for those making a disclosure but who cannot afford a lump sum payment by April next year. For clients already under enquiry, disclosures are unlikely to be accepted through the campaign, but making a full disclosure to the HMRC team dealing with the enquiry would help in mitigating penalties.

What’s the background to this campaign?

HMRC has become more strategic in focusing resources on particular risks, as well as introducing a more sophisticated approach to gathering and processing third-party information. The Tax Health Plan in 2012/13, which targeted registered medical professionals, was supported by information obtained from NHS trusts, private hospitals and medical insurers. Through this campaign, HMRC collected over £53m in tax by mid-2013, and embarked upon a number of criminal prosecutions in cases of non-disclosure.

The health and wellbeing tax plan is a logical extension of this work and it is likely that HMRC already holds third-party information that it can cross-reference to disclosures.

What campaigns have gone before? Are more campaigns in the pipeline?

HMRC has embarked upon a number of similar campaigns in the last five years. Starting with offshore disclosure facilities, HMRC has now also focused campaigns on plumbers, electricians, medical professionals, e-traders and outstanding income tax and VAT returns amongst others. Campaign activities have resulted in over £552m of tax disclosed since 2007 and over £224m of tax from follow-up investigations. Disclosures require less resource to check than traditional enquiries, and in cases of non-disclosure, HMRC is able to focus its investigative forces on areas of specific tax risk.

It is therefore inevitable that HMRC will continue the campaigns approach in the future given the amounts of tax collected when set against the resource cost.

Is this the right approach?

Making a disclosure is definitely preferable to being under enquiry. All of the campaigns have contained incentives to come forward, including specific time limits, expedited processes and lower penalties. On the other hand, HMRC has been clear that it will find it more difficult to accept that omissions were the result of mistakes or carelessness if a taxpayer was eligible for a disclosure facility but chose not to come forward. Additionally, there is an increased risk of being on the published list of deliberate defaulters or even facing criminal prosecution for those who do not disclose.

As well as the health and wellbeing tax plan, for clients with disclosures to make, there are other options to consider. In some cases, the best approach may be to use one of the current offshore disclosure facilities to regularise historic liabilities, given the more beneficial terms on offer. The best way to approach HMRC depends on the individual circumstances but consideration should be given to all the options and the financial settlements produced by the different terms.

What else is needed?

Any disclosure needs to be accurate and complete. Therefore, if clients are intending to notify under any of the facilities, it is important to start gathering the appropriate information as early as possible. If circumstances are complex, for example there is an existing enquiry or an intention to consider the use of an offshore facility, it is vital to obtain specialist advice and consider how best to approach HMRC.