In December 2014 HM Revenue and Customs (HMRC) announced a focused tax campaign aimed at solicitors who have not previously declared all of their income and gains to the tax authorities.
Following on from other successful campaigns targeting medical professionals, dentists and tutors (amongst numerous others), which HMRC claim have generated almost £1bn in Revenue since 2011, the Solicitors' Tax Campaign is the latest voluntary, intelligence-led disclosure opportunity giving those who work in the legal profession the chance to put their tax affairs in order, on the best possible terms.
It is understood that HMRC will use information it has access to (eg legal aid data etc), as well as other information from third parties, to identify taxpayers who have potentially failed to pay the correct amount of tax.
The Campaign is available for solicitors either working for themselves, in a partnership, as a member of a limited liability partnership or as director or employee of a company. Please do feel free to share this tax update email and the details outlined below with the solicitors within your firm.
Deadlines (2 stages)
For those solicitors who may wish to make a disclosure it is important to note the relevant deadlines for each stage of the Solicitors’ Tax Campaign:
Taxpayers have until 9 March 2015 to declare their intention to disclose their income, gains and/or duties to HMRC; and they must then make their disclosure and pay their tax liability (plus any interest and penalties), by 9 June 2015.
Should either deadline be missed, the improved settlement terms of the campaign will not be available to you, and the possibility of reducing any penalties applied will be lost.
If the individual is not already under enquiry from HMRC and has no connection with fraudulent activity, then as long as a full disclosure is provided to HMRC, the beneficial terms of the Solicitors' Tax Campaign will apply.
The main benefits of making a full disclosure in respect of any undeclared income, gains and/or duties include this being an opportunity for solicitors to have certainty about their tax positions; as well as any potential penalties being restricted to a maximum of 20% of the tax liability. The penalties may also be mitigated to zero, for a taxpayer who offers a full unprompted disclosure. This is significantly less than the 100% penalty that may be charged to individuals who make a deliberate decision not to pay the taxes due. Such individuals could then face prosecution.
There may also be a restricted time period subject to review. For example, if the taxpayer has simply made a careless mistake, HMRC will only look to assess the last six years. In cases of deliberate activity, the period of assessment could be up to 20 years.
Paying any tax liability arising
With financial conditions affecting a number of businesses in the legal services sector, any tax liability now arising and payable by 9 June 2015 may create additional difficulties for those solicitors experiencing cash flow pressures.
Where, upon making a disclosure, a solicitor cannot afford to pay the settlement in one sum, HMRC will, depending on the circumstances, offer instalment arrangements. If you expect to be in this position it is important that you should discuss the disclosure with your tax adviser and contact HMRC as soon as possible, and before making any disclosure.
Unfiled returns for previous years?
HMRC also requested that those solicitors with outstanding self-assessment returns for any of the years 2010-11, 2011-12 and 2012-13, should submit their returns by 31 December 2014, either online or on paper.
HMRC have indicated they will vigorously chase up any unfiled tax returns after 31 December 2014, and any non-respondents will be considered for a tax determination and collection of any unpaid debt and penalties.
Now is the ideal time for solicitors who have previously undeclared income or gains to come forward. You will only need to take action if you owe unpaid taxes to HMRC on previously undeclared income. In such circumstances, we strongly recommend that individuals act as soon as possible, as the registration window is only open until 9 March 2015.
Previous HMRC campaigns include the Tax Health Plan, which targeted medical professionals (e.g. doctors, dentists etc). Since that disclosure opportunity ended, HMRC have instituted criminal prosecutions against a number of professionals who did not come forward, with a number reported to have been successfully prosecuted. In those cases, the impact to their professional reputations has been significant and the ability to practice has been compromised.
Solicitors will be only too aware that given the nature of their work any potential criminal prosecution, for non-disclosure of undeclared income, against a member of the legal profession could be expected to have severe consequences on their ability to practice as a registered solicitor.
Where it is necessary to make a disclosure specialist advice should be sought. At Grant Thornton we have the tax investigations expertise and a wealth of specialist experience across the legal services sector, to be able to guide those impacted upon through the Solicitors’ Tax Campaign disclosure process.