Managing Deliberate Defaulters

After conducting a series of campaigns to encourage the disclosure of undeclared income or gains abroad, HM Revenue & Customs (HMRC) has introduced new measures to clamp down on tax evasion. Changes include increased levels of scrutiny and harsher penalties for those who deliberately evade tax.

Under the Managing Deliberate Defaulters (MDD) programme, individuals who deliberately evade tax will now be subject to detailed inspection for up to five years. The level and term of monitoring will depend on the seriousness of the offence, but HMRC does not envisage that anyone will be released from the scheme within two years.

There are a variety of ways that HMRC can now monitor a deliberate defaulter's tax affairs. These may include:

• making announced or unannounced inspection visits to carry out pre-return checks of their books and records
• asking for certain records and additional information to be sent in with the individual's tax return
• conducting in-depth compliance checks into all or any part of the person's tax affairs
• observing and recording the person's business activities and cross-checking details in their accounts
• requiring more frequent VAT returns or withdrawing certain favourable VAT schemes such as cash accounting, annual accounting, the flat-rate scheme and retail schemes.

Publishing details of deliberate defaulters

In certain circumstances HMRC can publish details about a person, a company or other kind of organisation that is a deliberate defaulter. HMRC believe that the possibility of having their details published will deter people from becoming deliberate defaulters and may encourage them to come forward and put their tax affairs in order.

Before HMRC can publish the details they have to consider five ‘publication questions’ which include: ‘Does the total qualifying potential lost revenue for ALL qualifying relevant penalties exceed £25,000?’ To be fair and consistent, HMRC aim to publish the details of every person, company or other kind of organisation where the answer to all of the five questions is ‘yes’. They will decide not to publish only in exceptional circumstances.

The details will be published online and will cover only the minimum amount of information necessary to identify the deliberate defaulter and the amount of tax evaded. The details will remain there for up to 12 months from the date of first publication.