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Market Intelligence

HMRC to keep a closer eye on people who go bust to avoid tax
, By Eric Bignell

Tax cheats who become insolvent to dodge their companies’ tax obligations face up to five years’ scrutiny from HM Revenue and Customs (HMRC) under a new scheme annonced today (27 March) and due to be launched on 1 April.

It is called Managing Serious Defaulters (MSD) and will involve HMRC closely monitoring the tax affairs of more individuals and businesses who have deliberately evaded tax – and they will be scrutinised for up to five years.

From 1 April, HMRC is extending the close monitoring of the tax affairs of those who deliberately choose not to pay what they owe. MSD will ensure that they comply with their tax obligations and permanently change their behaviour.

SD replaces and expands the Managing Deliberate Defaulters (MDD) scheme, which was launched in 2011 and aims to keep tax cheats on the straight and narrow through close monitoring. Early indications suggest that those monitored are changing their behaviour. This has even led to disclosures of concealed income and amendments to previous tax returns. More than 3,000 evaders have been placed in MDD since it was launched and will continue to be monitored under the MSD programme.

MSD will include evaders who:

  • have received a civil evasion penalty for dishonestly evading VAT
  • are required to give a security deposit for VAT, Environmental Taxes, PAYE or NICs
  • become deliberately insolvent as a way of dodging their business taxation obligations.

David Gauke, Exchequer Secretary to the Treasury, says: “Increasingly, evaders are using contrived insolvency to evade tax, either through liquidation of a business or bankruptcy of an individual. It is only fair that someone who has deliberately tried to evade tax should face extra scrutiny from HMRC.

“This measure, along with those announced in the Budget, demonstrates that we will crack down on people who don’t pay what they owe.”

Jennie Granger, Director General Enforcement & Compliance at HMRC, adds: “HMRC monitoring has proved effective in making tax cheats comply with their tax obligations. MSD will keep the pressure up on even more defaulters.”

Extra scrutiny under MSD can include:

  • unannounced visits by HMRC
  • asking for records so they can be checked
  • carrying out in-depth compliance checks into persons tax affairs
  • observing and recording business activities and cross-checking details in accounts.

Defaulters who fail to keep their tax affairs in order will face criminal proceedings.

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