HMRC launches Managing Deliberate Defaulters programme

HMRC have launched their Managing Deliberate Defaulters (MDD) programme, which aims to deter and tackle tax defaulters. Tax advisers need to be aware of the programme and may need to consider its implications, especially when engaging new clients.

The MDD programme supports the Government's aim of tackling tax evasion. The purpose of the programme is to deter known and potential defaulters from evading tax and reassure others that HMRC does take action against deliberate defaulters.

Who is included in the programme?

Any person (individual or business) who has deliberately evaded tax may be monitored – however small the amount involved. If a business is a partnership or a company, the individual partners or officers of the company who were responsible for the evasion may be monitored. If the deliberate defaulter is not specifically one or more of the partners, directors or officers of the company, then the partnership or the company may be monitored. Sometimes it may be necessary to monitor the partnership or company as well as individual partners, directors or officers of the company.

Are there any exclusions?

HMRC have indicated that they will not monitor taxpayers where there is obviously no continuing source of income and no likelihood of any future source of income to be monitored (for example when a person has died). Additionally, where a full unprompted disclosure is made without fear of discovery, the defaulter will not be put into the MDD programme, subject to having been given the maximum penalty reduction for the relevant penalty (ie for full co-operation with HMRC in making the disclosure including telling HMRC about it, giving HMRC reasonable help and giving HMRC access to records).

Is this different to the publishing details of deliberate defaulters?

Yes, this is in addition to and will work alongside the potential publishing of names of those with deliberate understatements resulting in a tax loss in excess of £25,000).

What does the programme involve?

In addition to the penalty for the original offence:

  • For the five years afterwards, the taxpayer will be closely monitored by being subject to additional checks on their returns and visits from the taxman to check on their compliance;
  • Where the tax loss is £5,000 or more, HMRC will send a letter to businesses in the MDD programme requiring additional information to be submitted along with their tax returns for the following five years; and
  • Continuing failure to meet all tax obligations and continuing deliberate default may result in the imposition of further penalties and can ultimately lead to criminal proceedings being taken against the defaulter.

Deliberate defaulters will be notified when they are entered on to the MDD programme and told what obligations they have to meet. Deliberate defaulters who fall within the 2009 Budget Proposal for 'Close monitoring of serious tax defaulters' will be told what additional information they will have to supply with Self Assessment Returns for up to five years.

As a member in practice do I need to take any action?

As well as familiarising yourself with the MDD programme you may wish to consider:

  • Whether to tell all your clients about the programme and to draw attention to the factsthat:
    • even the smallest amount of tax evasion could result in them being included in it; and
    • that the £5,000 understatement threshold is quite low for a large company and could result in significant additional reporting to HMRC;
  • How you can help your clients work with HMRC to ensure appropriate decisions are taken on categorising understatements of tax.This will include careful consideration of the borderline between behaviour being treated as deliberate or simply the result of carelessness;
  • How you willidentify clients in the MDD programme;
  • How you will ensure you are aware of any additional information which will need to be reported by businesses in the programme and the format in which it is required;
  • Reviewing your client acceptance procedures to ensure you ascertain (either from the prospective client or their previous adviser) whether the prospective client is within the programme or not. This will help inform your fee quotes and your client risk assessment.

When dealing with clients who have evaded tax you also need to bear in mind your responsibilities under the Money Laundering legislation, especially your reporting obligations - see Anti Money Laundering Guidance below for further information.

Further guidance on managing clients who have underpaid or evaded tax can be found in Professional Conduct in relation to Taxation

More information

HMRC have posted on their website:

Summary information at: http://www.hmrc.gov.uk/about/tax-defaulters.htm

A useful set of Q&As at: http://www.hmrc.gov.uk/about/mdd-q-and-a.pdf

The new MDD factsheet in HMRC's compliance checks series is at: http://www.hmrc.gov.uk/compliance/cc-fs14.pdf

Any members with questions about the operation of MDD programme can send them to the John Kimmer at jkimmer [at] att.org.uk and we will endeavour to take them up with HMRC.

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