First published in KWC London, November 2020
Insolvency practitioners, divorce lawyers, remedial accountants and other dealers in human misery say go early. It’s only going to worsen; go first. The fact that it’s in their best interests doesn’t mean it isn’t in yours.
The lie is HMRC doesn’t do deals. It does; and timing is critical. Remedial accountants are dedicated to keeping you out of jail when you’ve committed what the Revenue with British understatement “might regard as fraud”. There are good reasons for going early and one is so obvious it needs to be stressed: the earlier you disclose the more it shows the Revenue that you’re a worthy prodigal taxpayer. If you do own up to tax malpractice (clients don’t like the F bomb) it might as well be in the UK.
The Lichtenstein Disclosure Facility was too successful. It collected so much more tax than expected that its effectiveness generated criticism for its leniency. The electorate would rather crucify avoiders (as well as evaders) and collect less tax. Humans are irrational. It became politically unacceptable, so we now deal with most settlements under COP(9) and the Worldwide Disclosure Facility. While they won’t collect as much tax as the LDF, they are reasonably generous: they don’t guarantee non-prosecution but do render it unlikely. HMRC’s rhetoric about being tougher is probably false but it indicates disclosure facilities won’t be more favourable soon. Reducing penalties would increase collections (honey catches more than vinegar) but that is politically unacceptable. The government, facing heavy criticism for the handling of the health crisis and related economic failure matters will insist on counterproductive penalties to make it look tough. (“Make me stronger”.)
It’s not so clear cut with the remnants of schemes fashionable twenty years ago. The judiciary is standing up to HMRC. Any legislation is a lottery and there are no golden rules, but we are seeing signs of resurgent independence. While some gains will be reversed by the Supreme Court, there have been blows for natural justice with the taxpayer succeeding in the lower courts. The Revenue are pushing to settle a number of cases, particularly on EZs where they have had a significant reversal on Cobalt (subject to appeal).
Invitations to settle voluntarily, whilst there are cases subject to appeal proceedings still extant, are disingenuous because if you settle, it will be by way of contract. Even if HMRC lose the CDC appeal, meaning that the claims succeed, you will not get your Accelerated Payment Notice money back.
There is nothing to lose by disclosing “what HMRC might regard as fraud” now. There will be political pressure to increase sanctions post Covid-19. The current government has shown clear populist intentions. The fraud teams at HMRC tend to be very good and comparatively well resourced so right now you have top inspectors under less political pressure to persecute the taxpayer.
So there you are. Useful consumer information: now is the best time to settle, except when it isn’t.
