HMRC has launched a new amnesty campaign targeting businesses trading above the VAT threshold without being registered.
The VAT crackdown is set to hit later on in the summer, giving those who are unregistered for VAT to get their affairs in order.
The initiative is expected to run along the same lines as previous campaigns where HMRC encouraged non-payers to disclose what they owe before taking action against those who failed to come forward.
Campaigns in the past have targeted offshore investments, medical professionals and people working in the plumbing industry. These campaigns have been aimed at reducing the tax gap by focusing on areas where a significant underpayment has been identified.
Mike Wells, HMRC director of Risk and Intelligence, said the VAT initiative would act as a model for future campaigns: “We look forward to being even more open about the compliance activity HMRC is undertaking to ensure we reduce the tax gap and help customers pay what they owe.”
While this new data analysis-driven campaign has been widely welcomed, some feel it is long overdue.
John Cassidy, tax investigation and dispute resolution partner at PKF, said: “This is the sort of basic check one would have expected to have happened even back in the days when the Inland Revenue and Customs and Excise operated independently - I find it amazing that it seems not to have occurred before in a systematic way. At least HMRC is now consulting on the design of the disclosure facility it plans to offer as part of the campaign.”
So far HMRC has raised more than £500m from voluntary disclosures and a further £100m from follow-up activity.
According to a recent HMRC statement, the department provides “simple, straightforward opportunities for customers to put their records in order on the best possible terms, followed immediately by activity focused on the non-compliant who choose not to take up the opportunity.”
HMRC is encouraging anyone who has unpaid tax to come forward and make a voluntary disclosure - the current VAT threshold is £73,000 turnover on a rolling annual basis.
Billy Cairns, VAT partner at PKF, added: “The penalties and surcharges for failing to register for VAT are so swinging that anyone who lets things slide for a year or more will be facing a huge bill if they do eventually decide to come clean by registering. So, if HMRC does offer some form of low penalty for voluntary disclosure, like it has with its direct tax disclosure facilities in recent years, it could turn out to be a very good deal.
“It is not unusual for business owners to decide that they will never return enough turnover to be VAT registered – no matter what level of income they actually achieve in each year in cash terms! So if HMRC really wants this campaign to work, any voluntary disclosure facility it offers must also cover undisclosed income from cash in hand activities that haven’t gone through the books.”
Cassidy added: “We expect HMRC will have learned from the low take-up of other recent amnesties that it must take a carrot and stick approach: offer low penalties for those who come clean, but follow up with detailed investigations into those who don’t. For example, if you have shown turnover just below the VAT registration threshold every year on your income tax return and don’t use any amnesty that is offered, you can expect a compliance visit or business records check from HMRC in the future.”
Individuals, organisations or businesses wishing to join the VAT Initiative discussion, should contact HMRC’s Nicky Prys-Jones.