HMRC has published guidance on its disclosure programme for businesses which take payments via credit or debit card transactions, but which may have failed to declare all the tax due on their income
The card transaction programme allows businesses that accept card payments and have not reflected all transactions in a return, to bring their affairs up to date and take advantage of the best possible terms.
These could include businesses which have not declared all their income and those that are trading but have not registered with HMRC. HMRC warns that it has the powers to obtain data from card processing operators, in order to identify such businesses.
Under the programme, businesses which notify HMRC that they wish to be considered have 90 days in which to calculate and pay any self assessment, VAT, capital gains tax or other duties or tax they owe.
Participants in the programme will be offered reduced penalties, which are calculated by HMRC to take account of the level to which the business has helped resolve issues and the accuracy of the information provided.
When an individual makes a disclosure they must tell HMRC what penalty they believe they should pay. What they pay will depend on why they have failed to disclose income, with higher penalties for those who have deliberately kept information from HMRC, compared to those who have simply made a mistake.
HMRC says some people who use the disclosure scheme may not have to pay any penalty at all, but if they do it is likely to be a lower penalty than it would be if HMRC made a discovery outside the programme.
HMRC is targeting tax evasion through debit and credit card sales, and in cases where it finds additional taxes are due but individuals have not entered the card transaction programme, then penalties could be up to 100% of the unpaid liabilities, or up to 200% for offshore related income.
The card transaction programme starts with a disclosure relating to relating to an individual’s own tax or partnership affairs (each partner will need to make their own disclosure); an individual’s company’s tax affairs (if they are a director, or company secretary); or via a tax adviser or personal representative.
Each person or company requires a separate disclosure, and each disclosure should outline the share of the income they wish to disclose. At this stage, no calculation of the tax due is required.
Notification can be made via HMRC’s digital disclosure service, and individuals will be issued with a unique disclosure reference number (DRN). Once they have a DRN, they have 90 days in which to disclose and pay any tax outstanding.
The guidance explains how individuals can calculate the tax due, taking into account any PAYE payments already made, and what to do in cases where business records are incomplete or have to be estimated.
Individuals can make a disclosure for all tax years up to and including 2014 to 2015. If HMRC has sent them a return for any year from 2012 to 2013 or later and it is still outstanding, they must complete the return and do not include those years in their disclosure.
As regards partnership tax returns, for years up to and including 2014 to 2015, there is no need to amend or submit a tax return (unless HMRC has sent a return for any year from 2012 to 2013 or after, that is still outstanding) in the name of the partnership. Instead, each partner with additional income to declare should complete and submit their own disclosure.
If company tax returns are outstanding, businesses should file all the outstanding tax returns that are within four years from the end of the accounting period, include income for earlier years in the disclosure.
HMRC says those who are regarded as having taken ‘reasonable care’ over their tax returns, including registering for self assessment by the appropriate deadline, but discover they have paid too little will only have to pay HMRC what they owe for a maximum of four years.
Those who registered for self assessment by the correct deadline but paid too little tax through carelessness will have to pay what they owe for a maximum of six years, while the maximum for deliberate mistakes, and for failure to register for self assessment, is 20 years.
On the question of penalties, the guidance states if someone has taken a significant period to correct non-compliance, it is unlikely that HMRC will reduce any penalty by more than 10 percentage points above the minimum of the statutory range. For this purpose HMRC would normally consider a ‘significant period’ to be over three years, or less where the overall disclosure covers a longer period.
Individuals can use HMRC’s online calculator to help work out the interest and penalties due on the income included in any disclosure.
HMRC says it anticipates that the vast majority of disclosures will be accepted, and says individuals who submit a disclosure should hear within two weeks if it is acceptable.
Guidance: Tell HMRC about your credit and debit card transactions is here.