If you’ve been paying less tax than perhaps you should have you might want to give HMRC a call and see if you can’t make amends. That’s partly because it is the right thing to do. But it’s also because the organisation is under pressure from the government to clamp down on tax avoidance.
Those who doubt that they are responding to this pressure with enthusiasm need only look to the number of tax disputes waiting to be heard by the tax tribunal system. Ministry of Justice figures show that these rose by more than a third last year: there was a back log of 22,100 cases by the last quarter of 2011.
The tribunal system was reformed in 2009 to introduce two tiers: first-tier tribunals, which hear cases first, and upper-tier tribunals, which hear appeals. Unfortunately, while helpful, this hasn’t made being in dispute with the taxman any more pleasant. The system, says Ian Hyde of law firm Pinsent Masons in the FT, is “still one of confrontation rather than consensus”.
To avoid that sort of confrontation you could take part in one of HMRC’s amnesties. These allow tax cheats (accidental and deliberate) to come forward, pay what they owe plus a relatively low penalty and avoid prosecution. These work. The now past plumbers amnesty brought in £2.5m in revenue from 429 disclosures; the medical amnesty brought in more than £10m from over 1,500 disclosures, including one payment of more than £1m from one doctor. Clearly, people like the idea of cleaning their slates on the cheap.
Right now there is one underway for online traders. It started on 14 March but runs out in a week (14 June). If you register via the E-markets Disclosure Facility (see www.hmrc.gov.uk), make full disclosure of what you owe and pay up (by 14 September in this case), you could pay no penalty at all. Most people will end up paying no more than 10%. Compare that to the 100% you are likely to pay if you don’t come forward but get found out anyway and it looks like a pretty good deal. The recent rise of online trading seems to have left plenty of people in doubt as to whether their dealings are taxable or not. But it really isn’t complicated.
If you’re selling personal belongings you no longer want (clothes and toys your children have outgrown, for example), you’re not trading and aren’t liable for tax on the proceeds. If you regularly buy and sell them on online, you are trading and do have to pay tax on the income. I can’t see that there is much middle ground here, but if you still aren’t certain and you want to be by 14 June, you can check here: www.hmrc.gov.uk/manuals.