ìIf you have not declared all of your income, you need to put your tax affairs in order. Take this chance to come forward and put things right in a straightforward way and on the best possible terms. It will be easier and cheaper for you to come to us than for us to come to you.î
No, this is not a line from a new financial sequel to Taken in which Liam Neeson plays a tax collector; rather these words from the HMRCís head of campaigns, Caroline Addison, serve as a polite but effective warning for any individuals in professional sectors targeted as a part of the recent tax campaign looking to clamp down on unpaid taxes.
The tax crackdown campaign began in 2007, but taken off significantly since 2011 with the implementation of Connect (HMRCís impressive computer system and database). Landlords, doctors and now solicitors have been targeted, among others, in a bid to address the estimated £35 billion lost in unpaid tax each year.
In order to decide which specific sectors to target, HMRC must provide evidence justifying their investigations, which they now claim to have done with solicitors.
Information from third parties is run through Connect, which can compare data from sources like the DVLA or the Land Registry with the individual in questionís tax returns, highlighting any discrepancies that may pop up. Recently acquired powers also make it easier for HMRC to use Connect to detect overseas assets, which marks a pretty big step in the crackdown on tax avoidance.
Indeed, the increase in powers given and information available to HMRC let Dawn Register, an accountant at BDO, to predict the targeting of solicitors back in September: ì[HMRC] now has access to legal aid data, so if it spots a trend it could well take another look on a much bigger scaleî.
Once sufficient evidence is acquired to reasonably investigate a particular professional sector, HMRCís next step is to send letters out to all those suspected of underpaying, asking them to declare any underpayments and sort out their taxes voluntarily to avoid facing increasingly more severe penalties. As well as offering reduced penalties for voluntary disclosure, HMRC has been using scare tactics, publicising prominent court cases to try and persuade people to take the high road and admit to any underpayments. And itís working: an estimated £1bn has been raised from these requests for voluntary surrendering of unpaid taxes.
This is the stage that the campaign against solicitors is at currently:
Caroline Addison has said that ìinformation gathered by HMRC has allowed us to identify solicitors who thought they could operate without declaring income and paying the taxes that others have to payî.
HMRC have told solicitors that they must declare their willingness to take part in the campaign by the 9th of March 2015, and must disclose and pay any tax they owe by the 9th of June.
The penalties imposed will depend on the amount of tax owed, and the reason for any underpayments. If any income has not been disclosed because of simple mistakes, then the solicitors in question will only have to back pay a maximum of six yearsí worth of tax. If, however, any solicitors are found to have been deliberately withholding information, then the penalties will be more severe, including being forced to pay in excess off 100% of the tax owed and even criminal prosecution for the most serious offenders.
It is likely that the targeting of solicitors is at least in part down to the significant number of self-employed individuals in the sector ñ similarly to the clamping down on landlords in recent years. The Law Society has offered written guidance for self-employed solicitors to make sure their taxes are all in order, pre-empting the campaign from HMRC and expressing a lack of concern regarding the investigations.