Tougher penalties for hidden economy tax evaders planned

The government plans to introduce tougher penalties to curb those operating in the black economy with a more robust ‘failure to notify’ regime as part of its overall review of the HMRC penalties system as well as focused HMRC activity to crack down on tax evaders

In the meantime, until tougher sanctions are introduced, HMRC will strengthen its monitoring of taxpayers previously found to be operating in the hidden economy, to keep them compliant.

HMRC has reviewed existing monitoring arrangements, including the ongoing managing serious defaulters (MSD) programme, and those that apply to people operating in the hidden economy who are detected and registered by HMRC, but do not receive a deliberate penalty.

It has advised the government that process, resourcing and technological improvements can be made to strengthen existing programmes. HMRC will review these arrangements and make improvements in 2017.

HMRC launches dedicated phone line

For new businesses and self-employed individuals, some of which inadvertently operate in the hidden economy, HMRC is launching a new, dedicated phone line and online business forum to help and support them about filing and paying tax for the first time.

New businesses are also enrolled into HMRC’s free business support email service which supports the first year in business - signposting to e-learning, online seminars and video content that covers a range of relevant business-related topics such as business expenses and record keeping.

Many respondents welcomed the proposal to strengthen monitoring for hidden economy activity, and would like to see this accompanied by increased HMRC engagement, communications and general tax education.

The consultation also considered the case for introducing escalated penalties for repeated non-compliance.

On PAYE fraud and evasion, the government plans to maintain the current penalty system. Under this, an extended failure is where a failure to make a return continues for longer than three months.

The higher penalty is 5% of the total liabilities which should have been shown on each outstanding return. PAYE penalties will be kept under review and considered in the round as part of the Penalties Review.

The HMRC summary of responses document, Tackling the hidden economy: Sanctions, issued 20 March, is available here

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