Professional Tax Consultancy

The Plumbers Tax Safe Plan – will HMRC plug the leaks?

March of this year opened with an announcement from HMRC confirming the latest tax disclosure initiative, the Plumbers Tax Safe Plan (PTSP).

There was no secret that a facility was to be made available in this trade sector – Dave Hartnett, HMRCs Permanent Secretary confirmed as much more than 12 months before the recent announcement. Recessionary factors and behind the scenes information gathering may be the reasons for the delay in the timing of the introduction.

This is the fifth such disclosure plan, following offshore disclosures in 2007 and 2009/10, the ongoing Lichtenstein facility and the medical sector plan in operation in early 2010. This trade sector is undoubtedly one of HMRCs ‘hotspots’ in terms of tax compliance, but will the latest of the so-called amnesties rectify that?

Resources

All of HMRCs resources can be accessed from:

http://www.hmrc.gov.uk/trades-disclosure/index.htm

These include PDFs of the guidance pack and FAQs, together with the disclosure forms and tax, interest and penalty calculators. The guidance pack and FAQs cover the reasons why HMRC are offering the facility, the disclosure process, the taxes covered, penalty weighting and the consequences of non-disclosure.

As one might expect, the guidance overall is worded to emphasise that HMRC have been gathering information regarding potential defaulters in the trade sector. In certain places, their guidance is perhaps deliberately vague in places and these areas are discussed in this article.

The Plan in detail

HMRCs guidance explains that the Plan will cover ‘people who work (or worked) in the plumbing, heating or gas installation trades and this includes anyone who installs and repairs pipes and fixtures for water, drainage or gas systems in a building’. There are several specific trades included in this broad definition, in addition to which it is necessary to include, for example, general builders whose overall trade includes these activities.

As with all of the disclosure plans, HMRC are keen to encourage any disclosure, promising non-trade disclosures treatment ‘very similar to’ those offered under the PTSP.

That said, certain persons will not be able to disclose – those currently undergoing a compliance check or enquiry and those who could have made use of previous disclosure plans.

In terms of taxes covered, the guidance notes refer to Income Tax and NIC, PAYE (and CIS), taxes in respect of ‘other income and gains’ and ‘other liabilities’ – one assumes that the latter category includes Corporation Tax – although the guidance and indeed the disclosure forms seem to suggest an emphasis upon the sole trader, it is not surprisingly as all inclusive as it can be possibly be, at least as far as direct taxes are concerned.

Practitioners should be aware that although VAT in not included in the Plan, anyone disclosing trading profits will need to indicate whether there is VAT culpability, whether by under declared outputs, or failure to register – this indication will then be followed up by HMRC. There is no detail as to what will happen next as far as VAT is concerned – merely a statement that ‘HMRC will get in touch’.

Similarly, Class 2 NIC is not covered by the plan, which would mean having to disclose separately. Tax Credits are not covered either, but as with VAT, there is a need to indicate that Tax Credits have been claimed – those disclosing additional personal income also therefore face a Tax Credits clawback, either in respect of their claim, or their partners, depending on the circumstances.

With regard to disclosure, HMRC provide two possible options – disclosure online or by paper forms, where the disclosure covers tax year 05/6 onwards, or paper only, where the disclosure precedes tax year 05/6. As with previous plans, disclosure amounts to a contractual offer to HMRC.
Notification of intention to disclose is required (by telephone, post or online) by 31 May 2011, with the disclosure itself following by 31 August 2011 at the latest.

Post disclosure, HMRC will issue an acknowledgement shortly after receipt. A formal acceptance of the offer will follow, unless of course HMRC are not satisfied with the disclosure made, in which case, one assumes further enquiries will follow. There is no time limit on the issue of an acceptance – HMRC simply state these will follow as soon as possible after disclosure.

Penalties

The principal feature of tax disclosure plans is the relatively low penalty weighting that may be available – in the context of this disclosure, rates of nil, 10% and 20% are laid down. They adopt the themes adopted in the Finance Act 2007 penalty regime which is now being used for enquiries: where reasonable care is taken, a nil penalty may apply; tax arising in respect of carelessness, together with non-deliberate failure to disclose might attract a 10% penalty and anything done deliberately will generally attract a penalty of 20%.

An important issue for practitioners is the need to effectively self-assess penalties –Practical Issues

A number of practical issues face advisers as far as using the PTSP is concerned:

• Approaching and notifying clients of the plan;
• Treatment of taxes not covered by the Plan – VAT, Class 2 NIC and Tax Credits may all require detailed attention post-disclosure;
• Business records – incomplete records may result in the use of what HMRC refer to as ‘reasonable estimates’. Older disclosures are likely to be even more problematic. What if there have been changes of advisor?
• Technical issues – in calculating taxable trading profits especially, there may be several issues: calculating motor expenses using home as base of operations, difficulties with the ‘wholly and exclusively’ principle, private use adjustments and Capital Allowances, to name but few;
• The need to effectively self-assess penalties - a ‘white space’ is provided, to add information regarding use of penalties. Differentiating between deliberate and non-deliberate failure to disclose is a difficult issue in itself.
  

Conclusion

In spite of references to certainty, there are nevertheless uncertainties identified above which undermine HMRCs claims somewhat. Inevitably, this may lead to practitioners and traders alike wondering as to the real value of trade-specific tax amnesties. It is not difficult to imagine HMRC running into problems with discriminatory issues, if it transpires that traders outside of plans such as this are penalised at a higher level.

Nevertheless, there is every reason to believe they are here to stay – they are after all a cheap way of settling back duties, so developing an approach to this and future plans will be a necessary step for the majority of advisers.