In the next month it is expected that about 2,500 doctors and medical practitioners will find the dreaded brown envelope from HMRC on their doormat. For many this will be a stomach churning experience, for others the start of a frustrating episode as HMRC have decided to launch a tax investigation of their tax affairs.
As most medical practitioners will know in 2010 HMRC gave doctors, dentists and consultants the opportunity to voluntarily disclose any unpaid tax rather than face an in depth tax investigation. Mainly this was intended to collect tax on private fees which had not been declared to HMRC, but many other taxes could be disclosed such as tax on rental income or undeclared tax on investments. As a result of this tax amnesty for medical practitioners HMRC have been able to collect approximately £10 million from about 1,500 medical practitioners.
The initial tax amnesty was offered as HMRC have obtained extensive information from insurance companies and private hospitals using their information powers. It is believed that to date following the closure of the medical practitioner tax amnesty that HMRC have commenced about 1,000 tax investigations in to the tax affairs of doctors and dentists who did not take part in the original tax disclosure amnesty. It is believed that some of these tax investigations have come to naught as, for example, the income may have been declared in practice accounts or may have been accounted for in another tax year. However. It is believed that the tax investigations conducted so far have yielded some very rich pickings indeed. No doubt in due course the individuals who have had to pay tax as a result of the tax investigations so far will have their names and details published under the new HMRC name and shame powers.
HMRC have been able to look at the results of the medical tax amnesty and their own tax investigations and form the view that a significant number of practitioners have potentially not paid sufficient tax. It would appear that rather than initially investigate the matter using their formal powers, in the interest of cost savings they are going to write to a sample of about 2500 medical practitioners where they believe that the information they hold is robust and use scare tactics to try to get the medical practitioner to do HMRC’s work for them. This can only be because the costs of tax investigations are high. It has been reported that the letter will assume guilt and threaten the individual with prosecution unless they come clean immediately about any tax issues.
For some this is a real threat as HMRC have employed hundreds of extra investigators in the Criminal Unit and we have already seen a number of prosecutions of plumbers who failed to come forward under the amnesty offered to them.
Even if the recipient of these letters has no undeclared income the fact is that they will still be subject to a full tax investigation as HMRC are initially writing to those they believe are most at risk of not having declared all of the income. So whether the allegations are correct or incorrect whomever receives the brown envelope on their doormat will be subject to scrutiny by HMRC.
So what is the correct diagnosis for this malaise? If you have not received a letter from HMRC but have income not declared then it is still possible to make a voluntary disclosure to HMRC and although tax, interest and a penalty will be due the chances of prosecution can be mitigated to next to nil. It should also be possible to mitigate the chances of appearing on HMRC’s name and shame list.
If you receive a letter and there are issues then the situation needs careful management by experts. Time needs to be obtained to ensure that any disclosure made is correct and complete and again if managed properly the chances of prosecution and appearing on the name and shame lists can be mitigated.
If you receive a letter and there is nothing wrong then unfortunately it is our opinion that you will need to engage with HMRC, even to the point of agreeing to a professional advisor doing some form of sample review to show that HMRC’s concerns are unfounded.
The worst thing that anyone can do if the brown envelope arrives is to ignore the situation as the symptoms will just get worse. A tax investigation is inevitable if you do receive a letter from HMRC on this issue and by ignoring the problem then you will face a significant increase in your risk of prosecution and of appearing on HMRC’s name and shame list. The same amount of work will be needed by professional advisors (if not more) in this situation but HMRC will have complete control of the situation and what happens to the individual. Even if nothing is wrong there will still be a long drawn out process whilst this is proven to HMRC’s satisfaction which is a very high hurdle indeed if HMRC’s tax investigation has been ignored.
A tax investigation is not a pleasant experience and it can be most intrusive and distracting from your normal day to day business. That said tackling the issue head on and choosing the right consultant can result in a less painful outcome, some things never change.
It is not just a matter of the tax etc that may be due this is about the reputational risk of the practitioner themselves as they will not want to be prosecuted or appear on a name and shame list.
It is therefore imperative that the medical practitioner who receives one of these letters from HMRC seeks specialist advice from a firm with both specialist in resolving tax investigations but also who have some experience of dealing with medical practitioners.
At Gilbert Tax we have this experience and would be happy to speak to any individual who believes that they have an issue or who receives a letter from HMRC.
Craig is a partner at Gilbert Tax Consultants LLP a firm specialising in dealing with tax investigation issues. After leaving HMRC Craig has worked in an accounting practice who specialise in dealing with medical practitioners and then one of the largest independent accountancy practices in the North. He has an in depth understanding of the tax issues affecting medical practitioners.