With HMRC targeting undeclared credit card income, ensure your clients receive this valuable advice.
Obviously, disclosure of any undeclared income should be made to HMRC and Professional Conduct in Relation to Taxation contains guidance for members. When a disclosure is required it is worthwhile considering if it could be made under one of HMRC’s campaigns.
HMRC is targeting undeclared credit card income as part of its drive to get businesses paying the correct amount of tax. It has updated guidance on disclosures of undeclared income relating to card and other alternative payments income. It has called this the ‘card transaction programme’.
HMRC stresses that it believes the majority of businesses want to pay the right amount of tax. However, it equally stresses that there are those who don’t pay the right amount of tax and it wants to help them put that right.
The Card Transaction Programme (CTP) allows businesses that accept card and cash payments and haven’t reflected all transactions in a return, to bring their affairs up to date and take advantage of the best ‘possible terms’.
HMRC gives the following (fairly obvious) examples where CTP will apply:
accepting payments by card that might not have declared all of their income
accepting payments by alternative methods, including cash, online or telephone
that is trading and hasn’t registered with HMRC and accepts cards and cash as payment methods.
Using the CTP
The CTP can be used either when:
A taxpayer receives a letter from HMRC. HMRC legally receives data about card transactions from the companies that process those transactions. The data may suggest to HMRC that the taxpayer needs to check that they’ve correctly declared all of the income received. This includes income from:
face to face sales - by card and cash
A taxpayer makes a voluntary disclosure. They don’t need a formal letter (as above) from HMRC to take part as long as the circumstances are covered by the bullet points above.
How does it work?
To take part in the Card Transaction Programme the taxpayer should:
tell HMRC they want to take part in the Card Transaction Programme (notify)
tell HMRC about all income, gains, tax and duties they haven’t previously told them about (disclose)
make a formal offer - a condition of using the Card Transaction Programme is that the taxpayer makes an offer to pay the full amount owed. The offer, together with HMRC’s acceptance letter, will create a legally binding contract between the taxpayer and HMRC. There’s a letter of offer included in the disclosure forms which should be completed
pay what is owed
help HMRC as much as they can if it asks for more information.
Normally there will be 90 days to calculate and pay what is owed.
The advantages of taking part
HMRC makes it clear that the CTP offers the best possible terms available for the client to get their tax affairs in order. In order to get these terms the taxpayer has to tell HMRC that they want to take advantage and wish to participate and make a full disclosure and payment.
As part of the programme the taxpayer must tell HMRC how much penalty they believe should be paid. What is actually paid will depend on why there was a failure to disclose. Where this was deliberate there may be a higher penalty payable than if a simple mistake was made but HMRC is happy that a lower penalty would be paid via CTP than if HMRC simply discovers that tax has been underpaid.
How to take part
The taxpayer must tell HMRC that they intend to make a disclosure. They should do this as soon as they become aware that tax is owed on undeclared income.
At this stage, HMRC only needs to know that a disclosure is being made and there is no need to provide any details of the undisclosed income or the tax the client believes is due. A disclosure can be made to HMRC about issues relating to:
a client’s own tax or partnership affairs (each partner will need to make their own disclosure)
a client’s company’s tax affairs (if they’re a director)
someone else on the client’s behalf (for example a tax adviser or personal representative).
Individuals and companies – these can notify HMRC by using the digital disclosure service. HMRC will write to give them a unique Disclosure Reference Number (DRN). There is also a Payment Reference Number (PRN) to use when making payment.
Agents – agents should use the digital disclosure service to notify HMRC of their client’s disclosure. HMRC will then send the agent a disclosure reference and a payment reference.
The disclosure should be made as soon as the DRN is issued, but disclosure must be made within 90 days of the date the notification acknowledgement is received.
Disclosures outside of CTP – there are a number of HMRC campaigns focused on underpaid tax so a disclosure may be possible under another relevant HMRC campaign. For all non CTP disclosures the disclosure service.is the same.
Acceptance of disclosure: when they receive a disclosure, HMRC will send an acknowledgment as soon as possible. HMRC will then consider the disclosure under the terms of the Card Transaction Programme. HMRC expects most disclosures to be self-explanatory but they may need more clarification and possibly evidence of the circumstances to satisfy HMRC that the disclosure is complete.
HMRC anticipates that the vast majority of disclosures will be accepted. If they are satisfied that a full disclosure has been made, they’ll accept it as quickly as possible.