HM Revenue & Customs (HMRC) has launched another tax campaign, this time focused on healthcare professionals. The voluntary disclosure period of the campaign starts on 7 October 2013 and runs through to 6 April 2014.
HMRC has set a date of 31 December 2013 for healthcare professionals to notify their intention to disclose any undeclared ‘income, gains and undisclosed liabilities’. After the notification has been made, the disclosure has to be quantified and any tax, interest and penalty arising has to be paid by 6 April 2014.
Disclosure campaigns such as this are split into two distinct phases.
The first phase is the voluntary disclosure window, when healthcare professionals can notify, disclose and pay by 6 April 2014 thereby qualifying for favourable penalty terms.
After 6 April 2014, HMRC will then move into the second phase of the campaign which will involve the compliance effort. At this point HMRC will look for healthcare professionals who have not made voluntary disclosures and begin to take up full enquiries and, possibly, criminal investigations.
What does HMRC take ‘Health Professional’ to mean ?
As far as the meaning applies to HMRC, it is those professionals enrolled or registered on the appropriate statutory register, including under the Health Professions Order.
This campaign will therefore be looking for disclosures from, amongst others:
- Arts therapists
- Biomedical scientists
- Clinical scientists
- Hearing aid dispensers
- Occupational therapists
- Operating department practitioners
- Optometrists and dispensing opticians
- Practitioner psychologists
- Prosthetists and orthotisis
- Speech and language therapists
Alternative therapists are also targets, so professionals working in homeopathy and acupuncture should consider themselves included by this campaign too.
However, it should be noted that doctors and dentists are not included. They were subjected to their own Tax Health Plan campaign back in 2010. As at 31 July 2013, HMRC had collected £53,697,000 from the Tax Health Plan and there are understood to be six criminal investigations under way for this group (Source: Sunday Times/6 October 2013). Doctors and dentists can still make voluntary disclosures of undeclared income, but will be treated separately and will not benefit from the beneficial penalty rates on offer during this campaign.
Why is HMRC coming after Healthcare Professionals?
There are a number of factors, but it is fair to say the experience of the Tax Health Plan has played a part.
During the ongoing Tax Health Plan, HMRC has found that medical professionals are very busy, usually balancing commitments between their PAYE day jobs and private fee paying work at other times. The first thing to suffer is the quality of the business records maintained, which then impacts upon the accuracy of the accounts and tax returns filed with HMRC.
A common problem area has been the lack of a reconciliation of income coming in, usually from a wide variety of sources, such as payments and commissions from insurance companies, income from medico-legal work and appearances as an Expert Witness, let alone the income generated for the provision of private medical treatment. More often than not income from private practice patients and other ancillary sources has been paid into bank accounts used for regular day-to-day personal transactions, meaning that there is no clear audit of business monies. In circumstances such as these, a Tax Inspector will usually treat all the deposits into the personal bank accounts as potentially taxable business income, unless proven otherwise.
There have also been several contentious issues centered on certain types of expenditure, particularly involving travel, use of home and the payment of wages to wives/husbands/partners and other family members.
HMRC identifies potential enquiries and criminal investigation cases by comparing the levels of income declared against third party information it collects and holds. For example, HMRC’s Connect computer system is linked to the Land Registry. So, say a healthcare professional has declared net income of £40,000 on each of their tax returns for the last few years, but has then bought a house for £400,000. HMRC may consider an enquiry because of perceived funding issues, especially if the Land Registry details do not show a joint purchaser, who may have sufficient income to help secure and pay for any mortgage on the property.
Another attraction of targeting healthcare professionals is less widely commented on, but HMRC realises that any undeclared income or overclaimed expenditure usually attracts tax at 40% and a higher yield than, perhaps, an investigation into a taxi driver who may pay tax at the lower rate.
Notifying and making a disclosure
The first step is to notify HMRC of the intention to make a disclosure. Notification can be made on the HMRC website by completion of an online form available through this link http://abytx.co/16sNHRm or by telephone on 0845 600 4507 or by writing to HM Revenue & Customs, Local Compliance Centres, Health and Wellbeing Tax Plan Team SO790, PO Box 3900, Glasgow G70 GAA.
The next step is the difficult part because it involves the quantification stage when the disclosure is computed, including the calculation of the interest and penalty. The penalty loading is effectively self assessed and needs to be considered carefully because if HMRC believes the behavioural penalty criteria chosen is wrong, the disclosure may be rejected.
HMRC considers four types of behaviour when levying a penalty:
- Reasonable care
- Deliberate and concealed
The type of behaviour leading to the under declaration of income impacts not just on the level of penalty to be incorporated in the disclosure, but also on the number of years to include.
Formal submission of the total disclosure then needs to be made to HMRC by completion of an online form available through this link http://abytx.co/1a4DqrS or in writing to the same PO Box address above.
The full HMRC Health and Wellbeing Tax Plan guide can be accessed here http://abytx.co/1aRPUp6. It explains in detail how to calculate the total disclosure and contains various useful links. The penalty guidelines are covered at Appendix A.
Who can not make a disclosure?
HMRC will not accept disclosures if:
- The healthcare professional was already under enquiry at 7 October 2013.
- The disclosure is found to be incomplete or incorrect.
- The proceeds of the undeclared income were from serious organised crime.
The latest guidelines relating to the VAT liability of goods and services provided by healthcare professionals can be accessed here http://abytx.co/1fcrT0Z and in the HMRC manuals here http://abytx.co/1fUpLMt
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.
- At a glance: HMRC campaign results (abbeytaxblog.co.uk)