Thinking of becoming insolvent to avoid tax?

Thinking of becoming insolvent to avoid tax?

Tax evaders who become insolvent to dodge tax obligations face up to five years’ scrutiny from HM Revenue & Customs.

What’s New?

With effect from 1st April 2013, the Managing Deliberate Defaulters (MDD) will become the Managing Serious Defaulters (MSD) programme.

The MDD has been in force since February 2011 and it is understood that more than 3,000 tax evaders have been placed under this programme. Initial reports suggest that such tax evaders have been mending their ways and are now complying with their tax obligations.

The MSD supports the Government’s clear and ongoing message that it will tackle tax evasion.

What’s the Point?

The MDD was launched in February 2011 in order to:

• deter known tax defaulters from returning to non-compliant tax behaviour;
• effect a permanent shift to compliant behaviour;
• deter potential deliberate defaulters; and
• reassure people who do pay their tax that HMRC does take action against deliberate defaulters.

Who does this catch?

The MDD caught those who were:

• charged a penalty for a deliberate tax offence;
• identified during a fraud investigation as representing a continuing high risk to HMRC; or
• successfully prosecuted by the Director of Revenue & Customs Prosecutions or another prosecuting authority for a tax matter.

With effect from 1 April 2013, the Managing Serious Defaulters programme will apply to tax evaders who:

• deliberately become insolvent to avoid their business tax obligations;
• have received a civil evasion penalty for dishonesty; or
• are required to give a security deposit for VAT, PAYE or NICs or environmental taxes.

David Gauke, Exchequer Secretary to the Treasury, said that “Increasingly, evaders are using contrived insolvency to evade tax, either through liquidation of a business or bankruptcy of an individual. It is only fair that someone who has deliberately tried to evade tax should face extra scrutiny from HMRC”. He went on to state that “this measure, along with those announced in the Budget, demonstrates that we will crack down on people who don’t pay what they owe.”

Jennie Granger, Director General Enforcement and Compliance at HMRC, said: “HMRC monitoring has proved effective in making tax cheats comply with their tax obligations. MSD will keep the pressure up on even more defaulters.”

What’s involved?

HMRC will notify serious defaulters when they are entered on to the MSD programme and inform them of their various obligations.

MRC will then keep a very close eye on the tax affairs of those who have deliberately evaded tax and such close scrutiny could last up to five years. The extra scrutiny could include:

• unannounced visits by HMRC;
• asking for records;
• carrying out in-depth compliance checks; and
• observing and recording business activities and cross-checking details in accounts.

Such monitoring will be with the aim of ensuring that those caught “comply with their tax obligations and permanently change their behaviour”.

In the event that the defaulter continues to fail to meet their tax obligations and continues to deliberately default, HMRC may consider imposing penalties and may resort taking criminal proceedings.

Need Help?

Newshams Tax Specialist are tax experts in this area of law and can help you ensure you remain compliant and can successfully negotiate any new measures.

If you would like to talk to one of our expert London Tax Lawyers, please contact us on 020 7470 8820 or e-mail us at or visit our website