Have you ever worried about HMRC doing an inspection of your limited company? If you have, maybe you’ve heard of the term qaulifying disclosure but been unwsure what it means. Here’s the answer! The other thing that many company directors worry about when it comes to an HMRC inspection is the cost and time of their Accountants helping them (here’s how we help our clients with this)
What is a qualifying disclosure?
A qualifying disclosure is where a tax payer goes voluntarily to Revenue after receiving notification of the audit but in advance of an examination of books and records that discloses the underpayment of tax. In practice the qualifying disclosure can be made at the opening meeting of the audit, as the Revenue Official asks if you want to make a disclosure.
To be a qualifying disclosure:
- The revenue has to be satisfied that the disclosure is complete in relation to all matters giving rise to the tax liability.
- The disclosure needs to be in writing and contain a calculation of tax and interest together with a payment.
What are the possible penalties?
Revenue determines the tax-geared penalty based on the category of tax default. Penalties range from 3% to 100% of the tax. The level of penalties vary also depending on whether there were previous disclosures within a five year period. There are various types of disclosure that can be made depending on the type of tax default.
- Deliberate Behaviour (akin to fraud and it is the most serious category of tax default). If the disclosure falls under the deliberate behaviour category, the taxpayer must state amounts of all tax liability in respect of all tax-heads and all periods that were previously undisclosed.
- Careless Behaviour (the disclosure must state the amounts of all liabilities to tax and interest in respect of the relevant tax-head and periods within the scope of the audit)
- Other Careless Behaviour (These are other defaults where the underpayment of the tax is less than 15% of the total liability)
Advantages of making a prompted Qualifying Disclosure
The main advantages of making a prompted qualifying disclosure are as follows:
- Avoidance of publication regardless of the size of the settlement.
- Mitigation of Penalties: There is a significant mitigation in penalties. For example, penalties are reduced from 100% to 50% for a first qualifying disclosure in the deliberate behaviour category and penalties are reduced from 40% to 20% for careless behaviour with significant consequences.
- Revenue will not initiate an investigation with a view to prosecution of the taxpayer in relation to the matter disclosed.
We always advise clients to ensure their tax affairs are 100% accurate before submission; however if you’re worried and want to talk to us – please call.