HMRC has recently launched various tax campaigns targeted at specific types of business – including healthcare professionals.
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, the end of the voluntary disclosure window.
Disclosure campaigns such as this are split into two distinct phases.
The first phase is the voluntary disclosure window, when you can qualify 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.
Why is HMRC coming after healthcare professionals? 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 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.
By David White, Partner, Charterhouse, based in Beaconsfield
David White is an equity partner in Charterhouse a practising firm of Chartered Accountants based in Beaconsfield and Harrow. David is Charterhouse through and through having been with them for 30 years...