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HMRC internal manual

Compliance Handbook

The managing serious defaulters (MSD) programme: how will a deliberate defaulter be affected?

The person will normally be subject to monitoring activity for a minimum of two years and a maximum of five years and will:

  • have their tax affairs closely monitored
  • not be permitted to use any three line accounts or abbreviated return facility
  • where there is no clear shift to compliant behaviour, be subject to increased compliance activity, such as:

    • pre-return record keeping checks and announced or unannounced inspection visits to check business records
    • other in-depth compliance checks into any part of a person’s tax affairs.

For VAT we may also:

  • adjust the VAT accounting periods
  • withdraw the use of certain schemes such as Cash Accounting, Annual Accounting, Flat Rate Scheme and Retail Schemes if we think it is necessary for the protection of the revenue
  • require production of the VAT account.

Those who incur a deliberate penalty in respect of tax of £5,000 or more and others dealt with by Contractual Disclosure Facility (CDF) and Fraud Investigation Service (FIS), see CH480400, may also be subject to Additional Reporting Requirements (ARR) with their SA return for up to five years showing more detailed business accounts information.

Notice of this additional requirement was given in Budget 2009 by the Exchequer Secretary to the Treasury.

The ARR will include:

  • detailed profit and loss accounts (where not already provided) and property income accounts, if relevant
  • balance sheet (where not already provided)
  • identification and explanation of the nature and amount of any figures contained in those accounts that cannot be vouched by physical or electronic records made at the time the underlying transactions took place, or written confirmation that no such figures are included
  • production of the VAT account.