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HMRC internal manual

Compliance Handbook

From
HM Revenue & Customs
Updated
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Managing serious defaulters (MSD) for specific customer groups: SPT (Specialist Personal Tax)

From 1 April 2013, Specialist Personal Tax (SPT) customers who incur a penalty for deliberate inaccuracy (Schedule 24 FA07), failure or wrongdoing (Schedule 41 FA08), failure to file on time (Schedule 55 FA09) or otherwise meet the entry criteria as outlined within this guidance will have their tax affairs monitored in line with the Managing Serious Defaulters (MSD) process.

All cases in which there is a Schedule 24 FA07 penalty issued after 1 January 2013, relating to an offence committed after the relevant date of 6 April 2009, should be referred.

The process to be adopted will depend upon the business area in which the penalty arises and customer type. Details of how MSD applies in each business stream are given below.

All referrals are now made using the Penalty Decisions and Actions Checklist (PDAC), including those retained within the business. The case referral is made using the PDAC system with a prominent note that it will be monitored ‘in house’ by Specialist PT and is for MSD statistical purposes only. The Specialist PT business area will then need to make a separate notification to the Specialist Case Team for recording and monitoring purposes.

Although penalties for deliberate behaviour are rare amongst some Specialist PT customer groups, it is important to make clear that all of our customers will be treated alike in response to deliberately defaulting behaviour.

High Net Worth Unit

Responsibility for applying the MSD process will remain within Specialist PT.

Charities

  • Responsibility for applying the MSD process to a Charity will remain within Specialist PT.
  • Cases in which the trustee or authorised official personally meets the MSD entry criteria should be referred to the Serious Defaulters Management Unit (SDMU).

PT International

  • Responsibility for applying the MSD process to those within the Non Resident Landlords Scheme (NRLS), Expats and Foreign Entertainers Unit (FEU) populations remains within Specialist PT.
  • Cases in which the defaulter meeting the MSD entry criteria is within the general Self Assessment population should be referred to SDMU.

Pension Schemes Service

  • Responsibility for applying the MSD process to pension schemes will remain within Specialist PT.
  • Cases in which the trustee, administrator or member personally meets the MSD entry criteria should be referred to SDMU.

Trusts & Estates

  • Responsibility for applying the MSD process to Trusts will remain within Specialist PT.
  • Cases in which the trustee or administrator personally meets the MSD entry criteria should be referred to SDMU.
  • No monitoring is required in respect of any settled Estate.

Savings, Audit and Shares Schemes

  • Responsibility for applying the MSD process to schemes will remain within Specialist PT.
  • Cases in which the individual or company personally meets the MSD entry criteria should be referred to SDMU.

Specialist PT processes exclusions

Any customer making a full, unprompted disclosure of a deliberate default to HMRC with 100% reductions for the quality of their disclosure will not be included in MSD.

Process for handling cases referred to SDMU

All referrals are now made using the PDAC, including those retained within the business.

Process for handling MSD cases retained within Specialist PT

The Specialist PT business area will then need to make a separate notification to the Special Case Team for recording and monitoring purposes.

Referral

The PDAC must be completed and should contain enough detail to:

  • recognise that responsibility for monitoring lies with Specialist PT
  • include the case on the centrally held record of monitored cases
  • identify the date of inclusion in the monitoring process.

The latest version of the PDAC can be found in SEES.

The SDMU, through the Special Case Team, must be notified when the defaulter leaves the programme.

Notifying the defaulter

  • For Customer Relationship (CRM) and Customer Co-ordinator (CC) managed cases - all communications with the defaulter will remain with the CRM and CC.

For non CRM/CC cases - the individual business stream will appoint an MSD lead who will be responsible for all communications with the defaulter.

All relevant MSD documentation (letters) can be found and accessed through SEES (Forms and Letters, LC, Managing Serious Defaulters).

When you have formed the view that the behaviour is deliberate, or that the case otherwise meets the MSD entry criteria, you should warn the defaulter of the potential monitoring by issuing Factsheet CC/FS14.

When the defaulter enters MSD you should advise them:

  • of their inclusion in the process
  • of the reason for their inclusion
  • that Managing Serious Defaulters involves HMRC closely monitoring their tax affairs for a minimum of two years and up to a maximum of five years
  • that, if they have control of, or a controlling interest in, any business, we may also monitor that business
  • of the obligations that will be monitored

    • all returns for completeness and accuracy
    • all returns are made on time
    • all payments are made on time
    • all new registrations are on time
  • of the changes required for the defaulter to improve their compliance
  • of any Additional Reporting Requirements (ARR) where the deliberate Potential Lost Revenue (PLR) is over £5,000; Special Case Team can advise you on these requirements
  • of the likelihood of increased compliance activity
  • of the potential outcomes if non-compliance continues
  • that monitoring will continue until there is evidence of a sustained shift to compliant behaviour, and we are satisfied that they no longer represent a high risk to us.

Where the defaulter fails to comply, notify them of:

  • the obligation they have not met
  • the sanction you intend to apply.

When the defaulter is to be released from the process:

  • send confirmation of their departure from MSD.

Monitoring the defaulter

The CRM, Co-ordinator or MSD lead manages the defaulter by:

  • making additional checks on the defaulter (for example, third party information) and completing an initial risk assessment
  • preparing an individual compliance plan for the defaulter
  • requesting ARR, enforcing regulations or amending approvals, where appropriate
  • monitoring and reviewing all ongoing filing and payment obligations and registration requirements
  • following-up all instances where the defaulter fails to meet their pay and file obligations
  • risk assessing all returns and accounts for indications of continuing failure to comply
  • increasing the level of compliance checks for all taxes and duties proportionate to the risk
  • applying or instigating the commencement of any further sanctions required to assure compliance
  • re-assessing the initial risk assessment annually until the defaulter demonstrates sustained compliant behaviours.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)