HMRC has made it known that it would like certain taxpayers to voluntarily disclose more information on their tax returns. What does this mean, and should taxpayers follow its advice?
In recent minutes from a meeting involving HMRC’s ‘Wealthy’ team (see bit.ly/3wdDgly), which focuses on the personal tax affairs of individuals with higher levels of income or assets, it was highlighted that it would like certain taxpayers to include more detailed information on their returns. Specifically, HMRC would like such information to be made via a voluntary disclosure of information in the ‘any other information’ box of a tax return. This is a practice commonly referred to as a ‘white space disclosure’.
For many taxpayers who prepare and submit their tax returns themselves, this request for additional information may seem innocuous. However, should taxpayers pay greater heed to the request on the return to ‘please give any other information’ and if so, what should be disclosed?
A ‘white space disclosure’ can potentially be helpful to both HMRC and the taxpayer. In short, it gives an opportunity to provide an officer with more information relating to the entries on the return. For example, a more complicated entry like the sale of a second home or business. That could address any queries the inspector might have in relation to that tax return entry and prevent the risk of an unnecessary enquiry or a discovery assessment. However, providing additional information can in some circumstances increase the chance of HMRC opening an enquiry to check the return.
In broad terms, under self assessment, HMRC has the right to enquire into a tax return (both original and amended returns). However, it must give the taxpayer written notice of its intention to open an enquiry.
Assuming a tax return was submitted on time, HMRC can give notice of its intention to enquire into a return up to 12 months from the date of submission. HMRC does not usually have the power to open an enquiry at a later date. Instead, HMRC will need to raise a discovery assessment to recover tax outside its enquiry time limits.
The discovery assessment powers available to HMRC are there to protect public revenues from a loss of tax. However, these powers are restricted if a tax return submitted by a taxpayer, provides enough information for an HMRC officer to realise within the enquiry window that the tax return is insufficient. HMRC should not in theory be able to raise a discovery assessment in these circumstances. This can therefore provide an incentive to taxpayers to make a broader disclosure of their affairs in the ‘any other information’ box, as it could provide protection against an HMRC discovery assessment.
However, in recent years HMRC’s successes in the courts have made it more difficult for taxpayers to decide what constitutes enough information in a white space disclosure to prevent HMRC from using its discovery powers. For example, the Upper Tribunal, in the 2021 case of Victoria Carter and another v HMRC [2021] UKUT 300 (TCC), set the bar so high in terms of what is an adequate disclosure that it seems that only the fullest disclosure is likely to be an adequate defence against a discovery assessment.
If providing additional information in the return may increase the chance of HMRC opening an enquiry but not give the balance of protection against HMRC’s discovery powers, many taxpayers may decline HMRC’s invitation to utilise the ‘any other information’ box. However, with HMRC’s increased power to raise discovery assessments for 12 years in respect of offshore tax matters, taxpayers will need to give careful consideration as to whether to make a white space disclosure in their tax returns submitted this January.
HMRC has made it known that it would like certain taxpayers to voluntarily disclose more information on their tax returns. What does this mean, and should taxpayers follow its advice?
In recent minutes from a meeting involving HMRC’s ‘Wealthy’ team (see bit.ly/3wdDgly), which focuses on the personal tax affairs of individuals with higher levels of income or assets, it was highlighted that it would like certain taxpayers to include more detailed information on their returns. Specifically, HMRC would like such information to be made via a voluntary disclosure of information in the ‘any other information’ box of a tax return. This is a practice commonly referred to as a ‘white space disclosure’.
For many taxpayers who prepare and submit their tax returns themselves, this request for additional information may seem innocuous. However, should taxpayers pay greater heed to the request on the return to ‘please give any other information’ and if so, what should be disclosed?
A ‘white space disclosure’ can potentially be helpful to both HMRC and the taxpayer. In short, it gives an opportunity to provide an officer with more information relating to the entries on the return. For example, a more complicated entry like the sale of a second home or business. That could address any queries the inspector might have in relation to that tax return entry and prevent the risk of an unnecessary enquiry or a discovery assessment. However, providing additional information can in some circumstances increase the chance of HMRC opening an enquiry to check the return.
In broad terms, under self assessment, HMRC has the right to enquire into a tax return (both original and amended returns). However, it must give the taxpayer written notice of its intention to open an enquiry.
Assuming a tax return was submitted on time, HMRC can give notice of its intention to enquire into a return up to 12 months from the date of submission. HMRC does not usually have the power to open an enquiry at a later date. Instead, HMRC will need to raise a discovery assessment to recover tax outside its enquiry time limits.
The discovery assessment powers available to HMRC are there to protect public revenues from a loss of tax. However, these powers are restricted if a tax return submitted by a taxpayer, provides enough information for an HMRC officer to realise within the enquiry window that the tax return is insufficient. HMRC should not in theory be able to raise a discovery assessment in these circumstances. This can therefore provide an incentive to taxpayers to make a broader disclosure of their affairs in the ‘any other information’ box, as it could provide protection against an HMRC discovery assessment.
However, in recent years HMRC’s successes in the courts have made it more difficult for taxpayers to decide what constitutes enough information in a white space disclosure to prevent HMRC from using its discovery powers. For example, the Upper Tribunal, in the 2021 case of Victoria Carter and another v HMRC [2021] UKUT 300 (TCC), set the bar so high in terms of what is an adequate disclosure that it seems that only the fullest disclosure is likely to be an adequate defence against a discovery assessment.
If providing additional information in the return may increase the chance of HMRC opening an enquiry but not give the balance of protection against HMRC’s discovery powers, many taxpayers may decline HMRC’s invitation to utilise the ‘any other information’ box. However, with HMRC’s increased power to raise discovery assessments for 12 years in respect of offshore tax matters, taxpayers will need to give careful consideration as to whether to make a white space disclosure in their tax returns submitted this January.
