Time running out for solicitors to declare income to HMRC

Solicitors have just one week left to come clean on any undeclared income or risk facing substantial penalties, HMRC has warned.

Practitioners have until 9 June 2015 to voluntarily come forward and tell HMRC about any undeclared income, and pay the tax due. Those that do have been promised lower penalties than if HMRC has to launch an investigation into their tax affairs at a later date.

Solicitors who do not own up and pay what they owe face a stiff penalty of up to 100 per cent of the tax due, or even more if the income is held offshore.

Caroline Addison, head of campaigns at HMRC, said: 'This disclosure scheme gives firms a fair chance to come forward and avoid tough penalties but we will not hesitate to investigate and penalise those still evading tax they owe once this opportunity passes. We don't think it's too much to ask that solicitors abide by the law and pay the tax they owe.'

The Solicitors' Tax Campaign, launched in December last year, is the latest voluntary disclosure opportunity for specific groups of taxpayers to get their tax affairs in order.

Previous campaigns have included medical professionals, plumbers, electricians, landlords, and health professionals. Together, these campaigns have raised over £1bn from voluntary disclosures and HMRC follow-ups.

Writing in SJ earlier this year, Thomas Adcock, a tax partner at chartered accountancy firm Carter Backer Winter, questionned whethre solicitors could be singled out by HMRC, given that their particular skill set is what is employed to avoid tax.

'Lawyers will be happy to hear that they do not merit such special treatment, and that they exhibit the same risk profile as any other professional firm, such as accountants. However, like accountants, HMRC are not likely to give lawyers the benefit of the doubt for not understanding the legislation and its interpretation, given their professional standing,' he said.

'This is important when considering the issue of penalties as these are linked to behaviour; it is more likely that a lawyer or law firm which did not take sufficient care in preparing their tax return will be hit with a larger penalty.'

Commenting on the upcoming deadline, Dawn Register, a tax dispute resolution partner at BDO, said: 'The large number of self-employed individuals working as solicitors’ means many may of fallen foul of common pitfalls in their tax affairs including; failing to register for VAT, expense claim and benefits in kind errors. There may also be cases where solicitors have failed to declare amounts paid to them outside their regular income stream.

'For those who voluntarily pay, penalties will be lower than if HMRC has to investigate an individual solicitor’s tax affairs. Anyone who does not pay what they owe faces a penalty of up to 100 per cent of the tax due, or more if it is offshore income. Recent evidence also highlights that HMRC is becoming more bullish in the use of its prosecution powers; there is also the risk of "naming and shaming" which would be a disaster for a legal professional. Therefore, it is likely that soon after the Solicitors Campaign deadline HMRC will open investigations and even start criminal proceedings where they have evidence. We strongly suggest anyone that still owes tax uses the next few days wisely.'