Voluntary disclosure: Low key, right note?

    At the end of last month HMRC adopted a low key approach as it quietly launched its latest voluntary disclosure campaign, when it issued around 3,000 letters to recipients of music royalty income.

    The letters, sent by the ‘Music Royalties Team’ within HMRC’s Campaigns and Projects unit, began by stating:

    ‘We are writing to you because our records suggest you have received music royalty payments for one or more years. These payments are taxable and you should declare any payments received on your tax return.’

    Before inviting recipients of the letter to:

    ‘Please check that the entries on the tax return are complete and correct and that you have declared any income from music royalties.’

    After receiving several calls and emails about the letters from people asking for advice and querying why they were being asked to check their return, when their royalties income has been included as part of their overall turnover figure, I telephoned HMRC to discuss the situation further.

    I was told that HMRC has not looked at any of the tax returns submitted by any of the people it has sent the letters to. It has simply written to people it knows have received music royalty income and invited them to check their tax returns and to make a voluntary disclosure, via the Digital Disclosure Service, if the income has been missed. An MR03 code has to be entered when making such a disclosure.

    I went on to ask whether the HMRC activity really was a campaign, in the absence of the usual publicity and supporting disclosure guidance material. After receiving confirmation that it was, with the same system of Payment Reference and Disclosure Reference numbers, I was told HMRC conducts a basic check of any disclosure to begin with, before it is acknowledged and a more ‘intense check’ undertaken to test the disclosure.

    Again, as with other voluntary disclosures, I asked if recipients of the letters should look to put everything right and declare any further sources of omitted income or errors. Again, confirmation was received.

    I was told that HMRC has an ‘Escalations and Referrals’ system in place for when the intense check is carried out, with internal guidance on what to do with any additional disclosures, rectified mistakes or domicile and residency issues, VAT and IHT errors.

    Up until that point the advice had been clear, but the HMRC officer I was talking to rather undermined their own credibility when I was helpfully told that IHT referred to ‘Individual Higher rate Taxpayers’. When I highlighted their misunderstanding, I was met with silence followed by a ‘Does it really? I never knew that.’

    It remains to be seen whether this campaign will hit the right note and deliver much extra money, with HMRC seemingly reluctant to provide campaign updates over recent years. The last full breakdown of campaign yield results published by HMRC was up to 31 January 2015 and we have been actively seeking an update, via a Freedom of Information request, which has yet to be successful in obtaining more current data.

    For further information regarding this latest HMRC campaign, please contact the author of this article, our Head of Technical Research Guy Smith at g.smith@abbeytax.co.uk