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HMRC Pre-Filing Conversations: considerations for taxpayers

Posted on 13 September 2022

HMRC has invited taxpayers with incomes that exceed £200,0000 per annum and assets of at least £2 million to participate in voluntary telephone conversations before filing their 2021/22 tax returns. These pre-filing conversations are the result of a pilot scheme that HMRC launched in April of this year and are ostensibly designed to help high earning taxpayers avoid errors in their tax returns before they are filed.

The scheme itself appears to be well-intentioned. However, those who wish to make use of this scheme should proceed with caution. These pre-filing conversations are not legally binding, and they cannot be regarded as evidence of HMRC giving an opinion or as a clearance decision.

It is unclear what parameters these conversations will operate within and there is a real risk that taxpayers could expose themselves to an unjustified level of scrutiny that could lead to possible action against them. If HMRC was to dispute something that a taxpayer said as part of these pre-filing conversations, the taxpayer could potentially be placed in an invidious position. If the taxpayer does not agree with HMRC's assessment on an issue and files the tax return, they could risk a higher penalty if HMRC takes the view that they knowingly submitted an incorrect tax return.

It would be tempting for high earning taxpayers with complex tax affairs to see HMRC's invitation to engage in pre-filing conversations as a welcome opportunity prevent a future enquiry, but the potential complexity of their tax affairs means that they will have to tread very carefully. Tax rules are complicated and matters could be misinterpreted if qualifying taxpayers do not seek legal advice before engaging in a pre-filing conversation. Further, because these conversations will not lead to HMRC providing an opinion or clearance decision, the risks of engagement for taxpayers appear to outweigh any benefits that will accrue from participating in these conversations.

Taxpayers considering participating in a pre-filing conversation should seek expert legal advice to ensure that they are best positioned to make an informed decision and best prepared for the conversation with HMRC.

Mishcon de Reya Partner Waqar Shah commented, "Taxpayers who receive such an invitation should be incredibly cautious about engaging with HMRC directly without legal advice beforehand. In any event, there does not seem to be any great benefit into entering into such discussions without HMRC. Even when it comes to matters such as a taxpayer's behaviour in relation to an underpayment of tax; there should be a clear line between actions which are 'careless' as opposed to ones which are 'deliberate'. One of the fears of engaging in pre-filing conversations is that in the event of an underpayment, HMRC could consider the taxpayer's actions to be the latter. The result of such conversations could mean higher penalties. Taxpayers should, therefore, tread carefully. In addition, many are of the view that HMRC should instead be using their time to tackle the backlog of cases that has built up as a result of COVID-19 rather than focusing efforts on this pilot scheme."

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