GDPR Tax Credits – HMRC Disclosures and Enquiries

There have been a number of companies over the years that have sold “GDPR tax credits” arrangements to reclaim corporation tax, or reduce a corporation tax bill. The basic premise was that all companies are at risk of a GDPR issue, or data breach, and therefore it was appropriate to put a provision in the accounts to cover the potential costs of dealing with that. The provision would count as an expense and reduce profits and hence reduce tax.

Unfortunately, this approach simply isn’t right. There is a lot more detail as to how the idea was sold and why it doesn’t work in a couple of articles written by Dan Neidle from Tax Policy Associates, which we have linked to below. There have also been several other articles written over recent years warning about this.

If you are thinking about using “GDPR tax credits” arrangements, our advice is very simple – please don’t.

HMRC Action

However, if you have already been caught up with GDPR tax credits, what should you do next? Many people will have bought into these schemes, believing the advisor selling it as an arrangement that was perfectly legitimate. If HMRC has not yet approached you, we would suggest that either a disclosure is made to HMRC, or the return(s) amended, if it is still in time to do so. If the return is amended, we would suggest full transparency with HMRC as to why this has been done. You will find further information on the different routes to disclosure and how we can help in the ‘services’ section of our website.

It is likely, given that GDPR tax credits have recently been highlighted in a high-profile way as potentially more widespread than early reports indicated, that HMRC will soon start opening enquiries, sending information notices or issuing discovery assessments. We would suggest that it is inevitable that HMRC will be trying to screen returns for such provisions. It is also likely that HMRC will seek to compel the firms who were providers of this ‘service’ to provide client lists, so that it can approach companies who did this and challenge the provisions made.

Most clients of these firms will be unaware that the provisions are not legitimate and will be innocent parties. One would hope that HMRC would take an understanding approach to companies caught up in this, albeit HMRC will insist that the provision(s) be removed. However, we have seen in other cases of mis-sold or poorly designed tax planning that HMRC has taken an aggressive approach to users, suggesting that since the results were ‘too good to be true’, the user must have been complicit. Although the purported tax saving will have to be paid back to HMRC, care should be taken in dealing with HMRC to protect against penalties where possible – this is where we can assist clients in determining the best approach.

Assessing Time Limits and Penalties

How far back can HMRC go, or how far back should you disclose? HMRC time limits depend on ‘behaviours’; reasonable care, careless or deliberate.

Usually, the focus of the behaviour is on the end client, i.e. the company in question. If it has taken reasonable care, the time limit is four years from the end of the year in question. For careless or deliberate behaviour, it is 6 and 20 years respectively. However, the behaviour of a person ‘acting on behalf of’ the company can also be considered. If an advisor has committed a fraud (acted deliberately) in implementing the arrangements, and if they were ‘acting on behalf’ of the company, time limits may be extended to 20 years. Therefore, it is important to consider the nature of the relationship between company and advisor.

Similarly, penalties are based on behaviour, but only that of the company, or in fact its directors. It is therefore key to establish if possible, and defend, if necessary, that the any company caught up in this type of activity did not behave (via its directors) deliberately or carelessly.

How Can We Help?

We have many years of experience in making disclosures to HMRC and dealing with difficult enquiries – we can deal with both issues in relation to GDPR tax credit claims. Where necessary we can argue for the lowest penalty (or even no penalty) where the circumstances allow and ensure that the company’s tax position is fixed with the least amount of stress and cost.

What if the refund has now been spent in the business? If you need to correct your return, but also need time to pay, we can usually negotiate a time to pay arrangement that works for both you and HMRC.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email jeremy.johnson@intaxltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. But we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients.

Related Articles:

Tax Policy Associates recent article: https://taxpolicy.org.uk/2024/08/25/gdpr-tax-credit-fraud-from-the-people-behind-green-jellyfish/

And an earlier article: https://taxpolicy.org.uk/2023/06/28/gdpr_tax_credits/