Don’t stress over undeclared earnings – just disclose them
In recent months we have seen a major change in the penalties being handed down for cases of tax evasion in the Court of Criminal Appeal. Cases that once warranted hefty fines now also carry the risk of a custodial sentence.
We need look no further than Paul Begley, who was sentenced to six years in prison – reduced to two-and-a-half – over an import duty scam worth €1.6m, where he labelled more than 1,000 tonnes of garlic imported from China as apples, which have a lower tax rate.
There have been custodial sentences handed down in as many as 10 other cases involving tax evasion since 2010.
This sharp increase in custodial sentencing has been influenced by a direction of the Court of Criminal Appeal, which stated in 2011, that “in the case of offences involving the public purse, deterrence plays an important value in the sentencing process . . . We therefore suggest for the future guidance of sentencing courts… illegal tax evasion on the one hand or social security fraud on the other – should generally meet with an immediate and appreciable custodial sentence”.
There are many business owners across the country stressing over undeclared earnings, many stretching years back, for fear that they may end up ‘doing time’ should they be audited by Revenue.
Unfortunately, the solution being offered by the majority of these people is to keep the head down and hope you go unnoticed.
In my opinion, this is the most foolhardy and dangerous approach to take. You’re throwing the dice and putting your personal and professional life on the line. If you fall into the bracket outlined above, be aware that there are other options.
There is a code of practice that exists between Revenue and tax practitioners agreeing the parameters within which audits are carried out, the powers of Revenue and rights of the taxpayer.
One of the benefits of this agreement is the ability of a business or individual to make an unprompted qualifying disclosure. This can ensure that there is no prosecution, no publication and reduced penalties.
So just what is an unprompted qualifying disclosure and who does it apply to? To put it simply, it is a disclosure that is made before the taxpayer is notified of an audit or contacted by Revenue regarding an inquiry or investigation.
The disclosure should include a full calculation of all tax underpaid together with interest arising. Penalties will also be applied to any proposed settlement. The level of penalty will be determined by a number of factors including, inter alia, the nature of the offence:
- Deliberate: Revenue deems that there was an intentional breach of a tax obligation.
- Careless behaviour with significant consequences: The taxpayer failed to take responsible care of their tax obligations and the tax underpaid is significant.
- Careless behaviour without significant consequences: The amount of underpaid tax is not substantial.
The most important thing to remember if you do opt to submit an unprompted disclosure is to provide a complete disclosure of information in relation to, and full particulars of, all matters that brought about a liability to tax that gave rise to a penalty. This must be accompanied by:
- A declaration, to the best of that person’s knowledge, information and belief, that all matters contained in the disclosure are correct and complete
- A payment of the tax and duty and interest on late payment of that tax and duty. (It may be possible to make a qualifying disclosure subject to an agreed payment plan in circumstances where the funds are not available to meet the liability on a lump sum basis. Any arrangement of this nature will need to be approved by Revenue, so it’s worth talking to a tax consultant beforehand).
Like all problems, ignoring them and hoping they go away just does not work.
While the thoughts of facing Revenue and bringing attention to discrepancies in your tax returns may seem daunting, this option puts you in control of your finances and negates the risk of prosecution, meaning less stress for you.