Most young cricketers dream of having their name up on Lord’s Honours Board by either scoring a test hundred or taking five wickets in an innings. Unfortunately, for English cricketer Adil Rashid, he has ended up on a more dishonourable list: HMRC’s list of deliberate tax defaulters.
The list was introduced as an additional deterrent to companies or individuals taking tax evasive action. Not only will the errant taxpayer have to pay the under-reported tax and penalties, if the tax involved exceeded £25,000, they will also have their details published online for the whole world to see. Needless to say, the tabloids love a famous name in a spot of bother with their taxes, so it can be somewhat of a PR disaster.
You can be punished by HMRC for a variety of infringements, but normally where you pay your taxes late or file a tax return late. The size of the penalty will depend on the how the mistake was made, with HMRC considering the following:
| Type of error | Penalty as % of underpaid tax |
| Careless (or lack of reasonable care) | 0% – 30% |
| Deliberate | 20% – 70% |
| Deliberate and concealed | 30% – 100% |
The issue here is that the line between careless and deliberate is subjective. Much like an umpire’s call on a LBW, it is down to an individual HMRC inspector to decide the level of the penalty. If you do not agree, you can appeal: firstly by asking HMRC (and another inspector) to look again, but then you would have to take your chances at the tax tribunal, where an independent judge assesses the decision. The longer the dispute goes on, the more expensive it becomes in terms of professional fees, i.e. accountants and lawyers.
In Rashid’s case, not only has he been hit with a tax bill of £100,280, he was charged penalties of £38,608 (38.5% of the taxes underpaid). Although not detailed, typically there would also be interest charged on the additional tax payable from the date it was due. This can quickly add up to a sizeable amount, especially when the errors are from several years ago.
So how did the England World Cup winning spinner end up being caught out by HMRC? Unfortunately, the details do not go into what indiscretion the taxpayer committed, but the fact Rashid is on the list shows that HMRC decided it was a deliberate error and he did not successfully dispute this. Rashid’s public statement was “it was a simple mistake – there is nothing else to it”, but clearly HMRC disagreed otherwise it would have been a careless mistake and he would not have made the list.
So how can you and your clients avoid the list of deliberate tax defaulters? Of course, mistakes happen, but tax can become incredibly complicated, particularly for an international sports person. It is therefore essential to surround yourself with advisors who understand the nuances of the sector and can advise accordingly.
Accountants and tax advisors need to be thorough and ensure no income is overlooked. They need to ensure any foreign tax withheld is mitigated; otherwise HMRC could block a claim for a foreign tax credit. They also need to ensure any expense claims are wholly and exclusively for the business. Often people in unusual professions have expenses that straddle work and professional life. For example, a cricketer might regularly see a physiotherapist at their own expense, which benefits their profession but also their personal life. It is not uncommon for HMRC to block such claims.
Clients and their agents need to be cultured into understanding the importance of sharing all their business dealings in advance so the accountant can plan according. It is easier to structure something tax efficiently in advance than try to correct it after the event. But this openness also ensures nothing slips through the gaps in the field.
I think most people know this by now, but avoid any tax schemes or dodgy dealings. If a financial planner approaches you with an offer that is too good to be true – be advised to leave well alone. HMRC has cracked down on most schemes and there is little public goodwill for those that avoid tax, which is technically legal but against the spirit of the law.
If you have made an error in the past, even a deliberate and concealed one, all it not lost. HMRC will reduce the penalties and not report you on the list if assistance is provided to them in order to correct. This means you have to:
- tell HMRC about the errors
- help HMRC work out what extra tax is due
- give HMRC access to check the figures
A final word of warning: Rashid also said “as a player, you just play and leave it to the accountant.” However, it should be noted a tax return is still the legal responsibility of the taxpayer. HMRC does not accept that by simply having an accountant you have performed your duty – you still need to review and sign-off the return, so holds you accountable for any mistakes.
KMA Spotlight is happy to field any questions you might have on the above or any other tax matter, just give us a call on 020 7183 3383 or email info@kma-spotlight.com.
