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How HMRC use IT systems to seek out tax evaders

HMRC Undeclared 8169099509_3860d7f26c

There is no doubting the resolve of HMRC to track down and prosecute tax evaders.

The Government has committed to spend £917m to tackle tax evasion and raise an additional £7bn each year by 2014/15.

HMRC are using 2,500 staff to tackle avoidance, evasion and fraud, there is also a website to help those who want to declare income https://www.gov.uk/sortmytax

In the search for tax evaders, HMRC have a £45m computer system called Connect which in 2011 delivered £1.4bn in tax revenue and the system is getting bigger and better all the time. According to Accounting Web:

It uses a mathematical technique to search previously unrelated information and detect otherwise invisible ‘relationship’ networks. Using Connect, HMRC sifts through information on property transactions at the Land Registry, company ownerships, loans, bank accounts, employment history, voting and local authority rates registers and compares with self-assessment records to spot taxpayers who might be under-declaring or not declaring income.

Last year Connect made links between tax records and third party data from hospitals, pharmaceutical companies, insurers and even gas SAFE registrations. DVLA records and the shipping and Civil Aviation Authority registers help identify owners of cars and planes who declare income that the computer suggests cannot support such purchases.

In addition HMRC have also identified 200 accountants, lawyers and professionals who advise on tax avoidance structures and its currently unclear how HMRC will be dealing with them and their clients.

It is important to remember that most people pay the correct tax, in fact HMRC calculate that 93% of tax due is paid correctly, its only a small minority who try to evade tax.

steve@bicknells.net

HMRC demand payment from Landlords

Mosaïque de logements

HMRC launched the ‘Let Property Campaign‘ on the 10th December 2013.

If you’re a landlord who has undisclosed income you must tell HMRC about any unpaid tax now. You will then have 3 months to calculate and pay what you owe.

The Let Property Campaign is an opportunity open to all residential property landlords with undisclosed taxes. This includes:

  • those that have multiple properties
  • landlords with single rentals
  • specialist landlords with student or workforce rentals
  • holiday lettings
  • anyone renting out a room in their main home for more than £4,250 per year, or £2,125 if the property was let jointly, but has not told HMRC about this income
  • those who live abroad or intend to live abroad for more than 6 months and rent out a property in the UK as you may still be liable to UK taxes

 

According to the Telegraph….

Fewer than 500,000 taxpayers are registered with HMRC as owning properties other than their home. And yet other sources put the number of Britain’s growing army of landlords at between 1.2million and 1.4million.

Why the discrepancy? No one can say for sure, but the taxman has his answer: not enough people are declaring – and paying tax on – their property incomes and gains.

HMRC will identify those who they believe should have made a disclosure by:

  • comparing the information already in their possession with customers’ UK tax histories
  • continuing to use their powers to obtain further detailed information about payments made to and from landlords

Where additional taxes are due HMRC will usually charge higher penalties than those available under the Let Property Campaign. The penalties could be up to 100% of the unpaid liabilities, or up to 200% for offshore related income.

If you owe tax, you must tell HMRC of your intention to make a disclosure. You need to do this as soon as you become aware that you owe tax on your letting income.

At this stage, you only need to tell HMRC that you will be making a disclosure.

You do not need to provide any details of the undisclosed income or the tax you believe you owe.

 

steve@bicknells.net

Key Points from the Autumn Statement 2013

Fotolia_45741373_XS cash

The Chancellor George Osborne presented the Autumn Statement to the House of Commons on 5th December 2013 and things are getting better, economic growth forecasts for this year have more than doubled from 0.6% to 1.4% but the austerity plan is set to continue.

Here is a summary of the key announcements:

Business Rates

Business rate increases in England will be capped at 2% in 2014/15 (they were set to increase by 3.2%) and businesses will be able to pay over 12 months rather than 10.

The Retail Sector will also get a £1,000 discount in 2014/15 and 2015/16, this applies to pubs, cafes, restaurants and charity shops with a rateable value below £50,000.

A reoccupation relief of 50% is being introduced for up to 18 months on premises that have been empty for a year or more and it will apply from 1st April 2014 to 31st March 2016.

Small Business Rate Relief has been extended to April 2015 under the scheme small businesses with a rateable value of £6,000 or less can get 100% relief, the relief is scaled down to zero on rateable values of £12,000 and there is a lower multiplier on rates between £12,001 and £17,999.

Income Tax

As previously announced the personal allowance will be £10,000 for the tax year 2014/15.

From April 2015, a spouse or civil partner who is not liable to income tax will be able to transfer £1,000 of their allowance to a basic rate tax paying spouse and as a result save £200 in tax.

State Pension Age

By 2020 it will be 66, by 2028 it will be 67 and by mid 2030′s 68, then in 2040′s 69.

Capital Gains Tax

The annual exempt amount will be £11,000 for individuals for 2014/15.

But there was an exemption for principle private residence  letting for 36 months and from 6th April 2014 it will be reduced to 18 months.

Consultation will start in April on non-residents paying capital gains on property disposals.

Individual Savings Account (ISA)

The limit will rise to £11,880 for 2014/15 and of this £5,940 can be invested in cash ISA’s

Mortgage Guarantee Scheme

The scheme started in October will run for 3 years and end in January 2017.

Buyers will only need a 5% deposit and the government and the funder will guarantee 15% of the loan in return for a fee.

IR35

Legislation will be tightened from April 2014.

Anti-avoidance

A range of measures were discussed in addition to IR35 and these included:

  • Partnership Tax
  • Controlled foreign companies
  • Charities
  • High risk tax avoidance schemes
  • Dual contracts

Other headline measures

  • Employers NI for under 21′s to be scrapped in 2015
  • Rolling back green levies to allow an average saving of £50 on energy bills
  • Free school meals for infants
  • Scrapping of 1% above inflation rail fare increases
  • Electronic tax discs
  • Abolition of next years 2p per litre fuel duty rise

 

steve@bicknells.net

If you’re in health care the tax man is coming

3d rendered illustration - runner anatomy

The latest HMRC Task Force has been named as ‘The Health and Wellbeing Tax Plan’.

If you work in a health and wellbeing profession such as:

  • physical therapy – eg physiotherapist, chiropractor, chiropodist, osteopath, occupational therapist
  • alternative medicine or therapy – eg homeopathy, acupuncture, nutritional therapy, reflexology, nutrition
  • other therapy – eg psychology, speech therapy, arts therapy

You have until 31st December 2013 to notify HMRC and any unpaid tax has to be paid by 6th April 2014.

Health and wellbeing tax plan helpline
Telephone: 0845 600 4507
From outside the UK: +44 1792 657 324
Monday to Friday, 8am to 6:30pm

Marian Wilson, Head of HMRC Campaigns, said:

“I urge health and wellbeing professionals to take advantage of our quick and straightforward way of bringing their tax affairs up to date. Help, advice and support is available.

“After the opportunity closes on 6 April, HMRC will use information it holds from third parties and regulatory bodies to identify people who have not paid what they owe. Penalties – or even criminal prosecution – could follow.”

Do you have anything to declare? HMRC can go back 6 years

steve@bicknells.net

5 ways to reduce the risk of a tax investigation

9198338833_8edc83a0dd HMRC

THE TAX YIELD derived from HM Revenue & Customs investigations into the affairs of small- and medium-sized companies rose by 31% over the last 12 months, according to UHY Hacker Young.

Compliance investigations into SMEs generated £565m for HMRC in 2012/13, up from £434m in 2011/12, with the year ending March 31. Accountancy Age

Some investigations are random and some as a result of HMRC task forces, but many are triggered by risk profiling.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

5. Tax Avoidance Schemes – if you are using a tax avoidance scheme I am sure HMRC will be looking closely, if they can find a way to challenge the scheme then at some point they will

steve@bicknells.net

Tax Planning v’s GAAR and the “Double Reasonableness Test” – Will GAAR stop tax avoidance abuse?

UK tax return form

The general anti abuse rule (GAAR) has now been adopted by many advisers in the UK.

The GAAR will apply to Corporation Tax (and amounts treated as Corporation Tax), Income Tax, Capital Gains Tax, Petroleum Revenue Tax, Inheritance Tax, Stamp Duty Land Tax, and the annual tax on enveloped dwellings.

Heather Self, Pinsent Mason commented.  “Many of the examples are complex and contrived – we need more examples of ‘normal’ tax planning, to help show where the boundary will lie.”

The key changes to the legislation relate to the “double reasonableness test”. Nearly all the respondents to the consultation expressed concern about this test. The stated purpose of the GAAR is to counteract “tax advantages” arising from “tax arrangements” that are “abusive”. The tests of “tax advantage” and “abusive” both use concepts of reasonableness and this has been referred to as the “double reasonableness test”.

Accountancy Age reported on the 3rd April 2013:

A LACK OF CLEAR DEFINITION within the incoming General Anti-Abuse Rule is likely to cause “considerable uncertainty”, advisers have warned.

The GAAR, designed to catch and prevent contrived tax avoidance schemes, was included in the 2013 Finance Bill and will take effect once it has received Royal assent in July, although many practitioners have been treating it as if it came in on 1 April.

Chair of the House of Lords committee on the Finance Bill Lord MacGregor said : “There is a misconception that GAAR will mean the likes of Starbucks and Amazon will be slapped with massive tax bills.

“This is wrong and the government needs to explain that to the public. GAAR is narrowly defined and will only impact on the most abusive of tax avoidance.”

There are other concerns too….

The Institute of Chartered Accountants in England and Wales (ICAEW) has reiterated its criticisms of draft legislation for a General Anti-Avoidance Rule, claiming that the proposed GAAR is confusing and that it could be in breach of international obligations by overriding double taxation treaties.

The ICAEW draws attention to Article 27 of the Vienna Convention, which the UK signed in 1971 and which states that “a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.” ICAEW argues that the GAAR may therefore be unlawful, particularly in the case of around 100 agreements with non-OECD countries.

http://www.tax-news.com/news/UK_Accountants_Warn_On_Legality_Of_General_AntiAvoidance_Rule____60365.html

HMRC will be monitoring for GAAR by:

  1. Reviewing DOTAS (Disclosure of Tax Avoidance Schemes) for abusive schemes, in general DOTAS are reported by the scheme promoter or scheme user – HMRC have a number schemes under the spot light
  2. Intelligence via other sources or disclosure
  3. Records of successfully litigated or settled by agreement GAAR cases
  4. Regular communication with taxpayers and their advisers

DOTAS penalties fall into three categories:

  • Disclosure penalties: apply to failure to disclose a scheme. There are variations in cases where a Tribunal has issued a disclosure order.
  • Information penalties: apply to other failures to comply with DOTAS.
  • User penalties: apply to failure by a scheme user to report a Scheme Reference Number (SRN) to HMRC.

In all cases apart from user penalties (which are up to £1,000) the initial and daily penalty is determined by a Tribunal and could be up to £5,000 per day.

Its important to note:

Tax avoidance is not the same as tax planning. Tax planning involves using tax reliefs for the purpose for which they were intended. For example, claiming tax relief on capital investment, saving in a tax-exempt ISA or saving for retirement by making contributions to a pension scheme are all legitimate forms of tax planning.

So will GAAR work? does it need to be clarified so that we can understand it? I am sure we all agree that everyone should pay their fair share of tax but is GAAR the best way to achieve this?

steve@bicknells.net

How HMRC use IT systems to seek out tax evaders

HMRC Undeclared 8169099509_3860d7f26c

There is no doubting the resolve of HMRC to track down and prosecute tax evaders.

The Government has committed to spend £917m to tackle tax evasion and raise an additional £7bn each year by 2014/15.

HMRC are using 2,500 staff to tackle avoidance, evasion and fraud, there is also a website to help those who want to declare income https://www.gov.uk/sortmytax

In the search for tax evaders, HMRC have a £45m computer system called Connect which in 2011 delivered £1.4bn in tax revenue and the system is getting bigger and better all the time. According to Accounting Web:

It uses a mathematical technique to search previously unrelated information and detect otherwise invisible ‘relationship’ networks. Using Connect, HMRC sifts through information on property transactions at the Land Registry, company ownerships, loans, bank accounts, employment history, voting and local authority rates registers and compares with self-assessment records to spot taxpayers who might be under-declaring or not declaring income.

Last year Connect made links between tax records and third party data from hospitals, pharmaceutical companies, insurers and even gas SAFE registrations. DVLA records and the shipping and Civil Aviation Authority registers help identify owners of cars and planes who declare income that the computer suggests cannot support such purchases.

In addition HMRC have also identified 200 accountants, lawyers and professionals who advise on tax avoidance structures and its currently unclear how HMRC will be dealing with them and their clients.

It is important to remember that most people pay the correct tax, in fact HMRC calculate that 93% of tax due is paid correctly, its only a small minority who try to evade tax.

steve@bicknells.net

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