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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
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
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.”
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.
HMRC will be monitoring for GAAR by:
- 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
- Intelligence via other sources or disclosure
- Records of successfully litigated or settled by agreement GAAR cases
- 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?
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.
HMRC is challenging certain types of tax avoidance arrangements used by contractors and other professionals. These schemes aim to avoid tax by entering into a contract of employment with an offshore employer, meanwhile the contractor continues to provide their services in the UK. The contractor then receives a large proportion of the fees for their services in payments which are reported as loans. However HMRC argues that these arrangements do not succeed in avoiding tax.
Individuals using these schemes may shortly or already have received letters opening enquiries into their recent returns. HMRC will be sending tax assessments to those who have used these schemes between 2008 and 2011. If your client receives an assessment he can according to HMRC either accept the assessment and pay the tax due, try to reach an agreement with HMRC or appeal against the assessments and begin the tribunal process.
HMRC is urging individuals affected or their advisers to contact HMRC by phone or by email at the following link at http://www.hmrc.gov.uk/news/contractor-loan-schemes.htm.
This year we had some good news for next year, the exemption threshold for employment-related loans has been increased for 2014/15 from £5,000 to £10,000, as long as the balance is below this level there is no tax charge for employees or employers.
But there could be bad news for participators (Directors/Shareholders) who have been using one of these techniques to avoid the 25% temporary Corporation Tax charge:
1. Using a Partnership or LLP where the company is a partner or member as a way to get loans
2. Making arrangements that did not qualify as loans but the where value ended up in the hands on a participator
3. Making loans repaying them within 9 months and getting a new loan, the Bed and Breakfast approach
4. Transfers of assets
5. Loans channelled through third parties
New anti avoidance rules are coming, there is a consultation paper aimed at minimising the scope for abuse and there will be new legislation in the Finance Bill 2014 and Finance Bill 2015.
Thanks to http://www.freedigitalphotos.net
A year on from when comedian Jimmy Carr apologised for using a legal tax avoidance scheme which enabled him to pay as little as 1% tax on his earnings, and with GAAR upon us, tax avoidance has rarely been out of the news headines.
Prime Minister David Cameron stated that “… some of these schemes we have seen are quite frankly morally wrong”, and Danny Alexander, chief secretary to the Treasury, suggested that tax avoiders are the “… moral equivalent of benefit cheats”.
Whether you feel that David Cameron has the moral high ground given the alleged source of his family’s wealth, and whether you feel he was right to name Jimmy Carr in this way, are discussions for another day, but what the comedian had done was entirely legal, so what is the real problem here?
Do we really think that the tax system is a level playing field and that there is a ‘right amount of tax’ we should be paying, and that everyone on similar earnings pays the same amount of tax?
Well think again, because it just ain’t so!
Let’s take for example three fictional friends in the 2012-13 tax year, each of whom receive an income of £25,000.
Tom works for an employer and receives a salary each month from which tax and Class 1 National Insurance is deducted under PAYE; from his £25,000 earnings he might expect to see £19,532 in his pocket, and additionally, the employer has had to pay a further £2,417 for the privilege of employing him.
Dick is a self-employed plumber and his £25,000 income has been calculated from the sales less the expenses of running his business; he would expect to see £19,917.65 in his pocket at the end of the year having paid the tax, and both Class 2 and Class 4 National Insurance due under ‘self assessment’.
Harry didn’t work during the year but was fortunate enough to sell an antique that had been ‘kicking around’ at home for years; after paying Capital Gains Tax he would expect his £25,000 income to be reduced to a net £22,408.
At these modest income levels even relatively small variations can be significant and whilst we can argue about the relative merits of whether the working men and women in the UK should be paying tax at a higher rate than those who can live off the proceeds of asset sales, the central issue here is that because the tax system creates such disparities it is a racing certainty that those who are having to pay tax will, if they are able, seek to arrange their affairs in such a way that they minimise their tax liability.
And it doesn’t stop there.
I have clients who have more than one source of income and because of the way the tax system is arranged into ‘schedules’ it is not automatic that income from once source can be offset against losses from another source, so there have been years in which the client has no overall income, or even a ‘net loss’, but will still be liable for tax on the income from a particular source.
I think we would have to conclude that HM Revenue and Customs are not so much on the side of fairness and equity as that of maximising tax receipts. Indeed in a recent informal conversation a retired tax inspector noted that the “… tax rules are complicated …”, and when HMRC uses those rules to maximise tax collections they are said to be “… applying the law …”, but when a taxpayer uses those same rules to minimise the tax he or she pays, they are said to be “… tax cheats …”, “… tax avoiders …”, or worse.
In Ayrshire Pullman Motor Services & Ritchie v IR Commrs (1929) 14 TC 754, Lord Clyde stated that ‘no man is under the smallest obligation, moral or other, to arrange his legal relations to his business as to enable the Inland Revenue to put the largest shovel into his stores’.
This was endorsed by Lord Tomlin in IR Commrs v Duke of Westminster  19 TC 490, in which he stated that ‘every man is entitled if he can, to order his affairs so that the tax attaching under the appropriate acts is less than it would otherwise be’.
There has been a good deal of legislation and case law in the intervening period but today we have a whole industry which has grown up around legally minimising the tax their clients need to pay, with HM Revenue and Customs playing catch up and introducing ever more and complex legislation to plug the loopholes that the legislation itself creates.
Anecdotally I believe there is evidence that as tax rates increase so do the number of taxpayers seeking help to minimise their tax liability, and that again would not be a great surprise to me if found to be true. It seems to me that the only real beneficiaries are the ranks of lawyers on both sides.
So how do we halt the madness?
The Office of Tax Simplification has identified various areas ripe for reform, but in my view at least this amounts to ‘tinkering round the edges’, and in the meantime, the 2012 Finance Bill has added almost 700 pages of legislation.
Perhaps we should look at real simplification such as a flat rate tax for all income in a period, from whatever source, with a few (very few) exemptions such as the profit on the sale of one’s family home?
Yes, I know that immediately we introduce exemptions and exceptions there will be opportunities for those seeking to avoid tax, but if the system is seen to be ‘simple’, and more importantly ‘fair’, my belief is that the incentive for avoidance will all but evaporate, and at the very least we might see a reduction in the cost of collecting tax.
Time for real change?
Paul Driscoll is a Chartered Management Accountant, a director of Central Accounting Limited, Cura Business Consulting Limited, Hudman Limited, and AJ Tensile Fabrications Limited, and is a board level adviser to a variety of other businesses.