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HMRC aims to raise further £5bn in tax revenue

ID-10054316
Thanks to http://www.freedigitalphotos.net

Her Majesty’s Revenue & Customs (“HMRC”) are seeking new powers as follows:

1. Advance Payment – basically in any dispute between HMRC and a tax payer HMRC would be able to assess what tax they believe is due and require the tax payer to pay this as a sort of ‘refundable deposit’ until such time as the dispute is resolved through arbitration or court. Perhaps more importantly, if granted, these powers will be applied retrospectively.

Given that at the current time there are unresolved cases going back ten years or more and that once HMRC has the tax payers’ money there will be even less incentive for them to come to a resolution then this is essentially HMRC to act as judge, jury, and executioner. Isn’t this simply a ‘guilty until proven innocent’ treatment of tax payers?

2. Direct Debit – where HMRC believe that the tax payer owes them money then they will be able to simply take money directly from the tax payer’s bank account. As I understand it there will be further powers to obtain previous bank statements and this will no doubt lead to further tax investigations.

The legislation which will encapsulate these powers is currently going through Parliament, and despite opposition from lobby groups and committee members alike, HMRC seem intent upon pushing this legislation through with a view to achieving Royal ascent in mid July 2014.

Of course, should HMRC gain these powers they will hit the easy targets first i.e. those who have ‘played by the rules’ and properly disclosed everything through DOTAS, and those who operate proper business bank accounts, so it will do nothing to address those who have hidden their activities from HMRC and those who operate in the black ‘cash-in-hand’ economy.

Whilst the general public may have little sympathy for people who ‘don’t pay their fair share of tax’ (if there is such as thing – see Did Jimmy Carr just use the wrong vehicle?) we have to remember that tax avoidance is entirely legal as it simply takes the rules and regulations enacted in law and uses these to reduce a tax payer’s liability.

The new powers will do nothing to tackle tax evasion, which is illegal, and so it is no surprise that spokesmen for HMRC, and representatives for HM Government, have sought to blur the lines between legal avoidance and illegal evasion in recent times. We can be equally sure that HMRC will not be tackling the multi-nationals like Google and Starbucks who have made recent headlines with their tax affairs, and so it will (as ever) be small firms that will bear the brunt of any HMRC action.

What we shall no doubt see is an increase in non-DOTAS schemes being made available to tax payers by providers of such schemes, and I fear beyond that we shall see a rise in business insolvencies and loss of jobs, all of which will run contrary to HMRC’s aim to raise further tax revenues.

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.

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

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

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

Everybody has to pay tax but what if HMRC get it wrong?

Rubber stamp design stating Tax Return Due Now

If you don’t file your tax returns HMRC will assess the amount of tax due but it will probably not be the correct amount. So what can you do to correct the tax payable?

Overpayment Relief

A person can claim overpayment relief to recover overpaid income tax, CGT, Class 4 NIC or corporation tax or to reduce an excessive assessment. A person can claim overpayment relief to recover overpaid bank payroll tax or to reduce an excessive assessment.

This includes amounts paid under a contract settlement.

Special Relief

This is an important ‘relief of last resort’ for taxpayers who have missed all other deadlines and face a tax bill from HMRC, where there is no statutory right to amend the actual legal liability because the relevant time limits have passed.

Special relief is intended as a final and exceptional remedy where it would be unconscionable for HMRC to pursue tax that is legally due. HMRC has a duty to both Parliament and taxpayers generally to collect the tax due under relevant tax law and to ensure the tax system is operated fairly. This means that HMRC cannot simply disregard the time limits for making a self-assessment if it appears that a determination might be excessive. There must be further circumstances which make it unconscionable to recover the full amount due under the determination or not to repay an amount already paid.

Such circumstances might be where a person

  • is suffering from a temporary or sporadic illness, including mental illness, and consequently finds it particularly difficult to engage with the tax system
  • has not received our notices or other communications for reasons outside their control
  • is insolvent. Where the debt is based on determined sums, and the late submitted evidence (or returns) prove that a different amount would have been due if returns had been made in time, we would consider using this relief. Relief would be considered where doing so is fair to other creditors – so the unconscionable element would be that pursuing the amount in the determination would be to the detriment of other creditors.

For a claim to special relief to be successful, it must, among other things, explain why the person considers that it would be unconscionable for HMRC to recover the full amount charged by a determination. Unconscionable means “completely unreasonable” or “unreasonably excessive”. SACM12240

Penalty Mitigation

HMRC may in their discretion mitigate any penalty, or stay or compound any proceedings for recovery thereof, and may also, after judgment, further mitigate or entirely remit the penalty. TMA70/S102.

Mitigation will be considered in three circumstances.

  1. Where some sort of HMRC maladministration, usually delay, has caused or contributed to the size of the penalty – where delay and/or lack of co-operation by the taxpayer have caused the department additional costs that will weigh against mitigation.
  2. Where to enforce payment of the penalty would cause the taxpayer genuine and absolute hardship.
  3. Other exceptional circumstances such as the penalty or penalties being wholly disproportionate to the offence – for example a large tax-geared failure penalty under S93(5) following upon very large S93(3) daily penalties for the same offence, or belated information revealing the type of situation set out at EM5212 (“In-built” penalty).

There is no appeal against HMRC’s decision on S102 mitigation and a taxpayer wishing to litigate would need to seek Judicial Review.

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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