There has been a lot of angry reaction to the new IR35 business entity tests ever since they appeared on HMRC’s website last Wednesday.

John Whiting, the tax director at the Office of Tax Simplification, has now urged taxpayers to give them a chance. He welcomed the fact that they were drawn up in collaboration with members of the IR35 Forum and said it was important for the Forum to monitor the results of the pilot scheme in order to make an informed decision on whether the system should be abolished or retained.

Kate Cottrell, a member of the Forum, agreed with Whiting saying the tests have been blown out of proportion. They only play a minor part in the improvements HMRC is making to IR35 administration. She did however say the tests add further complexity to IR35, and that is not helpful.

In addition to the tests, HMRC is setting up three specialist teams based in Croydon, Edinburgh and Salford. When these teams select a case to investigate, they will take into consideration the reasons why a contractor feels they are outwith the scope of IR35.

The Revenue is also increasing the size of its helpline and review service, which will be staffed by employees that specialise in IR35.

These moves are likely to lead to more IR35 investigations but HMRC argues that the risk assessment tests should mean that the majority of contractors get their tax affairs in order and only those who abuse the system will be investigated.

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A gang of scrap metal dealers has discovered that living a life of crime does not pay the kind of long-term dividends they were hoping for.

The Staffordshire gang claimed they were sending scrap metal overseas in order to claim VAT refunds totalling £1.5 million. They created false invoices that showed metals were being shipped to Cyprus via Belgium and to Ireland. In fact, the metals were just sent to another scrap yard in this country.

They also created false export paperwork so that they could justify charging VAT at the zero-rate. This let them keep the VAT instead of passing it over to HMRC.

37-year-old Michael Bostock, who was the leader of the gang, received a five-year jail sentence for his part in the fraud. At the time of his arrest he lived in house worth £1.4 million and drove around in a fleet of cars that included a Lamborghini Gallardo, a Ferrari Scaglietti and a Mercedes McLaren.

Gary Lampon, an assistant director of criminal investigations at the Revenue, explained that this was a sophisticated fraud that required a complex investigation. In fact HMRC spent 14 months investigating the gang before it conducted early morning raids in January 2008.

HMRC recouped cash worth £193,000 during the course of the investigation and confiscation proceedings to recoup the remainder are still ongoing. The Revenue is currently considering whether to take out Serious Crime Prevention Orders.

In this latest trial, six members of the gang received custodial sentences. Two other members were sentenced in 2010.

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Electricians need to get their skates on if they want to register under HMRC’s disclosure opportunity. The deadline for registration is tomorrow, May 15th!

The Electricians Tax Safe Plan is aimed at people who install, maintain and test electrical systems, appliances and equipment. Electricians have the opportunity to disclose and pay any unpaid tax in return for lower than normal penalties. It is thought the penalties will range from 10% to 20% of the total tax owed, instead of the normal fines, which can be as high as 100%.

Sparkies who want to take advantage of the Plan must register with HMRC by tomorrow and then arrange to settle their outstanding liabilities with the Revenue no later than the 14th of August 2012.

The head of campaigns at the Revenue, Marian Wilson, explained that the department had gathered data from a range of sources, including industry bodies, trade suppliers, online advertising and trade directories. HMRC’s sophisticated software means it can identify those people who should be making a declaration.

This is the second HMRC campaign to target specific tradespeople. The first campaign targeted heating engineers and plumbers. So far 14 plumbers have been arrested following the first campaign, and one received a 12-month prison sentence after being found guilty of evading £91,000 in NICs and income tax.

These campaigns are a good way for tradespeople to come forward and start afresh with a clean slate. Those who do not sign up for the Plan could find themselves in boiling hot water when HMRC eventually catches up with them.

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Contractor accountants are warned that HMRC will be carrying out upgrade work to its website this weekend.

The Revenue website was down at the beginning of last month to enable essential maintenance and upgrade work. However, it now appears that thus work was more complicated than expected.

Luckily the work will not affect employers who need to submit their payroll end of year returns before the May 19 deadline. Corporation tax, self-assessment and CIS will not be affected either, but it will not be possible to register for HMRC’s online VAT service while the upgrade work is taking place.

HMRC likes to give taxpayers as much notice as possible of any proposed disruption to its services.

Although the VAT online registration service will be offline from 16:00 on Saturday until 01:00 on Sunday morning, businesses will still be able to file their VAT returns. Anyone who wants to enrol for VAT Online during the downtime will be able to do so through the Government Gateway. http://www.gateway.gov.uk/

The VAT on e-services page will also be unavailable for 10 minutes while the upgrade takes place. HMRC has not revealed which ten minutes.

The other services that will be affected are obscure ones such as Electronic Binding Tariff Information and the Rebated Oils Enquiry Service.

It’s obviously important for HMRC to keep it’s services up-to-date and weekends are probably the most sensible time to do upgrades and maintenance. Let’s hope that everything goes to plan and the work doesn’t cause widespread disruption.

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HMRC is increasingly turning to debt collection agencies in its bid to boost its take of outstanding tax and VAT. Furthermore, the Government department is also becoming more reliant on credit agencies as it tries to reduce fraud.

Public services lose £31 billion each year due to fraud and error, and losses due to tax mistakes account for nearly 20% of that total.

According to the Credit Services Association, debt collection agencies were employed to chase debt worth £58 billion last year in the UK. During the second half of 2011, the total value of debt held by members of the CSA increased by 11%.

Sara de Tute, the president of the CSA, said its not surprising that debts have increased since the credit crisis. However, the increase is also due to new private and public sector creditors who now see outsourcing their debts to professional agencies as a valid means of recovering vital funds.

Overdue debts cost the government between £7 billion and £8 billion every year and 95% of that debt is owed to HMRC and the Department of Work and Pensions. The government has now asked collection agencies to help it recoup some of those debts.

The Revenue has introduced a process for screening tax credit applications and this has saved it £50 million. The department is also developing Connect, a new system that will identify tax fraud and non-compliance. HMRC is also conducting more tax investigations and has increased the number of people it prosecutes each year to 1,000.

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Contractor accountants may be interested to learn that HMRC has now revealed its business plan for the next few years.

Lin Homer, the new chief executive said the Revenue expects increased compliance work will bring in an extra £20 billion between now and 2015.

The business plan includes targets for improving the quality of customer service, as well as updates on the tax agreements with Switzerland and Liechtenstein. Furthermore, the department intends to appoint an assurance commissioner who will oversee large tax settlements.

The Revenue has come in for a lot of criticism over its dealings with large organisations after the Goldman Sachs sweetheart deal. It hopes the new appointment will demonstrate transparency in the way it handles future tax disputes.

By 2014-15, HMRC intends to reduce its costs by 25%, launch key IT projects like the RTI pay-as-you-earn scheme and use £917 million it received from the government spending review to increase revenue by £7 billion a year.

Back in March, the National Audit Office praised the Revenue’s efforts to bring down tax evasion, but said there was still room for improvement. HMRC has seen its headcount steadily reduced since 2006, but despite this, it nearly met its compliance target of £4.56 billion.

The Revenue has forecasted that its yield will increase by £8.87 billion between 2011-15, but the NAO thinks this figure is overly optimistic considering some projects are behind schedule and others have been cut back.

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HMRC has got it wrong yet again! 12,000 taxpayers have received penalty letters demanding the immediate payment of overdue tax even though the department had already reached an agreement with those concerned that there was no need for them to fill in a self-assessment form.

The letters tell the recipients that they will be charged a daily penalty if they don’t settle up immediately.

A spokesperson for the Revenue said the letters were issued in error and HMRC wants to apologise straight away for the mistake.

130,000 people were removed from self-assessment this year after HMRC encouraged taxpayers to confirm their status prior to filing out the form. However, this new stance backfired and 12,000 people received a penalty warning even though they had already spoken to HMRC officials.

HMRC has advised people to ignore the warning if they have spoken to the Revenue and it has agreed that they are not covered by the self-assessment system. HMRC will also be writing to all those concerned to apologise and assure them that they do not have an outstanding tax liability.

The spokesperson also went on to reassure customers that their names have been removed from the self-assessment database.

This is the latest in a series of foul-ups by the Revenue in the last couple of years and it bodes a very serious question; how can we trust the Real Time Information scheme to run smoothly when nothing else HMRC does seems to work properly?

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Contractor accountants should be in no doubt that HMRC will track down fraudsters wherever they may be.

Mark Anthony McGovern jumped bail in 2008 after pleading guilty to laundering the proceeds of a VAT fraud. He was due to be sentenced at Canterbury Crown Court on the first of August 2008 but by then he had already fled the country.

The fraudster even sent the judge a note saying he was frightened and upset at the idea of serving a prison sentence but would hand himself in when he felt he had readied himself! Four years later, he was still missing.

During his absence the judge sentenced him to two years in prison and an arrest warrant was issued.

At the time the case first came to court, McGovern was said to owe the Revenue £278,340.87 from his criminal activities. Shortly afterwards HMRC applied for a confiscation order and it was ruled that McGovern should repay the money within 28 days or face a further four years imprisonment. With interest that amount now stands at £345,000 and the Revenue will continue with its efforts to reclaim it.

French police eventually arrested McGovern in a house in Languedoc-Roussillon on the 28th of March and he was extradited to the UK on the 16th April this year.

This wasn’t the first time that the wily criminal had absconded. In 1997 he was involved in another fraud case but had fled to Belgium before the authorities in the UK could arrest him. He was extradited and tried at Southwark Crown Court in 2002

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HMRC has issued a reminder to everybody, including contractor accountants, who have still to file their tax return for 2010-11 that daily penalties will start accruing if it is not returned before the first of May.

Once a self-assessment returns becomes more than three months late, a daily penalty of £10 is added for every day it stays outstanding and that is in addition to the automatic £100 fine for missing the filing deadline. The £10 penalty is applied for a maximum of 90 days and could result in late filers accumulating a total of £1,000 in penalties if the Revenue has still not received their return by the end of July.

The penalties don’t stop there though. Returns that are 6 months late will incur a further penalty of 5% of the tax owing, or £300, whichever is more. Returns that are still unfiled after 12 months will be subject to that penalty for a second time.

It’s not enough just to file your return on time; you must also settle up your outstanding tax liabilities. If a payment is 30 days late, a penalty of 5% of the tax due will be levied, followed by further penalties if the account has not been settled after 6 months and 12 months.

Stephen Banyard from HMRC explained that the department wanted returns, not penalties so anybody who has not yet filed their return should it before the 30th April or contact the Revenue if they think filing does not apply to them.

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You may be aware that new EU cross-border invoicing and VAT directives come into force in 2013, but there is now concern that these are open to interpretation.

According to figures from HMRC, UK businesses rely heavily on business from the EU so it is imperative that accountants keep their clients updated with any changes to the legislation or cultural requirements. Strong processes will also need to be put in place to ensure e-invoice documents are protected.

The new EU directives are supposed to simplify invoicing legislation and remove existing barriers. Paper and electronic invoices will be treated in the same way and companies will have the choice of which method to use.

The legislation addresses the need for invoices, the content, invoicing electronically and invoice storage. It also provides recommendations for a modern set of VAT invoicing regulations.

EU countries currently differ when it comes to their expectations regarding invoices. In Southern Europe they rely on PDF formats and place emphasis on design. In Northern Europe, businesses want invoices that can be read by both humans and machines.

The majority of companies will have solid processes in place for their paper based invoicing but there have been problems agreeing electronic processes and these could lead to payment delays. In order to comply with the EU directives, companies will need to set up systems that guarantee invoices cannot be tampered with and that the information stored meets the legal requirements of the country concerned.

If the Revenue does not believe a EU invoice is genuine, the company may have problems reclaiming VAT and may be subject to an in-depth investigation. Other EU tax authorities will also be able to demand access to invoices to verify their integrity.

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Contractor accountants may be interested to learn that UK Uncut, the activist group that is against the government’s spending cuts, has won the right to take HMRC to court over its dealings with Goldman Sachs.

Now referred to as a ‘sweetheart deal’, HMRC let Goldman off paying £10 million in interest on its unpaid taxes back in 2010. The Revenue will now have to defend that move in court.

Last December, Revenue chief Dave Hartnett told a parliamentary committee that the department had gone ahead and struck the deal without consulting lawyers. Furthermore, he admitted that HMRC should have insisted that Goldman Sachs paid interest on the £24 million it owed the taxman after the bank spent years trying to avoid paying National Insurance contributions on the bonuses it paid its UK staff.

Last week, Goldman Sachs posted last quarter profits of £1.32 billion and so far it has made no move to oppose the hearing.

The Revenue has a policy of not commenting on litigation that is ongoing and Goldman Sachs also refused to make any comment when the news of the hearing broke.

A preliminary permission hearing will take place in the high court on the 13th of June. If a whistleblower is to be believed, Goldman could owe the UK taxman nearer to £20 million.

UK Uncut director, Tim Street, said he was delighted that the group was getting the opportunity to present its arguments in court and is looking forward to receiving the judge’s permission for a judicial review into the affair to go ahead.

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HMRC is moving forward with its plans to implement Real Time Information and has received the first set of returns from its pilot scheme.

Ten volunteer employers were involved in the initial pilot and they will be joined by another 310 employers and pension providers between May and June.

Real Time Information is designed to make life easier for everybody to administer PAYE. Pension providers and employers will inform the Revenue each time they make PAYE payments instead of the current system of reporting at the end of the financial year.

Providing the pilot scheme is successful, as many as 1,300 volunteer employers will be using RTI by this September.

The Exchequer secretary to the Treasury, David Gauke, explained that RTI brings PAYE into the 21st century. Taxpayers will see the benefit as they will be taxed correctly when they change jobs and employers will no longer need to go through the onerous end-of-year PAYE processes.

HMRC is one of the initial volunteers and Stephen Banyard, the Revenue’s acting director general in charge of personal tax, said the pilot gave them the ideal opportunity to iron out any problems before more employers start using the system.

He explained that HMRC is working in close conjunction with employers and payroll providers, but by taking part in the pilot, the Revenue can see how RTI works from an employer’s point of view.

If all goes to plan, the majority of employers will need to start using RTI next April and it will mandatory by October 2013.

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