Now that the January 31^st online self-assessment filing date has passed, accountants for contractors can turn their minds to online VAT filing.

HMRC recently reminded businesses that are registered for VAT that paper returns are about to become a thing of the past. As from this spring, all VAT returns have to be submitted online.

At the moment only newly registered firms and businesses with a turnover in excess of £100,000 have had to submit their VAT return online and pay electronically. All other VAT registered companies have been allowed to submit a paper return.

However, online filing will be essential for accounting periods that start on or after the first of April this year. This means that the 1.9 million UK businesses that are registered for VAT will have to enrol on HMRC’s website to use the VAT Online Service.

The Revenue will be sending letters to all traders this month advising them of what action they need to take.

There are various benefits to be gained from online filing. You will get an automatic acknowledgement as soon as your return has been received. The system includes a sum checker and probably most importantly, an email will be sent to alert you of when your next VAT return is due to be filed.

There is various information available on HMRC’s website to help businesses move from paper to online filing. The Revenue also has a VAT Online Services Helpdesk that can be contacted Monday to Friday, between the hours of 8am and 6pm, on 0845 010 8500.

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Contractor accountants may be interested to learn that Andrew Haldane has called for a separate accounting regime for UK banks.

Haldane is the executive director for financial stability at the Bank of England. He recently told the ICAEW that the current bank accounting rules do not take enough consideration of the ambiguities associated with assets and liabilities.

A fair accounting system would recognise that balance sheets for banks differ from other organisations due to the uncertainties surrounding the valuation of assets and the mismatched maturity of liabilities.

Banks have a more complex asset portfolio and the risks surrounding the valuation of those assets are completely different than they are for non-financial entities. And it is these differences that support a separate regulatory and resolution regime for banks, he added.

The head of the financial services faculty at the ICAEW, Ian Coke, agreed that changes were needed but warned that providing banks with their own accounting regime would prompt other sectors to demand their own regime as well. Furthermore, it could look as if the banks are attempting to become less transparent at a time when they are already coming under increasing criticism.

He went on to say that Haldane’s proposals for disclosing a range of valuations are complex and could be hard to understand.

In January 2010, Lord Turner called for banks to have a separate accounting regime and the issue has been discussed several times before that. Almost every industry can highlight complexities that are unique to their own particular sector, so would it really be fair to change the rules just for the banks?

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Limited company contractors who have overpaid VAT are unlikely to be allowed to claim compound interest from HMRC.

The European Court of Justice’s advocate general has decided that despite HMRC’s breach of European law, the VAT that was overpaid by UK taxpayers would only have simple interest applied.

Some of the overpayments date back to 1973 and taxpayers have been arguing that the overpaid amounts should attract compound interest. However, Trstenjak, the advocate general, said it was unlikely that taxpayers would be allowed to claim compound interest and his opinion is general followed by European court judges.

Stuart Walsh, a tax partner at McGrigors, said this was a significant blow to the many UK businesses that are currently contesting VAT claims. There is a vast amount of money at stake and given the uncertain state of the public purse, this new guidance could provide a significant boost to the Treasury.

By allowing the Revenue to only pay simple interest it gives it the incentive to keep hold of taxpayers’ money in order to boost its own cashflow position. That perverse incentive would have been removed if HMRC had to pay compound interest on overpaid VAT.

HMRC has also recently been accused of deliberately withholding notices informing small businesses that their income tax returns were late. The tax tribunal said the Revenue was using small businesses as cash generators by not alerting them straight away when tax returns were late. HMRC disagreed with the ruling and said it would not refund money to those who had been hit by steep penalties.

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Contractors and freelancers may be interested to learn that HMRC intends to introduce stricter procedures for dealing with investigations into civil fraud at the end of this month.

The coalition is committed to tackling tax avoidance, evasion and fraud and on the 31^st January it will launch a new Contractual Disclosure Facility.

Under the CDF, the Revenue will write to taxpayers suspected on committing a serious tax fraud, and inform them that they have 60 days in which to enter into a contract and disclose the fraud. If the taxpayer accepts the offer, they will be immune from a criminal investigation and possible criminal prosecution. Instead, any investigation will be conducted using civil powers, and a civil settlement will be agreed for the repayment of tax, interest and penalty charges.

However, taxpayers who ignore HMRC’s CDF offer will be subject to a full Revenue investigation and this could lead to a criminal prosecution. Furthermore, if a taxpayer signs the CDF but then reneges on the promise to disclose the fraud, he or she will also face the risk of a criminal investigation.

Taxpayers who are not the subject of an investigation, but want to come forward voluntarily and admit to a tax fraud can ask HMRC to consider whether they are suitable for a CDF arrangement. In those circumstances, the Revenue will still retain the right to decide whether the case is dealt with civilly or becomes the subject of a criminal investigation.

David Gauke, the exchequer secretary to the Treasury, said the CDF will be a valuable tool in HMRC’s fight against tax fraud. Taxpayers will know exactly what is expected of them and what will happen to those who choose to hide behind their crimes.

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Accountants for contractors might be interested to learn more about the recently published accounts of former PM Tony Blair.

Once he left his job as Prime Minister in June 2007, Blair adopted an opaque business structure, channelling millions through a complex network of companies. The net result of this tangled web was that it looks like he paid only a fraction of the tax he should have done.

Tony Blair managed the majority of his business affairs through Windrush Venture, a management services company. Last year the company posted income of £12 million and expenses of £10.9 million. Blair paid corporation tax on the £1.1 million profit at the rate of 28%.

However, questions have been raised about the sheer size of the administrative expenses. After paying for salaries, rent and office equipment and furniture, almost £8 million remains unexplained.

Blair set up his corporate structure as a limited partnership and he is keeping this as a tightly guarded secret. Nobody knows how much money is contained in the LP. But why is he operating a totally secretive organisation?

Tony Blair has exploited legal loopholes to ensure the limited partnership does not need to file public accounts. The Windrush accounts, on the other hand, are prepared according to accounting and regulatory guidelines, and audited by KPMG.

Conservative MPs recently supported calls for a new tax avoidance rule, and Ed Milliband, the Labour leader, is calling for responsible capitalism. Under his current accounting regime, it doesn’t look like Mr Blair would fit into the category of responsible capitalist!

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IT contractor accountants may be interested to learn that HMRC launched an alternative disputes resolution pilot scheme for SMEs in North Wales and the North West of England last week.

Under the pilot, disputes arising from Revenue compliance checks will go in front of independent facilitators for resolution. The idea being to reduce the cost of the dispute for both sides and avoid a lengthy tribunal hearing.

A pilot scheme aimed at diverting cases from a tax tribunal last year was successful in at least partially solving 60% of the disputes it handled.

The assistant director for local compliance at the Revenue, Jim Stevenson, explained that communication problems often exist between HMRC and the taxpayer. The facilitator will make sure both parties fully understand the facts and arguments surrounding the dispute. The aim is to get a satisfactory resolution to the problem, and if that is not possible, to solve as many issues as possible.

John Cassidy, a PKF tax partner, said there needs to be a guarantee that the facilitators are independent. SMEs will avoid the ADR unless they can be assured they will receive a fair hearing. He went on to suggest that entrepreneurs may have more faith in the scheme if the SME’s tax advisers mediated the resolution procedure rather than HMRC facilitators.

The CIOT’s Andrew Gotch believes the pilot is essential to the overall success of ADR and urged SMEs to take advantage of it if possible. He stressed that the process is voluntary and neither side will come out worse off. In fact, evidence suggest that participants emerge with either a resolution or at least a better understanding of the other side’s position.

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Contractor accountants need to be aware that HMRC intends to code out employee debts of less than £3,000 through the PAYE system.

As from April this year, the Revenue will be able to change an employee’s tax code to reflect debts of up to £2,999 providing he or she pays their tax through PAYE. Pensioners owing tax to HMRC will also receive an amended tax code.

If an employee’s income or circumstances have changed during the year, he may not have paid sufficient tax. If this were to occur, the employee will receive a form P800 Tax Calculation informing them of the amount owing.

HMRC’s guidance on the use of PAYE for recouping underpayments of tax says the underpayment will normally be included in the following year’s tax code if it is less than £3,000. The money will be reclaimed in equal instalments, usually over a period of 12 months. Therefore if you did not pay sufficient tax in the 2010-11 tax year, this will be recouped in the tax year beginning 6^th April 2012.

The Revenue began sending out letters to people who owed small amounts of tax last August. Tax credit claimants who owed money to HMRC started getting similar letters last October. The letters explained that this year’s tax code might be adjusted to take the amount owing into consideration and offering taxpayers the final chance to settle in full or contact the government department to make alternative payment arrangements.

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Contractor accountants may be interested to learn that research from PwC suggests that last year’s VAT increase caused overall prices to increase by about 1%.

Consumers who were already struggling with rising food and energy prices saw a VAT rise from 17.5% to 20% at the beginning of 2011.

However, the chief economist at PwC, John Hawksworth, said the increase had a temporary effect and should not have an adverse impact on inflation or growth this year, providing there is no further increase in the rate of VAT.

He went on to point out that the VAT increase did have been some positive effects; at least as far as the UK economy goes. We now a smaller budget deficit and a lower long term interest rate.

Stephen Coleclough, a partner at PwC, explained that other countries in the European Union are following the UK’s lead and raising their VAT rates. France and Italy have both increased VAT, whilst the rate in Hungary has risen to 27%.

VAT increases are inflationary and intended to raise revenues. They also need to be set to meet the growth needs of individual nations, he added.

People in Ireland saw their VAT rate increase from 21% to 23% on the first of January this year. Originally the increase was to be implemented in two stages but it was decided to bring the rise forward to limit damage from the Euro crisis.

The Italian government raised VAT by 1% to 21% last September. A further 2% increase is expected in September this year, followed by a possible 0.5% rise at the start of 2014.

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Whilst the majority of people, including contractor accountants, were tucking into their Christmas turkey, more than a thousand people were otherwise occupied, filing their online self-assessment income tax returns.

Data from HMRC also reveals that 102 people celebrated the dawning of 2012 submitting their tax returns. The fact that New Year’s Eve fell on a Saturday may explain why a total of 11,648 returns were filed that day, while 8,935 taxpayers decided to fulfil their obligations to the taxman on January the first.

Time is running out for people who have not yet taken the plunge and logged on to the Revenue’s self-assessment website. The deadline for both submission and payment is on January 31^st and anyone who misses it will receive an automatic £100 penalty, even if they do not owe any tax.

Taxpayers who have not used the online system in the past are reminded of the need to register in plenty of time as it can take up to 7 days for their authorisation code to arrive. Furthermore, as the deadline approaches and more and more people log onto HMRC’s website, there is a risk of the system becoming overloaded.

Anyone who has problems completing their tax return should contact an accountant as soon as possible or get in touch with HMRC’s telephone helpline on 0845-900-0444.

Self-employed individuals are also reminded that Class 2 National Insurance contributions for the 26 weeks ending the eighth of October also fall due on the last day of January.

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Contractor accountants may be interested to learn that HMRC has extended the Liechtenstein Agreement in a further attempt to crackdown on tax evasion. The deadline for both businesses and individuals to come clean under the Liechtenstein Disclose Facility is now the 31^st March 2012.

The head of the negotiating team at HMRC, Andy Cole, said the ground-breaking agreement would ensure that British taxpayers declare domestic tax obligations on investments held in Liechtenstein.

He went on to explain that the Principality and the Revenue are committed to making sure that taxpayers with undeclared assets fulfil the requirements of HMRC as well as the Liechtenstein financial centres. Furthermore, the LDF ensures that UK taxpayers can disclose previously undeclared tax liabilities and be included in the British tax system.

In related news, HMRC has warned companies and individuals that they will be tracked down if the Revenue suspects they have been indulging in tax avoidance.

Recently, a family of five received jail sentences after an HMRC investigation uncovered a money laundering and tax fraud worth several million pounds.

HMRC’s assistant director of criminal investigation, Simon De Kayne, said the William family funded its luxury lifestyle at the expense of the British taxpayer.

The Revenue will continue to chase anyone suspected of being involved in this sort of criminal behaviour and they will find themselves in court. HMRC is now working to reclaim the monies fraudulently acquired by the family, he added.

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Contractor accountants may be interested to learn that the Institute of Chartered Accountants in England and Wales recently launched a business advice service.

The service, which is being administered by SOSCA, covers Dorset, Hampshire and south Wiltshire and was launched on the day Business Link closed down local services.

The aim of the service is to provide small businesses and start-ups with the financial and business advice they need to enable them to play a part in the economic recovery. Owners of small businesses can contact local firms on a range of issues and they will be under no obligation to use that firm in the future.

In excess of 350 ICAEW practices will offer a free initial consultation under the business advice scheme.

Henry Flint, the president of SOSCA, explained that he had a business background and a lot of companies are in desperate need of good advice at the moment. The Business Advice Service provides them with a place to obtain impartial free advice and will fill the void left by the closure of Business Link. He went on to add that he was keen to see member firms provide help to local business owners.

The deputy president of ICAEW, Mark Spofforth, said small business owners need the best advice if they are to get through the fragile recovery. BAS will provide the opportunity for SMEs to have a free consultation with a chartered accountant to discuss their concerns. ICAEW Accountants can offer advice on issues such as starting a business, financial and taxation matters and restructuring.

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HMRC is going to help employers improve their PAYE data.

Targeted Employer Support will be available to more than 1,000 employers who HMRC has identified as having problems with the quality of the PAYE information they submit. Between July and October, HMRC piloted face-to-face support visits with 12 employers and said they resulted in significant improvements in data quality.

Accountants will be aware that some companies struggle to comply with the complex PAYE system, and the Revenue now seems to have recognised this fact. The majority of employers do submit accurate data, but those that don’t could be causing problems for their employees. If employees do not pay the right amount of PAYE, they could find they are unable to claim certain benefits in the future.

The Revenue often encounters problems matching employers’ data with its own records. This can happen when a date of birth or National Insurance number is either entered incorrectly or is missing. Another common error is misspelt, incorrect or fictional names.

Stephen Banyard, HMRC’s acting director general for personal tax, said the Revenue is working tirelessly to improve data quality before the introduction of Real Time Information. In addition to TES visits, the department intends to improve the guidance it provides on PAYE data.

He went on to say that the pilot schemes had been successful and provided HMRC with the data it needed to compile the materials used for interacting with employers.

A pilot Real Time Information programme will begin with 300 volunteer employers next April.

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