Contractor accountants may be interested to learn that HMRC has agreed to adopt a new approach towards the problem of multiple P35 penalties.

A lot of companies have complained about receiving hefty fines of £400+ totally out of the blue each September. This issue was identified as a priority that became even more acute when tribunals started to dismiss penalties and criticised HMRC’s approach as one centred around raising revenue rather than ensuring employers comply with the deadline.

The deadline for filing p35 returns is the 19th May and HMRC has now agreed to send notifications in the middle of March rather than mid-February. Reminders will be start to be sent out on the 28th of April this year if the Revenue believes P35s are outstanding.

At the end of May, the Revenue will introduce a new P35 Interim Penalty Letter that will inform employers that they have incurred a penalty and what action they should take to stop it increasing. This letter will be sent within one month of the filing deadline. HMRC also intends to improve its guidance for the online submission of P35s.

The online submission system has come in for a lot of criticism from employers who believed they had filed successfully only to discover they had actually filed in “test” mode rather than “live” mode.

A Revenue spokesperson said these new measures would help employers avoid unnecessary penalties and reduce the amount of instances where large penalties are charged.

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Contractor accountants should be aware that stealing from the taxman doesn’t pay as a Yorkshire butcher found to his cost recently.

Gary Turner, a 47-year-old businessman from Morley, owned concessions in local Kwik Save branches. Turner’s Butchers was a successful enterprise until trade started to drop off in 1996, at which time Turner started siphoning off money.

The stolen cash was used to remodel the family home, purchase a nearby bungalow for his son and enjoy expensive villa holidays. He bought six high performance cars and his stash of Rolex watches was worth more than £35,000.

HMRC started to investigate Turner, who told them a fictitious accountant had his paperwork. He lied about his accounts and gave investigators false business records to back up his claims.

Eventually, Turner did confess to faking invoices and falsely claiming VAT amounts of between £19,000 and £46,000. He also admitted that he had not earned any legitimate income since his business started to go downhill in 1996 and everything he had told the Revenue since then was a lie.

The Assistant Director for Criminal Investigation at HMRC, Peter Hollier, said that it is a serious crime to commit tax fraud. Turner thought he had a watertight scam but Revenue investigators unravelled it.

HMRC has already restrained about £785,000 of his assets and confiscation proceedings are on-going to recover the remainder of the £3.3 million Turner gained from his criminal activities.

Turner is now serving five years in one of Her Majesty’s jails where he will no doubt enjoy a lifestyle well below that to which he had become accustomed.

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It’s unusual for anybody to praise HMRC these days, but contractor accountants may be interested to learn that the Chartered Institute of Taxation recently did exactly that.

Last year the Revenue took down its online filing system at the same time as the deadline for filing April’s VAT returns became due. This caused wide scale pandemonium and the CIoT was quick to express its concerns.

This year, HMRC has decided to take the filing system down between the 8th and 11th of April – directly after the 7th of April deadline.

Simon Newark, the vice-chairman of the VAT and Indirect Taxes Sub-Committee at the CIoT, said the Institute congratulated the Revenue on making a sensible decision this year. Along with other professional bodies, the CIoT has been putting concerted pressure on HMRC to rethink when it upgrades its systems.

He went on to explain that the Revenue’s complex systems need a certain amount of downtime when upgrades are being implemented but this needs to be timed so as not to adversely affect businesses that are trying to file their returns. Providing companies file their February VAT return online by the 7th of April, they should not be affected by the upgrade downtime.

He also suggested that HMRC might want to follow the lead of Companies House and send email notifications of future downtimes so that businesses can plan in advance.

Last year was the first time when businesses were penalised for late filing and the downtime caused huge problems for a lot of firms and advisers. The Revenue scheduled downtime for the 7th of March this year and some businesses were annoyed that HMRC gave very little advance notice of this.

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An economic think tank has claimed that an additional 1.3 million people, including contractor accountants, are going to be forced into the higher tax band thanks to the changes made in the Chancellor’s Budget last week.

As from April 2013, the threshold at which people pay tax at 40% will decrease to £41,450. Currently people can earn up to £42,475 before the 40% rate kicks in. According to the Institute for fiscal Studies, this will mean five million people in the UK will be paying the higher-rate tax by 2014. Next year, 15% of workers will be affected by the higher rate; in the 1980s it was just 5%.

The Institute also questioned the Chancellor’s claim that the Treasury will only lose £100 million when the 50p tax rate is axed in April 2013. Mr Osborne said in his Budget speech that this loss would be more than compensated for by measures such as increasing the stamp duty on properties costing £2 million or more.

The IFS has described this year’s Budget as a “hotch-potch of reforms”. Osborne said his reforms were revenue neutral but that assumes the rich who avoided paying income tax at 50p will be prepared to pay it at the lower 45p rate.

Paul Johnson, a director at the IFS, said people who got a taste for tax avoidance may carry on avoiding once the rate decreases. He also criticised the Chancellor’s decision to raise stamp duty on high value properties and said a mansion tax could have been a better alternative.

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According to a recently published report by Unbiased.co.uk, British taxpayers will pay an average £421 too much tax this year.

Contractor accountants will want to make sure they are not included in the 85% of Brits who gift a total of £12.6 billion to the Revenue in the form of unnecessary tax. Over the last ten years, British taxpayers have created a tax waste mountain worth £88.6 billion.

Unbiased.co.uk’s report discovered that £7.26 billion in income-related tax credits will go unclaimed and people failing to claim tax relief on their pension contributions will gift a further £2.45 billion to the Treasury. People who filed their self-assessment tax returns late will contribute £307 million to HMRC’s coffers, while about £83 million will be lost in unclaimed personal allowances and income tax.

The website’s study also discovered that 85% of taxpayers have taken no action to reduce their tax bill in the last 12 months. Half of them believe there is nothing more they could do to make themselves more tax efficient.

Of the 15% that have done something to reduce their tax liability, 40% have made changes to the way they invest or save their money and 22% said they had made a purchase or investment specifically as a tax efficiency measure.

Karen Barrett, Unbiased.co.uk’s chief executive, said British taxpayers should be devoting some time towards ensuring they are as tax efficient as possible. Of those people who have already done so, about 25% of them made use of the services of an accountant or other professional adviser, she added.

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It’s all over bar the shouting, and no doubt there’ll be a fair bit of that over the coming weeks. I’m talking about the Budget of course.

What will it mean for contractor accountants? Were there any hidden surprises? George Osborne claimed that this was a Budget that rewards work. He promised a simpler tax system and said the government was pushing ahead with plans to integrate income tax and National Insurance. More details of this integration will be published next month.

He also called tax evasion and tax avoidance morally repugnant and said legislation for a GAAR would be laid out in next year’s Finance Bill.

One of the biggest cheers came when he announced that personal income tax allowances would go up to £9,205 from April 2013. This measure will mean many low paid people will pay no income tax at all.

In the days running up to the Budget there had been rumours that the Chancellor would scrap the 50p income tax rate. It has been harming the British economy and he explained that HMRC had assessed the effect of the top rate and it had brought in a mere £1 billion, a third of what had been expected. Therefore as from April 2013, the top rate of 50p will go and be replaced by a rate of 45p.

Mr Osborne also said the government would consult on taxing small businesses with a turnover of less than £77,000 on a cash accounting basis. This is the course of action recommended by the Office of Tax Simplification and would make it much easier for small firms to fill in their tax returns.

The Chancellor had intended to reduce corporation tax by 1 percentage point to 25% as from April, but instead he has doubled that decrease. As from April this year, corporation tax will be reduced to 24%. Again this should help businesses and encourage foreign companies to move here.

At first glance, his measures seem reasonable. But what will the experts think?

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Accountants will be interested to hear that David Gauke recently said what they have known along – politicians struggle to understand tax law!

The exchequer secretary to the Treasury made his comment to delegates attending a conference about tax policy-making at the Said Business School in Oxford. He was rather put on the spot when he was asked whether MPs fulfilled their role in formulating tax legislation after experts found that professional tax experts should be providing parliamentarians with more support.

Mr Gauke explained that MPs could cope with income tax, but once you get into technical areas, including the majority of the Finance Act, they rely on external bodies such as the CIOT, ICAEW and PwC. Considering our MPs come from a diverse range of backgrounds, that is hardly surprising.

Gauke also commented on confidentiality in tax, saying he thought companies should explain their tax policies and associated figures if they are in the public domain.

Christopher Peter Wales and Christopher John Wales, two experts at the Said Business School, presented a report showing that the government should take more time to consult with the electorate when it formulated tax policy. The report took three months to research and included interviews with treasury and tax advisors in 10 countries including Germany, Ireland, Sweden and the UK. It also recommended that external academics should review significant changes to tax policy to challenge whether they would meet their objectives and be of value.

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A Treasury sub-committee has called on HMRC to be more accountable and transparent when it is settling large tax disputes and devise a more accurate way of calculating the UK tax gap.

There has been widespread criticism from contractor accountants about the way HMRC settles its tax disputes with large organisations. The Revenue has been accused of making “sweetheart” deals with companies like Goldman Sachs and Vodafone.

MP George Mudie, the chairman of the sub-committee, said it was encouraging to note that the Revenue is implementing changes in its tax dispute processes but there are still serious questions about accountability and transparency at board and ministerial level.

He went on to say that HMRC is making inroads into ensuring people pay the taxes they should, but there is still a lot of work to do before we see a significant reduction in the tax gap.

The NAO recently published a report saying that HMRC just missed its target to increase the amount of tax it collected from initiatives to clamp down on tax evasion.

The report from the Treasury sub-committee says that the tax gap calculation is flawed and the Revenue should focus on making sure people pay the correct amount of tax rather than maximising revenue regardless of the cost.

Other recommendations included in the report were for a general tax disclosure facility and prosecution for people who fail to disclose tax through offshore campaigns.

The UK tax gap has been estimated at around £120 billion, of which £25 billion is late paid tax. HMRC suggests that tax evasion accounts for 7% of that, but based on figures from the World Bank, it could be as high as 13%.

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Contractor accountants may not be surprised to learn that despite its best intentions, HMRC has made another error; this time with tax rebates.

The Institute of Chartered Accountants in England and Wales recently reported that the HMRC had been paying income tax rebates twice because a link between the NPS and self-assessment systems was not working properly. The Revenue is aware of the problem and has put finding a solution to the top of its priority list.

HMRC is calling on taxpayers and agents to come forward if they have received an overpayment.

One expert advised taxpayers not to spend money they’ve received from HMRC if they think it’s been sent in error. Instead they should contact the government department, or seek professional advice, to establish whether or not the money is really theirs to spend because HMRC will eventually attempt to recover the overpayment.

This is not the first error made by the Revenue this year. Not long ago, 17,000 final reminder letters were sent out to taxpayers who had already settled their outstanding liabilities. This error was also blamed on a computer glitch.

HMRC is determined to introduce Real Time Reporting and some accountants are worried that even more errors will start to occur. After all, if the Revenue can’t get its existing systems to work correctly, can we really dare to expect that the Real Time system will work any better.

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Contractor accountants should be aware that Lex Autolease, the largest car fleet supplier in the UK, had a stark warning for higher rate tax payers recently.

The firm surveyed more than 16,000 companies and estimated that the reduced fuel emission allowance for company vehicles could cost tax payers in the higher rate bracket an extra £400 a year.

Lex Autolease’s principal consultant, Paul Lippitt, said that senior management may not be too concerned that they need to pay an extra benefit in kind charge if they’ve got a low-emitting BMW 5 Series vehicle, but middle and junior level managers could be in for an unwelcome surprise.

New changes are due to come into place this April and these will lead to an increase in car tax on 45% of orders for new vehicles.

Under current regulations, Qualified Low Emissions Cars are classed as those that have fuel emissions of less than 120g/km and these attracted a benefit in kind tax of only 10%. However, as from April, the QUALEC limit is being reduced to emissions of less than 99g/km.

Only 8% of the companies surveyed will satisfy these revised conditions from HMRC, meaning that employees will need to pay more tax and employers will be liable for additional National Insurance contributions.

Lippitt went on to say that many employers could be trapped as the typical company car contract runs for three or four years. The CO2 tax threshold will reduce again in 2013/14, so companies should be aware that further tax increases are to come.

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Contractor accountants were no doubt interested to learn that some members of the profession have been showering free advice on the opposition.

Nine labour MPs have had free assistance, valued at more than £270,000 from PricewaterhouseCoopers. The accountancy giant helps its clients take advantage of tax avoidance schemes and some people may wonder how much tax Ed Balls, Caroline Flint, Jim Murphy, and the other beneficiaries of this free help, have been able to save since the last General Election.

One labour MP recently warned that the opposition was treading on dangerous ground and suggested that PwC might receive preferential treatment if it bid for government contracts when Labour gets back into power.

PwC has won contracts in both local and central government in the last few years. It also acts as an advisor to Barclays, the bank recently ordered to pay £500 million to the Revenue after it emerged it was engaging in aggressive tax planning activities.

It’s not necessarily unusual for MPs to receive assistance from accountancy firms; senior Tories such as Philip Hammond, Oliver Letwin and Francis Maude received help from PwC while the party was in opposition. However, PwC staff are now being seconded to frontbenchers on a much larger scale.

John Mann, a member of the Labour party who sits on the Treasury select committee claimed there was a PwC caucus within the current parliament. He suggested that if the firm were good citizens, all MPs would receive free assistance, but they only appear to help potential ministers who could in the future have the power to award lucrative contracts. He went on to urge Labour to examine the relationships.

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The majority of companies do have an expenses policy in place, but apparently employees do not know how to interpret it properly.

Research by Concur, the travel and expense company, found that £9.85 out of every £100 spent on expenses last year was outside that firm’s expenses policy. Staying at non-preferred hotels and flying business class for short distances are prime examples of instances where company policy was ignored.

Contractor accountants may like to keep an eye out for examples of this as only 1.2% of expense submissions were rejected as outwith company policy last year.

David Vine, one of Concur’s senior directors said that companies do understand that it is important to have an expenses policy in place but some of them are having problems making sure it is understood and implemented correctly.

Last year companies spent £692 million on expenses that should have been rejected. However, 95% of VAT recoverable expenses were backed up with a valid receipt in 2011; in 2010 the figure was 89%, so there has been some improvement.

Employers have been focusing on persuading employees to back up their mileage claims with a valid VAT receipt, and to a certain extent it is working. 74% of mileage claims submitted last year were backed up by a VAT receipt; up from just 59% the year before. However, this does mean that a valid receipt is missing in 26% of cases.

Mr Vine finished off by saying that the VAT increase in January last year has encouraged firms to make sure expenses are covered by valid VAT receipts but mileage is still a problem child.

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