Today really is the last day that you can file their self-assessment returns without receiving a late filing penalty from HMRC.

Normally, returns should be filed by midnight on January 31^st, but this year the Revenue extended the deadline to February 2^nd because members of the Public and Commercial Services Union were taking industrial action on the 31^st and members of the public would struggle to get through to HMRC call centres.

The Union hailed the strike as a success, saying 14,500 members of staff did not report for work. Volunteers staffed revenue enquiry centres and there were huge backlogs at call centres.

At first glance it seems a sensible move for HMRC to extend the filing deadline. It gave a bit of extra time to the estimated 90,000 individuals who were expected to phone asking for help with their tax returns on Tuesday. And these people would have swamped the Revenue will letters of complaint if they had been unable to do and as a result, received an automatic fine.

However, the extension will not help those people who had not already applied for the unique reference number they needed to enable them to complete their return online. This is sent out by mail and can take up to 7 days from date of application to arrive.

HMRC has been having major problems with their admin system over recent months. It takes weeks, sometimes months for people to get a written response to their queries, so a further deluge of mail would have swamped an already hard-pressed department.

The extension will probably will be seen as a compromise that should suit everybody. The extension has been widely publicised so there is really no excuse for filing late. Taxpayers have been given an extra couple of days to file, but the Revenue will no doubt still rake in the fines from people who had not received their URN and those who purposely ignore their filing requirements.

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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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You may have been following the recent tax case involving HMRC and specialist recruiter Reed.

The long running battle revolved around the travel and related expenses incurred by temporary job candidates.

Reed’s agents made expenses payments to about half a million temps between 1998 and 2006. The daily “allowance” covered travel expenses up to £11.45 and up to £6 for lunch. These were supposed to be included in a salary sacrifice arrangement, but it turned out that no such agreement covered the period in question.

HMRC argued that the temporary workers were engaged in job-by-job contracts and not a continuous contract as claimed by Reed.

The recent tax tribunal judgement implies that Reed manipulated salary figures to make it look as if a part had been sacrificed when in fact the temps actually received their full payment. The tax tribunal also said that although there were signs that Reed received initial approval for their scheme, there may have been a ‘cock-up’ at HMRC and it was entitled to claim backdated tax.

Reed’s problem is that it is unable to reclaim the total of £158 million in National Insurance and income tax from the temporary workers. Reed Global, the owner of the company, is disputing the figure and intends to appeal the tribunal’s decision and ask for a judicial review into the treatment it has received from the Revenue.

However, the tribunal ruling sounded emphatic. The judges said they were satisfied that the allowances constituted Chapter 1 earnings, and even if that was incorrect, they classed as Chapter 3 earnings that should have been declared for tax and NICs.

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Accountants for contractors may want to remind their clients that the deadline for filing self-assessment income tax returns is fast approaching.

Last week, HMRC said it had received 1.8 million paper returns by the 31^st October and a further 4.5 million online self-assessment returns. However, that left around 3 million people who still need to submit or receive an automatic £100 penalty for missing the deadline.

Even if there is no tax owing, HMRC must receive a return from the taxpayer by the 31^st of January. In addition to the automatic late filing penalty, further charges will be levied the longer the process is delayed.

An HMRC spokesman recently said that about 10% of taxpayers miss the filing deadline. This could generate £10 million for the Revenue from late filing fines alone. Add to that a potential £1,600 from each taxpayer who delays filing for 12 months and the Treasury coffers would swell significantly.

Taxpayers who are having problems filing their returns may want to contact an accountant for help after Revenue staff announced they would be holding regular 30-minute walkouts.

Members of the PCS union believe HMRC is trying to privatise jobs by bringing in two private sector firms to man call centres. The Revenue disputes the claim, saying the move is designed to improve working processes.

An HMRC spokesman said the department was trying to find ways to improve the service it provides to customers, but PCS general secretary Mark Serwotka says it was wrong to outsource work when so many civil servants were losing their jobs.

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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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January, and the vexed question of self-assessment rears its head again. My accountant friends have said good bye to the family until February and closeted themselves with quill pens and envelopes of receipts. Others have burned the midnight oil trying to complete their online returns. Still others – like me for example – pay the bill to the accountant, send off a small corrective payment to HMRC and wonder what all the fuss is about.

In my case that cheque is for precisely eighty pence. Can’t pay that online so a cheque it will have to be. Which will cost the drones in HMRC around £30 to process but basic economics was never really their strong point. And it’s only outstanding in the first place because last year I ignored a similarly trivial underpayment and this year got rightly stung for the interest.

Meanwhile, away from the distractions of the self-assessment merry-go-round, a rather more invidious tax change has crept in, largely unannounced and unremarked. As of now, there is a limit on how much cash you can take out when closing your company under the provisions of Extra-Statutory Concession 16 of just £25,000. Anything over that attracts Capital Gains tax at the relevant rate. Great. More taxes you never knew you owed.

There is a way around it; you simply have to liquidate your company. That means using the services of a liquidator who, incidentally, can’t be your current accountant. And it seems that such a service comes in at around seven grand a pop. Until, that is, Liquidators-R-Us get up and running and the cost comes down, so defeating the whole purpose.

But if you think about it, if the idea is to increase the CGT take from closing companies, why leave the Liquidation loophole in the first place? Joined-up thinking? Not at all, merely another excuse to get taxes imposed by relying on people not knowing the detail.

But what really irritates me about this is the underlying assumption by HMRC that a company’s sole purpose is to grow into an eternal corporate body and any that don’t are not to be taken seriously. There is no acceptance or understanding that if you are working in a world where income is variable and frequently non-existent, using a company to store and distribute your income evenly across the year is the best way to do it. And when you finally stop grinding away at the coal face you want to get your money back as efficiently as you can while paying whatever levies are due to the Treasury, not to some pointless corporate leech.

It’s exactly the same mindset that got us IR35 in the first place. We have companies. We don’t have 300 employees and a pile of plant and machinery so we must be cheating the taxman, else why have the company? Well there’s S44-47 for one thing and the idiot tax liability transfer rules it embodies. But hey, that’s no excuse.

I have to conclude that the increasingly rapacious predations of HMRC are the single biggest inhibitor to the recovery we can think of. It’s all very well the Government saying we need a vibrant and flexible workforce, and we’d love to give them one, but getting constantly cut off at the knees by a body that has absolutely no experience or expertise in the real world is getting more than a little wearing.

And finally it’s the next meeting of the infamous IR35 Forum soon. There is a hope that they will come up with a final answer to the IR35 question. Personally, I’m not hopeful. Can’t imagine why…

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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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Accountants for contractors might like to know that both PM David Cameron and his deputy Nick Clegg have indicated that a general anti-avoidance rule will probably be included in this year’s budget.

Nick Clegg, the Deputy Prime Minister, said in a recent BBC interview that the government has received a report from Graham Aaronson QC pointing out that a GAAR is feasible. He also attacked the rich elite who spend a fortune employing an army of accountants to help them avoid paying tax.

Clegg was also quick to point out that normal taxpayers, who are struggling to make ends meet, are becoming increasingly angry and frustrated with large companies that avoid paying their fair share of tax. A GAAR would lead to a simpler, more transparent tax system that is not open to abuse.

David Cameron recently explained that HMRC collects taxes in a fair, business-friendly manner. However, the government needs to take a tougher approach with companies that practice tax avoidance with the help of fancy corporate lawyers. Lawyers and tax accountants know that the current legal and taxation systems are complex and they try to capitalise on this to lower their client’s tax bills.

The government is pushing on with its plan to reduce the rate of corporation tax that businesses need to pay. But the fact remains that they have to pay rather than avoid the tax, Cameron added.

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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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Accountants for contractors might be pleased to learn that HMRC is to review the way it conducts business records checks after MPs and small business groups criticised the initiative.

As part of the initiative, the Revenue will inspect the records of as many as 20,000 small businesses. Any that are found to be keeping inadequate records could be fined up to £3,000.

John Walker, the chairman of the FSB, has criticised the scheme saying that HMRC is still intending to proceed despite worsening economic prospects. He explained that he has expressed his concerns to HMRC on a number of occasions, but although the government says it wants to help small firms, the reality appears very different.

The scheme has also been criticised by Tory MP Priti Patel who said it was persecuting small businesses at a time when they are fighting for survival. She says HMRC is acting diabolically towards small firms when they blatantly let large organisations off paying millions of pounds.

Backbench Tory Anne-Marie Morris pointed out that HMRC used to take a sympathetic view of minor errors, but the ethos has now completely changed and businesses are treated the same regardless of size and resources.

A spokesman for the Revenue has now admitted that the project has caused a lot of concern within the tax profession and would have benefited from more detailed input from tax professionals. HMRC will now have a strategic review of the business records checks scheme, in consultation with representative and professional bodies, he added.

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