Contractor accountants will have a busy month in January filing online self assessment returns for their clients.

As the January 31^st deadline looms, it savvy accountants will already have drawn up a plan for dealing with the additional workload. However, if you have not already done so, the festive break would be a good time to start planning.

The first thing to do is ensure you know exactly what you’re up against. How many clients require you to complete their tax returns for them? Do you have all the details you need to proceed?

Are your clients fully up to date with any legislative changes and if not, should you provide them with training? On a similar subject, you must ensure your accounting software is updated to reflect statutory requirements, and if it isn’t install and test any updates sooner rather than later.

Effective communication with clients is vital at this time of year. Think about the problems you encountered during last year’s filing season and work together with your clients to find solutions. Also make sure your clients fully understand what information they need to provide you with, and when you need to receive it.

No matter how meticulous you are with your planning, problems will occur, but the trick is to spot them before they turn into a crisis. Make sure you review your progress on a regular basis and deal with any issues as soon as they arise.

Of course, once you’ve done all the hard work, you’ll be looking forward to receiving payment. Make sure all your clients know your payment terms before you start working on their return and send out your invoice as soon as possible after the work is completed. That way you should minimise the danger of late payment.

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HMRC has alerted all companies and contractor accountants that are registered for VAT that important changes to the filing process will come into effect in spring 2012.

As from April first next year, all VAT returns have to be filed online and all remittances must be made electronically. Under the present regime, only companies with a turnover of more than £100,000, and those that are newly registered have to use HMRC’s online VAT filing system.

The new regime will affect all returns for VAT periods starting on the 1^st April 2012 and beyond.

The Revenue says it makes sense to switch to the online filing system now rather than get caught up in the last-minute rush. However, before any business can take advantage of the benefits of online VAT filing, they will first need to register with HMRC’s VAT Online Service.

Whilst businesses are thinking about filing their VAT returns online, contractor accountants should be concentrating on ensuring their online Self Assessment tax return is filed before the end of next month.

Taxpayers who have previously completed a paper Self Assessment return should register for online filing as soon as possible. The registration process is simple but HMRC warns that it can take up to 10 days for the Activation Code to reach taxpayers as it is sent out by post.

People who have previously used the online filing system should make sure they have not lost their login details, as they also will have to wait up to 10 days for a replacement.

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A South African has been sent to jail after being found guilty of a £1 million self-assessment income tax fraud.

HMRC discovered that Lawrence Goldberg used virtual offices to register in excess of 50 companies throughout the UK. The companies posed as nominated tax agents and through them, Goldberg sent the Revenue more than 2,000 fraudulent tax returns. As well as using the identities of innocent people, he invented people and used their details on the returns.

When his operation was at its peak, Goldberg was sending HMRC about 500 false returns a week. Most of the fraudulent returns were discovered and not processed, but Goldberg did successfully claim more than £1 million which he deposited in offshore bank accounts.

Goldberg originally conducted his operations from London, but after a brief stay in Portugal he went on the run to South Africa. He pleaded guilty to the charges against him and was jailed for two years.

HMRC’s assistant director of criminal investigation, John Pointing, said this was a huge scale fraud against public funds and the Revenue will not sit back while criminals such as Goldberg steal honest taxpayers’ money.

Meanwhile, HMRC has warned taxpayers to be vigilant if they receive emails saying they are due a tax refund.

According to the Revenue, there has been a 300% increase in ‘phishing’ emails over the past 12 months. These generally provide a link to a replica HMRC website where recipients are asked to provide details of their debit or credit card. Criminals then use the information for identity and financial theft.

Last month, HMRC received reports of nearly 24,000 of these fraudulent emails and it is helping to close down about 100 fake websites every month.

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ICAS has warned that as many as a million taxpayers could face penalties for late filing of tax returns and claims HMRC has not taken enough measures to notify the public of the changes.

As from the end of this October, anybody who files their paper self-assessment form late, even if it’s only by one day, will receive an instant fine of £100. After three months, the fine will increase by £10 for every day overdue. Even larger fines will be levied if filing is six months late.

It may be time for accountants for contractors to be at the forefront of reminding people!

The same rules will apply to people who file online as from January 31st 2012. ICAS has calculated that an online return due for filing at the end of next January, but held back until August 5 2012, would attract at least £1,300 in fines.

Since self-assessment began in 1997, almost one million people file their return late each year and many of them delay by more than 12 months. Until now, HMRC could not charge a penalty as long as the taxpayer paid all the monies owing.

ICAS’ director of tax, Derek Allen, said he was concerned that the majority of people are not aware of the new penalty regime as it has not been widely publicised.

The Scottish Institute also warns that some people could miss out on tax rebates. Self-employed people in the construction industry often have their tax deducted by the contractor initially and repayments are calculated after they have lodged their return. However, if they file late, the repayment is likely to be a lot less than the fine.

Small businesses and limited company contractors are also becoming increasingly tardy in filing their year end accounts with Companies House. The executive agency recently reported that 12,739 businesses were fined for late filing last month; up from 12,154 in May.

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When is a question not a question? Now there’s a question. And the answer is, apparently, if it’s a notice under TMA 1970 Section 8 which, as ony fule kno, is not a notice under FA2008 Schedule 35 paragraph 1. Until the situation is changed at which point we will be informed of the change. So that’s perfectly clear then.

Who said tax had to be taxing…

Let me explain. There are two questions on the Self Assessment return we have to complete every year that ask “Are you a Service Company?” and “Have you applied the Intermediaries Legislation?” Needless to say, you have to answer either Yes or No to both.

But since this question has been framed by HMRC, it is, of course, totally ambiguous.

Firstly, exactly what is a “Service Company”? Such a beast is not actually defined anywhere: trawl through the labyrinth that is the HMRC website and you will find many references to the now outlawed Managed Service Companies, but nothing on simply “A Service Company”. Which is useful.

Of course we know they mean a Personal Service Company – something else that doesn’t exist in law – and that by common usage is understood to be a company through which one or two individuals sell their services to a range of clients. Otherwise known as a totally ordinary business. Or, if you really have to particularise things, a nano-business.

So that’s easy then: is my company a non-existent undefined entity or not. So we can safely say Yes since it is. Or it isn’t. Sue me if I’m wrong.

Then we get to the second question, “Have you applied the Intermediaries legislation?” Well yes, I have and I have concluded it doesn’t apply. So do I answer Yes because I have applied it or No because it doesn’t apply? Which one will lead Hector to believe I am liable for IR35? Well, we know the answer to that one; any combination of answers since I am caught until proven otherwise. But I digress.

Apparently the real answer, according to people who have more time for this nonsense than I do, is to answer Yes to the first and No to the second since that is a defensible combination no matter what HMRC try to stick you with.

And, just to add to the confusion, there is an argument that says you don’t have to answer the damned question at all. That gets a bit convoluted (well it was a barrister that raised it) but basically in 2009 HMRC sought to prevent people not answering the question by making it no longer ultra vires, meaning you could be penalised for not answering it. Which is where we came in. Honestly…

The barrister in question argued that a question on a tax return is not a notice, i.e. something you are obliged to answer. And eventually he got the answer back from HMRC as per my opening paragraph: it’s a question not a notice. So you needn’t answer it.

Except of course the barrister in question is, as I understand an already confusing situation, not a nano-business so the question doesn’t actually apply to him anyway: he was merely seeking clarification that he didn’t need to explain not answering the question. I don’t think people like me can be quite so sanguine about it.

So do I answer Yes then No? Now there’s a question…

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Contractor accountants may see a surge in enquiries after HMRC announced a new tax amnesty on Tuesday.

The agreement encourages plumbers or those in associated trades, such as heating engineers and gas fitters, to settle their past five year’s undisclosed tax in return for a 10% penalty. Experts however are confused as to who exactly it applies to saying it has very similar to the terms offered to anybody wanting to make full disclosures.

A tax investigation partner at PKF, John Cassidy, pointed out that specific tax amnesties have been offered in the past but the wording of this one seems to cover a broad spectrum. This seems close to offering a back door general amnesty, he added.

HMRC hit back saying the Plumber Tax Safe Plan is specific and the forms are designed so that only plumbers and associated tradesmen can complete them.

The Revenue wants to encourage other people to make disclosures and they will receive preferential treatment for doing so but HMRC does not guarantee that they will receive the 10% penalty rate promised to plumbers.

Plumbers wanting to take advantage of this amnesty have until the 31st May to register intent and then settle their outstanding liability by August 31st.

Chas Roy-Chowdhury from the ACCA believes this time frame is not generous enough. Plumbers may only see their accountant once a year, he pointed out. The professional tax and accountant bodies had asked for the deadline to be extended until the 31st January 2012. For tradesmen who see their accountant once a year, this would seem sensible as it coincides with the self-assessment deadline.

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HMRC has decided to rethink its policy of just sending documents to taxpayers and not their agents. The new policy, which was introduced in September, was designed as a cost saving measure.

However, the Revenue has backtracked slightly and said that some documents will also be sent to tax advisers and contractor accountants.

The decision has been welcomed but the CIOT, but the Institute remains concerned that this change will not include all tax documents.

The CIOT’s deputy president, Anthony Thomas, said that we all know government departments are under pressure to cut costs but HMRC is likely to face more queries and adjustments by keeping agents in the dark about the tax obligations of their clients. This action could end up costing the government more than it saves.

The documents that will be sent to agents include Tax Calculation P800, Entry to Self-Assessment letter SA250 and Exit from Self-Assessment letter SA251.

Agents will not receive copies of their clients’ P2 PAYE Coding Notices but the form the taxpayer receives will advise him to show it to a tax agent or adviser.

HMRC plans to use some of the money saved from the withdrawal of P2 agent copies to create an IT solution allowing e-enabled tax agents to see the P2s of their Self-Assessment clients online.

Meanwhile, members of ICAEW have said the standard of service provided by the Revenue is still declining. 70% of members said they needed to contact HMRC more than once to resolve a single enquiry and 61% said the technical knowledge of many of the Revenue’s employees leaves much to be desired.

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Some freelancers may find it beneficial to consult a contractor accountant over the next few days in order to make sure their tax return is in order.

For the 25% of self-assessed taxpayers who still complete paper tax returns, the filing deadline grows ever nearer. Anyone whose return arrives after midnight on 31st October could be subject to a £100 penalty, the Revenue has warned.

There are around 9 million self-assessed taxpayers in the UK and 75% of them file online at the end of January. HMRC prefers this method of submission because it reduces the man hours spent trawling through thousands of pieces of paper.

Online filing has benefits for the taxpayer as well. Your tax is calculated automatically; you receive an acknowledgement when you’ve submitted your return; and it’s processed faster, meaning that if you’ve made an overpayment of tax, you’ll be repaid more quickly.

The taxman said there is still time to make the transition from paper to online filing by going to HMRC’s website and select “Register (new users)”.

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The Chartered Institute of Taxation responded last week to the National Audit Office’s report ‘Engaging with Tax Agents’.

The report sets out ways the Revenue can work with tax agents to overhaul the tax system. Anthony Thomas, the deputy president of the CIoT, said the paper was helpful but believes the NAO could have missed a golden opportunity.

One recommendation that does meet with approval is that HMRC could reduce costs if it let agents do more self-service on-line. This would reduce the inevitable delays that always occur when using the postal system.

However, Mr Thomas pointed out that the report did not contain an analysis of who is making over-declarations of tax, and why the errors are happening. The CIoT has been working with the Revenue for several years on just these issues and he feels the report should have reflected this. The paper also relies on data that is 5 years old and does not deal with the error rate within HMRC.

The CIoT is pleased that the report acknowledges the work of tax agents and says that without them the level of tax under-declarations would probably be a lot higher. At the end of the day, tax agents save the government money by assisting clients with their tax returns and doing tasks that would otherwise need to be done by the Revenue.

Meanwhile, tax agents are angry that although their work is acknowledged in the report, it also claims that people are more likely to under-declare their taxes if they receive advice from an agent.

The NAO claimed that 37% of self-assessment tax returns from people who consulted tax advisers had under-declared liabilities compared to just over 1 in 4 of the returns filed by taxpayers on their own.

The NAO report concluded that if the average amount of under-declared tax was reduced by 3%, the government would benefit by an additional £100m each year.

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HMRC wants to help people avoid needless errors in their self assessment tax returns and so it has launched three new toolkits to help tax agents, contractor accountants and small business owners complete their firms correctly.

The deadline for paper tax return submission is midnight on October 31st and failure to comply will make a taxpayer liable to a possible £100 fine. As well as risking a fine, persistent offenders are more likely to become the subject of a tax investigation. It therefore makes sense to ensure you file on time.

In 2009/10, nearly two and a half million people filed their self assessment returns on paper, and about 87% of them filed on time, according to HMRC data. However, that leaves 323,668 people who missed the deadline and if they all paid a fine of £100, the Revenue would be better off by over 32 million pounds!

The new toolkits cover Expenses and Benefits from Employment, Inheritance Tax and VAT Input Tax and by following their guidelines, taxpayers should minimise the risk of human error.

Brian Redford from the Revenue’s Business Customer Unit said that there was tremendous interest in the six toolkits that were launched earlier in the year; in the first 3 months, 21,000 downloads were made. The new toolkits can be obtained free of charge, are easy to use and have been designed with cooperation with the agent community.

The Revenue would also like to remind taxpayers that they can file their self assessment return online, and if they choose this route, the deadline for submission is midnight on 31st January.

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Contractors, whether new to contracting or experienced hands, will often be approached by salesmen for tax-efficient pay structures.

You will hear claims such as ;

• We can guarantee you 90% take-home pay
• HMRC compliant
• Guaranteed legal
• Approved by leading Tax Counsel

Great – where do I sign?” might be your first thought. However, you might want to reflect and find out a few things before committing yourself.

How long has the company been around?

Claims are often made that ‘we have been providing contractor solutions for 6 or 7 or 8 years’. Check with Companies House and you may find that the company is relatively newly formed. This could mean that :

a) The company will have little or no track record with HMRC.
b) The company may have no asset base so nothing to fall back on should there be difficult times such as an HMRC investigation.

How can you guarantee take-home pay percentages?

The real answer is that you can’t. It is very dependent on personal issues such as your tax code, previous income and other income. Also, measuring take-home pay is one thing but there is often hidden higher rate tax to be paid via your Self Assessment Tax Return after the end of the tax year. You will also find that a large proportion of the sum that you don’t take home is taken in advisers fees with very little actually paid in tax.

HMRC compliant – surely that’s a good thing?

This may not be as impressive as it sounds. Compliant may mean as little as the fact that the company has registered a PAYE Scheme with HMRC, which is something that it must do to employ people in the UK. They have therefore complied with the basic rules of employing people. Not quite the same as the impression they are trying to portray – that HMRC have looked at, and are happy with the overall way that the company operates.

Guaranteed legal – can’t go wrong with that can you?

Businesses don’t normally state this – only if you are sailing so close to the wind do you think it’s necessary to state it. It may also just appear to be legal – until HMRC proves otherwise, that is.

Approved by leading tax counsel – surely you can trust the opinion of a QC?

Yes, of course you can. But was the QC given a full disclosure of all facts and what was the actual opinion? It is rarely as simple as ‘Yes, that works.’ And also very unlikely that it would be something that you could rely on in Court if you needed to.

So what do I do?

Be cautious and take professional advice from someone you can trust, like your accountant. Only proceed if you are absolutely sure about the scheme. If you get it wrong it’s you that pays the tax, and the interest, and the penalties.

John Mumford is the Accounting Director of Carrington Accountancy
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People who have just become self-employed will have to wait up to 8 weeks for their registration to be processed says HMRC.

The Revenue has explained that it has had to redeploy tax officials to more high priority work and so processing time for paper applications of form 64-8 and self-assessment registrations will also be affected.

This will not affect Internet authorisations but HMRC warns that further delays may incur if tax agents submit the 64-8 form online after previously submitting it on paper.

One personal tax adviser commented that a delay of 8 weeks for registering newly self employed freelancers sounds as if HMRC wants to put people off paying tax altogether!

Meanwhile, HMRC is likely to suffer more job losses when the results of the Comprehensive Spending Review are released in October. The Association of Revenue and Customs however points out that this is not necessarily a sensible move as HMRC does generate revenue for the government.

The president of the ARC, Graham Black, said it was ridiculous to cut more jobs at HMRC. He suggests increasing staffing levels to bring in more tax and catch tax evaders and he will outline his case to MPs on September 8th at Westminster.

Since 2006-07, the amount of money collected by HMRC has dropped by £25bn and the amount spent on dealing with the tax gap has almost halved from £3.6bn to £1.9bn. Every pound the government spends on dealing with tax evasion will reap 30 times that amount, or even more. Any logical person would jump at such an investment opportunity, Black remarked.

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