Contractor accountants will no doubt remember that HMRC established a task force earlier this year to investigate restaurants suspected of tax evasion.

Since the inception of the task force in May, the revenue has started investigations into 531 businesses.

When the task force was first announced, HMRC said it would be targeting high-risk trade sectors and locations around the UK to ensure they were complying with tax regulations.

HMRC is unable to estimate the total tax liabilities under investigation, but the 45 cases that have been processed so far have yielded £634,000, giving an average yield per case of about £14,000.

So far, the task force has been focusing on London, the North West of England and Scotland. 222 investigations have been started north of the border, 159 in the Capital and 150 in the North West. The Revenue is currently considering whether to start Civil Investigation of Fraud procedures or criminal prosecutions in 22 cases.

The Revenue intends to set up a further nine task forces in the financial year ending April 2012 and has said that more will follow.

The government is keen to stamp out tax evasion and in last year’s Spending Review it allocated additional funds to help HMRC tackle the problem. When the task force was launched, the director general of enforcement and compliance at the Revenue explained that it was taking a new approach to dealing with tax evaders quickly and efficiently.

He added that the government is giving out a clear message that tax evaders will be tracked down, and not only fined but possibly facing a criminal prosecution.

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The Chartered Institute of Taxation has hit out at the government’s new disguised remuneration legislation, saying it is far too complex.

The new regulations were announced in the Finance Bill and run to 59 pages. They target third party arrangements which avoid or defer income tax on employment rewards, such as bonuses, or avoid the restrictions on pensions tax relief.

The CIoT claims that the scope of these new rules is very wide, and says the new exclusions, which were added after the original plans were disclosed, are ‘intricate and heavily qualified.’ The regulations include 14 different tax avoidance tests that govern how and when the new exclusions apply.

The chairman of the Institute’s employment taxes sub-committee, Colin Ben-Nathan, said the new legislation was penal and overrides the longstanding rules for taxing benefits in kind.

He went on to say that some pension schemes, employee share plans, smaller businesses, joint ventures and international businesses looking to relocate employees to the UK could all be impacted by these regulations. A lot of employers will turn to HMRC for clearance of their arrangements but it is not clear whether the Revenue has the resources to cope or how long it will take for them to make a decision.

Ben-Nathan concluded by saying employers could face real difficulties in assessing where they stand with these new regulations. HMRC may not agree with their view and employers will be left uncertain as to their tax liabilities.

It will probably come as no surprise to learn that the relationship between the CIoT and HMRC is at an all time low.

The incoming president of the Institute, Anthony Thomas, says he hopes to turn this situation around and return to the healthy tension that used to exist between the two bodies 10 or 20 years ago.

As well as complaints about the disguised remuneration legislation, the CIoT is dissatisfied with the Revenue’s stance over the registration of tax agents and its desire to indirectly regulate the tax community.

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Research from SFP, a leading solvency firm, has shown that tax bills are the largest cause of insolvencies amongst SMEs. In fact 75% of insolvencies cite HMRC as the largest creditor.

This could have happened because companies taking advantage of the Revenue’s Time to Pay initiative failed to make provisions for future tax bills.

Simon Plant, a partner at SRP, said Time to Pay is a ticking time bomb that no-one wants to talk about. HMRC are now calling in their debts and companies that have not accrued for their liabilities face major problems.

He went on to say that there is an increasing trend in the number of companies that owe between £125,000 and £500,000. Recent data from HMRC shows an increase in the number of firms refused TTP arrangements and the Revenue attributes this to companies applying for repeat arrangements.

However, things could be about to change after a recent tribunal ruled that problems with cash flow did constitute a reasonable excuse for late settlement of tax liabilities.

Alan Kincaid had appealed against a Revenue decision to take away the gross payment status of his company, A K Construction. HMRC said Kincaid had fallen more than a year behind with some of his payments and therefore he did not meet its compliance test. Without gross payment status, Kincaid had to pay an automatic 20% levy on gross payments from contractors and this led to his cash flow problems.

John Walters, the presiding tribunal judge, ruled that Kincaid had done everything possible to avoid this possible and his cash flow problem was a reasonable excuse.

One of the directors at McGrigors, Heather Self, said the reasonable excuse defence has been used in VAT cases for some time but it is reasonably new in direct tax. However, we now have people with commercial experience sitting in tribunals and there is a developing trend towards taking a commercial approach when considering a reasonable excuse.

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Accountants for contractors may want to warn their clients that HMRC plans to increase prosecutions against people who avoid paying their fair share of taxes fivefold.

Currently, the Revenue investigates around 200 cases per year but this is about to rise to 1,000, according to a new report entitled HM Revenue & Customs: Managing civil tax investigations, published last week.

Every month the Revenue’s dedicated investigation teams receive almost 400 referred cases, but only 20% actually get investigated.

As from the beginning of the new tax year on April 6th, offshore tax evaders will face new penalties. In some instances, offenders could be fined up to 200% of their outstanding tax liability.

However, the Revenue has been warned that it is notoriously difficult to establish tax evasion and some innocent people could face criminal prosecution in order for the department to reach its target.

HMRC has also come under criticism for its plan for large-scale checks of business records. The CIoT says the proposal is misguided and needs to return to the drawing board.

Under the current proposals, HMRC intends to check up to 50,000 cases of suspected poor record keeping each year and impose fines on businesses whose bookkeeping is not up to scratch.

The deputy president of the CIoT, Anthony Thomas, says that whilst the Institute welcomes attempts to improve bookkeeping standards, the Revenue’s approach will not work. It seems to be more aimed at raising money through fines than helping companies improve their systems. Instead it should focus on providing support, guidance and education.

The CIoT is questioning the legality of imposing penalties before a tax return is submitted, unless there is proof that the company concerned has failed to maintain any records. It suggests that the Revenue should run more structured workshops, aimed at tax agents, prior to the commencement of business record checks. Furthermore, agents should receive advance notice informing then when an inspector is going to visit and taxpayers without representation should be provided with guidance on the powers and rights of HMRC.

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Large organisations pay less tax on their earnings percentage wise than anybody else, according to the results of a survey by the Business Taxation centre at Oxford University.

However, their overall tax liability is higher as 81% of all corporation tax is paid by 1% of the largest companies.

A separate survey conducted by PricewaterhouseCoopers found that 11.9% of the government’s tax receipts came from Britain’s largest companies in the year ending 31 March 2010. The total remittance from these companies was £56.8 billion despite the challenging economic climate leading to lower commodity prices and profitability.

The PwC survey was conducted on behalf of the Hundred Group which provides employment for more than 6% of the UK workforce and generates £16.7 billion in employment taxes alone.

Corporation tax makes up 33.7% of the total tax burden for members of the Hundred Group, followed by NICs at 27.4% and local business rates at 20.3%. The major contributors come from the oil and gas sector, banks, retailers and insurance companies.

When it came to salaries in 2010, members of the Hundred Group paid an average of £46,550. This compares very favourably with the UK national average of £25,900.

The vice chairman of the Hundred Group of Finance Directors, Ashley Almanza, said the survey results show that member companies continue to make a substantial contribution to the country’s economy. It is vital for government and business to continue working together to create both investment and employment opportunities and in order to achieve that the tax system must be predictable and internationally competitive, he added.

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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 expects to see its revenue levels boosted by £2bn in the next four years after more taxpayers than expected voluntarily disclosed assets they have hidden in Lichtenstein.

The Permanent Secretary for Tax at the Revenue, Dave Hartnett, revealed that the LDF is expected to achieve three times the revenue originally predicted. The Lichtenstein Disclosure Facility enables taxpayers to disclose details of any undeclared assets in the principality and in return they are charged a reduced penalty on unpaid tax liabilities.

Since the LDF began in September 2009, 1,200 taxpayers have declared hidden assets. The scheme will continue until the end of March 2015, which gives plenty of time for many more taxpayers to make a disclosure about their tax evasion.

HMRC had originally expected to rake in £1bn from the LDF initiative, but due to the amount of disclosures that have already been made, it has revised its projection to £3bn.

The government is also about to begin talks with the government of Switzerland in order to agree a withholding tax which would be levied on British citizens who have income hidden in Swiss bank accounts. The withholding tax would mean Britons would need to pay tax on any interest they earn from bank accounts in Switzerland. Swiss banks would be responsible for collecting the tax and forwarding the money to HMRC. As yet we do not know the rate of the withholding tax but it is likely to be between 25% and 35%.

The government hopes to reach an agreement in principle on the scheme by April and experts claim it would net the Treasury between £3bn and £6bn within 2 years.

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HMRC may start forcing people to pay 20% interest to settle their tax liabilities rather than using the government backed tax deferral scheme.

The Revenue has already encouraged tax payers to look at other credit options before applying to defer tax and they are now demanding to see credit card bills which could charge anything up to 20% interest on unpaid debts. The current average interest rate is 18.8%

One of the tax partners at UHY Hacker Young confirmed that his clients have been requested to produce bills from their credit card companies in order to justify their application for time-to-pay. It now appears to be the norm for HMRC to advise clients to return to their bank or make a credit card payment before they will be allowed to take advantage of the time-to-pay tax deferral scheme, he added. To add insult to injury, the Revenue charges an extra 1.25% handling fee for processing credit card payments.

The Time To Pay scheme was introduced in November 2008 to help businesses that were struggling with cash flow problems. Since that time, 6.4 billion pounds worth of taxes have been deferred.

The Revenue claims that there has been a fall in demand for the scheme; however it has also increased the amount of applications that get rejected. In 2009, 2.6% were rejected; in the past three months, the number rose to 7.4%.

It seems that HMRC wants businesses to max out their debts before they can get any government assistance and yet this will compound the problem for businesses that are struggling already.

A Revenue spokesman said the department had not changed its policy and it has always needed to be satisfied that all revenue raising avenues have been explored before agreeing to make a Time to Pay arrangement.

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Contractor accountants keeping tabs on the government’s plans for a Universal Credit system might be unsurprised to hear that might be delayed.

The government was keen to introduce the new system in 2013, but the Revenue does not think it will have adequate real-time ICT systems ready by then.

HMRC were allocated an extra £100 million in the Comprehensive Spending Review to build a new system that could cope with tracking people’s job changes and form the basis for a universal credit benefits programme. However, last week the Public Accounts committee were informed that delays were possible as HMRC may not have the necessary systems in place.

The Department of Works and Pensions will need to extract information from the Revenue in order to commence the universal credit programme. Welfare reform requirements dictate the speed at which the technology needs to be built and these new requirements are a big job, Dame Lesley Strathie said.

The new system will also sort, identify and crystallise tax amounts owed and then translate them into the correct tax codes quickly. For the tax year 2007/08, HMRC estimates it could be owed up to a billion pounds in back tax and if you go back over the last five years, the Exchequer could have received around £40 billion less than it should have. A large portion of this figure is probably due to tax avoidance, fraudulent activity and organised crime, the Revenue believes.

There have been concerns over the implementation of real-time systems not least because of the of incorrect tax codes that were sent out earlier this year. However, Dame Lesley admitted that this was more down to the quality of the data that was fed into the system rather than the actual software.

HMRC’s financial controller, Jon Fundrey, said that IT work had been held up slightly due to the government moratorium on significant ICT spending. The same was true of IT recruitment but this is now underway.

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Online accountants might want to warn their clients that in a bid to collect more in outstanding taxes, HMRC has signed contracts with 4 debt collection agencies.

The government hopes this will bring in another £140m over the current financial year.

The Revenue will give taxpayers the opportunity to pay, or make an arrangement to pay, before passing the outstanding debt on to one of the following limited company debt collection agencies; iQor Recovery Services, Credit Solutions, Fairfax Solicitors, Commercial Collection Services.

It was announced in the Emergency Budget in June that DCAs would be used to help HMRC pursue lower value debts. This decision followed a successful pilot scheme and the government has put safeguards in place to ensure the chosen companies operate to HMRC and industry standards.

The director of Debt Management and Banking at HMRC said that the Revenue understands that there are some individuals and businesses that cannot settle their outstanding tax liabilities and measures have been put in place to help people who are really struggling. But people who refuse to pay need to be chased and this partnership with the DCAs will ensure that they are.

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Credit managers are expecting to see a rise in business insolvencies of over 10% within the next year.

Graydon UK, a commercial credit reference agency, conducted a survey which showed that 64% of credit professionals are expecting to see business failure rates in excess of 10%, and 13% of those are predicting insolvencies to exceed 20%.

Despite the prospect of increased company failures, just under 50% of the credit managers surveyed agreed that a rise in insolvencies is a price worth paying if the result leads to the future economic stability of the UK.

The MD of Graydon UK, Martin Williams, said that despite warnings from credit professionals, only a third of businesses are monitoring their clients’ public sector exposure.

The entire supply chain could be affected if a key customer or supplier, who relies heavily on government contracts, goes insolvent. HMRC has also been turning down requests under the Time to Pay scheme and 79% of credit managers say this will contribute to the rise in insolvencies.

A lot of businesses are struggling to settle other obligations and if they were expecting to defer tax liabilities they could well find themselves in serious difficulties.

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