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CIOT tells HMRC to change its approach to IR35


The Chartered Institute of Taxation (CIOT) has had it with Her Majesty’s Revenue & Customs when it comes to the approach the tax authority takes to IR35 rules.

HMRC simply has to call greater attention to these disguised employment rules, says the CIOT, and it needs to do so by showing how contractors and other types of temporary workers can fall under the IR35 rule by specifically pointing out cases that were actually decided against contract workers. Disguised employment regulations are designed to target anyone trying to engage in tax avoidance by masquerading as an employee of a company while still operating like a contract worker by “working” for their own limited companies, even though they’re really operating like a regular employee; this tax avoidance process has been in the press everywhere over the last few years as some high-profile agency workers in the public sector were found to be pulling the wool over everyone’s eyes. Now, HMRC has IR35 violators squarely in its sights in an attempt to regain some respectability.

The tax authority is in the middle of considering changes to IR35 rules in order to make them more effective, and CIOT recently commented on the possible changes that HMRC has been considering. One, which is to transfer the obligation away from the individual but the organisation he or she is working for is likely to be an abject failure according to the trade industry body, as it’s unlikely to make non-compliance any less nor is it going to make administration of the rule any easier.  Meanwhile, the CIOT says that the new “supervision, direction, control” test to determine if agency workers are indeed masquerading as employees or not is flawed to the point where genuine workers might end up being called on the carpet when they actually haven’t done anything wrong.

So what’s the professional taxation industry body suggesting instead? Well it would like to see an annual reporting obligation that would be shared between organisations and the freelancers and contractors they hire in order to see if IR35 would apply on a case-by-case basis. The CIOT says that HMRC could target the organisation if it wilfully misled the taxman when it came to non-compliance.

So is this approach by CIOT actually a good one? Is it something we should look into adopting? Damned if I know. IR35 has been such a mess for years that it seems almost impossible to unravel the massive snarled rat’s nest that it’s become. At this case we might need to deal with it the way Alexander the Great dealt with the Gordian Knot – just cut it to ribbons and move on.

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CIOT members should defend HMRC says new president


Patrick Stevens, the newly appointed president of the Chartered Institute of Taxation, has urged his members to defend the UK tax system when it comes under unfair criticism.

He made his comment at the CIOT’s AGM last week adding that negative headlines about HMRC could give taxpayers the impression that the tax system is broken. This undermines confidence and could reduce compliance. He called on members to continue representing taxpayers and advisers to the Revenue, but also to challenge exaggerations that the system is failing.

Stevens explained that in his previous role with Ernst & Young he visited tax colleagues in Europe to find out how they coped with local tax systems. One of the countries he visited was Greece and he discovered that the majority of people there do not pay the right amount of tax. It appeared that overseas companies were the only ones contributing close to the correct tax and as a result the country has no money.

UK citizens tend to be law abiding and our laws normally produce a sensible result, he continued. However, we’ve seen a lot of headlines in the last couple of years about inefficiency in HMRC, tax avoidance by large companies and the deals the Revenue makes with them. These headlines give the impression of a broken tax system and people start to question whether they need to take part in it.

The CIOT needs to help HMRC get it right, but it also needs to support the department when journalists and campaign groups level unfair criticism against it. The system is over-complex and it could definitely be improved, but it is not broken, he concluded.

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HMRC gets something right at last!


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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Should voters have more say in tax legislation?


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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Do we need more regulation on tax havens?


Mark Field, the Tory MP for the Cities of London and Westminster, has called on the coalition to stop more regulation on tax havens.

Field claims tax havens are an economic benefit and the debate surrounding them is one-sided. The TUC has estimated that HMRC losses £25 billion through corporate tax avoidance; an estimate Field says is way too high.

He went on to explain that Britain has constitutional relationships with 30 financial centres offshore and it is paramount that any new regulations are appropriate. The Crown Dependencies between them provided $332.5 billion net financing to UK banks in the second quarter of 2009 alone.

Tax havens lead the race to attract global capital and in fact a recent report by ActionAid claimed that ninety-eight of the UK’s FTSE 100 companies have set up subsidiaries in tax havens.

The banking sector in particular is a large user of tax havens. Between them, Barclays, HSBC, Lloyds and RBS own 1,649 tax haven companies. Barclays for example has 174 companies based in the Cayman Islands. Jersey has also proved to be a highly popular place to set up a subsidiary.

Meanwhile, the CIoT says all taxpayers should be able to take advantage of initiatives to get their tax affairs in order.

The Institute said schemes offering taxpayers reduced penalties if they own up to previously undeclared tax liabilities should be extended to cover more occupations. So far, disclosure schemes have been offered to medics, plumbers and most recently, tutors and coaches.

John Whiting, the CIoT’s tax policy director, said there’s a lot of benefit to be gained from HMRC’s offshore initiatives, because they encourage people to sort out their tax affairs. But, rather than just allowing certain sectors that opportunity, a cover-all initiative should be open to all.

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Contractor accountants may see more of their clients’ records checked


Earlier this year, HMRC began a pilot scheme to check the business records of small businesses.

800 SMEs, in eight areas, were included in the test and the Revenue discovered that 44% had issues with record-keeping. The pilot also discovered that 12% of the businesses it visited kept seriously inadequate book-keeping records.

HMRC has now said that it intends to step up the scheme and complete as many as 12,000 checks before the end of this financial year in April 2012. In the year 2012-13, it will carry out the checks on 20,000 small businesses.

To begin with, only firms that have kept extremely poor records be fined, but over the longer term serious inadequacies could lead to penalties of up to £3,000.

Richard Summersgill, the director of local compliance at HMRC, explained that good record-keeping enables companies to pay the correct amount of tax when it becomes due and SMEs that comply will avoid interest and penalty charges.

The Revenue says the new checks are designed to support businesses and reduce the tax gap but the CIoT is seriously concerned that the programme is to be extended.

Anthony Thomas, the president of the Institute, said it was questionable whether the Revenue has the power to penalise companies before tax returns are sent in. He went on to say that there could be misunderstandings over what constitutes adequate records rather than incomplete ones.

Thomas cited as an example the Powers team at the Revenue saying that a shoebox full of receipts and invoices was adequate in-year but the compliance team saying that unless they were listed, it was a case of inadequate record-keeping.

John Cassidy from PKF said that HMRC should focus its activities on areas that bring in an immediate cash return such as PAYE. The Revenues records show that errors and underpayments of PAYE have increased and yet compliance checks have virtually stopped.

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Tax gap shrinks but we shouldn’t become complacent


The tax gap shrunk slightly to £35 billion over the last 12 months, according to the latest data from HMRC.

In the financial year 2009-10, the amount of tax that remained uncollected due to tax avoidance and evasion was 7.9%, down 0.2 percentage points on the previous year. Whilst this might sound like a lot, it is actually lower than a lot of countries who publish tax gap data.

David Gauke, the exchequer secretary to the Treasury, said that HMRC continues to show good progress in closing the tax gap, but we must not become complacent. Over the last few weeks offshore tax evaders have been challenged, tax avoidance loopholes closed and a new unit set up to make sure the UK’s richest individuals pay the tax they owe.

However, some tax experts say it is difficult to get a realistic assessment of the size of the problem because HMRC uses tax figures that are four years old in its calculations.

Heather Self, from McGrigors, said that calculating a tax gap for VAT was simple, but when it comes to direct taxes like corporation tax and income tax, it’s a different story.

She went on to say that the Revenue must make sure it does not trample on innocent taxpayers. Over the last few years, HMRC has made some errors and become more heavy-handed and she is concerned that the added pressure to reduce the tax gap may see it adopting a blunderbuss approach.

HMRC loses £6 million a year due to simple errors and carelessness on the part of taxpayers, according to the CIoT. This news led the Institute to recommend all small businesses seek professional help when it comes to bookkeeping.

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Plumbers arrested in HMRC raids


HMRC recently announced that five plumbers have been arrested as part of its crackdown on unpaid tax. In addition to the arrests that took place during raids in Hampshire, London, Middlesex, Surrey and West Bromwich, a further 500 investigations are ongoing.

Earlier this year, the Revenue sent letters to 50,000 people working in the plumbing sector warning them they would face large fines if they did not settle their tax liabilities. HMRC thought that some plumbers were moonlighting and receiving cash in hand without declaring tax. Anyone who owned up before the May deadline was fined up to 20% of the tax they owed.

HMRC then raided those who did not come forward initially to make sure they pay their outstanding tax. It is thought that some individuals owe as much as £150,000.

John Pointing from the Revenue said these arrests were the culmination of many months work and warned that more raids will take place in counties across the country including Cambridgeshire, Kent, the Midlands, Tyne & Wear, Yorkshire and South Wales.

Previously the CIoT had said that the Plumbers Safe Tax Plan campaign was not publicised enough and some plumbers were unaware of its existence. However, HMRC has now stepped up the pressure.

Gary Ashford from the Institute said the Revenue as only had limited success with its medical and plumbers’ voluntary disclosure opportunities, so now they are adopting a tougher stance with those who did not come forward. HMRC holds a lot of information and it is now starting to use it.

The government claims that it loses £45 billion every year through undisclosed taxation in the UK and HMRC has now been given £917 billion to tackle tax avoidance and tax evasion.

Plumbers who did come forward and make a disclosure have until the end of this month to pay up in full or make arrangements to pay their outstanding tax liabilities.

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Concerns from contractor accountants over tax agent strategy


The Chartered Institute of Taxation says there are a significant number of issues that need to be addressed before HMRC can implement the tax agent strategy.

The Revenue recently published proposals that would allow authorised tax agents, including some online accountants, to use a self serve system allowing them greater access to its systems. Under the scheme, advisors that had already enrolled would be able to amend PAYE codings and change addresses themselves.

Whilst the initiative has been welcomed by many in the profession, the CIoT and the ATT have said that there needs to be an independent body overseeing the disenrollment and suspension of advisors. Around 1,500 members of the CIoT contributed their views and they highlighted concerns over data security and the additional burden a self serve system could put on the advisors.

The president of the ATT, Andrew Meeson, said there needs to be further clarification over who will be able to access self-serve. A lot of people feel that unrepresented individuals should have some access. We also need to receive some reassurance about data security within the Revenue’s systems if all agents have access. Professional agents will not want to take part in the system until these issues are resolved, he added.

Anthony Thomas, the CIoT’s president, went further saying tax advisors are not going to be interested in self-serve if it forms part of an unpalatable package which will cause problems later.

The closing date for responses to HMRC’s consultation on the tax agent strategy is September 16th.

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Christopher Lunn & Co loses tax agent status again


East Sussex accountancy firm, Christopher Lunn & Co, has again had its tax agent status removed by HMRC.

This is the second time CLAC has had its status removed because of perceived irregularities. Last November, HMRC officials raided CLAC’s offices and its agency status was removed. However, in February a judicial review found that CLAC was not allowed to answer the Revenue’s claims and its status was reinstated.

The Revenue has now taken representations from CLAC and last week it announced that, with immediate effect, it will no longer be dealing with the contractor accountancy firm.

Dave Hartnett, the permanent secretary for tax, said this situation only occurs in exceptional circumstances where the department believes there could be serious irregularities in accounts and tax returns.

The president of the CIoT, Anthony Thomas, stressed that there needs to be independent oversight into the powers of HMRC when it comes to tax agents’ status. This will be even more important if the proposed system of enrolment comes into force, as this will inevitably lead to disenrollment of some tax agents. He added that a clear, agreed procedure needs to be drawn up so that everyone knows where they stand in situations like this.

Christopher Lunn claims that HMRC has once again acted wrongly and improperly. The firm issued a statement in which it said the Revenue had notified its lawyers that it would no longer be dealing with the accountancy firm as a tax agent. CLAC believes this action is wrong and will be demanding an explanation for their conduct.

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Dishonest contractor accountants beware: HMRC plans to clamp down hard


Last Thursday, HMRC published new proposals to clamp down on tax agents who act dishonestly.

“Working with Tax Agents; Dishonest Conduct” lays down the Revenue’s latest proposals along with draft legislation.

Dishonest tax advisers will be subject to a civil penalty and HMRC will have the right to publish details of advisors who do not make full disclosures on its website. The Revenue will also be allowed to issue “dishonest conduct notices”, which the advisor will be able to appeal.

HMRC has admitted that the way it interpreted draft legislation early last year was different to the way most tax professionals saw it. However, it has now made substantial alterations to the original proposals to make sure that penalties would only be imposed when there was an illegitimate loss of tax.

The permanent secretary for tax, Dave Hartnett, said the Revenue has worked closely with interested bodies to draw up the new draft legislation.

Anthony Thomas, the CIoT’s president, said HMRC should receive praise for listening to the views of interested parties and returning to the drawing board to start again from scratch.

However, he does question whether this legislation is necessary and whether it is coming at the right time. He went on to say that the CIoT shares the Revenue’s desire to track down rogue advisors.

The head of tax at the ACCA, Chas Roy-Chowdhury, pointed out that HMRC has taken on board the concerns his organisation had and a man talking about tax in his local pub will not be penalized. The focus of the new legislation is on agents making mass claims for tax repayment.

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Income tax and NI merger moves a step closer


The government is proceeding with its plan to merge income tax and national insurance by first inviting businesses to provide evidence of the problems they encounter administering two separate taxes.

Employers and payroll professionals will have until the 19th of September to answer 14 questions primarily focusing on the burden of the PAYE system.

One of the questions on this evidence-seeking consultation asks respondents to rank the amount of time spent carrying out income tax and national insurance processes on a scale of one to five. Others ask about calculation errors, usage of payroll processing software and the introduction of Real Time Information.

David Gauke, the exchequer secretary, said the coalition has committed to making the taxation system in the UK the most competitive in the G20 countries for business, as well as simpler for individual taxpayers to understand.

Integrating income tax and national insurance will be a radical reform, but the government believes it will bring about real improvements, he added.

Anthony Thomas, the president of the CIoT, has welcomed the government’s decision to gather evidence from interested parties. He pointed out that a recent OTS report showed that both employers and HMRC can make significant administrative savings by harmonising the way NI and income tax are run.

The responses to this process will give the government an idea of how it should proceed with the formal consultation which is planned for the autumn.

The Treasury has also made it clear that NICs will not be levied on pensions, people above pension age, dividends or savings.

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HMRC to improve relations with tax agents


HMRC intends to improve its relations with the tax agent community, a move which could bring benefits to contractor accountants.

The department has drawn up a list of proposals which include understanding the tax system from the perspective of an agent and providing additional security against fraud by enrolling agents on a database.

HMRC spokesman, Brian Radford, pointed out that tax agents had a vital role to play in delivering the tax system and the Revenue would be unable to function without them. HMRC wants to improve its service to take account of the changing needs of its customers and make administration more consistent and efficient.

He concluded by saying the department had been working closely with agent representative bodies because they also want to help taxpayers meet their tax obligations effectively and efficiently.

The Chartered Institute of Taxation has welcomed the move. The president of the Institute, Anthony Thomas, said agents are likely to welcome the proposed self-serve facility so that they can access some of HMRC’s system. Agents get frustrated at the time wasted waiting for the Revenue to do its job, correcting errors and routinely chasing progress. If the self-serve facility is implemented effectively, it could save agents, HMRC and taxpayers both time and money.

Thomas did express concerns that the database enrolment should be overseen by an independent body and the system must not become bogged down with excessive bureaucracy. It’s important to remember that tax advisers are agents to their clients and not the Revenue.

HMRC’s proposals are now at the consultation stage and the Revenue intends to run a series of meetings and workshops with agents to find out their views.

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Chartered Institute of Taxation hits out at HMRC


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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