Tag Archive | "compliance"

How much does the UK really lose to tax avoidance each year?

HMRC says that Tax Research UK’s claims that tax avoidance in the UK is currently running at £120 billion a year are very misleading.

The Revenue says this claim has caused concern and confusion, especially as it estimates the tax gap to be £35 billion. Furthermore, HMRC stresses that it collects more than 90% of all the tax that is owing to the Exchequer.

HMRC has produced a report for MPs in which it explains that the disparity is due in part to the estimates not being directly comparable because their definitions are different. Despite that, the £120 billion is misleading because it confuses the tax gap with legitimate reliefs and cash flow in certain areas.

For example, the figures from Tax Research UK do not take the yield from direct tax compliance into account and that totalled £13.9 billion in the financial year 2010-11.

The report ended by saying that measuring the tax gap was not a precise science, but the Revenue is confident that a tax gap of £35 billion is a much more accurate estimate than £120 billion.

The government has been trying hard to clamp down on tax avoidance and close any loopholes as soon as they are discovered. Honest taxpayers would no doubt be very distressed if they thought £120 billion a year was still slipping through the net when a lot of people are struggling to keep their heads above water.

We will never know the true extent of UK tax avoidance, but we must hope that the government closes the gap further in the near future.

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HMRC doubles corporation tax take from large business investigations

HMRC raked in an additional £4.06 billion through its investigations into corporation tax last year.

The Large Business Service compliance unit has doubled the amount it raised in just five years. According to McGrigors this proves that the coalition is not giving into the needs of big business as some people have implied.

Jason Collins, a partner at the law firm, the Revenue is trying to get as much money as they can from investigations into big corporations. UK Uncut and other tax lobbying groups in the UK claim the government has gone soft on large businesses, but these figures prove this is not true.

The Treasury is trying to make Britain a more attractive place for companies to operate in by reducing the rate of corporation tax. However, big businesses might think twice about setting up here if they believe HMRC has a strategy to squeeze large corporations dry, he added.

Meanwhile, the LITRG has issued guidance so that taxpayers can check their new PAYE code is correct.

By early March, HMRC will have issued about 18 million coding notices to pensioners and employees informing them of their PAYE code for the tax year beginning in April.

There are sections in the guide explaining the basics of PAYE codes, how to check your code online if you are a self-assessment taxpayer and how to contact HMRC by phone if you have problems.

There have been problems with Revenue coding notices over the last couple of years and every taxpayer should check their code carefully and query anything they do not understand. Failure to do so could mean you pay more or less tax than you should do and this can lead to problems further down the line.

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Aggressive activity now could cost HMRC in the future

HMRC is rubbing its hands together in glee after increasing the amount it collects from its compliance work.

In the last 12 months, HMRC’s income from investigations into tax avoidance and tax evasion rose to £16.5 billion. That’s a 37% increase on the last financial year.

Accountancy firm UHY Hacker Young said the increase was a result of the taxman adopting a more aggressive approach. Enquiries into corporation tax provided the Revenue with £4.6 billion, whilst VAT inspectors brought in £6.2 billion – up 92% on the previous year.

According to UHY Hacker Young, the government believes that if it keeps on investing in tax inspectors, the extra money will continue to flood in. In reality, a lot of businesses settle up because they feel intimidated by HMRC.

Roy Maugham said the Revenue’s aggressive stance is going some way towards helping reduce the budget deficit. However, the downside of this is that the Exchequer will find it harder to work out the total cost of compliance and the UK will become a less attractive place to do business.

A lot of UK companies have already moved their headquarters overseas to countries like Ireland, Malta and Switzerland, he continued. They have done this to escape the high business taxes in the UK and HMRC’s aggressive attitude to tax collection.

The Treasury could lose out in the long run as the lost revenues from companies relocating overseas outweigh the revenue brought in from increased compliance activity, Maugham concluded.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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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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Customer service at HMRC is inadequate says ICAS

The Association of Taxation Technicians claims that HMRC is breathing down the neck of small businesses to make sure they are keeping accurate books.

The ICAS has also found that all but the largest organisations are dissatisfied with the service they receive from the Revenue.

Local compliance offices deal with the tax affairs of businesses and 65% of ICAS members say the efficiency and effectiveness of these offices is either poor or very poor. The Revenue’s Debt management and banking division, which deals with debt recovery, tax payments and time to pay arrangements, doesn’t fare much better at 60%.

ICAS says these figures are disappointing and highlight the difficulties contractor accountants and tax professionals face. This also raises further concerns about the impact on taxpayers without professional representation. Whilst the ICAS supports government moves to make sure everybody pays the correct amount of tax, HMRC must make it easier for firms to comply.

Furthermore, the survey shows that debt management processes within the Revenue are disjointed. Aggressive tactics are often used to chase taxpayers who do not owe money and different sections within HMRC need to improve their communications.

Elspeth Orcharton, ICAS’ assistant director of tax, said the largest UK organisations receive a good standard of service through HMRC customer relationship managers, but this demand on resources has led to smaller businesses receiving a poorer service. The operating and staffing systems within the Revenue cannot cope with supporting compliance of our very complicated self assessment tax system.

Nearly 50% of ICAS members were happy with the technical skills of Revenue staff once they found somebody with the requisite knowledge, but the problem was getting to that person. HMRC appear to have too many employees who don’t have the necessary knowledge and spend all their time asking questions of others.

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Will accountants for contractors take on the Red Tape Challenge?

Since the coalition launched its Red Tape Challenge website, more than 6,000 responses have been received, according to government data.

Businesses and limited company contractors have been invited to submit their comments on current and forthcoming legislation to give the government an opportunity to adapt the regulations before they are implemented.

A lot of the published statements have called for changes in the retail environment and industry sector champion, Dr Kevin Hawkins, urges consumers, suppliers and trade associations to visit the site and express their concerns and solutions. He described the Red Tape Challenge website as a chance “too good to miss”.

He went on to say that this is the first time the government has given those at the sharp end of complex regulation the chance to be heard. This is a golden opportunity for business owners to tell politicians about the bureaucracy that wastes time and money and suggest ways to improve things for both themselves and their customers.

The business secretary, Vince Cable, says that unless ministers can come up with strong reasons why an item of unpopular regulation should remain, government departments will scrap it.

Amongst other legislation up for debate, the website contains 278 environment regulations, 264 concerning pensions and 151 that cover employment law.

The portal has already received concerns over the Care Quality Commission agency and health and safety guidance.

One man wrote that the CQC does not understand that dentists operate small businesses and do not have the staff to spend hours filling in forms and undertaking compliance audits. He went on to point out that too much reliance is put on box ticking exercises and the government doesn’t seem to appreciate that professional staff are regulated and are committed to providing the highest possible standards.

The owner of a small construction company recommended a rethink over the work time allowable for the use of steps and ladders.

However, not everybody is happy about this new government initiative. One lady asked why the public was being asked to contribute their views when MPs are paid to sort out these problems.

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Will HMRC really show leniency towards iXBRL failings?

Contractor accountants will probably be wondering whether the taxman is going to stick to its word and be lenient towards businesses that were unable to file their corporation tax returns using iXBRL.

HMRC has sent letters to software developers promising sympathetic treatment for the next two years due to iXBRL software packages that are unable to handle the new Minimum Tagging List requirements.

However, the letters also warn that the Revenue expects companies to progress towards full compliance before the 1st April 2013.

Accounting software giant, Sage, are still having problems meeting the tagging requirements laid down by HMRC. Software solutions provider, IRIS, pointed out that Sage customers could be approached by the Revenue after submitting their returns. IRIS’ product director, John Pattenden, welcomed the news that HMRC will not immediately reject returns that do not comply with MTL, but customers will need to rely on the goodwill of the Revenue in order to go on operating and submitting returns.

Meanwhile, accountants and tax advisers have been warned that the cost of implementing the necessary iXBRL software could lead to expenses rocketing. The system is meant to highlight key information automatically but experts claim that 20% of tagging will still need to be done manually.

Donald Drysdale, the assistant director of tax at ICAS, said UK advisers will see an increased administrative burden due to iXBRL. The profession is already trying to help struggling businesses and they now have the dilemma of whether or not to pass on the additional costs of iXBRL reporting to their clients.

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Common Consolidated Tax Base would slightly reduce UK GDP

The European Commission wants to reduce significantly the burden of administration, legal uncertainties and compliance costs that face EU businesses and online accountants at present.

It has now published proposals to calculate the tax base of all the 27 member countries under a common system.

The Common Consolidated Tax Base would provide companies with a ‘one stop shop’ system when it comes to filing tax returns. The system would also enable organisations to consolidate all profits and losses incurred across the European Union. EU states would still retain the right to set their own tax rates.

Under the current system, companies trading across borders could be dealing with 27 different rules for tax calculations, including a complex way of working out the taxation on intra-group transactions.

The commissioner for taxation, customs, anti-fraud and audit, Algirdas Šemeta, said the CCTB will make doing business with the EU cheaper, easier and convenient. It will also benefit SMEs that want to expand outwith their domestic market. The proposal will benefit business and improve the EU’s global competitiveness.

However, research conducted by the Oxford University Centre for Business Taxation has found that the UK’s GDP would fall by 0.05% if these plans are implemented.

The ICAEW has said that the idea of a consolidated tax base if good and will make it easier to trade, minimise disputes and reduce compliance costs. But the new system will run alongside the old model and therefore administrative burdens will be increased. The Institute is therefore calling for the scheme to be voluntary.

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Implementation of Bribery Act to be delayed until mid-Summer

Accountants for contractors might want to tell their clients that Kenneth Clarke, the Justice Secretary, has confirmed that the government intends to review the new Bribery Act legislation and will therefore be delaying its implementation.

Originally the Act was due to be implemented in April, but this delay in publishing the official compliance guidance means the target date is now mid-Summer.

The head of the OECD’s anti-corruption efforts, Professor Mark Pieth, was not pleased with the decision saying it hurts the competitiveness of industry in the UK if companies are still allowed to secure contracts through bribery.

The CBI, on the other hand, has backed the Ministry’s decision as it will give companies more time to prepare for implementation. It warned that in its current form, the legislation was unworkable. The CBI’s director of employment policy, Katja Hall, said the Confederation backed the principle of a comprehensive, strong anti-bribery law but the delay is essential if the government is to protect the competitiveness of the UK. The delay will ensure that the guidance is correct and the legislation workable.

The ACCA also believes the delay will be good news for businesses. The head of ACCA UK, Andrew Leck, said that businesses must understand how the Act will affect them and have time to prepare. Of particular concern to the ACCA, is the impact the new legislation will have on SMEs. The Association is calling on the government to make sure the guidelines are relevant to the small business sector as SMEs are the ones in most need of clarity and support.

In related news, construction companies have complained that British embassies do not help them when they are faced with bribery demands overseas. The Serious Fraud Office advises companies to report overseas bribes in order to be in compliance with the Bribery Act.

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