Tag Archive | "offshore"

Non-doms should get advice from a contractor accountant

Non-domiciled individuals should seek the advice of a contractor accountant, as they may qualify for tax benefits.

Calculating whether or not a UK non-dom is eligible to benefit from tax planning opportunities is complicated and depends on various factors, including the length of time they have been resident in the UK.

Robin Sewell, a managing partner at chartered accountancy firm Midgley Snelling, said non-doms would be best advised to seek advice before they take up residency in the UK, but it is also worth foreign nationals checking to see if opportunities are available, even if they have been resident here for some time.

He went on to stress that careful implementation is necessary and it is vital that overseas income, gain and assets are recorded correctly.

There has been a significant drop in the number of people registering for non-dom status in the UK since an annual levy was introduced and the inheritance tax laws changed. In May it was reported that the number of registrations had dropped by 16,000 since 2008 when the £30,000 levy on non-doms living in the UK for longer than 7 years was introduced.

People who were born outside the UK, but are long-term resident here, can claim UK non-dom status. They do have to pay income tax on UK earnings, but any earnings abroad do not attract UK tax providing they remain offshore.

In his last budget, George Osborne announced that the levy on non-doms was to increase to £50,000 for people who have resided here for 12 years. The government expects that move to raise an additional £200 million over the coming years. However, the Chancellor said he wanted to encourage overseas investment and would remove the charge non-doms pay if they remit capital gains or foreign income to the UK to invest in a UK business.

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HMRC’s tough stance on tax evasion is paying dividends

Dave Hartnett, HMRC’s permanent secretary for tax, recently confirmed that the taxman’s approach of targeting specific professions has raked in vast amounts of previously unpaid tax.

He said the Revenue has had great success by targeting people, including the clients of some online accountants, with offshore bank accounts and targeting sectors, like the medical profession, has been very fruitful.

The latest tax amnesty has been aimed at the plumbing sector. HMRC offered lower penalty rates to those willing to declare unpaid tax. The Revenue has also set up task forces to investigate London’s restaurant trade and these will soon be rolled out across the entire UK.

Contractor accountants with clients in the restaurant trade may want to encourage restaurant managers to get up to date with their record keeping. HMRC will expect to see till rolls, cheque stubs and records of sales and takings. The taxman is also likely to take an in-depth look into gratuities received by waiting staff. Tips are often undeclared but as the Revenue toughens its stance on cash payments, waiters could find themselves in the spotlight.

£917 million has been ring fenced to tackle tax avoidance, tax evasion and fraud this year and the Revenue hopes to claw back £7 billion every year within 4 years.

HMRC is also planning to launch an initiative to catch individuals and businesses who have not registered for VAT.

The scheme is due to start in the summer and the Revenue is already having discussions with interested parties. Mike Wells, the director of risk and intelligence at HMRC, said the department wants to gain as much insight as it can into the opinions of people and organisations so it can implement these into the campaigns it designs for its customers.

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HMRC plans could lead to innocent people being prosecuted

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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EC says the UK is taking tax avoidance measures too far

The European Commission has requested that the UK amends its anti-avoidance and tax evasion measures.

Last week, the EC said that regulations regarding the attribution of gains to non-UK resident firms and the transfer of assets abroad were disproportionate. The Commission added that the UK regulations go beyond those that are reasonably necessary in order to prevent tax avoidance.

David Kilshaw, the chair of KPMG’s private client practice, said this could be a serious threat to the Treasury’s revenue as it concerns a significant amount of tax.

Current provisions allow for HMRC to review offshore structures and tax individuals holding assets in them at the personal tax rate. However, the EC says this is discriminatory as individuals are not liable to pay tax on the assets of a UK based company.

The EC also wants the UK to change the regulations regarding cross border capital gains. At present, if a company that is UK resident acquires a share greater than 10% of a company in another EC state, and that company sells an asset and realises capital gains, the UK company is liable to pay corporation tax on these gains.

Kilshaw also warned that HMRC might start to tax UK companies at a higher rate if it is forced to tax them the same as offshore companies.

If the UK does not comply with the request, the matter may be referred to the European Court of Justice.

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Hidden assets in Switzerland could become subject to UK tax

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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Who needs an IT industry anyway?

I’ve written before about the confusion in the debate about immigration and the constant refusal of government and the press to separate genuine immigration from abuse of the system, especially the misuse of the ICT programme. That debate has been raging for a while now and remains unresolved, although we did think we might be getting the message across.

Then, all of a sudden it seems we have a major triumph. We, via our fiends (sic) in Brussels, have just signed a trade agreement with India. Nothing much wrong in that by itself, we need to trade and India is a growing economy. But look a little deeper…

In exchange for India relaxing its import rules so the EU can sell into that market, we have apparently agreed to give their engineers, IT workers, project managers and other skilled trades virtually unlimited access to our market. OK, so it’s a free world and we all have to get work where we can at the best rate we can. But given that India’s official language is English, and there aren’t that many English-speaking countries in the EU – even if you count Scotland – I somehow get the feeling that the traffic in this direction will be rather heavily biased in our direction.

Again, not a problem, except that, as with the ICT scam, these aren’t likely to be long-term immigrants. Some will no doubt be here for a long time, and some will genuinely contribute to the UK economy. But I have a nagging feeling that an awful lot of them will be here to learn how to do the job we’re doing for ourselves and then move it back home where the labour rates are considerably cheaper. That might cut the bottom line but it is a horribly short-term view of things. It won’t take too long before all the real work in IT, for example, is offshored and our service economy – once one of the world’s strongest – has gone the way of the Dodo.

So if this is good news, I would really hate to see a tragedy.

And what really annoys me is that one part of Government is talking about limiting immigration, another part is making positive noises about ICT use and abuse while another part is selling us down the river. Well thanks, guys, great job.

And let’s be clear here. I have absolutely no problem with India or the Indians and never have done. I have no objection to skilled people coming into the country and benefiting us as a whole. I don’t even have a problem with the ICT system, which allows the simple transfer of key staff for shot term purposes.

But I do have a problem with our government doing all they can to close down the industry I’ve been working in for the last 35 years.

Someone has got this badly wrong. And I don’t think it’s me…

Alan Watts can found at LinkedIn.
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Will the UK Visa cap cause more functions to be outsourced?

There’s been a lot said recently about clamping down on the amount of migrant workers allowed to enter the UK. Despite this, the latest CIPD/KPMG Labour Market Outlook report suggests that as the UK labour market improves, so does the employment demand for migrant workers.

600 employers took part in the survey and 45% of them said they have experienced difficulties in recruitment. Engineering, IT and accountancy positions are hardest to fill and consequently 17% of employers intend to hire migrant workers during Q3. 21% have recruited migrant workers in the last 3 months and of those workers, 37% came from outside the EEA.

Offshore outsourcing also seems to be making a comeback with 9% of private sector enterprises intending to offshore jobs over the coming 12 months. India is still the most common offshoring location, followed by China and Eastern Europe. Call centres, IT and finance are amongst the most likely functions to be outsourced abroad.

The public policy adviser from the CIPD, Gerwyn Davies, pointed out that it will take time to train British workers to fill the positions currently being occupied by skilled migrant workers. He believes that the proposed migration cap should be phased in gradually so as not to harm our competitiveness.

There is currently a temporary visa cap on all new Tier 1 applicants and applications for Tier 2 visas are limited by the issuance of Employer Sponsorship Licences. The permanent cap on UK visas will be introduced next April.

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It’s balderdash to claim the LDF is a failure says HMRC

HMRC have fought back at claims that the Liechtenstein Disclose Facility has been a failure.

Between the first of September last year and the end of March 2010, only 419 taxpayers signed up for the LDF. The New Disclosure Opportunity, on the other hand, was taken up by 10,000 taxpayers, according to McGrigors.

The LDF has more favourable terms than the NDO. Taxpayers only need to own up to undeclared offshore tax liabilities going back 10 years as opposed to the 20 year requirement for the NDO.

The tax and law firm said that this was another example of the poor responses to disclosure initiatives from HMRC. The firm pointed out that another tax amnesty for medical professionals has been taken up by only about 1,500 of the 30,000 who are thought to have undisclosed tax liabilities.

McGrigors believe the take up rate for these disclosures is hampered by a lack of advertising or promotion by the Revenue. They say that professional advisers are given the responsibility of spreading the word rather than the taxman taking the initiative.

The Revenue says it is very pleased with the amount of individuals who have voluntarily registered for the LDF so far. The number is increasing steadily, and unlike other short term disclosures, the LDF is available until 2015.

The LDF legislation doesn’t come into effect in the principality until the first of September, so it’s ridiculous to start drawing conclusions already. LDF is going really well and its “balderdash” to suggest differently, an HMRC spokesperson said.

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Contractor accountants should be wary of HMRC prosecutions

UK individuals, including limited company contractors, appear to be committing less tax offences than in previous years according to law firm McGrigors.

In the 12 months to the end of September 2009, 157 people were found guilty of tax offences. That was a drop of 62 compared to the corresponding period the year before. Of the 157 convictions, 74 were for VAT related offences.

A former Inland Revenue prosecutor who is now a partner at McGrigors said that HMRC is not prosecuting as many people for tax evasion as they did in previous years because they are concerned about losing cases that come before a jury. The law firm also claims that HMRC lost £7bn through tax evasion in 2009. It is expected that the Revenue will recoup around £3bn through its tax amnesties but that still leaves a huge shortfall.

HMRC are concerned that few people took advantage of the recent New Disclosure Opportunity and the Liechtenstein Disclosure Facility but believe that this is because people are no longer afraid if prosecution.

However, things may be set to change. It appears that the Revenue plans to increase the number of prosecutions and call on judges to pass longer sentences. They also plan to ‘name and shame’ guilty parties.

A spokesman from the tax office said that they do tackle fraud effectively and prosecute where appropriate. But civil settlements are obtained where possible in tax evasion cases as this is more cost effective. By using civil proceedings the taxman ensures that all undeclared tax, plus penalties, is repaid.

Meanwhile, employers and employees are being given a limited time of 2 months to minimise tax and NIC payments due on accommodation provided through Employee Benefit Trusts. If they come forward, they will not face prosecution providing they settle outstanding tax liabilities in full.

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Contractors sheltered from new disclosure opportunity

We are aware of HMRC plans to offer medical professionals a disclosure opportunity in respect of unpaid taxes. The Tax Health Plan will allow medical professionals the chance to disclose any arrears and settle them with interest and a ten per cent penalty.

Those who fail to make a disclosure who are subsequently investigated by HMRC and found to owe taxes could then face a one hundred per cent penalty.

HMRC have accessed information regarding the earnings of medical professionals from the NHS, medical health insurance companies, private hospitals and certain contractor accountants. Prior to acting on the information they hold, HMRC are offering medical professionals the opportunity to confirm their intention to disclose their earnings by 31st March 2010. They will then have until 30th June 2010 to make their full disclosure.

Mike Well from HMRC has suggested that the government already has an abundance of information at it’s disposal that could be used to investigate medical professionals. He said “I strongly urge any in this group who think they may have outstanding tax liabilities on their income to get in touch with HMRC and get their tax affairs in order simply and on the best available terms.”

This disclosure opportunity is likely to be extended across other sectors in the future. Contractors using umbrella companies , such as Crystal Umbrella, are unaffected since their taxes are deducted fully through PAYE. It is expected that the umbrella model and online accountants will become increasingly more popular with medical professionals who are keen to minimise their taxes without the hassle of extra administration.

Scott Illingworth is Director of Service Delivery at Crystal Umbrella.
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New Year Resolutions?

It’s that time of the year when people herald in the New Year with plans to renew their gym membership, eat less and cut down on booze. These resolutions also apply to the world of contracting. Here’s what I mean.

Go on a diet

Our government needs to reduce red tape and ditch the complicated tax system. Will they? I doubt it against the current economic backdrop and with an election around the corner. It will also be interesting to read the Conservative manifesto on taxation – although I think, ironically, that this will offer slim pickings. We are getting an audience with the shadow chancellor, so watch this space; I may have more to report back on.

Get fit

We need the economy to be in better shape, but the world of contracting has remained robust in 2009. The flexible workforce has been instrumental in helping to keep the UK competitive as we power walked through the recession. But we still need a fitter and much trimmer economy. I just wish the UK government would do more to understand how contractors have contributed to the health of the nation and recognise this point. And in terms of membership issues, the EU social chapter that tries to impose conditions on countries needs to cater to each member’s diversity of employment and labour trends in order for these countries to remain economically healthy. I am pro protecting truly vulnerable workers, but the true nature of flexible employment needs to be understood.

Get competitive

Offshoring, outsourcing and flexible working are all here to stay. So quit complaining and start competing! Niche contractors always find good roles (and rates) and now more than ever we need to focus on better skills, better delivery and perhaps creating more connectivity to compete. Try and find some time and money to think about training and marketing.

Get advice

Invest in good advice. If your yoga teacher reckons he’ll have you in a lotus in the first half-hour of training you need better advice! I’ve lost count of the number of times I’ve heard a contractor bemoan bad tax advice from a cheap book keeping solution. Spend a little bit extra and get good counsel about your tax position, possible opportunities to invest and improve your finances. Use a specialist rather than a generalist.

I could go on and on, but if we could keep to some of the above then we stand a chance of succeeding. I think 2010 will be tough but not impossible. The strong will thrive. Right, I’m off for a beer and pie….

Rob Crossland is Managing Director of Parasol Group
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