Tag Archive | "tax investigation"

HMRC backs down in contractor accountant case

HMRC has eventually settled out of court in its long running case against Christopher Lunn and Company, the West Sussex based contractor accountancy firm.

The Revenue has been conducting an ongoing investigation into the way CLAC represented its clients and had even refused to deal with the firm last year, but a judicial review overturned that decision in February this year. At that time it was ruled that HMRC had removed the accountancy firm’s status as a tax agent without following correct procedures.

Christoper Lunn and Company instigated another judicial review challenging the Revenue’s refusal to give details of the documents it provided the court to enable it to obtain a search warrant. HMRC eventually provided the documents a couple of days after CLAC made its application for the review and agreed to pay the legal costs incurred by the firm.

Christopher Lunn, the founder of the company, explained that the main issue was getting HMRC to release the documents, provided to the judge at the time it asked for the search warrants, to his lawyers. These were required by his solicitors so they could examine the legality of the Revenue’s actions and allow the firm to respond.

He went on to say that the case had gone on for too long and HMRC had received his explanations. The Revenue should either drop the investigation completely or formally file charges so I have the opportunity to clear my name, he added.

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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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New tax amnesty announced, this time for plumbers

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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Contractor accountants’ clients beware!

Contractor accountants should be aware that HMRC is cracking down on individuals who defraud the system by wrongfully claiming tax credits.

In its latest initiative to catch fraudsters, the Revenue has written to 12,000 self-employed people warning them that it intends to investigate their claim. Recipients of these letters should contact HMRC and produce evidence to substantiate their claim.

Failure to inform HMRC of any change in income can result in an overpayment which claimants are obliged to repay. Failure to do so can lead to a fine, and if the deception is found to be deliberate, the claimant could face criminal charges and imprisonment.

David Gauke, the Exchequer secretary to the Treasury, said that HMRC is determined to adopt a tough stance when it comes to targeting tax credit fraud. Last year the coalition launched proposals to cut down on the billions lost to fraud each year. The Revenue has confirmed that it will use data matching and credit reference agencies to check for fraudulent patterns if it suspects an individual’s tax credit claim to be fake or inaccurate.

HMRC is also scrutinising the tax status of company vans due to concerns that National Insurance and tax contributions are being underpaid.

According to KPMG, the Revenue has been sending detailed questionnaires to some firms asking how they keep track of private usage of company vehicles. The employer is asked to define its definition of insignificant private usage, provide information regarding the last three year’s van policies and state whether the vehicles have mileage tracker devices fitted.

Employees using company vans for their own personal use should pay tax on a flat-rate £3,000 value for the vehicle and £500 for subsidised or free fuel.

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New toolkits launched to prevent self assessment tax errors

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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Motion vs. progress?

Usually I find one thing to talk about each week; even in the depths of the silly season there is something relevant to freelancing worth trying to write a few hundred words about. This week, for some reason, I haven’t found a single thing. Perhaps I’ve been a bit too busy to notice – you could say the current client presents some interesting challenges – but I have tried. Honest…

The main event in the news – well, the BBC version of the news so it really must be important – is all about the Millibands and the will-he-won’t-he tedium of will big brother work with little brother or not (and he won’t, it seems). Sorry but from here I really don’t care that much. While Her Majesty’s Opposition is an important element of the government process, precisely who wears the various labels in the Shadow Cabinet is actually fairly irrelevant. Unless you’re interested in who fights the next election, which is far enough away to be of zero interest, I’m afraid. And anyway, I’m a contractor; there are far more important things to worry about.

One of them is a bit of a debate on EBTs. I’ve said before that these may be a good thing for some but you have to go in with your eyes really wide open. The risks are just that bit too high if you don’t fully understand the scheme and, equally importantly, the government’s attitude to them. My point is that since HMG have effectively shut down EBTs from next year, people who sign up to one now are at a considerably higher risk of investigation than those who have been using them for some time. This, for some people, seems to be an unreasonable position. Heigh ho…

There’s been another discussion on Security Clearances and the old Catch-22 of no clearance no job, no job no clearance. Somehow this has mutated into a discussion about how clearance works. That’s really not what it’s about, the process and the parameters work well and are pretty effective. All I’m really interested in is being allowed to get in front of the hiring manager to sell my services, which is something that I and a majority of other contractors can’t do at the moment. I’m more than happy to take my chances of persuading a hirer that I’m worth the effort of sponsoring for clearance, but I can’t do that if I can’t ever get to meet them.

And of course the whole visa issue rumbles on. This is getting increasingly confused, not helped by a certain Mr. Cable’s interventions. Nobody is saying we shouldn’t allow ICTs; there are plenty of instances where they are entirely justifiable. However, when you consider that some of the people complaining about the proposed cap on them haven’t actually used the ones they are allowed to use, just what is the problem? Apart from reading that a small number of companies from one country have brought in several thousands under ICT visas. The argument is not about ICTs, it’s about misuse of ICTs. Some supposedly well informed people will insist on missing that minor detail.

So, lots of motion, not a lot of progress. Bit like the current contract, really.

Alan Watts can found at LinkedIn.
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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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74 per cent of contractors are paying too much tax

According to a recent survey by online accountants My Accountant Friend, nearly two thirds of IT contractors could be paying too much tax.

The firm surveyed 300 IT professionals in the city of London to assess how they were managing their accounting and tax affairs.

Of those that took part in the survey, 74 per cent were either not paying themselves tax-efficiently based on their employment status or not claiming the expenses they should. 61 per cent of respondents were not sure when key tax payments are due and a further 57 per cent said that they do not fully understand how their end-of-year accounts have been produced or what the figures mean.

Not surprisingly, the subject of IR35 featured prominently with nearly 70% of respondents saying that they are still nervous about the possibility of an IR35 investigation, despite the government’s recent commitment to review it. Graeme Hart, Managing Director of My Accountant Friend, commented on the results of the survey:

“We expected many contractors to be a little apprehensive about their accounting and tax affairs. However, we were quite surprised by both how many people seem to be paying too much tax and the level of concern in some areas.”

According to Hart, My Accountant Friend now provides a number of guarantees around their services. He continued, “we promise to save people tax, increase their take-home pay and reduce the burden. Our online system automates the bookkeeping and provides real-time visibility of personal and corporate tax liability. ”

The firm is currently running a special World Cup promotion. Sign up before the 15th June and they will provide 2 months of accounting services completely free of charge. What’s more if England win, they’ll provide their services for FREE UNTIL 2011. More information can be found on the My Accountant Friend website.

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IT contractor accountant calls for clarity over new HMRC powers

Over the past year, HMRC gained more power and this had been a great cause of concern for contractor accountants and advisers. However, it would seem that these fears were unwarranted according to a report from the Chartered Institute of Taxation.

The Revenue was given increased power to inspect both businesses and individuals and a harsher penalty system was drawn up. Luckily these did not lead to any horror stories but the president of the CIoT, Andrew Hubbard, did point out that the new powers could be more effective.

He said that it was not clear how certain powers should be used in certain circumstances and he believes there needs to be more clarity concerning the interaction of formal and informal powers.

Hubbard added that taxpayers and advisers need a clear route map that shows how all these powers fit together.

The need for clarity is undoubtedly of paramount importance. Hubbard points out that some instances of deliberate tax evasion being treated in exactly the same manner as those made innocently.

The CIoT report also calls for HMRC staff to receive more specialist training and for there to be greater collaboration between the Revenue and other professional organisations.

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