Tag Archive | "tax returns"

HMRC to err on the side of wrath with penalties

Her Majesty’s Revenue & Customs is likely to be erring on the side of caution when it comes to penalties, deciding lenience is best for errors in tax returns.

The taxman seems to be hardening its heart when it comes to inconsistencies or errors on tax returns, making it more likely that it will simply assume that taxpayers are trying to get one over on it instead of just making an honest mistake. In fact, the latest penalty figures show that when it comes to inaccurate returns, HMRC isn’t only meting out higher penalties but more of them.

This is something that accountants have been suspected for quite some time, with many financial experts wondering whether the tax authority has made a conscious decision to draw in additional revenue through fines by deliberately classifying cases where errors were made by legitimate accident as those made with intent to engage in tax avoidance or otherwise diminish an individual’s tax responsibilities.

Whilst most people would simply dismiss such ideas as the rantings of a febrile mind that has been staying up late reading too many conspiracy theories on the Internet or late-night television, but the truth is there’s cold, hard figures to back this up. It turns out that in the 2012-13 rax year there were more than 5,000 taxpayers who were issued penalties for so-called ‘deliberate behaviour’ on their tax returns – yet in tax year 2013-14 this figure ballooned to nearly 15,000.

That’s one hell of a smoking gun if you ask me. But wait, there’s more – it turns out that when it comes to total penalties, those classified as ‘deliberate behaviour’ went from being 9 per cent of the total to 16 per cent. This has tax experts up in arms as it looks like HMRC is deliberately choosing to attribute more incorrect returns as calculated attempts at tax avoidance.

If this is indeed some scheme on the part of the tax authority to generate additional cash through trumped-up ‘deliberate behaviour’ penalties, this is truly reprehensible. Are you going to truly argue that the number of idiots tripled from one tax year to the other? Don’t be ridiculous – those figures stick out like a sore thumb, and something is definitely going on here that’s not aboveboard. I dare you to argue otherwise!

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A contractor accountant could help you become tax efficient

According to a recently published report by Unbiased.co.uk, British taxpayers will pay an average £421 too much tax this year.

Contractor accountants will want to make sure they are not included in the 85% of Brits who gift a total of £12.6 billion to the Revenue in the form of unnecessary tax. Over the last ten years, British taxpayers have created a tax waste mountain worth £88.6 billion.

Unbiased.co.uk’s report discovered that £7.26 billion in income-related tax credits will go unclaimed and people failing to claim tax relief on their pension contributions will gift a further £2.45 billion to the Treasury. People who filed their self-assessment tax returns late will contribute £307 million to HMRC’s coffers, while about £83 million will be lost in unclaimed personal allowances and income tax.

The website’s study also discovered that 85% of taxpayers have taken no action to reduce their tax bill in the last 12 months. Half of them believe there is nothing more they could do to make themselves more tax efficient.

Of the 15% that have done something to reduce their tax liability, 40% have made changes to the way they invest or save their money and 22% said they had made a purchase or investment specifically as a tax efficiency measure.

Karen Barrett, Unbiased.co.uk’s chief executive, said British taxpayers should be devoting some time towards ensuring they are as tax efficient as possible. Of those people who have already done so, about 25% of them made use of the services of an accountant or other professional adviser, she added.

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Has 50p tax rate led to lower income tax receipts?

The government had hoped to raise additional revenue when it introduced the higher rate 50p tax rate, but it now transpires that the move is having the opposite effect.

In January this year, income tax receipts only increased by 2.4% year-on-year, compared to a 9.3% increase in the take from corporation tax. Recent data from HMRC indicates that the wealthy are turning to contractor accountants to help them with tax planning. Revenue from people submitting self-assessment tax returns totalled about £10 billion in January, down £500 from the corresponding month last year.

Francesca Lagerberg, Grant Thornton’s head of tax policy, explained that history shows that higher tax rates frequently fail to rake in as much as expected because they trigger a change in behaviour. Business owners, for example, may have speeded up their dividend payments before the tax rate changed and it may be some time before they pay another large dividend.

The Treasury now says it will publish figures showing the 50% tax take within three months, but this is later than originally expected.

Richard Mannion from Smith and Williamson said HMRC should already know how many people paid tax at the 50% rate simply by looking at the tax returns and it should be easy to produce the requisite figures.

The 50p tax rate is only meant to be a temporary measure and it will probably be removed before the end of the current parliamentary term in 2015. According to Stephen Herring from BDO, the top rate is deterring foreign companies from setting up in the UK. The UK is making good progress reducing the rate of corporation tax but that good work is being counteracted by an uncompetitive high rate of income tax.

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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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Self-assessment tax fraud leads to two year jail sentence

A South African has been sent to jail after being found guilty of a £1 million self-assessment income tax fraud.

HMRC discovered that Lawrence Goldberg used virtual offices to register in excess of 50 companies throughout the UK. The companies posed as nominated tax agents and through them, Goldberg sent the Revenue more than 2,000 fraudulent tax returns. As well as using the identities of innocent people, he invented people and used their details on the returns.

When his operation was at its peak, Goldberg was sending HMRC about 500 false returns a week. Most of the fraudulent returns were discovered and not processed, but Goldberg did successfully claim more than £1 million which he deposited in offshore bank accounts.

Goldberg originally conducted his operations from London, but after a brief stay in Portugal he went on the run to South Africa. He pleaded guilty to the charges against him and was jailed for two years.

HMRC’s assistant director of criminal investigation, John Pointing, said this was a huge scale fraud against public funds and the Revenue will not sit back while criminals such as Goldberg steal honest taxpayers’ money.

Meanwhile, HMRC has warned taxpayers to be vigilant if they receive emails saying they are due a tax refund.

According to the Revenue, there has been a 300% increase in ‘phishing’ emails over the past 12 months. These generally provide a link to a replica HMRC website where recipients are asked to provide details of their debit or credit card. Criminals then use the information for identity and financial theft.

Last month, HMRC received reports of nearly 24,000 of these fraudulent emails and it is helping to close down about 100 fake websites every month.

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HMRC’s High Net Worth Unit rakes in £247 million in 2 years

Two years ago, HMRC set up the High Net Worth Unit to look into the personal tax affairs of the UK’s wealthiest citizens; a move which appears to have paid dividends.

Since the unit was set up, it has recovered a total of £247 million; £85 million in 2009/11 and £162 million last year. Initial projections were that the unit would yield between £50 million and £100 million every year so it is already exceeding expectations.

David Gauke, the Exchequer Secretary to the Treasury, explained that everybody must pay their fair share of tax, and by working in conjunction with tax agents and online accountants, the Revenue’s HNWU team has been able to make sure the complicated tax affairs of the rich are dealt with accurately.

Meanwhile, HMRC has been criticised for its tactics over the issuance of penalty notices to employers who are late submitting tax returns.

In a recent tax tribunal case it was revealed that the Revenue did not issue a penalty notice until the taxpayer had already amassed fines worth £400. If the penalty notice had been issued in the first month, the fine would only have been £100.

Some employers genuinely forget to submit their return and higher penalties are disproportionate when an early reminder could be enough to inform them of their mistake, said Rob Durrant-Walker from the York Office of UHY Hacker Young.

He went on to say that HMRC should be concentrating on making sure everybody pays the correct amount of tax and helping them to do so rather than adding on extra charges.

The Revenue is also implementing a new penalty regime for self-assessment taxpayers who file their returns late. In an important change to the previous rules, failure to submit a tax return will result in an automatic £100 fine, even if the taxpayer does not owe any money.

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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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Should contractor accountants warn about late filing penalties?

ICAS has warned that as many as a million taxpayers could face penalties for late filing of tax returns and claims HMRC has not taken enough measures to notify the public of the changes.

As from the end of this October, anybody who files their paper self-assessment form late, even if it’s only by one day, will receive an instant fine of £100. After three months, the fine will increase by £10 for every day overdue. Even larger fines will be levied if filing is six months late.

It may be time for accountants for contractors to be at the forefront of reminding people!

The same rules will apply to people who file online as from January 31st 2012. ICAS has calculated that an online return due for filing at the end of next January, but held back until August 5 2012, would attract at least £1,300 in fines.

Since self-assessment began in 1997, almost one million people file their return late each year and many of them delay by more than 12 months. Until now, HMRC could not charge a penalty as long as the taxpayer paid all the monies owing.

ICAS’ director of tax, Derek Allen, said he was concerned that the majority of people are not aware of the new penalty regime as it has not been widely publicised.

The Scottish Institute also warns that some people could miss out on tax rebates. Self-employed people in the construction industry often have their tax deducted by the contractor initially and repayments are calculated after they have lodged their return. However, if they file late, the repayment is likely to be a lot less than the fine.

Small businesses and limited company contractors are also becoming increasingly tardy in filing their year end accounts with Companies House. The executive agency recently reported that 12,739 businesses were fined for late filing last month; up from 12,154 in May.

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Contractor accountants should prepare for corporation tax changes

Accountants should be aware that the end of the present tax year is fast approaching and HMRC has reminded the UK small business community that changes to corporation tax are imminent.

As from the start of the new tax year, corporation tax filing and payments will need to be made electronically. Furthermore, all company tax returns for accounting periods that ended after March 2010 will also have to be filed in XBRL or iXBRL format.

Payment of corporation tax will have to be made by Direct Debit, credit or debit card, using either bank transfer or the BillPay service.

An HMRC spokesperson explained that these changes will affect associations, charities, clubs, co-operatives and societies as well as any limited company. Firms will be able to use commercially available software to file or the department’s own CT software aimed at firms with less complex taxation affairs, the Revenue added.

As from April next year, firms will also have to submit their VAT returns online.

Meanwhile, the Institute of Directors is calling on the government to reduce corporation tax until it reaches 15% in 2020. People are starting to think of the UK as a high-tax economy and that will not encourage foreign companies to invest here.

The IoD wants the UK to have the lowest rate of corporation tax throughout the world. It has estimated that this could be achieved at a cost of £9 billion a year, a figure which could be achieved by continuing restraint on public sector growth.

By reducing corporation tax to just 15%, the UK would be sending out the strong message that it is open for business.

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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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Plea to delay compulsory online filing as solutions aren’t ready

The CIoT and the other main professional accountancy and tax bodies have sent a letter to the Exchequer Secretary asking the government to reconsider the timing of compulsory iXBRL online filing. However, it seems unlikely that HRMC will bow to the request.

The ACCA last week flagged up the lack of software capable of handling iXBRL. Chas Roy-Chowdhury, head of tax at ACCA, said they had been trying to negotiate a deferral with HMRC for some time but the furthest they’ve got is a promise of a light touch on compliance when the system is first implemented.

Accounting software provider Sage has admitted that its new iXBRL product will not be ready in time for the corporation tax filing deadline of April 1st. The company says it will have an interim product available, but the release of the full version will be delayed. CCH has not yet delivered its integrated package but has indicated it will be ready in time.

It will be possible for people using Sage accounts production software to file UK GAAP and IFRS tax returns. They will receive a temporary product, ONESOURCE, from Thomson Reuters, which includes the minimum requirements for iXBRL filing.

Contractor accountants will be able to compile tax returns as usual within Sage software and then transfer the data into ONESOURCE. The majority of this process is automated but some IT experts believe this could add a lot of extra time onto the filing process.

In addition to understanding the mechanics of iXBRL, accountants using Sage now need to learn how to transfer data into ONESOURCE and there’s just 3 months left to do it. They will then need to learn Sage’s iXBRL product when it is released later this year.

Will this workaround cause accountants to lose faith in Sage and switch to another software provider? Only time will tell…

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Accountants for contractors can help take the heat out of tax returns

Freelancers should take note that HMRC is stressing the importance of filing online tax returns by the deadline date of the 31st January. Failure to comply with this will result in a penalty of £100.

The Revenue has advised people who are struggling to sort out their affairs to seek the advice of a specialist contractor accountant, tax adviser or contact the department for assistance.

All outstanding tax returns for the 2009 – 10 financial year must be filed by midnight on the 31st of January, a Revenue spokesman explained. People who have not used online filing before are also reminded that they need to leave plenty of time to complete the registration process.

Once you register online you receive a User ID and an Activation Code will be sent by mail within 7 working days. It will therefore be necessary to register no later than the 21st of January to make sure the Activation Code is received on time.

Leonie Kerswill, a tax partner at PwC, said that people tend to push their tax return down the priority list during the festive season but after over spending at Christmas it would be unwise to incur the £100 late-filing fine. She also reminded taxpayers that they need to pay the tax due on January 31st as well as filing the form.

Meanwhile, the PCG is organising a tax planning event in Manchester on February 2nd. The event will take place at the Mint Hotel and will deal with the importance of tax returns and record keeping as well as the changing IR35 landscape.

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Accountancy firm embroiled in a tangled web

HMRC has been conducting an ongoing investigation into an accountancy firm, Christopher Lunn & Co and the company is now claiming that the Revenue is attempting to close it down even though there is no evidence of wrongdoing.

The Sussex based firm says HMRC has stopped it filing certain tax returns while the investigation is taking place and as a result it has launched a judicial review against the Revenue.

The firm was raided by HMRC last June and client files were removed. CLAC claims the Revenue did not tell the firm why the investigation was taking place, nor were company officials interviewed about the issue.

It is thought that the investigation is part of the Revenue’s clampdown on firms that take advantage of various loopholes in the tax system to benefit their clients.

A letter from HMRC, sent on November 30th last year, said that they have no alternative but to stop dealing with CLAC as a representative or agent. The accountancy firm is still preparing tax returns but is not allowed to file them online.

Bark & Company, a law firm, has said it will represent disgruntled clients of the accountancy firm, who want compensation for disruption to their tax affairs. CLAC is now threatening to sue Bark & Co saying the law firm has made defamatory statements against it.

A public meeting will be held later this month so that the firm’s clients can get legal advice on how to file a claim to get their money back.

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Are you ready for the change to iXBRL?

Contractor accountants and accountancy firms are not yet prepared for the new online filing system for corporation tax returns that HMRC is introducing next year.

The new system requires all data to be converted into iXBRL (in-line eXtensible Business Reporting Language) and the majority of online accountants, 92%, are undecided on how exactly to convert data into this format. iXBRL is meant to make the comparison of financial data easier.

Converting the data can be a time-consuming process and coupled with a lack of a formal relationship agreement could result in unplanned extra costs and a drain on resources next year.

Nearly a third of accountants submit corporation tax returns on behalf of clients based on information that has been produced by third parties. Of this information, 52% is submitted in paper format and 48% in pdf format, which is the least friendly of the iXBRL formats.

Earlier this month HMRC produced a list of software companies which can produce iXBRL technologies but only 3 out of the 20 companies listed can compile company accounts in the new format.

Companies such as Sage, claim the requisite software will be ready by November, but many experts believe this will be too late.

Donald Drysdale, the assistant director of Tax at ICAs said that HMRC needs to set out more clearly the requirements and how they can be met as half of the accountancy firms are having problems identifying the software package they need.

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