Tag Archive | "taxpayers"

HMRC launches app to show taxpayers how their PAYE is spent

HMRC has launched a free tax calculator app to help taxpayers estimate how much they should be paying in National Insurance and income tax and learn how the government intends to spend the money.

The app is just designed for basic rate taxpayers who get paid through the PAYE system and don’t have any other source of income. This latest initiative is part of the government’s plan to send individual statements to all taxpayers about how much money different departments will get from their contributions. These statements will be issued as from 2014-15.

The app shows that somebody earning £25,000 gross per year would be paying £5,465.24 in PAYE contributions. That money is then divided between 14 departments with the welfare budget receiving the largest chunk at 33%.

Taxpayers can access the app from the HMRC website, or it is available for download from Google Play or the Apple Store.

Are taxpayers interested enough to make use of this app? The government is implementing the system to prove that the UK tax system is transparent and it is happy to tell us how our money is being spent. So far the app is very limited in that it is only designed for basic rate PAYE taxpayers and not those on the higher rate or people who are self-employed.

The app itself could be a useful tool for some, and of course it is free, but some might question whether we need both statements and apps to see where our money is going.

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Cost of collecting tax reduces by just 2% since 1958!

Although technology has advanced immeasurably over the last 50 years, the cost of collecting tax remains virtually the same as it was half a century ago!

Research conducted by the TaxPayers’ Alliance shows that there has been hardly any change in the cost of raising each pound of tax in the UK since 1958. In 1958, it cost £1.16 to raise £100 worth of tax revenue – in 2008 it cost £1.14, just 0.02p less. According to the TPA this proves that the tax system in the UK is too complicated. Furthermore, other OECD nations manage to collect their taxes a lot more cost efficiently than HMRC does.

TaxPayers’ Alliance Director, Matthew Sinclair, said it’s unbelievable that the cost of collecting tax has not gone down in half a century. There have been so many technological innovations that you would think HMRC could have found ways to reduce the cost. He went on say the tax system in the UK is broken and causes just as many problems for the Revenue as it does for taxpayers.

In 1967, the first handheld calculator was invented. By 1971, we had the microprocessor and by 1985 Microsoft Windows came into being. The World Wide Web was invented in the 1990s and yet, despite all these time saving innovations, HMRC has only managed to reduce the cost of collecting tax by 2%!

It does make you wonder what has gone wrong. So many transactions now take place in real-time thanks to the Internet, computers have done away with the need for vast armies of people slaving over calculators, and yet there’s still been no noticeable reduction in the Revenue’s costs. The powers that be should be asking why.

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Should the UK have a single 30% rate of income tax?

The Institute of Directors and the TaxPayers’ Alliance have published a joint report calling on the government to replace eight taxes with a single income tax rate of 30%.

The call for a radical overhaul of the current system of taxation is part of the 2020 Tax Commission project, which is a joint collaboration between the two organisations. The proposals include cutting taxes to a third on national income, raising personal allowances to £10,000 and introducing a single tax on capital income and labour.

The pressure group wants the government to abolish employers’ and employees’ NICS, capital gains tax, corporation tax, inheritance tax and stamp duty on shares and land. Furthermore, it says it would abolish air passenger duty and reduce fuel duty by 5p per litre. Local authorities would also need to raise 50% of the money they spend from local taxes.

Allister Heath, the chairman of the Commission, said that although the proposals are far-reaching, they are practical. The reforms would lead to a simpler, more transparent tax system and result in significant growth. He went on to explain that if the government adopted the proposals by 2020, GDP would increase by 9.3% within a decade.

PwC’s Alex Henderson said these are radical proposals but he pointed out that the OTS has already suggested merging income tax and NICs, reviewing the regulations surrounding inheritance tax and suspending some tax rules. Assessing whether legislation devised 25 years ago is still justified would also help simplify the tax system, he added.

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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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Taxpayers should receive an early tax rebate this year

Taxpayers who are due to receive a refund from HMRC could find it arrives earlier than usual this year.

The Revenue started its annual reconciliation of employer PAYE returns for the tax year 2011-12 yesterday and according to HMRC, it will now be in a position to start issuing tax refunds.

As many as 3.5 million taxpayers could receive a rebate averaging £379. However, a further 1.6 million taxpayers will discover that they underpaid PAYE last year and they will have to repay £537 on average. In the majority of cases, this money will be clawed back through an adjustment to their tax code.

Every year, the reconciliation process discovers that around 15% of taxpayers have paid the wrong amount of tax in the previous financial year. There are various reasons for this, including changing jobs frequently, having more than one job at a time and receiving benefits in kind that have altered during the year.

HMRC’s acting director general for personal tax, Stephen Banyard, said the department was pleased to be able to begin processing PAYE reconciliations earlier than usual this year.

He also explained that once the Real Time Information system is introduced, the reconciliation process will be even easier because employers and pension providers will inform the Revenue about PAYE payments as they are made. This will reduce the need for remedial action later.

The Revenue expects the reconciliation process will be complete by October and says that customers do not need to contact it in connection with this matter.

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Some HMRC online services will be unavailable this weekend

Contractor accountants are warned that HMRC will be carrying out upgrade work to its website this weekend.

The Revenue website was down at the beginning of last month to enable essential maintenance and upgrade work. However, it now appears that thus work was more complicated than expected.

Luckily the work will not affect employers who need to submit their payroll end of year returns before the May 19 deadline. Corporation tax, self-assessment and CIS will not be affected either, but it will not be possible to register for HMRC’s online VAT service while the upgrade work is taking place.

HMRC likes to give taxpayers as much notice as possible of any proposed disruption to its services.

Although the VAT online registration service will be offline from 16:00 on Saturday until 01:00 on Sunday morning, businesses will still be able to file their VAT returns. Anyone who wants to enrol for VAT Online during the downtime will be able to do so through the Government Gateway. http://www.gateway.gov.uk/

The VAT on e-services page will also be unavailable for 10 minutes while the upgrade takes place. HMRC has not revealed which ten minutes.

The other services that will be affected are obscure ones such as Electronic Binding Tariff Information and the Rebated Oils Enquiry Service.

It’s obviously important for HMRC to keep it’s services up-to-date and weekends are probably the most sensible time to do upgrades and maintenance. Let’s hope that everything goes to plan and the work doesn’t cause widespread disruption.

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HMRC is in the doghouse, again!

HMRC has got it wrong yet again! 12,000 taxpayers have received penalty letters demanding the immediate payment of overdue tax even though the department had already reached an agreement with those concerned that there was no need for them to fill in a self-assessment form.

The letters tell the recipients that they will be charged a daily penalty if they don’t settle up immediately.

A spokesperson for the Revenue said the letters were issued in error and HMRC wants to apologise straight away for the mistake.

130,000 people were removed from self-assessment this year after HMRC encouraged taxpayers to confirm their status prior to filing out the form. However, this new stance backfired and 12,000 people received a penalty warning even though they had already spoken to HMRC officials.

HMRC has advised people to ignore the warning if they have spoken to the Revenue and it has agreed that they are not covered by the self-assessment system. HMRC will also be writing to all those concerned to apologise and assure them that they do not have an outstanding tax liability.

The spokesperson also went on to reassure customers that their names have been removed from the self-assessment database.

This is the latest in a series of foul-ups by the Revenue in the last couple of years and it bodes a very serious question; how can we trust the Real Time Information scheme to run smoothly when nothing else HMRC does seems to work properly?

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Real Time Information pilot scheme gets underway

HMRC is moving forward with its plans to implement Real Time Information and has received the first set of returns from its pilot scheme.

Ten volunteer employers were involved in the initial pilot and they will be joined by another 310 employers and pension providers between May and June.

Real Time Information is designed to make life easier for everybody to administer PAYE. Pension providers and employers will inform the Revenue each time they make PAYE payments instead of the current system of reporting at the end of the financial year.

Providing the pilot scheme is successful, as many as 1,300 volunteer employers will be using RTI by this September.

The Exchequer secretary to the Treasury, David Gauke, explained that RTI brings PAYE into the 21st century. Taxpayers will see the benefit as they will be taxed correctly when they change jobs and employers will no longer need to go through the onerous end-of-year PAYE processes.

HMRC is one of the initial volunteers and Stephen Banyard, the Revenue’s acting director general in charge of personal tax, said the pilot gave them the ideal opportunity to iron out any problems before more employers start using the system.

He explained that HMRC is working in close conjunction with employers and payroll providers, but by taking part in the pilot, the Revenue can see how RTI works from an employer’s point of view.

If all goes to plan, the majority of employers will need to start using RTI next April and it will mandatory by October 2013.

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Have any accountants received two income tax rebates?

Contractor accountants may not be surprised to learn that despite its best intentions, HMRC has made another error; this time with tax rebates.

The Institute of Chartered Accountants
in England and Wales recently reported that the HMRC had been paying income tax rebates twice because a link between the NPS and self-assessment systems was not working properly. The Revenue is aware of the problem and has put finding a solution to the top of its priority list.

HMRC is calling on taxpayers and agents to come forward if they have received an overpayment.

One expert advised taxpayers not to spend money they’ve received from HMRC if they think it’s been sent in error. Instead they should contact the government department, or seek professional advice, to establish whether or not the money is really theirs to spend because HMRC will eventually attempt to recover the overpayment.

This is not the first error made by the Revenue this year. Not long ago, 17,000 final reminder letters were sent out to taxpayers who had already settled their outstanding liabilities. This error was also blamed on a computer glitch.

HMRC is determined to introduce Real Time Reporting and some accountants are worried that even more errors will start to occur. After all, if the Revenue can’t get its existing systems to work correctly, can we really dare to expect that the Real Time system will work any better.

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Are pension rules set to change in the March Budget?

Contractor accountants may be concerned to learn that George Osborne is considering changing tax relief on pension contributions when he delivers the March Budget.

He has various options available to him. If he cut the relief on all contributions to 20%, taxpayers who pay the higher 40% rate would lose £20 for each £100 they invested and those paying the 50% top rate would lose £30 per £100 invested. On top of that, pensions are subject to tax so a taxpayer might have to pay tax at 40% or even 50% on their pension when they retire.

If this happened, a lot of people in defined benefit schemes might have to file a tax return because the pension benefits could not be determined as easily as they can with a defined contribution scheme.

PwC’s head of pensions, Raj Mody, explained that if tax relief on pensions was reduced, those people who pay a higher rate of tax could be better off if they received cash and paid income tax on it at the time.

The Chancellor is also considering reducing the annual allowance of £50,000. PwC says this would be easier to implement and people would still have an incentive to invest money in a pension fund.

Another option would be to reduce the tax-free lump sum people are entitled to on retirement. Those approaching retirement would then pay more tax than they expected on their pension pot.

Mody did warn that there have already been various changes to pensions in recent years and the public may lose trust completely if the Government implements further amendments.

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Will an HMRC penalty notice drop through your letterbox?

Contractor accountants who missed the deadline for filing their self-assessment tax return are likely to receive a penalty notice from HMRC in the next few days.

HMRC said it would start sending out penalty notices on the 17th of February to inform late filers that they need to pay an automatic penalty of £100. The Revenue has implemented a new penalty structure this year that could lead to fines of up to £1,600 for people who persistently refuse to file.

However, the ICAEW has been informed that HMRC will cancel tax returns and remove penalties from taxpayers who should not be included in the self-assessment system. Taxpayers who think they are not liable to file self-assessment should call the HMRC helpline and answer a few questions to establish their tax status.

The new penalty system has been widely publicised and there is really no excuse for missing this year’s deadline, especially as it was extended by 2 days due to industrial action at Revenue call centres. For the first time, HMRC said people would face the £100 penalty even if they had no tax to pay. It appears that the government has now had a change of heart and is prepared to remove those individuals from its penalty system.

Earlier this month the Revenue announced it was to clamp down on people who failed to file, especially those who should pay higher rate tax. It is therefore vital that anyone who believes they should not be included in self-assessment contacts HMRC and gets their name removed as soon as possible.

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Do contractors really understand the tax they pay?

Contractor accountants may be interested in the latest plans to make UK personal taxation more transparent and easier to understand.

David Gauke, the exchequer secretary to the Treasury, last week laid down the Government’s vision for a simpler system.

It’s no secret that a lot of taxpayers find tax confusing and the Government has now said it wants people to be able to understand what they pay. In a discussion paper entitled “Modernising the Administration of the Personal Tax System” the coalition has set out a range of ideas to help people obtain access to information about their personal taxes.

The government wants to hear the opinions of taxpayers, tax professionals and representative bodies on a variety of issues. For example, the consultation asks which areas of the personal taxation system cause the most difficulty and how technology could be used to provide taxpayers with better access to their personal tax records.

As part of its plans to overhaul our tax system, the Government has also published a paper summarising the current state of play with regards to the integration of income and National Insurance. Technical working groups are currently being established to explore the possible options and employers, payroll and tax professionals are being invited to join these groups and provide their opinions.

David Gauke explained that the tax deduction on a payslip is the only way that people know how much tax they pay, but the Government wants to make the whole system more transparent so that people understand their tax rate, the amount they currently pay and how much they should pay.

It was a busy week last week as far as income tax related plans were concerned. The Government also published its draft Real time Information regulations, which it hopes will improve HMRC’s administration of PAYE.

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Are Scottish scrap metal dealers guilty of tax evasion?

Accountants for contractors may be interested to learn that HMRC has launched a new taskforce to tackle tax evasion in the scrap metal industry.

The taskforce will target scrap metal dealers north of the border. The Revenue believes that this is an industry where the risk of tax evasion is high.

Last week, HMRC announced that it had set up five new tax evasion taskforces. In addition to targeting Scottish scrap metal dealers, self-employed construction traders in North Wales and the North West of England will come under the spotlight.

Another taskforce will investigate taxpayers in the South East who fail to submit Corporation Tax, VAT, PAYE and self-assessment returns. A further taskforce will investigate Scottish fast food outlets suspected of falsifying records.

Finally, landlords in North Wales and the North West, who have at least three properties and are suspected of evading taxes, could find a taskforce inspector knocking at their door.

The Exchequer Secretary to the Treasury, David Gauke, said the government does not tolerate lawbreakers. HMRC can and will track down tax evaders, no matter who they are. They will receive heavy fines and criminal prosecution could be a possibility.

In last year’s spending review, the government allocated £917 million to combat tax crime. It hopes this funding will raise an additional £7 billion per year by 2014-15.

HMRC intends to have 12 taskforces in place by the end of this financial year and says more will follow in 2012-13.

The Revenue has also set up a Tax Evasion Hotline where members of the public can phone and report anyone suspected of tax evasion.

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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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