HMRC lose first case to fine a Senior Finance Officer for errors 1

All companies must deliver correct and complete tax returns.

A company may not be able to do this if its tax accounting arrangements are not fit for purpose. These arrangements will range from how it accounts for its business transactions to how it works out its final tax liability.

Schedule 46 FA09 sets out rules for certain large companies. Those companies must establish and maintain their tax accounting arrangements and their Senior Accounting Officer (SAO) is responsible for ensuring that they do.

This guidance tells the reader about

  • the rules that put responsibilities on those companies and particularly their SAOs
  • the actions that those companies and SAOs must take
  • how HMRC will ensure that they comply with the rules, and
  • the penalties chargeable if they fail to comply.

The way in which HMRC ensures compliance with the SAO rules is consistent with HMRC’s wider strategy for Mid-sized and Large Businesses by which we seek to build and maintain open and transparent relationships with companies and to work collaboratively with them in real time to reduce their level of tax compliance risk.

Currently SAO rules only apply to large companies (turnover of £200m plus) but will HMRC extent this to smaller companies?

Senior Accounting Officer Main duty: what is the main duty

The main duty of a Senior Accounting Officer (SAO) is to take reasonable steps to ensure that a qualifying company, see SAOG11000, establishes and maintains appropriate tax accounting arrangements.

This means, in particular, that the SAO must take reasonable steps to

  • monitor the accounting arrangements of the company and
  • identify any respects in which those arrangements are not appropriate tax accounting arrangements.

Penalties

A penalty of £5,000 is charged for the following failures:

  • Failure by the company to notify HMRC of the name and contact details of its SAO
  • Failure by the SAO to carry out their main duty under the rules
  • Failure by the SAO to provide a certificate to HMRC, or providing a certificate that contains a careless or deliberate inaccuracy.

The penalty is payable by the person responsible for the failure, as above.  The penalties are at a flat rate and cannot be mitigated.

K Thathiah v HMRC [2017] UKFTT 601 (3 August 2017)

The FTT found that a senior accounting officer (SAO) had not breached his main duty under FA 2009 Sch 46.

The case related to VAT errors totaling £1.3m despite providing ‘clean’ certificates, however, it was decided that reasonable steps were being taken to ensure the accuracy of VAT returns for example setting up a team, providing training and using an agent.

I think all SAO’s should take this a warning! get the right systems and procedures or face personal penalties

steve@bicknells.net

HMRC Tax Experts to directly advise growing businesses Reply

On the 20th September 2017 HMRC announced

A new service to directly help mid-sized businesses as they expand and grow, has been launched today by HM Revenue and Customs (HMRC).

There are around 170,000 mid-sized businesses registered in the UK. Businesses with either a turnover of more than £10 million or more than 20 employees, and undergoing significant growth, can now seek expert help from HMRC growth support specialists.

Known as the Growth Support Service, HMRC tax experts will offer dedicated support, tailored to the customer’s needs. It has been created to help growing, mid-sized businesses access the information and services they need.

This could include:

  • helping with tax queries about their growing business

  • supplying accurate information and co-ordinating technical expertise from across HMRC

  • supporting them to get their tax right first time and access relevant incentives or reliefs

I wonder if HMRC have plans to help other businesses too?

steve@bicknells.net

 

How will Clause 24 affect you? Reply

Clause 24 of the Finance Bill sets out restrictions for individuals on claiming mortgage interest as a cost against their property investment income, for individuals it will work as follows

2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%

2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%

2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%

2020/21 100% will get only 20% relief

These rules will not apply to Companies, Companies will continue to claim full relief.

The rules also don’t apply to Furnished Holiday Lets.

Essentially Section 24 removes Interest from the property expenses and gives you tax relief at 20% (basic rate). So Higher rate tax payers will pay more tax.

The Mortgage Works have a spreadsheet calculator that demonstrates this and also incorporates other profits and income.

www.themortgageworks.co.uk/includes/xls/T1036_Tax_Change_Calculator.xlsx

steve@bicknells.net

Can you afford to be unethical? Reply

Until the financial crisis in 2008 it felt like very little was being done to stop tax avoidance or unethical behaviour by businesses, but the climate has now changed.

Just because something isn’t illegal it doesn’t mean its ethical or moral and customers are now holding businesses to account.

UK waste management agency Business Waste polled 2,000 shoppers about their high street habits and found that 90% said they take a business’s ethical record and accreditation into account when it comes to things like paying taxes and environmental issues.[startup donut]

For example, 95% look for hygiene certificates and 75% want to see indications that companies they use are taking care of the planet. In addition, 45% say they would only consider using businesses that pay their tax in the UK.

Since 2012 we have seen companies like Google, Amazon and Star Bucks held to account over tax by the public accounts committee.

Back in 2014 Fair Tax was launched to try to help promote businesses who pay taxes rather than trying to avoid paying

The Fair Tax Mark Criteria assess the quality of a business’ publicly available information on key tax and transparency issues. In this context, publicly available information primarily means a full set of accounts available to all via Companies House or the company website. However, it can also include the company website and/or any other freely available printed material.

For every business type, the criteria are divided into two main categories that assess a business on:

  • Transparency

  • Tax rate, disclosure and avoidance

http://www.fairtaxmark.net/

Its time that all businesses became ethical businesses!

steve@bicknells.net

If it looks like a loan, it is a loan! Reply

Contractors and Business Owners have been using Loans as disguised remuneration for decades.

Basically, a loan isn’t income so schemes have been created to lend money through various means. HMRC view these as tax avoidance.

How contractor loans work

In a contractor loans scheme you’re paid in the form of a loan from a trust or company, sometimes referred to as a remuneration trust.

You don’t get your payment (or ‘loan’) directly from the company you’re providing work for because it’s diverted through a chain of companies, trusts or partnerships.

The companies that promote these schemes will tell you this will save you tax.

Why these schemes could cost you more

Scheme promoters will tell you that the payment is non-taxable because it’s a loan, and doesn’t count as income.

In reality, you don’t pay the loan back, so it’s no different to normal income and is taxable.

So if you’re using one of these schemes and being paid this way you’re highly likely to be avoiding tax. You could end up paying additional taxes, penalties and interest as well as a fee to the promoter.

https://www.gov.uk/guidance/contractor-tax-loan-schemes-can-cost-you-more

What if its not called a loan?

Contractor Weekly reported this week that Contractors are now being advised to say that they holding funds in ‘fiduciary capacity’ on behalf of the company.

According to their article calling a loan by a different name doesn’t impress HMRC, it looks like a loan so it is a loan!

It is recommended that you tell HMRC about these schemes by e mailing exitstream.counteravoidance@hmrc.gsi.gov.uk

If you are using one of these schemes HMRC will be looking for you!

steve@bicknells.net

The Seminar Tour starts this week! Reply

The government may have postponed Making Tax Digital but the Seminars continue.

The first one is this Friday (1st September) in Bristol, its an epic production.

6 Hours of CPD

110 PowerPoint Slides

229 pages of handouts

The seminar has 7 sections

  • HMRC MTD route map
  • The Requirements of MTD
  • Client transition planning and client communications
  • How will MTD change the way clients work with accountants
  • Case Studies
  • Software
  • Sanctions & Penalties

With contributions from Xero, Sage, MyFirmsApp, Free Agent, BTC, Practice Track and Clear Books

This is probably one of the most comprehensive seminars ever given on Making Tax Digital

Click here to find out about the seminars in Cambridge, Manchester and London.

I look forward to seeing you there

steve@bicknells.net

Making Tax Digital – HMRC Case Studies 1

HMRC have 4 fictional case studies, they are on the are on the Overview of Making Tax Digital page of the HMRC website and this was last updated on 13th July 2017

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/485372/Making_tax_digital_-_case_studies.pdf

  • Geeta – the teacher who also does some tuition
  • Richard – the landscape gardener who has just become VAT registered
  • Helen – retired
  • Dave and his Wife – who are directors of a small plumbing company

Basically

Geeta uses a App on her smartphone for record keeping

Richard was using an agent but then moves to a digital tax account

Helen uses a Personal Tax Account

Dave uses an App to provide information to his accountant

So Apps are very popular!

HMRC seem to assume that most people want to do their own record keeping and that small businesses like Geeta and Richard will no longer use accountants or book keepers.

We have an extremely complicated tax system, so how realistic is that, even HMRC struggle to calculate your tax correctly!

The way that allowances are applied for dividends, allowances, savings and other items all impact on each other.

Many tax payers will be working on their 2016/17 returns (to 5th April 2017 due by 31st January 2018) over the coming months and find that they can’t use the HMRC software because it doesn’t work properly.

As reported by Accounting Web

Rob Ellis, CEO of BTCSoftware, can’t remember a year when there have been so many exclusions from filing SA tax returns online. For the 2016/17 tax returns 16 new examples have been added to the online filing exclusions list, which is now in version 4;  there is a version 5 of this list under construction.

You can read the full list of exclusion on this link https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/622426/2017-exc-indi.pdf

There were 62 exclusions! HMRC have fixed some but aren’t intending to fix them all

 

steve@bicknells.net

How much SDLT do you pay on Overage? Reply

What is Overage

http://www.propertylawuk.net/propertytransactionsoverage.html

When land is sold, the vendor will normally do his best to sell at the best possible price – indeed, if the vendor is a public sector authority or a charity, he may be obliged to sell at the best possible price. Sometimes, however, the best possible price may only be available at some time in the future, or not at all. The most common example of this is where planning permission may be granted for a more valuable use of the land, but it is by no means certain that the permission will be forthcoming and, in any event, this is unlikely to happen for some time. Similarly, if land is sold for a particular purpose, such as for the development of 50 houses, and the developer in fact manages to build 60, then the land will obviously be more valuable with 60 houses on it rather than the original 50.

HMRC Rules

https://www.gov.uk/guidance/stamp-duty-land-tax-the-amount-used-to-calculate-whats-payable#cc

Payment depending on the outcome of future events

A transaction could include an amount that the buyer will only pay if some future event happens. This is known as the ‘contingent consideration’.

For example, a developer might agree to pay an extra sum, on condition that they get planning permission for redevelopment.

In these cases you pay SDLT on the assumption that the contingency will happen. The buyer can apply to defer payment of SDLT on the contingent amount. But HMRC still charge the tax at the appropriate rate for the total chargeable consideration.

For example, a builder buys a plot for £400,000 and agrees to pay a further £200,000 if he gets planning permission for a new building. He can apply for deferment on SDLT on the conditional £200,000 but will pay SDLT on the initial payment now. The SDLT due on the initial payment will be at 4%, because the total potential payment is above the £500,000 threshold.

Payment depending on uncertain future events

Some transactions may include a later payment which depends on an unknown variable. This is known as the ‘uncertain or unascertained consideration’.

For example, future payments based on the turnover of a business.

In these cases, calculate the SDLT on the basis of a ‘just and reasonable estimate’ of the amount involved. The buyer can apply to defer payment of the uncertain or unascertainable part. Otherwise, make an appropriate adjustment when the amount of consideration is certain.

steve@bicknells.net

 

WAT a mess! Reply

The Widening Access Training scheme (WAT) was developed for NHS workers to save tax and national insurance.

In fact in many cases the training was free of all tax and NI, the problem has been in its operation.

We have clients in 2 different NHS trusts, they initially got refunds, then had to repay the refunds, and then got refunds direct from HMRC.

Unite have information on their website..

NHS Payroll departments have been contacting staff who may be eligible to receive a refund of Tax and National Insurance (NI) contributions, paid in error, whilst they were in full-time education.

Her Majesty’s Revenue and Customs (HMRC) have stated that employed staff also in full-time education are exempt from Tax and NI up to an annual allowance on earnings of £15,480, whilst in training, provided they meet the following conditions: 

The claimant must have been:

  • An existing NHS employee when starting a training scheme (this could have been at another NHS organisation). 
  • Looking to widen their knowledge. 
  • In full-time attendance at an educational establishment for at least one academic year, and must have attended the course for at least 20 weeks in that academic year. If the course is longer, the employee must attend for at least 20 weeks on average in an academic year over the period of the course.  

Claims for refunds of tax and NI can be made for the period September 1999 to March 2013.  

HMRC normally only accept refund claims for the previous 6 tax years. However, this restriction has been extended back to September 1999, to coincide with the start of a specific training scheme; the Widening Access Training Scheme

This the advice from HMRC to NHS Payrolls

Responsibility for refunds

Training courses attended before 6 April 2013

HM Revenue and Customs (HMRC) will deal with the refund if your employee attended a qualifying WAT course starting before 6 April 2013.

You should submit claims to HMRC on behalf of your NHS employees, providing full details of all eligible workers.

Trusts/authorities should notify HMRC by submitting a schedule by email to the mailbox. nhswat.mailbox@hmrc.gsi.gov.uk

Workers have been advised to contact you to confirm if you’ve already sent a claim to HMRC on their behalf. You may need to ask them for further information or evidence to support their application for a refund.

Training courses attended after 6 April 2013

If workers attended a qualifying WAT course starting on or after the 6 April 2013 the refund should be dealt with by you through your payroll system.

Training course only

If an employee attended a qualifying WAT course and is entitled to a refund, you should complete a Full Payment Submission (FPS):

  1. Enter the full amount of training income paid to the employee in the field ‘Value of payments not subject to Income Tax or NICs in pay period’.
  2. Enter the tax code for the year.
  3. Don’t complete any of the NICs fields.

Training course and paid work

If the employee did a combination of training and paid work and is entitled to a refund for the training income, you should complete an FPS:

  1. Separate the training income from the earned income.
  2. Subject any additional earnings to Income Tax and NICs in the normal way.
  3. Enter the amount of training income received in the field ‘Value of payments not subject to tax or NICs in pay period’.
  4. Enter the tax code number for the year.

If you’ve already sent your final FPS for the years starting 6 April 2014 onwards, you should complete an Earlier Year Update.

The main HMRC links are

Its easy to see why there is confusion!

Hopefully, all those on the WAT schemes will get the correct refunds

steve@bicknells.net

How should you account for a Property Management Company? 2

Property Management companies, for instance – Letting Agents, manage properties that they don’t own.

Their services are VATable if they voluntarily register or hit the VAT threshold.

Their income should be the fees that they charge to their clients and they can offset the expenses that relate to their business for example:

Office costs

Accountancy

Insurance

Motor Expenses

But as the properties aren’t owned by them they need to keep their client accounts on the balance sheet in control accounts.

Typically

Rent from Tenants

Maintenance Costs

Management Fees

Then the net amount is passed to the landlord with a statement

It is also possible that the Property Management Company may keep their client accounts entirely separate to their own with separate bank accounts and ledgers, this approach is the best option

Sage One makes this easy to account for properties because you can use Projects, Cost Codes and Departments to analyse the costs.

There are also lots of specialist software package for property management companies

steve@bicknells.net