IR35 HMRC Enquiries increase – are you at risk?

Scaring amounts

On the 25th November 2013, the House of Lords Select Committee on Personal Service Companies met with Rowena Fletcher (Deputy Director with special responsibility for the Employment Status Team) and Robin Wythes (Team Leader of the Employment Status Team).

You can read the full minutes by clicking on this link http://www.parliament.uk/documents/lords-committees/Personal-Service-Companies/uc131125Ev1FletcherWythes.pdf

HMRC estimate there are 200,000 Personal Service Companies in the UK compared to their estimate in 1999 of 90,000. Interestingly, HMRC admit to employing 8 Occupational Phychologists through Personal Service Companies. The risk to the Exchequer is valued at £475 million and  despite the large increase in PSC’s this estimate hasn’t changed since the introduction of IR35 in 1999.

In 2012-13 opened 256 enquiries into cases believed to be high risk and the tax year 2013-14 112 cases were opened in the  first 6 months. In 2011-12 only 59 cases were opened.

Currently it is taking 28 weeks per enquiry which is faster than in previous years when it took between 110 and 140 weeks.

Currently only 5 cases under investigation which are expected to go to tribunal.

HMRC have 40 specialist staff working on IR35 Compliance, they had 1,200 calls in 2012-13 requesting advice and 80 detailed contract reviews were sought. If a contract review is carried out HMRC will issue a written certificate of opinion, the committee was assured that any contract review is totally confidential and not passed to the compliance team.

So are you happy that your PSC would be safe if HMRC carried out an enquiry?

steve@bicknells.net

 

 

Are your businesses really separate for VAT purposes?

Stress business woman

HMRC have been updating their manuals (21/10/13).

The purpose of VATDSAG01050 Single Entity and Disaggregation Manual is to help you to determine

  • whether two (or more) apparently separate businesses are, in reality, a single entity
  • whether, where two (or more) separate entities exist, they have been separated artificially.

Schedule 1,1A (2) of the VAT Act 1994 requires that, in determining whether any separation is artificial, due regard is had to the extent to which the different persons concerned are closely bound to one another by

  • financial
  • economic, and
  • organisational links.

Schedule 1, 2(2) of the VAT Act 1994 lays down three conditions which must be met before we can issue a Notice of Direction to any person. These are:

  • he is making or has made taxable supplies
  • those taxable supplies form part of wider activities carried on concurrently or previously (or both) with one or more other persons
  • the totality of the disaggregated activities gives rise to a liability to be VAT registered.

Here is a link to the updates http://www.hmrc.gov.uk/manuals/vatdsagmanual/index.htm

HMRC have some interesting cases, here is an example:

The case of Stephen and Angela Trippitt (MAN/00/0249) VTD 17340 addressed the question of whether a husband and wife could operate two businesses from the same premises.

In this case, the Tribunal decided that

  • the traders had successfully separated the activities of public house and bed and breakfast into two separate entities
  • we were incorrect in issuing a Notice of Direction.

The facts showed the extent of the commercial relationship between the entities, in addition to which Mrs Trippitt gave 35% of her takings to her husband.

The Tribunal was satisfied that this amount constituted a realistic, commercial, arm’s length contribution towards the value of the shared premises and telephone and utilities.

This decision means that where one entity argues that it pays a fixed percentage of its takings to the other, you need to establish:

  • what would happen if there were no takings?
  • would a minimal amount still have to be paid?
  • if not, how does that entity see these arrangements as constituting a normal commercial relationship, given that it is at no financial risk?
  • is there a real monetary transaction (as opposed to just the appearance of one in the books)? Can they provide evidence of this?

For more cases follow this link http://www.hmrc.gov.uk/manuals/vatdsagmanual/VATDSAG08100.htm

steve@bicknells.net

If you’re in health care the tax man is coming

fear of dentist

The latest HMRC Task Force has been named as ‘The Health and Wellbeing Tax Plan’.

If you work in a health and wellbeing profession such as:

  • physical therapy – eg physiotherapist, chiropractor, chiropodist, osteopath, occupational therapist
  • alternative medicine or therapy – eg homeopathy, acupuncture, nutritional therapy, reflexology, nutrition
  • other therapy – eg psychology, speech therapy, arts therapy

You have until 31st December 2013 to notify HMRC and any unpaid tax has to be paid by 6th April 2014.

Health and wellbeing tax plan helpline
Telephone: 0845 600 4507
From outside the UK: +44 1792 657 324
Monday to Friday, 8am to 6:30pm

Marian Wilson, Head of HMRC Campaigns, said:

“I urge health and wellbeing professionals to take advantage of our quick and straightforward way of bringing their tax affairs up to date. Help, advice and support is available.

“After the opportunity closes on 6 April, HMRC will use information it holds from third parties and regulatory bodies to identify people who have not paid what they owe. Penalties – or even criminal prosecution – could follow.”

Do you have anything to declare? HMRC can go back 6 years

steve@bicknells.net

5 ways to reduce the risk of a tax investigation

UK tax return form

THE TAX YIELD derived from HM Revenue & Customs investigations into the affairs of small- and medium-sized companies rose by 31% over the last 12 months, according to UHY Hacker Young.

Compliance investigations into SMEs generated £565m for HMRC in 2012/13, up from £434m in 2011/12, with the year ending March 31. Accountancy Age

Some investigations are random and some as a result of HMRC task forces, but many are triggered by risk profiling.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

5. Tax Avoidance Schemes – if you are using a tax avoidance scheme I am sure HMRC will be looking closely, if they can find a way to challenge the scheme then at some point they will

steve@bicknells.net

 

 

 

 

HMRC give advice to those tempted by tax avoidance….

Millionaire

On the 8th August, HMRC published a leaflet to help you identify the tell-tale signs of avoidance schemes, and warn you of the potential negative consequences of using them.

You are entitled to plan your tax affairs in a way that makes sure you do not pay more tax than you have to. There are many legitimate ways in which you can save tax, or example by saving in a tax-free ISA (Individual Savings Account), making donations to charity through Gift Aid, claiming capital allowances on assets used in your business or paying into a pension scheme. But there is a big difference between using tax reliefs and allowances in the way in which they are intended to be used, and trying to bend the rules to avoid tax.

There are warning signs you can look for which should help you decide whether you are being offered good tax advice about how to plan your affairs or whether you are being sold a tax avoidance scheme.

Here are the warning signs according to HMRC:

  • it sounds too good to be true and cannot have been intended when Parliament made the relevant tax law (for example, some schemes promise to get rid of your tax liability for little or no real cost, and without you having to do much more than pay the promoter and sign some papers)
  • the tax benefits or returns are out of proportion to any real economic activity, expense or investment risk
  • the scheme involves arrangements which seem very complex given what you want to do
  • the scheme involves artificial or contrived arrangements
  • the scheme involves money going around in a circle back to where it started
  • the scheme promoter either provides any funding needed to make the scheme work or arranges for it to be made available by another party
  • offshore companies or trusts are involved for no sound commercial reason
  • a tax haven or banking secrecy country is involved
  • the scheme contains exit arrangements designed to side-step tax consequences
  • there are secrecy or confidentiality agreements
  • upfront fees are payable or the arrangement is on a no win/no fee basis
  • the scheme has been allocated a Scheme Reference Number (SRN) by HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) regime

Be on your guard!

steve@bicknells.net