Category: Tax Investigation

HMRC raids increase by 28% in the last year!

Regretful businessman in prison

In the last year HMRC have increased their raids on business premises by 28% and that’s a 53% increase over 5 years.

761 properties were raided last year!

HMRC possesses powers to raid premises with a search warrant granted by a judge or magistrate.

During August 2016 (Consultations end in October 2016) they issued 3 new consultations:

Tackling the hidden economy: Sanctions

Tackling the hidden economy: Extension of data – gathering powers to Money Service Businesses

HMRC have always been keen to seek out those who fail to register for tax, since 2011 they have been using CONNECT.

According to Accounting Web:

It uses a mathematical technique to search previously unrelated information and detect otherwise invisible ‘relationship’ networks. Using Connect, HMRC sifts through information on property transactions at the Land Registry, company ownerships, loans, bank accounts, employment history, voting and local authority rates registers and compares with self-assessment records to spot taxpayers who might be under-declaring or not declaring income.

Connect has made links between tax records and third party data from hospitals, pharmaceutical companies, insurers and even gas SAFE registrations. DVLA records and the shipping and Civil Aviation Authority registers help identify owners of cars and planes who declare income that the computer suggests cannot support such purchases.

If you have undeclared tax now would be a good time to tell HMRC.

steve@bicknells.net

Does your tax agent ask for too many refunds?

SA100 tax return form with calculator and pencil lying on table

High Volume Agents (HVAs) deal with large numbers of clients, often for a short time only, and make repayment claims or submit returns that generate repayments.

HVAs usually

  • provide services on a commission or ‘no repayment no fee’ basis
  • target clients in a specific trade or industry, for example the construction industry
  • submit high numbers of repayment claims relating to expenses incurred in their clients’ employment or trade
  • receive the tax repayment as a nominee for their client
  • are not members of a professional taxation accountancy body, although some of their staff may hold professional qualifications
  • have little or no face to face contact with their clients as much of their business is carried out electronically.

A repayment claim can be made using any of the following

  • P87
  • stand alone claim by correspondence
  • Self Assessment tax return
  • unsolicited return.

The range of expenses claimed that results in a repayment usually include

  • travel
  • subsistence
  • overnight accommodation
  • cost of food
  • use of home
  • wife, civil partner or relative’s wages
  • cost of tools
  • protective or specialist clothing
  • laundry
  • telephone costs.

Further details in CH820000

HMRC have targeted firms with as few as 30 clients! so don’t think it only applies to large scale operations

HMRC are particularly interested in claims where the expenses are more that 10% higher than the income.

An agent’s poor technical ability that puts tax at risk will generally fall into one or more of the following categories

  • bookkeeping or accounting errors
  • computational errors
  • lack of tax knowledge or expertise
  • unreasonable or untenable technical views.

HVA’s are asked to enter into a memorandum of understanding agreements which are designed to check clients are paying the correct tax, in general this is likely to result in higher tax payments.

So be careful who you ask to be you agent! your tax saving might be short lived.

 

steve@bicknells.net

 

Will your tax return stand up to HMRC Profit Benchmarking?

11931862094_e7a9299369_z

HMRC have been doing lots of research on SME businesses, the most interesting areas of research are:

Understanding Small and Medium Enterprise (SME) business life events – SME Customer Journey Mapping

Research was carried out to understand:

  • the key life events and activities that SMEs experience
  • how these relate to tax
  • what opportunities there are for the improvement of HM Revenue and Customs (HMRC) services by more closely aligning them to business lifecycles

The Transparent Benchmarking Team Statement (November 2014)

HMRC is conducting a number of pilots, focussed on SME customers, designed to explore the effectiveness of publishing benchmarks on aiding greater voluntary compliance.

Following the first pilot (benchmark net profit ratios for Painters and Decorators, and Driving Instructors) in March 2014, HMRC will run two more in the autumn. One of these will focus on self-employed taxi drivers and pharmacists, where HMRC will be writing to around 2,500 agents that have a number of clients in the target sectors. The idea is to test whether publishing benchmarks through an agent is more effective than writing to a customer directly. Letters will also be sent to a sample of represented and unrepresented customers within the selected sectors to form control groups for evaluation purposes. All represented individuals and businesses written to directly will be informed that their agent has not received a copy of the letter.

The benchmark for both sectors is the net profit ratio. Because this is a controlled pilot exercise, not all agents or businesses within the relevant sectors will be receiving a letter. (source CIOT)

The Benchmarks we know so far are:

  • Painters & Decorators range from 59% to 79%
  • Driving Instructors 31% to 67%

So the range of profits are big!

We await the ranges for Taxi Drivers and Pharmacists.

If your profit doesn’t fit then you need to know why.

Do not ignore the letter because HMRC are likely to follow it up and assume you are deliberately trying to avoid tax!

You may have some valid reasons for not fitting the benchmark and you must explain those reasons to HMRC.

A deliberate error will results in a higher penalty (up 100% of the tax) but can also open the door to HMRC going back over up to 20 years of your accounts!

The letters refer to common mistakes in:

  • Travel Expenses
  • Telephone Costs
  • Utility and insurance charges
  • Professional Fees
  • Capital Expenditure

You may find these blogs helpful

Motor Expenses

Travel Expenses

Home Office Expenses

10 Ways to Save Tax

HMRC also have some useful toolkits/checklists…..

Business Profits Toolkit

Private and Personal Expenditure Toolkit

steve@bicknells.net

Have you got undeclared Credit Card sales?

Kartenlesegerät, geld überweisen, Kreditkarte, Hand

The Credit Card Sales Campaign is an opportunity to bring your tax affairs up to date if you’re an individual or business that accepts credit or debit card payments.

Who can do this

This opportunity is for you if:

  1. you accept card payments for goods or service
  2. you haven’t declared all your UK tax liabilities

Get the best terms

You need to tell HM Revenue and Customs (HMRC) if you either:

  • haven’t registered with them
  • have failed to declare all your income

This is called a ‘voluntary disclosure’.

What happens if you should disclose but don’t

HMRC has details of all credit and debit card payments to UK businesses. This information is used to identify individuals and businesses that might not have paid what they owe.

Credit Card Sales Campaign Helpline
Telephone: 0300 123 9272
From outside the UK: +44 300 123 9272
Monday to Friday, 9am to 5pm

steve@bicknells.net

Is there any point in DOTAS if the tax will be paid upfront?

Scaring amounts

The Finance (No2) Bill 2014, which is due to receive Royal Assent in July, contains legislation which will enable HMRC to demand payment upfront of disputed tax in certain cases, principally involving tax avoidance or deferral. It is estimated that up to 43,000 taxpayers could receive such a demand. Those demands will be issued over an extended period but the first are likely to be issued as early as September 2014.

Taxpayers who have sought tax advantages through tax avoidance schemes that fall within the Disclosure of Tax Avoidance Schemes (DOTAS) are likely to be most affected.

Here is a link to the SRNs (Scheme Reference Numbers) affected – click here

Over the next 2 years HMRC estimates that it will rake in £7 billion through the use of these notices. Of this £7 billion, individuals will weigh in with £5.1 billion. This would equate to each person having a gross income of £262,000.

Last week the Financial Times reported that Ingenious Media, an investment company, warned 1,300 of its investors, including business leaders, entertainers and sporting celebrities, such as David Beckham, to expect substantial tax bills with interest, as reward for using its tax avoidance scheme. (Contractor Weekly)

This is a radical change and many might say its been a long time coming.

It has always struck me as slightly bizarre the DOTAS were registered and allowed to exist.

steve@bicknells.net

 

A Trillion Euro’s lost to tax evasion in the EU

 

A Trillion is a huge amount, its almost too large to imagine.

Here is the latest campaign video

http://ec.europa.eu/avservices/video/player.cfm?ref=I080915

As part of the intensified battle against tax fraud, the Commission launched on 6th February 2014 the process to start negotiations with Russia and Norway on administrative cooperation agreements in the area of Value Added Tax (VAT). The broad goal of these agreements would be to establish a framework of mutual assistance in combatting cross-border VAT fraud and in helping each country recover the VAT it is due. VAT fraud involving third-country operators is particularly a risk in the telecoms and e-services sectors. Given the growth of these sectors, more effective tools to fight such fraud are essential to protect public budgets. Cooperation agreements with the EU’s neighbours and trading partners would improve Member States’ chances of identifying and clamping down on VAT fraud, and would stem the financial losses this causes. The Commission is therefore asking Member States for a mandate to start such negotiations with Russia and Norway, while continuing exploratory talks with a number of other important international partners.

http://ec.europa.eu/taxation_customs/taxation/tax_fraud_evasion/missing-part_en.htm

steve@bicknells.net

HMRC demand payment from Landlords

Mosaïque de logements

HMRC launched the ‘Let Property Campaign‘ on the 10th December 2013.

If you’re a landlord who has undisclosed income you must tell HMRC about any unpaid tax now. You will then have 3 months to calculate and pay what you owe.

The Let Property Campaign is an opportunity open to all residential property landlords with undisclosed taxes. This includes:

  • those that have multiple properties
  • landlords with single rentals
  • specialist landlords with student or workforce rentals
  • holiday lettings
  • anyone renting out a room in their main home for more than £4,250 per year, or £2,125 if the property was let jointly, but has not told HMRC about this income
  • those who live abroad or intend to live abroad for more than 6 months and rent out a property in the UK as you may still be liable to UK taxes

 

According to the Telegraph….

Fewer than 500,000 taxpayers are registered with HMRC as owning properties other than their home. And yet other sources put the number of Britain’s growing army of landlords at between 1.2million and 1.4million.

Why the discrepancy? No one can say for sure, but the taxman has his answer: not enough people are declaring – and paying tax on – their property incomes and gains.

HMRC will identify those who they believe should have made a disclosure by:

  • comparing the information already in their possession with customers’ UK tax histories
  • continuing to use their powers to obtain further detailed information about payments made to and from landlords

Where additional taxes are due HMRC will usually charge higher penalties than those available under the Let Property Campaign. The penalties could be up to 100% of the unpaid liabilities, or up to 200% for offshore related income.

If you owe tax, you must tell HMRC of your intention to make a disclosure. You need to do this as soon as you become aware that you owe tax on your letting income.

At this stage, you only need to tell HMRC that you will be making a disclosure.

You do not need to provide any details of the undisclosed income or the tax you believe you owe.

It sounds like HMRC could be in for bumper Christmas if landlords take advantage of this opportunity to pay up!

steve@bicknells.net

Key Points from the Autumn Statement 2013

Tax Money

The Chancellor George Osborne presented the Autumn Statement to the House of Commons on 5th December 2013 and things are getting better, economic growth forecasts for this year have more than doubled from 0.6% to 1.4% but the austerity plan is set to continue.

Here is a summary of the key announcements:

Business Rates

Business rate increases in England will be capped at 2% in 2014/15 (they were set to increase by 3.2%) and businesses will be able to pay over 12 months rather than 10.

The Retail Sector will also get a £1,000 discount in 2014/15 and 2015/16, this applies to pubs, cafes, restaurants and charity shops with a rateable value below £50,000.

A reoccupation relief of 50% is being introduced for up to 18 months on premises that have been empty for a year or more and it will apply from 1st April 2014 to 31st March 2016.

Small Business Rate Relief has been extended to April 2015 under the scheme small businesses with a rateable value of £6,000 or less can get 100% relief, the relief is scaled down to zero on rateable values of £12,000 and there is a lower multiplier on rates between £12,001 and £17,999.

Income Tax

As previously announced the personal allowance will be £10,000 for the tax year 2014/15.

From April 2015, a spouse or civil partner who is not liable to income tax will be able to transfer £1,000 of their allowance to a basic rate tax paying spouse and as a result save £200 in tax.

State Pension Age

By 2020 it will be 66, by 2028 it will be 67 and by mid 2030’s 68, then in 2040’s 69.

Capital Gains Tax

The annual exempt amount will be £11,000 for individuals for 2014/15.

But there was an exemption for principle private residence  letting for 36 months and from 6th April 2014 it will be reduced to 18 months.

Consultation will start in April on non-residents paying capital gains on property disposals.

Individual Savings Account (ISA)

The limit will rise to £11,880 for 2014/15 and of this £5,940 can be invested in cash ISA’s

Mortgage Guarantee Scheme

The scheme started in October will run for 3 years and end in January 2017.

Buyers will only need a 5% deposit and the government and the funder will guarantee 15% of the loan in return for a fee.

IR35

Legislation will be tightened from April 2014.

Anti-avoidance

A range of measures were discussed in addition to IR35 and these included:

  • Partnership Tax
  • Controlled foreign companies
  • Charities
  • High risk tax avoidance schemes
  • Dual contracts

Other headline measures

  • Employers NI for under 21’s to be scrapped in 2015
  • Rolling back green levies to allow an average saving of £50 on energy bills
  • Free school meals for infants
  • Scrapping of 1% above inflation rail fare increases
  • Electronic tax discs
  • Abolition of next years 2p per litre fuel duty rise

 

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