HM Revenue and Customs have launched a new amnesty for taxpayers suspected of committing serious tax fraud.
Under the Contractual Disclosure Facility (CDF), HM Revenue and Customs will write to taxpayers that are suspected of committing tax fraud to offer the opportunity to make a disclosure of unpaid tax liabilities within 60 days. In return HM Revenue and Customs will agree not to pursue criminal prosecution against the taxpayer.
Taxpayers that have not yet been contacted by HM Revenue and Customs may voluntarily request to be considered for the CDF. Alternatively those with offshore assets could consider registering under the Liechtenstein Disclosure facility (LDF).
For more information and advice regarding the disclosure of tax to HM Revenue and Customs please contact Paul Davison at Eaves & Co on 0113 2443502.
The taxpayers appealed a fixed penalty of £200 for the late filing of their 2009/10 partnership income tax return.
They appealed on the grounds that the HM Revenue & Customs online submission software was unavailable, and that the return had been submitted before 31 January 2011. They also argued that they had been successful in an appeal under similar circumstances for 2007/08.
HM Revenue & Customs explained that they had accepted their 2007/08 appeal for a late return, as it was the first year that paper returns had required to be submitted by 31 October. However, their 2010/11 paper return was received on 24 January 2011, nearly three months after the deadline.
The key in this case was that the tribunal stated that as there is no obligation to file online, the lack of software to do so is not a reasonable excuse to why the return was late, as it is clearly stated on the return that external software is required, therefore the penalties were upheld.
PA Holdings Limited constructed a complex arrangement in order to try and ensure employee bonuses were taxed as dividends rather than employment income. The company paid a capital contribution into employee benefit trusts, out of which bonuses were paid to select employees in the form of dividends.
The First and Upper-tier tribunals decided that the payments were employment income under Schedule E and dividend income under Schedule F. The effect of this being that they were not chargeable to tax as employment income, only as dividends; but they were earnings for the purposes of NI contributions.
Both parties appealed to the Court of Appeal. The Court of Appeal overturned the Upper Tier Tribunal ruling that income can be in both schedules E & F. The judge stated that if income falls within Schedule E, it is precluded from falling within Schedule F.
The Court found that the income fell within Schedule E as the amount of payment received by the employee was dictated by the employer. Therefore the payments were remuneration for employment and subject to Income tax and NICs accordingly.
HMRC have recently published figures detailing the success rate of their internal review process compared with taking cases to tribunal. Taxpayers can ask HMRC for an internal review if they are not satisfied with a decision of the Inspector, prior to taking it to the tax tribunal.
There were some interesting figures revealed:
On internal review – 44% of non-penalty cases were overturned, whilst 75% of VAT penalty cases and 35% of non-VAT penalty cases resulted in a cancelled or reduced penalty.
This compares to a success rate at the tribunal for taxpayers of only 21% (according to HMRC).
HMRC also state that only a ‘small minority’ of their decisions are challenged, meaning many incorrect decisions could remain in place.
These figures show that requesting an internal review can be a cost-effective step for taxpayers before the need to resort to the tribunal, and should be considered more often.
There have been a number of recent cases in the taxpayers favour regarding the meaning of ‘reasonable excuse’ in the context of penalties.
The case of Candlestick Company (TC1573), involved the late submission of a partnership return. Key point to this case was that the taxpayers had tried to correct the situation and had sought advice regarding their tax affairs from an accountant.
The case of Dudman Group Ltd (TC1608) involved penalties in respect of the late payment of PAYE by the employer company.
The taxpayer argued that they had suffered financially as a result of 9 of the company’s debtors going into administration and cash flow problems due to their bank changing its credit terms.
HM Revenue and Customs argued that inability to pay is not a reasonable excuse. However the Tribunal found in the taxpayers favour and noted the recent economic climate has put a lot of pressure on UK businesses.
These cases show the importance of considering making an appeal against penalties imposed by HM Revenue and Customs where there are mitigating factors in play.