J Hicks – Discovery Case Won by Taxpayer

The scope of HMRC’s powers in relation to raising discovery assessments outside of the normal enquiry window has been a contentious issue in recent years and a number of cases seem to have eroded the position of the taxpayer (see our earlier blog post for example).

A recent First-Tier Tribunal case, J Hicks v HMRC, seems to have taken a more reasonable approach and may therefore give hope to taxpayers for a more balanced approach in the future.

The taxpayer in this case took part in a tax avoidance scheme which was marketed by a firm specialising in such schemes.  The scheme in question was marketed at derivatives traders, which the taxpayer was.  Having taken part in the scheme it was reported on his 2008/09 tax return, with the relevant avoidance scheme reference included.  He had losses carried forward, which he claimed on his 2009/10 and 2010/11 returns, which were both filed in late January before the filing deadlines for each year.

HMRC opened a standard enquiry into the 2008/09 return, and this enquiry was ongoing when the later tax returns were filed.  However, HMRC did not open enquiries into 2009/10 or 2010/11.

In March 2015, HMRC issued discovery assessments for 2009/10 and 2010/11, which Mr Hicks appealed.  HMRC argued they could issue an assessment under either TMA 1970, s29(4), that the insufficiency was a result of careless behaviour, or under TMA 1970, s29(5) that a hypothetical officer could not have been aware of the deficiency within the normal time limits.

The tribunal found that a hypothetical officer should have had enough information by the end of the normal window to raise an enquiry, with the Judge noting that, “I do not consider that subsection (5) allows or is intended to allow HMRC to issue assessments which ignore the normal time limits while they spend further time in polishing a justifiable assessment as at the closure of the enquiry window into a knockout case.”

He also points out that these rules should not be seen as giving HMRC “carte blanche […] to omit to open an enquiry—whether intentionally or by omission—and then simply rely on subsection (5) in every case to issue assessments which would otherwise be out of time. The statutory time limits for assessments are a critically important safeguard for the taxpayer, just as the onus of disclosure on the taxpayer, and the duty not to act carelessly or deliberately, are a protection for HMRC where those limits are not met.”

It is interesting to note the Judge acknowledging that taxpayers deserve rights and safeguards from HMRC, particularly in light of HMRC’s continued attempts to obtain ever greater powers.

Looking at the matter of carelessness, the Tribunal found that reliance on the scheme provider for information included in the return was not careless, nor is the use of a tax avoidance scheme automatically careless.  The key point was whether careless behaviour led to the deficiency of tax.  In this case, it was found not to be careless.

The taxpayer’s appeal therefore allowed.

Non-resident penalty appeal allowed

In a recent First-Tier Tax Tribunal case, a non-resident’s appeal for reasonable excuse in relation to late filing penalties was denied, however, interestingly the Tribunal still decided to waive the penalties.

The appellant in A Newton v HMRC was resident in France and filed his 2012/13 tax return late.  He appealed against the higher later filing penalties on the basis that as he was living in France, he had not seen any advertising in relation to the new penalties.

We recently wrote about another case involving a non-resident appealing on similar principles, in relation to the introduction of the Non-Resident Capital Gains Tax (NRCGT) returns.  In that case the appeal was allowed because it was felt to be unreasonable to expect the taxpayer to have found the new rules independently.

However, the tribunal in this case did not feel the same principle would apply.  In this case, the taxpayer would have received documents showing the new penalty levels (for example on the notice to file) and the Tribunal therefore felt that, “a person reasonably trying to meet their tax return filing responsibilities would have realised from reading any of these documents that the penalties had changed”.

However the tribunal judge did overturn the penalties on the basis that the individual did not have a UK tax liability at all and stated that, “he would not have met the “SA criteria” that HMRC use, and he would not have had any obligation to notify chargeability under s 7 Taxes Management Act 1970”.  He was therefore, in the judge’s opinion, not legally obliged to complete the UK return.  The penalties were therefore reduced to nil.

Offshore Client Notifications – Are you Affected?

We have written previously on this blog about various HMRC offshore disclosure facilities designed to encourage taxpayers to come forward and declare any unreported foreign income or gains.

HMRC continue to acquire new powers in order to pursue taxpayers and one of the latest requires advisors themselves to write to certain clients on their behalf.

These rules apply to financial institutions like banks but also to so-called “specified relevant persons” (SRPs). Accountants and tax advisors are likely to be an SRP if they provided offshore advice or services over and above simple preparation and delivery of tax returns in the year to 30 September 2016 regarding a client’s personal tax affairs.

If the advisors fall within the rules and are not covered by certain exemptions they will be required to send a standard HMRC headed document to these clients (although writing to all clients is also permitted) with a covering letter that includes certain wording which may not be altered (these are the Offshore Client Notifications).

One of the key things to note is that HMRC’s document directs clients to submit their own online disclosure. You may suspect they are thus attempting to bypass the advisors. We could not possibly comment! If you need to send such letters, we recommend highlighting to the client the dangers of doing so!

The wording SRPs must include in their covering letter is as follows:

“From 2016, HM Revenue & Customs (HMRC) is getting an unprecedented amount of information about people’s overseas accounts, structures, trusts, and investments from more than 100 jurisdictions worldwide, thanks to agreements to increase global tax transparency. This gives HMRC unprecedented levels of information to check that, as in most cases, the right tax has been paid.

If you have already declared all of your past and present income or gains to HMRC, including from overseas, you do not need to worry. But if you are in any doubt, HMRC recommends that you read the factsheet attached to help you decide now what to do next.”

If you are concerned about how these rules might affect your firm, or are an individual with unreported overseas income, please get in contact with us as we would be happy to assist.

Response to Making Tax Digital – Sanctions for late submission and late payment


Eaves and Co have submitted a response to the HMRC consultation document of 20 March 2017 in relation to sanctions for late submission and late payment as part of Making Tax Digital.  We have reproduced our response below.


Please feel free to comment.


Response to Making Tax Digital – Sanctions for late submission and late payment. Consultation document – 20 March 2017


This is a very difficult document to respond to, because it is so wrong headed.  When Chancellor Osbourne announced it, it was alleged to be a liberating move.  He has since been relieved of his position.  The legacy of ‘Making Tax Digital’ remains.  My concern is that, as currently drafted, it runs a high risk of ‘Making Tax Dysfunctional’.


  1. Fundamentally, if it is such a good idea, and is going to work well, so that ‘businesses flock to it’, there is absolutely no reason to make it compulsory.


  1. In a free society, businesses should have the discretion to run their own affairs as they see fit.  The proposals extend the historic system of annual filing to filing 5 income tax returns per year.  This is not ‘liberating’, it is adding extra commercial pressure and cost.


  1. The Federation of Small Business puts the costs at 10 times the HMRC estimate.  For bigger businesses the extra costs may be more.  As one provider put it, even the cost of a training seminar may well exceed FSB estimate.


  1. These costs would just be a burden if the system was compulsory with ‘sanctions’, as proposed.  If there was a benefit, which added to efficiency businesses would (and should) pay for appropriate software at market price.  No need for Government interference.


  1. On this theme, which bit of the equation:-

Government + Big Computer Idea = Cost Effective Happiness

has even been proven true?


  1. HMRC say that the Making Tax Digital programme will not save them material costs.  If the benefits therefore ensue to business, should they not be given the choice?


  1. There should be no sanctions if they decide their current systems are adequate, or perhaps even better than the HMRC ‘private licensing’ proposals?


  1. Everyone should be equal before the law.  Self-employed tax payers already suffer extra burdens in that they are more often called upon to file annual tax returns.  To make it 5 returns per annum is unfair and oppressive, especially if the stress of potential sanctions is imposed.


  1. Businesses are already obliged to maintain and produce adequate records to prepare relevant annual returns.  Understandably most view it as an unprofitable burden, accepted as part of the benefit of being a citizen of a democracy such as the UK.  Politicians should recognise though that the equation and relationship are each fragile and based on mutual trust.  To multiply by 5 the burden risks suggesting a taxpayer is untrustworthy and (with sanctions) ought to be punished for errors in compliance.  This is not a route to encourage the levels of voluntary compliance that the UK has been fortunate enough to experience historically.


  1. Recent case law on ‘reasonable excuse’ highlights the lack of HMRC sympathy and understanding on the pressures imposed by tax compliance, so would not seem to be adequate protection.


  1. In any event, this is starting from the wrong perspective.  Individuals and businesses should be free to act as they see fit to benefit the economy as a whole.  They should not be restricted by regulation to act in accordance with Government dictat, unless the action they propose is harmful.  There is already an obligation on business to keep adequate records.  This should include the freedom to keep them in accordance with specific, tailored business requirements, suitably for the business concerned, rather than following a generic algorithm designed by someone with no knowledge/interest in the particular business.  Surely it is patently obvious such freedom must be better for the UK economy as a whole.


  1. To suggest that a single ‘app’ can successfully organise management accounts from every business from baking creak cakes to running a portfolio of investment properties is too bizarre to be believable.  Any accountant will tell you the key profit indicators are going to be different.  The business software market can respond, as appropriate, but buying a government approved Trebant (historic reference) will only end in tears.


  1. Distorting the business software market by imposing ‘Government Requirements’ is providing anti free market protection for the software houses concerned.  This must be unfair and an inappropriate use of Government power.  Why?  Would this not be illegal under EU rules whilst we are still a member, pending finalisation of Brexit?


  1. In a secular, capitalist society, why can there be an exemption for ‘religion’.  Why not allow a simple commercial decision: ‘This adds cost, stress and burden for (no) business benefit.  I choose (or choose not) not to do it’?  That would allow those believing in Making Tax Digital to move ahead, without distorting the rest of the crucial, small business economy.


  1. The benefit claimed by HMRC is that small businesses would keep better records.  Some small business have poor records, it is true, but they tend to be at the bottom end of the spectrum.  As businesses grow, especially when they take on staff, record keeping becomes more important.  To state the obvious, losing a cash receipt when it goes to a pilfering employee costs 100% of the receipt.  This is undesirable for the business!  Compare to saving 20% on income tax?  Bigger business have controls.  Bigger businesses tend (by definition) to make more profits, so the ‘tax saving’ by imposing MTD is I suspect mythical.


  1. In any event, to put it into context Tesco recently paid £108m to avoid being prosecuted for financial fraud, plus more again in compensation.  How many window cleaners taking the odd tenner in cash would that amount to?  Compulsory MTD looks like a sledgehammer to crack a nut, and so, in the way of many such initiatives has the appearance of overzealous behaviour by the State for little/no benefit.


  1. There may well be an argument to say that the idea is discriminatory in that it prejudices:-

a) Entrepreneurs who do not have English as their first language.

b) Those self-employed with learning difficulties etc., who may well earn a decent living with a ‘hands on’ a labouring job making them proud and independent, but would find quarterly reporting unfairly daunting.  Should they be forced on to Government benefits?  To what end?

c) Entrepreneurs who do not trust electronic intercourse for financial transactions.


  1. With regard to the latter HMRC have been somewhat patronising about ‘elderly’ taxpayers.  It is age discrimination in itself?  They have then pointed out that such people often use mobile telephones etc.  True, but there is a huge difference between making a telephone call and engaging with third party electronic transactions which may not be totally secure.


  1. The internet is inherently insecure as has been proven by a series of hacks into various Government and Business computer systems.  The NHS was recently severely disrupted by ‘relatively unsophisticated’ hackers.  The CIA has been hacked – despite (presumably) top quality security and operating protocols.  Why would any nation therefore risk putting much of its economic output on to a single system, which is also going to have the ability to demand money?  Do you think the odd criminal or foreign Government might fancy the ability to have even just a day of receipts (I’ll take 31 January, please)?


  1. The underlying ethos is that ‘Digital’ is the best.  It is new.  It is the way forward for the future.


Fine; then let it compete in the Market Place.  If it is good then there is absolutely no need to make it compulsory and penalise those who trundle along behind.


‘Digital’ is best [as a hypothesis].  Prove it by not requiring sanctions.  Freedom for taxpayers to choose.  Yes, comply with the law to submit annual returns but no to 5 times that obligation.  (Choice for business to focus on their own key profit indicators – not arbitrary rules set by centralised dictat.  If we were customers we would have gone elsewhere!]


  1. The proposed exemptions for MTD are noted.


There is a religious exemption.  How do HMRC intend to ‘police’ claims under that heading.  In this context I note the firm swearing by Elizabeth I on her Coronation, that the State should have ‘no desire to make windows into men’s souls’.


What is to happen if someone claims the exemption?

Making Tax Dysfunctional

Those Impossible Situations – A Fair Tax System?

HMRC have over recent years spent a fortune on “Management Consultants”.  Consultants preaching efficiency often talk about an 80:20 rule, pointing out that the majority of “profits” come from the “best” customers.  Great, if you are a focused, private sector profit generator.  What though if you are a Government body, which surely ought to be run by Civil Servants trained to treat all citizens equally?  We are not “customers”, despite HMRC Newspeak.  As a Firm we tend to deal with taxpayer exceptions and unusual situations, so understand that not everyone is “average”.  We believe that the tax system should cater for those who, for whatever reason, do not fit within the “normal” generality.

We are keen that the tax system should be administered fairly, in accordance with the law.

A current fear is that the present HMRC focus on penalties, with much greater fines than in the past, may result in unfairness.  The current system may result in a breakdown of trust.  Currently, it is common place for there to be greater penalties for innocent arithmetic errors in tax computations, compared to deliberate theft, say in terms of shoplifting, which apparently is below the police threshold in most cases.  Current treatment appears bias against the small business or individual taxpayer.

Here is a ‘hypothetical’ situation to consider:

  • A UK resident taxpayer leaves UK part way through year to take up a new job abroad

  • Technically, having been resident at the start of the tax year, he would be resident for the whole of it, but his new job contract means he can expect to meet the conditions for “split-year treatment” for full-time work abroad. This means he is treated as non-resident from the date he leaves the UK.  This would be common sense in most peoples’ view, not tax avoidance.  Practically, in such a situation, it also means he does not write to tell HMRC about his overseas employment.  He pays tax to the local country where he lives and works.

  • However, to get the split year UK treatment, the rules require that the taxpayer be non-UK resident in the following tax year too, by virtue of work abroad. Of course, the happy recipient of the new job offer expects to meet this, because he is going to be working abroad and intends this to continue.

  • Suppose though, for whatever reason; say, illness/ sickness/ redundancy/ war/ sheer misery at the job not being what was promised, the taxpayer returns to the UK after some months. As a result therefore, he becomes UK resident again.  Not only does this affect his tax residence status for the year of return, it also means he fails to meet the conditions for non-residence for the preceding year.

  • As a result of this, the worker is now taxable on all worldwide income for the whole of the previous tax year as well.

  • Technically, HMRC may then argue for late notification and issue penalties, even though the individual involved acted perfectly properly, in terms of his anticipated and existing circumstances at the relevant times for notifying HMRC. The required dates altered after the event, because of changed circumstances!

  • HMRC may say “They may not take the point.” With respect, that is not the principle at stake.  Ordinary, innocent actions should not be subject to a potential fine, which may [or may not] be released by State discretion.   That is not the Rule of Law, but the empowerment of bureaucrats, with obvious dangers of corrupt dealing.  We are not suggesting HMRC are corrupt, but experience with history and other jurisdictions makes the risk…kind of obvious!

We would be interested to hear people’s thoughts on how a fair tax system can potentially impose a punitive penalty on ordinary law-abiding citizens for being as “morally suspect” as to get unexpected illness?

Practical experience and thoughts on the principles welcome!

Spring Budget 2017 and End of Year Tax Planning

This year’s budget did not bring a great deal for advisors to get their teeth into.  There are some points that will certainly affect millions of taxpayers though, so we have summarised the key points below.

There are also steps that taxpayers should consider taking before the end of the tax year, when various new rules and rates will come into effect.

  • The tax-free dividend allowance (the band on which dividends could be received free of income tax) is to be reduced from £5,000 to £2,000 from April 2018. Having only been introduced in April 2017 the allowance is already being reduced which will affect all taxpayers receiving dividends, including business owners and investors.


  • There will be a 1 year delay for quarterly reporting under the Making Tax Digital (MTD) rules for businesses that have a turnover below the VAT threshold (£85,000 for 2017-18). This will be good news for those businesses but unfortunately there do not appear to be any changes to these controversial proposals for other businesses.  Plus, the so-called pilot scheme will not have run its full course, so there is no chance of everyone learning lessons from the process.


End of Year Planning


  • Residential property rental. From April 2017 the phasing in of restrictions on relief for interest costs for higher rate taxpayers will begin. Initially 25% of such costs will be affected, however this will rise 25% each tax year until all higher rate relief on finance interest is blocked.


  • If pension contributions or pension scheme planning might be desired, setting up and contributing to a pension scheme before the end of the tax year (if one is not already in place) could ‘bank’ allowances for the year under the carry-back rules. Those with existing pension schemes have until the end of this year to use up any unused annual allowance from 2013-14.


  • If possible, consider declaring dividends where the tax free allowance of £5,000 has not been used up yet.


  • Consider new deemed domicile rules if non-UK domiciled. From April 2017 deemed domicile rules may apply to individuals who have been resident for 17 of the previous 20 years.  Previously these only applied to inheritance tax but the new rules extend to income tax and capital gains tax meaning those affected will have to report their worldwide income and gains on an arising basis.

Worldwide Disclosure Facility – Last Chance to Disclose?

HMRC have announced the Worldwide Disclosure Facility (WDF) the latest in a long line of disclosure facilities designed to encourage taxpayers to come forward to disclose previously unreported offshore tax liabilities.

Unlike its predecessors, the WDF does not offer any favourable terms, other than the fact that HMRC state that where the disclosure is correct and complete and the taxpayer fully co-operates by supplying any further information they ask for to check the disclosure, they’ll not seek to impose a ‘higher penalty’, except in specific circumstances (e.g. where the taxpayer was already under enquiry) and they will also agree not to publish details of the disclosure. This last ‘benefit’ may appeal to higher profile individuals who may prefer to remain anonymous in their previous failures.

This is a marked difference to previous disclosure facilities that offered much reduced penalties (such as the 10% rate offered by the Liechtenstein Disclosure Facility) and guarantees against prosecution.

The WDF is targeted as a ‘last chance’ by HMRC before even more strict penalties come into force, as well as their claims that automatic exchange and data from the Organisation for Economic Co-operation and Development Common Reporting Standard (CRS) will then be available.

After 30 September 2018, new sanctions will be introduced that reflect HMRC’s “toughening approach”. They state that you will still be able to make a disclosure after that date “but those new terms will not be as good as those currently available”.

Previous experiences suggest that making a disclosure under one of HMRC’s facilities is usually a more streamlined process compared to simply writing to HMRC.

Eaves and Co would be very happy to discuss matters if you are concerned that you or your clients may have an undisclosed offshore liability, suitable for the Worldwide Disclosure Facility. We have extensive experience of making disclosures under previous facilities that HMRC have offered.

Making Tax Digital – Your Thoughts Welcome

As you may be aware, new proposed rules on tax compliance, called Making Tax Digital, are being consulted on at present.  We are planning on preparing our own response to the consultation document, and would welcome your thoughts to take on board and incorporate into our thoughts on a response.  In fact, we would suggest you send in your own response, but we would still welcome your input on the points raised.  They are important.

Of the proposed changes, the “digital tax system” is perhaps the one that will cause the biggest changes to advisors, businesses and individuals.  It is under this that the proposed “end of the tax return” would occur.  Individuals will make changes to their digital tax account throughout the year and it is proposed that information would feed in automatically from real-time PAYE and banks and building societies.

A significant proposal is that, under these rules, businesses will be required to keep digital records and to provide quarterly updates to HMRC with summary data from these records.  There appear to be no proposals to help businesses with the cost of appropriate software.  Bearing in mind there would then be an annual taxable profit calculation due after the year end, what is the reason behind the proposal for quarterly reporting?

It is proposed that this would commence from April 2018 for income tax purposes.  The main exemption from the rules will be businesses with turnover of under £10,000, which would seem to help few.

Some of the particular issues that we will look to raise concern the following:

  • The rules are proposed to be mandatory. This certainly raises concerns for certain taxpayers as noted below.  One has to wonder why the rules should be mandatory, when it is claimed by HMRC that they will be welcomed by most taxpayers?
  • Certain individuals and sole-traders may find the rules particularly difficult. These might include elderly taxpayers and those who are not computer literate, or do not own appropriate equipment/software.  Whilst it may be news to those in power, not all people have a PC and certainly not all have mobile phones with internet access (which was claimed to be the solution to not having a PC).
  • Entering sensitive and important financial information on one’s phone may not be ideal in any event. Other HMRC suggestions include asking a family member for help.   However, this overlooks the fact that financial information can be sensitive even (or perhaps particularly) amongst family members.  We feel that this aspect should not be overlooked in the drive towards digital taxation.  We would commend the article in Taxation by Robin Summers FCA on this point.
  • Businesses will be required to submit information to HMRC on a quarterly basis. This could be particularly onerous in the case of small businesses where a multitude of things could [and will for some] cause problems. It may be fine when things are running smoothly, but why add extra burdens?   Life suggests that, unfortunately, there can be upsets…Family problems, business problems, partnership splits, illness, death of [someone] …etc. etc.…  In such circumstances surely no- one would expect the first priority of a business should be to file an HMRC form, ahead of [say] visiting their dying mother?  Once behind, such a short reporting period would make it increasingly difficult to get up to date.  Recent practical experience with HMRC would suggest a “reasonable excuse” let out may be insufficient!  [See previous blogs and recent case law.]
  • Even for the biggest business, access to accurate up-to-date information at short notice could be difficult. Hence, the idea is likely to cause a significant increase in work on administration.  The proposals suggest this would fall disproportionately on small business.  Such businesses, especially start-ups, may therefore decide to opt out of being “HMRC Customers”.  Creating barriers to joining the “Tax Club” would not, in our opinion, appear to be a sensible way forward.  Do people agree?
  • It may be noted that Stock Exchange listed plc’s do not have a compulsory requirement to publish detailed figures every quarter. Why should it be fair to make a small family firm subject to more onerous conditions?
  • The requirement to keep digital records, “as close to real time as possible” again could cause issues for those with limited access to/comfort with technology. There may also be many in businesses where keeping digital records in real time could prove an excessive burden in a practical sense. For example, someone travelling on a music or comedy tour, where time pressures are high.  For them building a pile of receipts is the best that can be hoped for in the short term.  Their Accountants can then help them do the reporting at the end of the year.
  • Business innovation requires flexibility and imagination, not an obsession with bureaucratic record keeping? Such a tight time table as proposed may be ok for a smooth running, continuing business, but growth and change require intensive resource.
  • Importantly, for those with any conception or imagination on what it is like to run a business, [for example, Accountants with real clients] they may blanche at the thought that the first objective of an entrepreneur should be to file Government forms when he is working all hours to try to get a business to produce a profit.  Yes, there should be an obligation to report to HMRC, but there should be a fair interval between striving for an objective and sending in a report on the result.  Sending in a football score after 22.5 minutes is a waste of resource all round. Outcomes can change over time.  Income Tax is based on the profit for the year.
  • Many businesses are seasonal, so use “quiet periods” to catch up with administrative matters. This often enables them to keep staff employed throughout the year, rather than laying them off.  How does the Government wish such businesses to cope with the change?
  • We feel adding extra administrative burdens can only put up an extra barrier to entrepreneurship. Does the Government wish to reduce the economic benefits inherent in the creation of small business, or just encourage them to join the Black Economy?

Of course, others may have other views.  We would like to hear. Please let us know.

The full consultation documents can be found at https://www.gov.uk/government/collections/making-tax-digital-consultations.  Honestly, we would be very interested to hear your thoughts.

Beware New Rules on Liquidations – HMRC Refuse to Give Clearance

As you may be aware, new rules are being introduced with effect from April 2016 as part of the Finance Act 2016.  These relate to distributions in a winding-up/liquidation and are designed to target certain company distributions in respect of share capital in a winding-up. Where a distribution from a winding-up is caught, it is chargeable to income tax rather than capital gains tax.

The rules apply where the following conditions are met:

  1. The company being wound up was a close company (or was within the two years prior to winding-up)
  2. The individual held at least a 5% interest in the company (ordinary share capital and voting rights).
  3. The individual continues to carry on the same or a similar trade or activity to that carried on by the wound-up company within the two years following the distribution
  4. It is reasonable to assume, having regard to all of the circumstances that there is a main purpose of obtaining a tax advantage.

Whether or not Conditions C or D are triggered could be a cause for some contention, and so HMRC note that they have received a number of clearance applications relating to these new rules.

In the absence of a statutory clearance procedure under the new legislation, HMRC have clarified that it is not their general practice to offer clearances on recently introduced legislation with a purpose test.  They have instead sent out a standard reply providing some examples of how they think the rules will apply.

Clearly this is a developing area and HMRC’s reaction is somewhat disappointing as taxpayers often require certainty before carrying out commercial transactions which could be caught.  HMRC have stated that further guidance will be published, however in the meantime we advise that care be taken, and seeking professional advice, as always, may save time and costs in the long run.

We would be delighted to assist if you think you may be affected by these rules and have any queries.

Employers Beware! – PAYE Penalties

Typically, PAYE has been described as an ‘approximate’ method of collecting tax due, which remained the ultimate liability of the employee.

Recent judgements, including the case of Paringdon Sports Club, suggest more of the risk may fall on the employer.

In addition the risk may be worse with the current HMRC penchant for penalties. Many advisors will be familiar with their tendency to seek around 15% extra tax for relatively minor ‘careless’ errors. This represents increased risk for business and their advisors.

There are methods related to potentially mitigating or suspending such penalties.

To avoid embarrassment and excessive cost a prudent review may seem sensible?

Whilst most businesses operate routine PAYE relatively easily with the backing of software, experience suggests that ‘unusual’ or one off events can cause problems.

These days such errors can lead to expensive penalties, so procedures should be put in place to check the correct treatment on one off matters and if necessary take advice.

On the penalty front the case of P Steady shows that it can be worth appealing against a penalty imposition. In that recent case the taxpayer managed to get a penalty suspended where, by oversight he had put down bank interest earned in incorrect years. The Tribunal said ‘The mere fact that this is an error in a tax return does not mean that a taxpayer has been careless’. They went on to say, ‘To levy a penalty on a taxpayer who hereto has had a good compliance record over many years and then refuse to consider suspension of those penalties does not reflect well on HMRC’.

As always thinking of the correct technical position makes sense.