Taxpayers Hunted and Lynched

The Blog this week could be described as dark tales from the Brothers Grimm entitled “What happens to those who ignore HM Revenue and Customs…”

Do not be too scared!  Whilst the Brothers Grimm tales tend to have awful endings – as do the stories of the poor souls in the cases described in the Blog – they are the ones who have ignored the warnings and neglected dealing with HMRC with due and proper respect.  For years many seem to get away with it.  However, the final conclusion seems inevitable to Observers.  Neglect means ignoring that invariably the Mills of God (and HMRC) may grind slowly, but they grind exceedingly fine.  It is prudent to take professional advice before the sack of corn representing your life is thrown down the hopper into the grinding wheel.

Looking at likely outcomes those who take advice from their properly qualified professional advisors generally come out far better.  Prior neglect will cost – often significantly – but making disclosure and then negotiating a fair deal makes personal and economic sense.  Just compare getting matters settled to being sent to jail or having your assets seized under the Proceeds of Crime Act, let alone the miserable anticipation of waiting for it to happen.

3 recently reported cases exemplify the lesson.  Stephen Douce only declared a low household income, where in fact he was earning far more.  The under-declarations resulted in a loss to HMRC of VAT, income tax, NIC and tax credits.  He was sent to jail.

Mr Lynch was discovered to have failed to declare a particular source of income.  The Courts held that the degree of suspicion was sufficient for there to be ‘discovery’ under S29 TMA 1970 and for procedures to be taken under the Proceeds of Crime Act, reflecting gains obtained illicitly over the preceding 20 year period.  Unexplained deposits and credit card payments from unexplained sources amounted to sufficient evidence of undeclared income.  The tax assessments stood.

The Hunt case shows financial irregularities can have other long term consequences.  Again, taking proper advice regarding prompt disclosure may well have helped Mr Hunt, a Financial Advisor, avoid having his new business tainted because he was deemed not to be a ‘fit and proper person’ under FSMA regulations.  He lost in court, even though he argued his original criminal conviction ought to be ‘spent’ because it took place in 1993 so was over 20 years ago.

The advice to clients is take proper advice and then act promptly.  Ignore HM Revenue and Customs at your peril!  The alternative consequences are likely to be costly and last most of a lifetime.

If you need further advice call us; 01704 548698 or 0113 2443502.

IR35 – New Tests for Personal Service Companies

IR35 TestsFollowing a review of the effectiveness of the IR35 rules, there is to be new guidance from HMRC including what is described as 12 business entity tests.

Points are allocated to each test and if a contractor scores less than 10 points there is a high chance of them being caught by IR35; if they score more than 20 points there is low risk.

 The headings for the tests are set out below:-

  • Business Premises Test
  • PII Test
  • Efficiency Test
  • Assistance Test
  • Advertising Test
  • Previous PAYE Test
  • Business Plan Test
  • Repair at Own Expense Test
  • Client Risk Test
  • Billing Test
  • Right of substitution test
  • Actual substitution Test

 For further advice regarding IR35 contact Eaves & Co on 0113 2443502

HMRC Release Tax Appeal Success Details

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.

Penalty !

The tax return season for 2010/11 returns is due upon us.

This year though the rules for penalties have changed
significantly:-

Late Filing

  • Initial £100 late filing penalty still exists
  • From three months late, additional daily penalty
    of £10, up to a maximum of £900
  • From six months late, additional penalty of 5%
    of the tax due (de-minimis £300)
  • From twelve months late, additional 5% or £300
    penalty

Late Payment

5% surcharges will apply at:-

  • 30 days
  • 6 months
  • 12 months

If you’re an accountant, when will you start telling your
clients?

Eaves & Co, Tax Specialists, Leeds, West Yorkshire

HMRC Trialling Email Correspondence

HMRC have put in place a new scheme in order to test whether emails can be used more effectively for communicating with taxpayers.

 A pilot scheme has begun covering Corporation tax, VAT and employer-compliance issues.

 There is currently no intention to make email communications compulsory, but it may enable quicker responses in some circumstances.

High Expectations? – HMRC Advice Lines

A very recent First Tier Tribunal decision was held in favour of a taxpayer, Mr Noor.

Mr Noor called HMRC’s National VAT helpline to take advice about construction costs.

He followed the advice given, but on his claim for a repayment of input tax HMRC denied a chunk of money under the rules about time limits for claims.

Mr Noor claimed that after taking the advice over the phone his expectation was that he would be able to claim all the VAT back if he followed the guidance suggested, which he did.

 In a very interesting decision HMRC believed Mr Noor in relation to the phone conversation, even though no written confirmation of the advice line’s comments was obtained.  They also held that he would have taken a different course of action if he hadn’t received the comments on the phone.

It was found that HMRC were due to pay the full amount of VAT back to Mr Noor.

Perhaps the life of the Advice Line is limited!

ESC A19 – HMRC Acting Late

2010 saw HMRC in a high profile exercise to gain more tax from individuals in the PAYE system.

There is evidence of assessments now being raised by them in order to claw back tax which the PAYE system hasn’t managed to collect.

If you receive a bill now, then a couple of checks are relevant:-

1) Is the assessment correct, based on your actual income and reliefs for the tax year in question
2) Is it possible for a review to be requested under ESC A19, that HMRC acted on information too late

We dealt with a case recently where HMRC acted late on receipt of form P46 from the individual’s employer.

Call Eaves & Co on 0113 2443502 for a free initial consultation