The Result is in …..

We have opened the right envelope!

Congratulations and thank you for all who correctly entered our ‘Twelve Days of Christmas’ Quiz.  Eaves and Co are pleased to announce that the winner is Catherine Rogers of Ashford Rainham Ltd.  David Stebbings recently handed over her prize.

 

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For completeness here are the answers:-

 

The name Santa Claus evolved from Sinter Klass, a nickname for Saint Nicholas. What language is Sinter Klaas? Dutch

 

What fruit is traditionally used to make a ‘Christingle’?  Orange

 

Who ‘Rattle and Hum’ along to Angel of Harlem?  U2

 

Which carol is about a 19th Century Duke of Bohemia? Good King Wenceslas

 

“Christmas won’t be Christmas without any presents” is the first line from which literary classic by Louisa May Alcott? Little Women

 

Christmas Island, in the Indian Ocean, is a territory of which country? Australia

 

In the song ‘The Twelve Days Of Christmas’, how many swans were a-swimming? Seven

 

The North Pole, said to be Santa’s home, is located in which ocean? Arctic Ocean

 

The name of which of Santa’s reindeer means ‘Thunder’? Donner

 

Marzipan is made mainly from sugar and the flour or meal of which nut? Almond

 

Which traditional Christmas plant was once so revered by early Britons that it had to be cut with a golden sickle? Mistletoe

 

Who was Jacob Marley’s business partner?  Scrooge

 

The initial of each answer spells out DOUGLAS ADAMS.  The quote attributed to him on our website is ‘I’m spending a year dead for tax reasons’.

We are not, so look forward working with you again this year.  Remember the new tax year starts on 6 April.

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.

Penalty for Late payment of PAYE challenged on grounds of disproportionality

In the recent case of Franco Vargo UK Limited, the company appealed against a penalty of around £4,500 for the late payment of PAYE for numerous months in the tax year 2011/12.

Background

The appellant company had its head office in Italy. The UK branch of the company was in financial difficulty and was receiving funds from the head office. The appellant’s accountants paid the salaries and informed the company of how much PAYE was payable.

A letter was sent to the accountants saying that PAYE was due for payment, but the appellant was not aware of a PAYE liability being outstanding. Even if they had known they were not in a position to pay the liability until they received funds from Italy.

HMRC had records showing that the appellant had been contacted on several occasions and that messages had been left on an answer phone on one occasion.

Appellant’s case

Mr Earle, a director of the appellant stated that it had not been realised that a problem existed and that the problem had been left too long without any action being taken.

He informed the tribunal that the appellant had no answer phone so it would have been hard for HM Revenue & Customs to have left a message as suggested was the case. He also stated that due to its nature, the business always had someone available to answer its telephone and, as such, any attempts to contact the appellant would have been successful.

Mr Earle claimed that the amount of the penalty was disproportionate and that there was a duty of care on HMRC’s part to inform the appellant.

HMRC’s case

Mrs Orimoloye stated that HMRC had spoken to Mr Newman, the accounts manager, and that no mitigation of the penalties was possible as they had complied with the legislation.

She suggested that the appellant’s accountants should have informed the appellant of the penalty regime and that there had been history of late payments in prior years and that the appeal should be dismissed.

Decision

The tribunal found that the penalty was not disproportionate as it was imposed correctly under the legislation.

They also found that Mr Newman, the accounts manager had spoken to HMRC and that the appellant’s accountants should have notified the appellant of a liability being due. However, the tribunal were somewhat concerned that HMRC claimed to have left an answer phone message when the appellant did not possess an answer phone.

The appeal was allowed in part and the penalty in respect to the first 2 of the 11 months outstanding was cancelled as it was accepted that the appellant had no option but to wait for funds from Italy.

The following 9 months penalties were upheld on the grounds that the accounts manager had spoken to HMRC and should have taken steps to understand the situation.

Bank Employee is Taxed on Beneficial Mortgage – J Flanagan v HMRC (TC02161)

The First-Tier Tribunal has recently heard the case J Flanagan v HMRC (TC02161).

An employee of RBS plc took out a mortgage with his employer.  The terms of the mortgage were better than those available to normal RBS customers.

HMRC assessed Mr Flanagan with tax on a benefit in kind through the provision of a “Cheap Loan” by his employer (ITEPA s175), because the rate of interest was lower than the official rate determined by HMRC.

Mr Flanagan appealed on the basis that there were mortgages available in the open market with a lower interest rate than the official rate.

In upholding HMRC’s assessment the Judge had sympathy for the appellant but stated that under the rules tax was technically and correctly due.

Bank employees beware!

Child Benefit High Income Tax Charge – 5 Points You Might Not Know

From 7 January 2013, where a person earns more than £50,000 and they or their partner claim child benefit, a tax charge will apply in the form of the child benefit high income tax charge. The charge will apply to the person with the highest net adjusted income – which may not be the recipient of the child benefit.

The effect of the child benefit high income tax charge will be to apply a tax liability via the self-assessment tax return system. The amount of the charge will be tapered where the child benefit recipient or their partner earns between £50,000 and £60,000, with the effect that once income reaches £60,000 the entirety of the child benefit payment will be reclaimed through the tax charge.

There are a number of areas where care should be given:

1. The charge applies where either the person claiming child benefit or their partner earns more than £50,000. Therefore it will be necessary to consider the earnings of a taxpayer’s partner. The charge will apply to the person with the highest net adjusted income – which may not be the recipient of the child benefit.

2. The child benefit high income tax charge applies from 7 January 2013 therefore a tax liability could arise in relation to the current (2012/13) tax year with the tax being due for payment by 31 January 2014.

3. Where a person is required to make payments on account, this will include any tax arising as a result of the child benefit high income tax charge thus increasing the tax payable at 31 January and 31 July respectively.

4. Where a person earns more than £60,000 it may be preferable to elect not to receive the child benefit payment (known as a ‘nil award’)

5. Claiming child benefit can protect eligibility for the state pension by way of an NIC credit. Therefore taxpayers earning more than £60,000 that do not currently receive child benefit but become eligible in the future should ensure that they do register for child benefit initially and then elect to receive a nil award so as to preserve this protection.

ESC A19 – No Tribunal

The First Tier Tax Tribunal decided in the case of Prince & Others v HMRC that it had no jurisdiction over the application of ESC A19.

It was heard that the application of an extra statutory concession is governed by public or administrative law, and therefore this case needed to be settled through a judicial review.

The taxpayers’ appeals were struck out and we must now see whether a judicial review goes ahead.

Further to this, it appears that should an individual have an issue with how ESC A19 is applied to a particular case, then they should address their complaints to the Adjudicators Office. Following recent literature regarding the subject it appears that they have dealt with complaints regarding HMRC not taking into account exceptional circumstances in the application of ESC A19.

With this in mind, it appears to mean that as the Adjudicators Office  have looked into complaints in at least one case,  then they should be able to deal with others.

Call our Leeds office on 0113 2443502 for an initial conversation

Tax Investigations and Enquiries – The Importance of Advisors

With recent crackdowns on tax avoidance (highlighted by media coverage), and the introduction of a number of HMRC task forces, the spectre of tax investigations and enquiries is more apparent than ever.

Qualified tax advisors can help by giving advice on HMRC powers and procedures; disclosures, penalties and negotiating settlements when HMRC undertake investigation proceedings.

Such investigations can involve both business and individuals, including those involving potential allegations of serious fraud and Proceeds of Crime Act implications.

More commonly, HMRC will adopt a civil settlement approach, where experience in preparing relevant disclosure reports and negotiating settlements can be vital in ensuring that the taxpayer is able to settle the problem areas in as efficient and cost-effective manner as possible.

Serious investigations can be traumatic, exerting significant pressure on both business and family life. Having experienced advisors is an essential part of the objective of reaching a satisfactory settlement with as little drama as possible.

Technical Enquiries cover another aspect of possible dispute with HMRC.  They give the ideal opportunity to deal with potentially grey areas in the legislation, to ensure the client is defended robustly.

Despite the claimed ‘simplification’ of tax rules, the volume of tax legislation continues to increase. The 2012 Finance Bill was the largest ever, weighing in at 686 pages. With this ever-increasing pool of rules, it is inevitable that gaps in the intended legislation will occur.

Experience tax advisors are vital to ensure that the taxpayer’s position is represented fully in such situations. Eaves and Co are very experienced and specialise in providing advice on these sorts of tricky areas and would be delighted to hear from anyone with such concerns.

ICAEW Issue Helpsheet on Aggressive Tax Avoidance Schemes

The ICAEW has issued guidance to its member accountants to consider when dealing with potential tax avoidance schemes for their clients.

Whilst such tax avoidance may be legal, the question of ethical behaviour is also brought into play by the guidance.  The guidance probably is to some extent a response to recent press coverage regarding certain artificial tax planning schemes and their use by celebrities.

The ICAEW recommend that amongst other tools/methods at their disposal, the advisor should use their own judgement on whether the scheme is artificial or not by considering the following:

  • The scheme is too good to be true
  • Apparently guaranteed returns with no risk
  • Confidentiality Agreements
  • Scheme Promoter lending funds
  • Offshore companies, trusts and tax havens are involved for no reason
  • Over complex arrangements for what is required

Eaves and Co recently conducted a poll on Linkedin regarding attitudes to tax avoidance and found that respondents generally view tax avoidance as acceptable, whether it is ethical or not as long as it does not become illegal. Some respondents also argued that such opportunities for tax avoidance have come about as a lack of simplicity in the legislation of the UK tax system.  The poll results may not be representative of a full cross section of society.

At Eaves & Co we believe that bespoke tax planning that fits with the business’ or individual’s commercial requirements is much more appropriate than using one-size fits all tax avoidance arrangements.

Taxpayer Appeal Allowed due to HMRC’s wrong information (TC1806)

From 2006/07 to 2008/09 the taxpayer claimed a number of expenses as wholly and exclusively for the purposes of trade as a self-employed radio presenter. The expenses claimed included part of her expenses incurred for things such as clothing, cosmetics, hairdressing along with a proportion of her home office expenses. She also claimed travel costs from her home to the radio station as well as food and drink.

When the taxpayer began self employment she had sought the help of two HMRC officers who had advised her on her expenses and what she could claim against her self employment income. In particular she was told that she could claim costs relating to public appearances and that the cost of a meal could be claimed if she was more than 5 miles from her place of office.

Once HMRC enquired into her returns they sought to disallow some of the expenses.  Following this, the taxpayer appealed to the first tier tribunal on the grounds that she had been given misleading information by the HMRC officials she had received help from in completing her tax return when she first became self employed.

The appeal was allowed in part for 2006/07 but not for the following years because HMRC’s  incorrect advice had been pointed out to her.

No reasonable excuse for late filing (Peck & amp; Wilson & amp; HM Revenue & amp; Customs [2011] TC01693)

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.