As the above quotation shows, paying taxes is nothing new. As we approach the end of January and the deadline for filing and pay tax for the 2014/15 tax year we write to remind you that Eaves and Co are here to help.
Whether you are an individual struggling to understand your tax return form, or have not registered for HMRC’s Online Services in time, or an accountant needing extra assistance with a complex tax issue, we can help and hopefully ensure you are able to file before the 31 January deadline. We have specialist extensive professional experience and expertise to deal with those knotty technical problems, plus relevant software and access to HMRC Online filing, so can file returns online at short notice. All this with friendly service!
On another topic, and as a reminder for clients who are having difficulty raising finance, you may recall from previous messages that we have a contact who is involved in raising finance for all sorts of different purposes. Whatever weird and wonderful schemes your clients wish to consider – talk to Jonathan Smith on (Tel: 07778 523499) or (email firstname.lastname@example.org). Quote reference ‘EVL’. His website is www.jgsfinance.co.uk/asset-leasing-contract-hire-sale-leaseback. This includes arranging loans to pay unpleasant tax bills.
As a reminder, Jonathan Smith qualified as a Chartered Accountant with Arthur Andersen but now works solely in raising finance. He is a man I have worked with over many years, and as a former partner of mine, a man who I trust and can recommend highly.
The statutory rules that specify the maximum penalties which can be levied by HMRC according to certain types of conduct ranging from negligent behaviour to deliberate and concealed are familiar. However, the rules in force prior to April 2008 allowed HMRC to take an approach of giving abatements and mitigations for various categories of conduct such as abatements for disclosure, cooperation and seriousness.
A recent case (Dr J Kohal) has been heard by the First-tier tribunal (FTT), finding that they were not obliged to follow the approach taken by HMRC. Instead, the judge advised that the FTT should take an overall view of the appropriate penalty for the offence in question according to the law.
In this case, Dr Kohal had declared that he had no income for 2003/04 on his tax return when in fact he had worked and received bank deposits of nearly £80,000. HMRC concluded that the taxpayer had been negligent in completing the return and imposed a penalty of 60%. Before the penalty was imposed, HMRC gave abatements of 20% for seriousness and 20% for cooperation to reduce the penalty from the 100% maximum charge to 60%. Following the instruction by the judge to ensure that the most appropriate penalty was levied, the FTT ignored the abatements given by HMRC and agreed that the 60% penalty imposed was too high for negligent conduct. The FTT ruled that the penalty should be reduced to 45%.
Whilst the case related to legislation that has now been out of date for a number of years, this case serves as a reminder of how the tribunals serve as a buffer to protect the taxpayer from the occasional heavy hand of HMRC. More importantly, this case demonstrates the fact that HMRC practice is not the law, and taxpayers should seek to challenge when they disagree with HMRC’s interpretation.
Recent blogs have considered the HMRC interpretation of reasonable excuse as requiring Death, Disease or Disaster. Although this latest case may not concern this interpretation of ‘reasonable excuse,’ it continues the theme of HMRC taking a hard line and refusing to consider circumstances.
In Maxwell v CRC, the taxpayer’s accountant, who had been responsible for preparing and submitting the tax returns, passed away. When the filing dates for Mr Maxwell’s self-assessment returns were missed due to the unfortunate death of his agent, determinations were raised by the HMRC. The determinations that were raised by HMRC were subsequently found to be excessive when compared to the tax due; the determination for the 2007/08 tax year was just under £5,000 whereas the tax liability for was found to be only £400. Unfortunately, the deadline to displace the determinations raised by HMRC was also not met by the taxpayer and HMRC stood by the original determinations refusing a claim for Special Relief.
Maxwell appealed under TMA 1970, Sch 1AB para 3A, which states that a claim for relief can be made where HMRC would believe it to be unconscionable to seek to recover the amount or to withhold the repayment of tax. Maxwell had been unaware of his agent’s illness and believed that he had been handling his taxation matters efficiently so therefore felt it was unconscionable for HMRC to recover the excess tax.
The measures in question were introduced in 2011 with equitable liability replaced by the new statutory Special Relief. In 2011 this ‘special relief’ was introduced as a form of relief which can apply to amounts charged in HMRC determinations for self-assessment where no other statutory remedy is available. Although conditions have to be met to be eligible for special relief, the relevant condition in question in Maxwell v CRC was whether HMRC found it unconscionable to seek to recover the amount charged by the determination.
The taxpayer appealed against HMRC’s refusal and the FTT tribunal ruled that the taxpayer had satisfied all conditions required. His appeal was allowed and relief was granted. Consequently, HMRC was found to have acted in a manner deemed unconscionable in this case.
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.