21st Century tax system unveiled

By Ken Maggs, Moore Thompson

HM Revenue & Customs (HMRC) has unveiled its new, ‘digital revolution’ for the tax system that will make paying tax less burdensome and cut red tape for British businesses.

It has also been announced that 1.3 million small businesses will be able to benefit from the system, called Making Tax Digital, without needing to update HMRC quarterly or keep their records digitally.

According to its announcement, Making Tax Digital will allow cash-basis accounting, which means that thousands more business owners will be able to pay tax based on the difference between money they have received and what they have paid out. This means that tradespeople, for example, will pay tax on cash received, rather than on invoices issued.

The new system will also send out prompts and alerts to help business owners get their tax correct and they can use it to get advice on tax reliefs they might otherwise miss. This will also mean greater certainty over tax bills, so businesses will not have to wait until the year-end to find out how much they owe.

According to a statement on HMRC’s site, the decision to exempt the smallest businesses and landlords from digital record-keeping and quarterly updates follows months of constructive engagement with business and agent groups.

The Government is also considering deferring digital record keeping and quarterly updating for a further group of small businesses and will explore options to assist businesses with the transition. Finally the consultation documents confirm that those who cannot go digital will not be required to.

Commenting on the announcement, a spokesman for the Federation of Small Businesses (FSB) said it means that half of the UK’s 5.4 million small businesses will not be affected by quarterly tax reporting. He added that the expansion of cash accounting, a longer lead-in time for implementation and the offer of direct financial assistance will also help.


Posted in Tax

APNs help taxman net £2bn – tax avoidance

By Ken Maggs, Moore Thompson

HM Revenue & Customs (HMRC) has been able to collect over £2bn from tax avoidance schemes since a rule change was brought in that made it easier to collect disputed amounts upfront direct from bank accounts.

The Finance Act 2014 introduced accelerated payment notices (APNs), which allow the taxman to collect cash direct from taxpayers’ accounts without having to wait until often lengthy investigation tax affairs have been concluded.

HMRC sends out more than 3,000 APNs every month and has issued more than 41,000 since they were introduced. By the end of this year, the taxman expects to have issued around 64,000, bringing in £5.5bn in payments by March 2020. Once a taxpayer receives such a notice, he or she has 90 days to pay the amount HMRC believes they owe.

Commenting on the publication of the figure, David Gauke, Financial Secretary to the Treasury pointed out that HMRC already wins the vast majority of cases that go to court and now HMRC has more than £2bn from tax avoiders who would otherwise have benefited from the cash while they were being investigated.

However, last month HMRC was forced to retract thousands of APNs and agreed it would repay tens of thousands of pounds to as many as 2,000 IT and banking professionals who were involved in Isle of Man-based schemes after acknowledging that the department had failed to meet all the conditions requiring full payment of tax owed.

HMRC admitted that the APNs should not have been issued in this case because although the arrangements were notified to the tax department, they were not ‘notifiable’ to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) regime.



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Posted in Tax

The Budget and small business

By Ken Maggs, Moore Thompson

There were a number of announcements in last week’s Budget that will affect small business owners, contractors and sole traders, from the extension of Entrepreneurs’ Relief to a decrease in Capital Gains Tax (CGT).

The extension of Entrepreneurs’ Tax relief means that entrepreneurs will be able to access a 10 per cent rate of capital gains tax on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016. These will be subject to a separate lifetime limit of £10 million of gains.

The Government will also allow entrepreneur’s relief to be claimed on the disposal of privately held-business assets to a family member, and will allow more relief in joint ventures and partnerships where the existing 5 per cent minimum holding conditions are not satisfied.

In addition, the rate of CGT has been reduced from 28 per cent to 20 per cent for higher rate taxpayers. The rate for basic rate band taxpayers will change from 18 per cent to 10 per cent. While this does not apply to gains made on the disposal of residential properties, for those looking to close their company, a capital distribution will be more tax efficient than an income distribution, or dividend, even in cases where Entrepreneurs’ Relief cannot be claimed.

Small firms are also delighted that almost all the recommendations made by the Office for Tax Simplification (OTS) have been adopted by the Chancellor, with others still to be discussed. These include an investment of £71m to make it quicker and easier for small businesses to deal with HM Revenue & Customs (HMRC) and a proposal for an asset protection model for the self-employed.


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Posted in Tax

Payroll tax abusers – Taxman nets £500m

By Ken Maggs, Moore Thompson

The taxman collected £5224.6m through its investigations into payroll tax abusers between 2014 and 2015, mainly through the clampdown on so-called ‘umbrella companies’ that employ contract workers.

These umbrella companies often use complex structures to minimise PAYE and National Insurance Contributions (NICs) for their clients by employing them directly and paying them as employees, or, on occasion as self-employed.

As HM Revenue & Customs (HMRC) points out, although many of these companies operate within the law, some use the structures to disguise self-employment and avoid paying the correct amount of tax by abusing the travel and subsistence tax reliefs that are currently available to contract workers.

In addition, some of these firms pay their contractors the national minimum wage and then supplement their income by paying inflated travel and subsistence allowances or other benefits under salary sacrifice arrangements, which significantly reduces the amount of tax and NICs that should go to the taxman.

However, there are concerns that HMRC’s continued clampdown on umbrella companies could put law-abiding firms at risk, making it harder for them to carry on working, with the result that the entire industry could be facing a bleak future.

In fact, according to construction union Ucatt, the policy change introduced by HMRC from April this year could cost around £3,000 per contractor. The change relates to the tax treatment of employees of umbrella companies, which HMRC maintains will cost them around £360 per person. However, a recent case study undertaken by the union shows a different picture.

It gives the example of a construction worker employed by an umbrella company with £144 per week of travel expenses. Under the new law, the expenses will be taxed at 45 per cent (20 per cent income tax plus both employees’ and employers’ NICs), which will mean a loss of £3,369 per year.



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Posted in Tax

Record numbers file self-assessment form online

By Ken Maggs, Moore Thompson


A record number of almost 90 per cent of self-assessment taxpayers who filed their return to HM Revenue & Customs (HMRC) by midnight on 31 January did so online, with only 11 per cent sticking to the old paper returns.


Some 9.24 million taxpayers completed their self-assessment form via HMRC’s website, meaning that only 1.14 million returns were filed on paper before an earlier deadline. Meanwhile, some 870,000 returns were not received by the deadline, so those who failed to get them in on time will now face financial penalties.


However, although taxpayers appear to have embraced the digital return, critics are becoming increasingly concerned abut HMRC’s ambition to “fully digitise” the tax return system, claiming that vulnerable groups will be penalised for not wanting to use the internet.


They also predict that the quantity of data sought by the taxman will increase administrative costs and that the trend to push everything online will result in far more tax investigations without necessarily raising extra revenue. These critics also believe that HMRC’s ultimate goal is to obtain highly detailed data, which could result in more frequent and earlier demands for payment.


As far as individuals are concerned, the taxman is planning “personal tax accounts”, which are aimed at those whose financial affairs are relatively simple and don’t have an accountant. Meanwhile, small businesses, landlords and the self-employed will have to report information to HMRC quarterly. This plan has gone down badly, with 110,000 small business owners having already petitioned against the change, arguing that quarterly reporting would cost too much time and money.


However, HMRC denies that taxpayers will be forced to go digital. In a statement last year entitled Making tax digital: a myth-buster, it said that people who genuinely can’t use digital tools will be offered alternatives, such as nominating someone else to update their information for them.



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Personal tax accounts unveiled

By Ken Maggs, Moore Thompson


HM Revenue & Customs (HMRC) has gone live with its new system of personal tax accounts ahead of the 31 December deadline of self-assessment filing, in a bid to make the department one of the most digitally advanced tax administrations in the world.

According to the department, the move will mean that UK taxpayers can manage their tax affairs online, as the online personal tax account (PTA) aims to provide a “joined-up view” of taxes and benefits.

By 2020, the new digital accounts will encompass all taxpayers, whether individual or corporate, and from April 2018, businesses, including the self-employed and landlords, will have to update HMRC every quarter if this activity is their main source of income. The obligation to report quarterly will also apply where the money is a secondary source of income worth more than £10,000, and the main income is from employment or from a pension.

Meanwhile, in the ‘back office’, the department will bring together all the information it holds on a taxpayer into one system, including data from employers, banks, building societies and other government departments. This will eventually lead to the demise of the annual tax return for most taxpayers and so the current system of self-assessment, introduced in 1996 and now largely online, will wither away.

As a spokesman for the department pointed out, because self-assessment for individuals and small firms will work through digital tax accounts, there will be no need for them to send in annual tax returns.

However, the obligation for taxpayers to inform the department of taxable income or to provide information relating to that income will not change, where HMRC does not have the data from another source. As the spokesman said, they will still have to confirm their information is correct and make sure that the right tax is paid.



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Giving taxpayers a nudge

HM Revenue & Customs (HMRC), which has been in the news lately for its new system of accelerated payment notices (APNs), has now come under fire for the use of so-called ‘nudge’ letters sent by its Behavioural Insights Team.

These letters are being sent directly to individuals involved in disputes with the taxman instead of via their lawyers or accountants, which was previously the norm. The language in the letters, described as “intimidating” is used in such a way as to subconsciously ‘nudge’ them into settling the disputes.

The Behavioural Insights Team was originally set up as a central Whitehall function in 2010 in order to subtly alter the way people behave. HMRC has also set up it own ‘nudge’ unit to target high net worth individuals and other taxpayers they suspect of not paying the correct amount of tax.

According to a study of the practice undertaken by a leading law firm, the sending of these letters directly to clients in any other areas of litigation would be seen as applying undue pressure and would almost certainly be frowned upon by regulators.

As one of the lawyers commented, HMRC believes that by placing pressure directly on taxpayers engaged in a dispute, they can force them to pull out and settle but if a financial services business were found to be using a similar tactic, the Financial Conduct Authority (FCA) would soon be knocking on their door.

As he pointed out, the department is sending letters about often highly complex issues to individuals who have no technical knowledge of tax issues, which demonstrates just how far HMRC is prepared to go in its attempt to persuade taxpayers not to pursue their dispute.

He added that if the taxman were confident of their technical arguments, they would have nothing to fear from the dispute resolution process, so do not need to spend taxpayers’ money on behavioural scientists to ‘nudge’ people to abandon their appeals.


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Posted in Tax

Small business commissioner addresses late payments

By Ken Maggs, Moore Thompson

The department of Business Innovation & Skills (BIS) has announced that it is creating a new role for a small business csar tasked with tackling “unfair” business practices, such as late payment of bills to small firms.

Following the announcement, Small Business Minister Anna Soubry dubbed late payment disputes as “simply unacceptable, saying that small businesses in the UK are owed a whopping £26bn in late payments every year, while chasing the debts costs them millions more.

According to recent research, the average delay in receiving payments faced by small businesses has risen to 72 days, which is a day longer than a year ago and 11 days longer than at the peak of the recession.

As a spokesman for the organisation that commissioned the research said, despite the economic recovery gathering pace, payment delays are getting worse, not better, for small businesses. This is critical, as delays to payments put enormous pressure on small firms’ cash flow and smaller businesses are particularly vulnerable.

Business groups welcomed the news of a csar, with the Federation of Small Businesses (FSB) saying that the appointment is a step in the right direction but adding that the role must be properly funded and be high profile.

A spokesman for the FSB said it is important to ensure that the new commissioner has the confidence of the entire business community, a clear focus on tackling supply chain bullying, and sufficient powers to intervene and resolve late-payment disputes in a timely and effective way.

Meanwhile, the Institute of Directors (IoD) called the announcement “very welcome”, with a spokesman agreeing that late payment is a “particular problem for smaller companies”. He added that it affected around two-thirds of IoD members last year alone.



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