“The hardest thing in the world to understand is tax" – Albert Einstein (1879 – 1955)

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Finance Bill receives Royal Assent

April 9, 2010
09 Apr 2010

The Finance Bill received Royal Assent on 8 April 2010 and for those insomniacs Finance Act 2010 can be found at http://www.opsi.gov.uk/acts/acts2010/pdf/ukpga_20100013_en.pdf

The Finance Bill completed its progress through the House of Commons on 7 April 2010 as part of the condensed ‘wash-up’ procedures ahead of the general election. The Bill then had its first reading in the House of Lords on 7 April 2010 and completed its stages in the House of Lords on 8 April 2010.

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Taxman to “name and shame”

April 2, 2010
02 Apr 2010

From 1 April 2010 HMRC can now publish the names and details of individuals/companies who have been penalised for deliberate tax ‘defaults’ (errors or failures). HMRC hopes this will further encourage people to bring their tax affairs up to date. If not, then they will potentially face the ‘shame’ of being publicly named as a ‘tax offender’.

HMRC can publish details of those who have been penalised for deliberate tax defaults where the Potential Lost Revenue (PLR) exceeds £25,000. The defaults include:

· submitting incorrect returns;
· failing to notify chargeability; and
· certain VAT and Excise Duty offences.

HMRC cannot, however, publish the names of those penalised for either filing their tax returns late or not paying their tax on time. Details of offences committed before 1 April 2010 will also not be published.
The PLR, upon which the penalty is based, does not just relate to physical underpayments of tax. It can also include losses that have been incorrectly claimed (even if the losses have not yet been utilised against other profits!).

Whilst HMRC has said that the details it will publish will be the minimum necessary to correctly identify the person and the default involved, this will still likely include:

· name (including trading name, previous name or pseudonym);
· address (or registered office);
· nature/type of business;
· penalty (and the PLR on which the penalty is charged);
· periods involved; and
· any other information that is appropriate to identify the person(s) involved

HMRC is actually allowed to publish the details by ‘any manner that the Commissioners consider appropriate’, but the likelihood is that this will be by way of a quarterly list on its website and accompanying press releases/notices.

A person can avoid being ‘named ‘named and shamed’ by making a full disclosure of any errors/irregularities to HMRC. The disclosure does not even have to be voluntary (‘unprompted’). Even if it is ‘prompted’ by a challenge from HMRC, they can still avoid their details being published by coming clean – irrespective of what they have done wrong or the amounts involved!

HMRC can only publish details after the penalties charged have become final (i.e. after all avenues for appeal have been exhausted). Publication must be made within a year of the penalties becoming final and the details must be removed no later than a year after publication.

The potential damage to a person’s or business’ reputation of being ‘named and shamed’ by HMRC is immense. The Irish Revenue has been publishing a ‘defaulters list’ for many years and it almost always attracts local and/or national press coverage. Personal embarrassment could be the least of your worries. How will your potential customers, suppliers or even banks react? What might it do to your credit rating?

Anyone who knows that they have under-declared their tax/NIC or not notified HMRC of their full income or gains should make a full disclosure now. Specialist advice to complete this process is essential and will help mitigate financial penalties and the potential risks of being ‘named and shamed’ in the future.

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New rules for cheque payers

April 2, 2010
02 Apr 2010

From 1 April 2010, all cheque payments posted to HMRC will be treated as received on the date the cheque clears. “This means if you are posting a cheque to HMRC, you should allow enough time for the post to arrive and for the cheque to clear to avoid the risk of a late payment penalty,” said Esfak Mohmed, a director at Aquarius Tax Consultancy Limited.

“With businesses now relying on HMRC’s efficiency to bank their cheques promptly, electronic payment methods are likely to look much more attractive,” Esfak said. “Most businesses have an extra seven days after the payment due date to pay their VAT electronically, while those paying by cheque will have to submit it a week before the due date.”

From 1 April 2010, businesses with an annual turnover of £100,000 or more (excluding VAT) must file and pay all future VAT returns online (including nil and repayment returns), even if their turnover drops below £100,000.

This requirement also applies to any business that registers for VAT on or after 1 April 2010, regardless of its size. If you register for VAT before April 2010, you won’t have to submit your return and pay online if your turnover stays below £100,000.

Esfak said: “Most of the traders paying by cheque after 1 April 2010 will be small in size and number, which means this new measure is likely to go unchallenged and HMRC will get its wish, i.e. payment by cheque will become a rarity.”

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HMRC issue Tax Health Plan for Medical Practitioners

March 31, 2010
31 Mar 2010

HM Revenue & Customs (HMRC) recently announced a new facility called the Tax Health Plan (THP) aimed at medical professionals to provide an opportunity to disclose all previously undeclared income in return for a reduced penalty.

HMRC has used its information powers to obtain information relating to medical professionals from various sources including NHS trusts, private hospitals and medical insurers and is now in a position to match that information against the returns of income made of medical professionals.

There is a small window of opportunity to make a full disclosure and benefit from a reduced penalty before HMRC acts on this information. To take advantage of this opportunity, medical professionals who have undeclared income need to:

· notify HMRC by 31 March 2010,
· make a full Disclosure by 30 June 2010 and then
· pay the outstanding tax, interest and a 10% penalty.

The facility covers the last 20 years up to 5 April 2008. Undeclared income after that date should be included in the 2009 return (deadline 31 January 2010).

Members of the General Medical Council (GMC), the General Dental Council and British Dental Association are covered by this but it is not clear whether the THP will extend to medical professionals who are members of other professional bodies. We are recommending that those in such a position should contact us without delay.

HMRC has stated that it will start to review the information it holds after 31 March 2010 and match it against returns made by the medical professional. Where there is a discrepancy it will open an enquiry or investigation and anyone found to have not declared under the THP faces higher penalties (at least 30%, but could be up to 100%). In the most serious cases HMRC will consider commencing a criminal investigation.

We recommend that all medical practitioners review their affairs and consider the opportunity as a matter of absolute urgency, the timeframe by which notification needs to be made is very short and the consequences of missing this will be costly.

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HMRC issue Spotlight 9 on artificial exploitation of Gift Aid Scheme

March 30, 2010
30 Mar 2010

The following extract is from HMRC’s website:

Spotlight 9: Gift Aid with no real gift (29 March 2010)
An avoidance scheme exploiting the Gift Aid provisions has recently been disclosed to us. The scheme seeks to exploit the rules which enable a charity to claim a repayment of tax at the basic rate on a qualifying donation by an individual. The individual may claim relief for the donation on the difference between the higher and basic rates of tax.

The scheme depends upon a circular series of payments. It starts with the charity purchasing, say, gilts of £100,000 which pass through a third party to an individual taxpayer for perhaps £10. The taxpayer is expected to make a sale for £100,000 and pass the money to the charity.

There is an option that ensures the gilts will be returned to the charity if it does not receive a cash gift of £100,000 within one or two days.

We do not accept that the charity is entitled to a repayment of tax or that Gift Aid relief is due to the individual. In our view a gift has not been made to the charity as it is no better off than before entering the arrangements. Therefore Gift Aid is not due.

We will challenge the reliefs claimed in any instances where this scheme has been used and will litigate where appropriate.

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CGT reform – act now

March 16, 2010
16 Mar 2010

Coalitions mean compromises they also invariably lead to greater uncertainty, but have the Tories been able to keep face by using the guise of the need to compromise to serve up the medicine we must accept in exchange for better times ahead?

Not only have the cuts to inheritance tax previously promised by the Tories been shelved, the Lib-Con coalition have stated their commitment to hike capital gains tax significantly for non business assets to fund an increase in the personal allowance for income tax in order to help lower and middle income earners – some voters may at this stage wonder exactly what manifesto they thought there were voting in.

Capital gains tax reforms

The coalition agreement was published on 12th May and despite the lack of detail we do know the following.

Rate of CGT on non-business assets is to be more closely aligned to income tax rates.

“Generous exemptions” – for gains on business assets.
As to whether we have a single flat rate, rates reflecting whether the taxpayer is a basic or higher/50% taxpayer and the nature of the generous exemptions are all areas of speculation.

What is equally uncertain is whether the changes will be ushered in the next tax year or whether we have unprecedented mid-year changes. Clarity has been promised, by the coalition government promising to have a budget within 50 days of the announcement of the coalition agreement – taking us to somewhere near mid June.

What should clients be looking to do?

Those with non-business assets may consider bringing forward disposals to bank the generous 18%

Those with business assets may consider delaying disposal to benefit from the generous exemptions – in the absence of details it is impossible to say whether individuals will be better or worse off where these assets would qualify for Entrepreneur’s Relief.

All clients should be reviewing their particular circumstances as there are planning opportunities that will enable them to bank the current rates without necessarily immediately selling to third parties not least given the persisting soft market conditions.

There will also be considerations on how best assets are held or what assets are held to maximise from any enhanced benefit that may arise from the generous exemptions.

The one thing clients and advisers can ill afford to do is to park the considerations until just before the tax year-end.

The briefing document aims to provide an overview of the intended reforms to capital gains tax and if you would like to know more or to discuss particular scenarios please contact us.

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