Thursday, 17 December 2009

More on catching the tax dodgers

It was announced last month that HMRC's New Disclosure Opportunity deadline for those with undeclared offshore assets to come clean has been extended from 30th November 2009 to 4th January 2010. This is no doubt because rather fewer delinquent “customers” have come forward than Permanent Secretary for Tax Dave Hartnett hoped, despite the prospect of much more serious penalties for those who are caught or come forward later.

HMRC has also revamped its process for receiving anonymous tip-offs concerning tax evaders, details of which are here. To be truly anonymous, one would suppose that many would baulk at filling in an on-line form, given that web masters can generally see the IP address of whoever logs in to a web page; that is if they really want to. Similar identification issues would deter people from sending faxes.

I have a vision of the other choices:

1.Telephoning the 0800 number, remembering to withhold the caller's number, and then speaking in a hoarse whisper to drop the malefactor in it.
2.Sending an anonymous missive either with letters cut out of newspapers and stuck on to another sheet of paper, or longhand notes in purple or green ink, signed “Well-wisher” or “Bystander”.

The mind boggles, or at least mine does, but that may be the effect of Christmas being nearly upon us and my having done far too many Tax Returns for my own good.

© Jon Stow 2009

Saturday, 12 December 2009

Fairer and more reasonable - equitable liability survives

Not all was bad news in the Pre-Budget Report. I wrote in September about HM Revenue & Customs' intention to abolish the practice of Equitable Liability. I said that if HMRC thought they did not have a legal basis for this discretionary power then legislation could correct this. Mr. Darling is to introduce just such a measure.

I think this is a rare victory for the taxpayer and I congratulate Keith Gordon for his campaign and petition which I feel must have contributed to this change of heart.

Dodging the Excise Men – encouraging a tax evasion society

In my business we frown upon tax evasion. It is our duty to uphold the law through helping our clients in their self assessment of their income, profits and their company accounts. We have to tread a firmer line than Joe or Jo Public, though unrepresented taxpayers may make mistakes in the Revenue's favour as well as their own. It is my experience that they do.

This week we have seen further hikes in taxation, principally through National Insurance and more obviously the return to 17.5% VAT. Personal Allowances are frozen for next year, so there will be some increase in the tax take through fiscal drag if there is any inflation in the interim. We will have to see. The Government has to balance the books having borrowed and spent so much on the banks and on the reduction in VAT this past year, the latter with no perceivable effect on the economy as many of us predicted in November 2008. It has to be paid for, and the full horror of the eventual deficit has yet to be revealed, and will only be known after the election next May, when either the Tories will be biting the bullet amidst squeals, or New (Old) Labour will have to come clean.

In the past, the higher the level of taxation, the less actual tax take. The lower the rates, the higher the honesty level and the better the tax take. This was seen notably in the tax-cutting eighties in the UK and especially under Reaganomics in America when the IRS profited greatly from lower rates of taxation.

People are going to be much less willing to pay their legal dues and HM Revenue & Customs do not have the resources to enforce payment through more investigation. I am not sure they even have enough resources (people) good enough to deal with the Liechtenstein Disclosure Facility. If you want a steady flow of anything including tax, you need a reliable channel. If you hike up tax, especially with HMRC's technical staff pared to the bone it is like trying to collect rainwater in a cup. In a deluge your cup will overflow. Most of it will escape. You need a measured channel and that means a more prosperous economy with a population willing to pay tax rather than driving more people into dishonesty to feed their families.

I think we will inevitably see a return to more dodgy dealing, and it will become popular like the public support for smugglers against the Excise Men in the eighteenth and nineteenth centuries. You will get more questions in shops such as “Do you want a receipt because I will have to charge VAT? Can you give me cash?.” and we know into whose back pocket those notes will go. The trouble is the tax which should have been paid by the trader will be coming out of your and my back pockets instead. How can we have got back to the bad old days?

© Jon Stow 2009


Smugglers and Excise Men
Liechtenstein Disclosure Facility

Sunday, 6 December 2009

Quasi prospects, time-wasters and an experiment in human nature

Sometimes we know what is going to happen but we just carry on anyway to see if we are right, even if we get nothing out of it except the satisfaction of being prescient. So it was the other night when events unfolded as expected.

It began with a telephone call from the wife of a former client whom I had dug out of a big hole he had got himself into. She said she was starting a business and was worried about tax issues. Could I visit her? “The initial consultation is free isn’t it?” I already knew how the cards would fall as I confirmed there was no charge for the first meeting. “How much will you charge for my tax return and accounts?" I told her a figure if her records were in good order.

My caller then asked for an evening meeting not before 7:30 to 8 and only on certain days; very inconvenient for me, but I do normally try to accommodate people. I ended up seeing her after a long day with other clients and frankly wishing I could put my feet up.

I had a long discussion with her about this and that. I did not give too much away in terms of free tax advice (I am not that daft) but did give a fair number of tips about starting in business, networking, and recommendations for SEO experts (mentioned Nikki Pilkington) and was generally helpful. She then asked me how she should keep her accounting records for me, on which of course I advised her.

She then asked me whether I could reduce my quote given on the telephone as she did not have much money yet (she had spent four times as much as she needed to on a new computer). I said that my figure was very reasonable for my excellent service. She then said that she would try to do her first accounts and return herself and thanked me for my time. I was able to make a joke as I left, because after all, I was only acting in a play and knew how it would end.

One puzzle is that I do not understand why people cannot see obvious value in good services whilst overspending on shiny gadgets they do not need. However, the real mystery is how people who have no intention of buying deliberately try to suck what they can from those around them without any intention of giving anything in return.

I had put myself out to attend the meeting just to see if my instincts were still on the button but I will avoid getting myself into the same situation anytime soon as it will spoil my average. Normally I only have warm leads anyway but I count this as only about the third time I had failed to “close” a tax client in half a dozen years. It was worth the time cost, though, in terms of this experiment in human nature.

© Jon Stow 2009

Wednesday, 25 November 2009

Pitfalls in faulty contracts – partnership and shareholder’s agreements

I have been writing elsewhere about the dangers of using templates and adapting borrowed contracts and agreements rather than paying for professionals to draw up new ones. It is time to be specific.

With regard to partnership business assets, there are generous, though one might say prudent, reliefs from inheritance tax which can amount to 100% of the value of the capital account and 50% of the share of buildings, land, and plant and machinery. That means that the heirs have the opportunity to receive up to the whole value of a deceased partner’s share of a business, depending on circumstances. However, partnership agreements understandably aim to preserve a business beyond the death of a partner, and therefore there is often a clause allowing the remaining partners to acquire the interest of the deceased member. That is a sensible arrangement, but a partnership agreement should give the living partners an option to purchase but not a requirement to do so. If they have an obligation that would be considered a debt due under contract in the eyes of HM Revenue & Customs, and business property relief would be lost, incurring a tax liability at 40% on what might be a very considerable amount.

A similar problem might arise if in a shareholders’ agreement, upon the death of a participator, shares which would otherwise have qualified for business property relief would not do so because the other members were obliged to acquire the shares of the deceased rather than having an option to do so.

Of course there is a lot more to this subject than I have mentioned. Every situation needs to be looked at separately and financial advisers may have solutions as to how help the still living members buy the interests of the deceased estate once we understand that they should not be obliged to do so.

As with all legal documents, with a partnership or shareholders agreement, get professional advice before diving in, and do not re-hash other people’s work because they might have got it wrong or the circumstances in which they were acting may have been different.

© Jon Stow 2009

Saturday, 31 October 2009

Amateur tax management and why businesses need professional tax advice

I had a telephone call this week from a chap who said “I am phoning because I want to start a company”. My immediate reaction after thanking him for the call was to ask why he needed a company, if he meant a limited company. This is because from the tax point of view it is not necessarily a good idea to have a company, and there needs to be a commercial reason if profits are going to be limited initially or there might be trading losses which would be useful to an individual who is a current taxpayer-employee, or has recently been one.

It turned out that there was a commercial reason for having a company. The guy is going to do outsourced work for a Government department which insists on contracting its labour through a company. That in itself is laughable in an era in which HMRC has tried to crack down on such arrangements through IR35, attacked umbrella company arrangements, and whined, actually quite unreasonably, about “false self-employment” in the construction industry. One wonders whether the different branches of Government in Whitehall ever speak to each other.

My caller earned himself some “Brownie points” in my book by actually asking a professional adviser. So often people do not when they should, and I am not talking about the pensioners I mentioned in my previous piece, who frankly should not have to seek professional help.

As I said, my caller had a commercial reason for incorporating which was good to know. He had asked for help. However, many people spurn professional advice and just go ahead. A few months ago I came across an instance where two ladies had gone into business. They had formed a company but were struggling to get their business concept off the ground. I could understand why they wanted limited liability. However they had given personal guarantees in respect of borrowings so were not protected from their largest creditors. I felt that with early substantial losses and both having decent full time jobs as well, they could have done with having their losses set off against their personal income, so surely should have formed a partnership, though not necessarily a limited liability partnership where losses may be harder to relieve. They were right to consider commercial reasons first but those commercial reasons should include protecting cash flow through proper management of tax losses

There are lots of people who need help but will not pay to save tax, which will far outweigh the professional fees. Even this year's Finance Act (2009) and the loss carry-back provisions are a minefield, with incorrect loss claims likely to be quite costly for someone who does not understand the pitfalls. There are other tax reasons not to incorporate quite apart from the issue of early trading losses. If the business owner wants maximum tax relief on an expensive car, again he or she should consider operating as a sole trader or through a partnership. In the end, it is essential and cheaper to obtain professional tax advice. Of course I would say that, but then I am in a position to know.

One thing I had drummed into me on sales courses is that prospects don't know what they don't know. In tax or anything else, it is our job to help them, and it's for their own good, not to line our pockets.

© Jon Stow 2009

Tax disenfranchisement

It was reported this last week that 1.5 million UK pensioners are paying too much tax which is because too much is being deducted from their occupational and private pensions and from any employment earnings they have. Once upon a time of course, most pensioners with taxable income of any sort had to complete tax returns. Since the introduction of Self Assessment in 1996-97 and increased automation and exchange of information as well as significant job cuts in what has become HM Revenue & Customs, far fewer people have to complete tax returns. In itself this is sensible, because why should people have to worry about form filling if it is not necessary, and can be dispensed with? However, if we have a more “automatic” system, it should work and be seen to work. This means that if age allowances are due then they should be allocated, and it should be easier for the public to talk to the Tax Office about their issues.

I believe information should be supplied to every household in the land explaining the system of personal allowances and how direct taxation works at its most basic level, but in reality, the only time most of us get any proper information about the workings of our liabilities to tax is if we actually have to complete tax returns ourselves. For the rest who just have periodical Notices of Coding, HMRC is simply explaining why they are doing what they are doing, and leaving out information which they perceive as irrelevant but which may not be.

Of course, the public may talk to someone at an HMRC call centre if they think they have problems or are being taxed incorrectly, but they need to know they have a problem first. Some no doubt complain about high taxes without knowing that they are being overcharged. This of course takes me back to the point a made a few months ago about “progress” disenfranchising the non-technical population.

© Jon Stow 2009

BBC: 1.5m pensioners 'overpaying tax'

Monday, 12 October 2009

Even cleverer HMRC phishing scam

There is a new phishing scam going round in the form of an email that purports to come from HM Revenue & Customs. This is just to warn you not to click on the link in any such email you receive. HM Revenue & Customs will never email a taxpayer concerning a tax refund or any other matter.

Part of the text of the current "phishing" scam email is as follows:

"Taxpayer ID: (a "reference")
Issue: Unreported/Underreported Income (Fraud Application)

Please review your tax statement on HM Revenue and Customs (HMRC) website (click on the link below):

review tax statement for taxpayer id: (a long code)

HM Revenue and Customs"

I received such an email this morning into my spam folder.

There are similar emails purporting to be from the IRS to US taxpayers. The IRS would never send an email of this type either.

More information here

Be careful out there.

Saturday, 10 October 2009

HMRC's stealth taxation through technology

The Revenue is introducing a new requirement to force agents to submit company accounts on-line in XBRL format from April 2011. Let me quote from their website:

Company Tax Returns and XBRL

XBRL stands for Extensible Business Reporting Language, which is an international standard designed for business financial reporting.
At the moment accounts and other attachments to online CT600 returns can be sent in PDF format. From April 2011 (and for all CT600 returns due after 31 March 2011) we expect that all CT600 returns will have to be sent online, and will have to include attachments using the XBRL format.
You don't have to wait till 2011 to change to XBRL, and we recommend you consider doing so before it becomes mandatory. Later in 2009-10 HMRC intends to introduce a CT filing product which uses XBRL (this will be aimed at smaller, unrepresented companies), and to introduce a new main CT Online service. Other software developers have introduced or are working on products which use XBRL.”

I find this very news disappointing, especially with the short time-scale. I assume that behind this is an intention to make company accounts more accessible to staff within HM Revenue & Customs, and will help their cost-cutting. The justification is the report by Lord Carter on HMRC on-line services amongst other things. Lord Carter had to revise his proposals on individual taxpayers' Self Assessment deadlines following a furore back in 2006 that they were impractical. It would be useful if we could have just a little more time to make the change.

Self Assessment itself was introduced as a cost-cutting exercise, though it increased the cost burden of compliance for taxpayers.

The effect of the new requirement for XBRL format is to transfer further costs to taxpayers. The increase in software costs for tax agents will either have to be passed on to clients or the agents will have to bear them. No doubt the specialist tax software providers will have their developers working furiously to be ready for 2011 and they will need to charge the end user. Unfortunately the change will amount to a stealth tax even on those businesses which are not in profit. I believe in value billing, but increased overheads in software costs do not provide value for the agent or the end-user business. It is very difficult to provide the best value to clients whilst having to dance to the Treasury's discordant tune.

© Jon Stow 2009

Have you submitted your Tax Return yet?
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Thursday, 1 October 2009

More in sorrow than in anger - Jobcentre bully

I heard something this week in the course of business that really upset me, and it has spared you, until I get around to it, a commentary on what activity might constitute trading and what might not.

I saw one of my clients this week to collect her books and those of her husband as they are both self-employed. Mrs. Y works with children. Times have been hard and generally people do not want to pay for luxuries and extras even for their children; hence Mr & Mrs Y as I shall call them have both been struggling and Mr Y had been unable to find any new assignments for a period. Fortunately his attributes have now landed him a decent engagement.

During the period of famine in the household my clients went to the Jobcentre Plus in the locality to apply for Jobseekers Allowance for Mr Y and for Housing Benefit since they have a mortgage to pay in addition to Council Tax etc. Mrs Y was required to produce her last accounts, prepared by my firm. The Jobcentre person looked down the profit and loss, or I should say, income and a lot of expenditure. She said “Of course I have to take these with a pinch of salt. Accountants produce figures to most suit the client. I cannot take into account some of these expenses” and she struck out the rent Mrs Y pays for her workspace used once a week in which to teach her pupils. This is the biggest expense, of course. Mrs Y told me she was shocked. Of course she was. When she related the story, I said “Why ever didn't you call me to ask me to speak to this person?” Mrs Y said that she felt the whole experience of dealing with the Jobcentre person was so humiliating that she did not want to prolong it by taking the matter up. She was clearly even now, months after this interview, quite shaken up.

Well, as I said, I am upset. Firstly, my client has been treated very badly by an intimidating and ignorant public servant. I know (because after a time in our business you get a nose for “dodginess” in people) that Mr & Mrs Y are completely honest, straight and decent people who do not deserve this treatment. Then again, I feel insulted on behalf of all tax advisers and accountants. The accounts were true and fair and every item was accounted for, backed by advices and receipts including obviously the rent arbitrarily “disallowed” by the aggressive woman in the Jobcentre, and of course all reconciled to my client's bank statements, paying in books and cheque stubs. I hardly need to spell it out except that I still cannot get over the attitude of the person.

In the end, despite my righteous anger at the aspersions cast at me, the worst aspect is that my clients have been deprived of benefit that is properly due to them as good taxpayers all these years. This sort of thing may be going on up and down the country for all I know. I wish my clients would make a complaint and I would back them all the way, but they would rather stay away from nasty officialdom, and I cannot say I blame them.

© Jon Stow 2009

Thursday, 10 September 2009

Unfair and unreasonable!

With effect from April 2010 HM Revenue & Customs are taking away a long established concession or non-statutory arrangement known as “Equitable Liability”. Not a lot of people know about its existence, even professional advisers, perhaps because it does not come up too often.

What is Equitable Liability? Well, it is a practice which helped out a group of people you may not feel too sorry for; those who did not submit their Tax Returns for quite a number of years. When Tax Returns have not been submitted, HMRC is entitled under statute to estimate the tax which might have been payable by the dilatory taxpayers and make a “determination” following which they would demand payment of the estimated amount. The person who received the demand might indeed have paid it, but if Returns were then put in within about five years later than they should have been, HMRC would adjust the tax to the actual amount due. A refund could then arise.

All well and good you might say, and it serves anyone right for not submitting their tax returns on time. However there may be many reasons why a person might not have submitted a Return for a long time, including all sorts of personal difficulties. Some people might be bankrupted not for the tax they would have owed, but for an excessive amount they would not have owed if they had complied with the rules.

Equitable Liability is an arrangement under which HMRC agrees not to collect the excess tax owed over and above what should have been due if the Returns had been submitted on time. The tax remains legally due because after the time limit has expired the amount is set in stone, but it is simply not collected subject to HMRC's discretion under the practice.

This discretionary practice of allowing taxpayers who have returned to the fold (and their tax affairs must have been brought up to date) to adjust their tax payments to the amounts which would have been due is being withdrawn. HMRC says that the reasons are that it no longer has Crown Preference, which made them ahead of other creditors, and there was a tax case in the House of Lords from which they infer they no longer have the discretionary power.

It seems to me that legislation could provide such a power, rather than HMRC withdrawing the concession at the same time as reducing the window for tax liabilities to be adjusted from five years to three as will happen at the same time in April 2010.

There is a petition to the Government asking the Treasury to change its mind. This was started by Keith Gordon, the well-known tax barrister. The petition is here if you think it unfair that someone could be many times overcharged for being late with his or her tax returns. Remember interest has to be paid anyway on late paid tax due, and someone who has not submitted Returns for some years will probably have clocked up £200 per year in statutory penalties which will not be removed.

I have a current case of a new client whose tax affairs I have brought up to date, and on her behalf I am still in time to make the case for Equitable Liability and help her to gain a moratorium on tax determined for back years. The next client I take on whose circumstances are similar may not have the same option, though I can make no promises in the current case given that this is a discretionary matter.

“Equitable” is defined in my dictionary as “fair and reasonable”. I think the current proposal is unfair and unreasonable.

© Jon Stow 2009

Have you submitted your Tax Return yet?
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Amateur tax avoidance

I am not sure how people dream up ideas as to how they can avoid tax and then just do what they think is necessary without talking to a professional adviser. Very often their “cunning plans” can be very costly indeed.

I have dealt with a client who arranged for his father to give away his parents' house to him to avoid inheritance tax. Firstly, it did not work from the IHT point of view because his parents and then his mother after his father's death continued to live in the property. After his mother died he sold the property and then someone told him he might have a capital gains problem. He came to me then. Without going into detail, I managed to get him past the capital gains issue (and he easily could have ended up paying capital gains tax if he had not ultimately sought professional advice) but the irony was that both his parents' estates were below the IHT threshold so there never was any inheritance tax to avoid anyway.

I also come across people who think they can avoid capital gains tax by selling their assets pregnant with gain(as we tax people like to say) whilst they are spending a year or so overseas. This is actually a difficult thing to do, and even if possible with careful planning, our amateur tax avoiders do not realise that whatever overseas country they will be spending their time in may well seek to tax the capital gain. At the very least they could end up incurring a lot of professional fees in the overseas jurisdiction.

Yes, it is possible to avoid UK capital gains tax if abroad, but usually only if you are gone for quite a few years. It does not work any more going to Belgium for a year and getting fat on cream cakes and Belgian chocolate in their lovely cafes (Belgians must have an immunity to such temptations) just to avoid CGT, and lovely as New Zealand is, you would really have to be there long enough to go native.

If you think you have a bright idea to avoid paying tax, maybe based on something you heard at the yacht club or whilst going home on the bus, please talk to a professional tax adviser who will put you straight on what you can or can't do, and who will either give you a sensible proposal or let you down gently. A modest fee paid can save you an awful lot of heartache and perhaps a lot of money too.

© Jon Stow 2009

Have you submitted your Tax Return yet?
On our bikes
Exemplary Consulting for Business Support
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Friday, 28 August 2009

HMRC attacks construction industry workers

Towards the end of July HM Revenue & Customs published one of their famous consultation documents. I say “famous” because we have had quite a number of them in the past couple of years, and for the most part HMRC takes little or no notice of the opinions of tax professionals and other interested parties before doing for the most part what they always intended to do. The exception to all this was the major changes in the taxation treatment of trusts from April 2008, where HMRC should have had a consultation, but chose not to, blind-siding everyone with an attack on trust principles going back centuries.

It was clear that HMRC, or at least the Whitehall Mandarins, understood trusts not at all, thinking of them only in the context of tax avoidance. Trusts are generally just a way of preserving property for the benefit (usually) of others including children and grandchildren, and the idea goes back to the time of the Crusades. Anyway, I digress, but the point is that HMRC seems obsessed with their belief that there are bunches of scoundrels out there who should be paying more tax. This may of course be driven by a false sense of fairness, though there is also the likelihood that they want to get every penny they can because of Government spending and borrowing, and the general fall in tax revenues as a result of the recession. Of course there are dishonest people, but why use a sledgehammer to crack a nut, causing collateral damage to decent people?

So to the attack on the construction industry and in particular on subcontractors. Subbies, as they are called, are skilled workers and labourers engaged by main contractors or other subcontractors who work on building sites on the whole, and the term includes everyone who works on a building job from the people who clear the site, dig foundations, fit the plumbing and electrical circuits, through to the people who clean up new builds and attack the remaining dust with a vacuum cleaner.

HMRC thinks that many of these people should be treated as employees. The motive is because higher National Insurance Contributions are recovered from an employee and his or her employer than is levied on a self-employed person, who incidentally gets far fewer benefits from his limited contributions and no benefit whatsoever from the 8% rate of so-called Class 4 NIC which is effectively a tax on income and nothing else. The other motive for this attack must be that self-employed people can claim more in the way of expense deductions including usually travel and other sums expended that have to be “necessary” -in addition to being incurred wholly and exclusively- to gain a deduction for an employee. That word has led to a lot of argument in the Courts over many years.

There is ample case law to distinguish between an employee and a self-employed person going back many years. I have no problem with HMRC's general interpretations on this web page. One can see that to be an employee, an employer must have a degree of control over the worker and a degree of responsibility too. The hours worked will be decided by the employer, as will permission to take time off.

I can see a sort of case that some unskilled labourers might be casual employees if they provide nothing except their physical presence and hard graft; some of them. However, the idea that my plumber, brickie, electrician and carpenter clients are not self-employed seems to me absurd. The HMRC consultation paper, called 'False self-employment in construction: taxation of workers' says, at least to my mind, some quite absurd things:

“In order for the employment income deeming rule not to apply, the worker will need to meet one of the following criteria:

  • provision of plant and equipment – the worker provides the plant and equipment required for the job they have been engaged to carry out, disregarding tools of the trade which it is traditional for a worker in the industry to provide for themselves to do the job
  • provision of all materials – the worker provides all materials required to complete a job or
  • provision of other workers – the worker provides other workers to carry out operations under the contract and is responsible for paying them.”
With the greatest respect to HMRC, this is tripe. It is tripe written by an employee in an office in HMRC towers who receives a salary every month, more or less knows that he or she will still have a job next year, the year after and the year after that, and a fat pension when the time comes.

Firstly, to deal with the HMRC bullet points, most brickies, well all brickies, provide the tools of their trade. As I have seen suggested, should each brickie also bring his /her own cement mixer every time in order to fulfill the “plant and equipment” criterion? Should the brickie really bring his own materials to mix the mortar? Of course the brickie may bring a mate to work if the contractor is shorthanded, and may even send someone instead, but that is not common. However not supplying other workers does not make the brickie an employee. After all (please note HMRC tripe-writer) a brickie may have no work next week or the week after, and certainly no certainty of work next year. It is worse than normal because there is a recession. Some of my subbies' telephone bills are high this time round because they are telephoning main contractors, trying to find assignments and projects to work on. One of my plumbers has been out of work for some months recently. Also, some projects have stopped half way through through lack of finance. There is no certainty of work, and just imagine the impact on the big construction companies if they suddenly found they had loads of employees. The cost would see them out of business and the Government's housing targets an even more distant pipe dream.

So let us have some common sense. It is evident that most construction workers are not employees. They can choose their own time off, but they cannot have certainty as to when and where their skills will be engaged. Has not HMRC not got something better to do than overturn established principles of case law and potentially land another crippling blow on an already sick construction industry? Answers on a postcard to HMRC by 12th October 2009.

© Jon Stow 2009

Sunday, 16 August 2009

HMRC and customer service

I wrote recently about Government and in particular HMRC disenfranchising the non-technical population. It is a sad situation, and it means that some perfectly intelligent people and in particular those of an older age group, or perhaps those who work with their hands have to employ people like me to do tasks with which they could have coped if dealing in paper.

Because there is almost no one in HMRC with whom the ordinary population can speak who actually knows anything about tax, taxpayers just have to grub along or pay someone else. It gets worse as demonstrated by a visit I made to an older couple this week. Their problem was that another elderly relative had died and they had been left to administer the estate. They had been sent a Form R27 which, for the uninitiated, is a Return of income for the previous 6th April up to the date of death of the deceased, and which is completed by the Executors or Administrators of an Estate. The couple had filled in the form but missed out completing two sections. An Assistant Officer at HMRC had sent it back with the two sections marked with red crosses and asked the worthy couple to complete the details required. Of course they dud not have a clue which is why they had telephoned me.

Now in the good old days these Executors could have taken their papers and the form to the Tax Office and had help completing the form on the spot. Nowadays, even if they could find the person who penned the red crosses, he probably would not have had a clue either, which is why after a couple of months he returned the form with such an unhelpful letter.

I reckoned the repayment due to the estate was less than £100, but the couple had not collected all the information needed to fill in the R27. I dictated letters to the organisations concerned, which the wife took down in shorthand, and said that when they had received replies they would be able to complete the form and send it off. If they were still unsure they should call me.

I came away feeling unable to bill for my 45 minutes plus the short drive. I had done the tedious Money Laundering check because that is obligatory but by the time I had done an engagement letter, written the letters myself and dealt with HMRC I would have done far more work and costs would have far exceeded the refund due to the very small estate. Effectively I had to treat it as charity work.

HMRC calls taxpayers customers, but customer service has become an alien concept. When I was a young tax junior you could track down anyone in the Revenue and get things sorted out over the telephone, which is no longer possible with the call centres.

Why should I have to do for nothing something HMRC cannot be bothered to do because it has changed itself into an even less friendly organisation than BT or my bank? Yes, those who cannot afford to pay for representation can go to TaxAid, but why should they have to, and though I am happy to help out, I think we tax advisers and agents are taken for granted and not afforded proper respect by HMRC. However, if they treat their customers like that, what do I expect?

© Jon Stow 2009

Saturday, 1 August 2009

Stirring the pot

I watched with interest the interview on the Accountancy Age website with Dave Hartnett, Permanent Secretary for Tax about the New Disclosure Opportunity (NDO). To quote HMRC,

“the NDO will allow people with unpaid taxes linked to offshore accounts or assets to settle their tax liabilities at a favourable penalty rate. It will run from the 1st Sept 2009 until 12 March 2010.

If you have unpaid tax linked to an offshore account or asset to declare, to benefit from the terms of NDO you will need to notify us AND disclose (tell us the details, calculate the amount due and make a full payment) within a set time limit.”

There will be a specific lowered rate of penalty for those coming forward under the scheme. It is not an amnesty in that tax, interest and penalties will have to be paid; it is simply that the penalty will be fixed at 10% unless people had a letter from HM Revenue & Customs under the original Disclosure Opportunity and passed it up, in which case the penalty will be 20%.

The original opportunity for those with undeclared and taxable offshore income to come forward was in 2007. This followed legal action through which British banks holding their customers' money offshore were effectively obliged to disclose details of the relevant accounts as they have done for many years in respect of UK based accounts. HMRC wrote to the bank customers they thought might have undeclared accounts. This time round, HMRC will write to many more people since they have information from many more banks.

In the interview, Mr. Hartnett admitted that he had no idea of the number of people would come forward or the amount of money which would be recovered. This was an honest reply. We only gleaned that he thought it would be more than under the previous scheme. Pressed on the criticism that the earlier campaign was under-publicised he said that around £1M would probably be spent in advertising and initiatives. I wish HMRC luck with this trawl and will have no sympathy with those continue to evade tax. I will be happy to assist anyone who wishes to come clean.

The NDO is not the only trawl in which HMRC is currently engaged. Many possibly non-tax payers or marginal taxpayers will have received letters in the last couple of weeks asking whether they should still be receiving their bank interest without deduction of tax.

Those recipients I know about actually receive their interest net of tax (and pretty paltry interest it is at current rates), but although some have been happy just to refer the printed note to me, one very elderly lady became convinced HMRC were after her and would take away her pension. That second reaction was extreme, but I cannot help thinking that the distress caused be this second mailshot to people on low incomes will far outweigh the concern of the generally much wealthier recipients of the NDO letter. I am not sure anyone in HMRC will have thought about that and I am sceptical that any significant tax will be raised by this mailshot to the poor and elderly.

© Jon Stow 2009

Saturday, 18 July 2009

Is "progress" disenfranchising the non-technical population?

A couple of incidents recently highlighted have highlighted how easily “progress” can isolate people and prevent them from getting help, and those people are often the neediest.

As a tax professional I am used to the bureaucracy of HM Revenue & Customs, though even for me it can be extremely frustrating. I received a form from HMRC concerning a pensions coding (Form P161 for the initiated). It was addressed to my firm, but did not have the taxpayer-client’s name on it, only the National Insurance number. I could not trace the number in my tax software and telephoned HMRC to find out whose form it was. However, having given the number to the call centre person, she told me I could not discuss the client unless I knew his / her name, but that was what I was calling to ask. She recommended that I sent the form back with an explanation and waited for them to respond by post. However, I knew that the Tax Office in question was months behind with paper correspondence, but even so, there was nothing to be done but to ring off.

Such an intransigent attitude and inability to take the initiative and work around to solve the problem quickly would deter any individual taxpayer trying to understand a confusing form. I can well imagine it would be intimidating. In the good old days…..etc.

The second incident started when one of my very elderly clients telephoned to say she had received a form she had to fill in to get the refund I had recently applied for on her behalf for 2008-09. I was puzzled, but asked her to send me the form to look at. It turned out that the form was actually for next year’s claim – a Form R40 for 2009-10 for the initiated. These elderly people, often on very low incomes and who are on low fees – my few “charity cases”- have no idea how to obtain even the most basis information or understand their entitlements. Just dishing out a form, which would have been best sent to me as agent anyway, is no form of proper communication. I have tried hard to get as much of these people’s investment income paid without deduction of tax so they do not have to get me to reclaim tax, but to no avail. Life would also be simpler if HMRC were to have the option to deduct PAYE from the State Pension, as they have in respect of most pension annuities these days, because fewer elderly people would need to complete tax returns and claims. The only thing is that they like their hands held over all sorts of financial matters even if it is helping them to find a good IFA, so to a degree I am a sort of financial social worker and some would rather pay me a little something so that I am available at the end of a telephone. I would do some stuff for free for a few if I thought I would be insured for it.

Still, I am in business in order to make a living. I do charge realistic and suitable fees to a majority of clients for the excellent service they get. The good news is that having searched my archived records on a whim I found the former client to whom the pension coding form related. I telephoned to ask if he wanted me to send it on and it turns out he would like me to act for him again due to a change of circumstances. All in all that was good news, but I just wish that the workings of government bureaucracy were simpler for the more senior citizens and for those who are not comfortable sitting at a keyboard and monitor.

© Jon Stow 2009

Friday, 10 July 2009

A week of curiosities and a valuable reminder

It has been a strange week. On Monday I went to see a client to collect his tax papers, only to find that they were in a locked cabinet to which only his wife had the key, and she was out. It was a short meeting as a result, and I did wonder why my client had not telephoned to save me the journey.

Two less eventful days ensued, and I went to my monthly local meeting of tax practitioners on Thursday. “Tell me, everyone” I said, “what do you guys do in the way of marketing?” Six faces looked back at me blankly. “Marketing? We don’t do marketing. We don’t need to because we always have enough to do.”

I was amazed, and actually even felt a little foolish for a moment. After all, I spend quite a lot of time marketing. I have one local targeted ad, and apart from that I work on my website, my blogs, the social networking sites, Twitter and face-to-face networking. All this results in work coming in, which compensates for the occasional client of mine who finds it necessary to dispense with my services. There is always some attrition. When people leave me it never seems to be because they have gone off my firm or its service. People move and like someone local to look after their tax affairs, or they sell up everything and move abroad.

How do my colleagues not have net losses of clients? It can only be because they are longer established than me (a mere seven years) and get plenty of referrals without looking for work, or they are good at client stickiness and find it easy to keep their revenue from each increasing year on year. I admire that, and am even envious though I worry about their complacency. Apparently any sort of networking is alien to their natures. I enjoy it and it gets me out, gives me a chance to feel useful in connecting people, gets me work and avoids the loneliness of some small business owners.

I went back to the office to puzzle over an email from a client’s wife. “I haven’t time to send you my husband’s papers so that you can do his tax return as we are going on holiday for the whole of August and we need his refund by September”. Now, hang on, she lives a long way from my office and I cannot easily take the ferry to do my customary house visit, but we have broadband and live in an electronic age; hence the email. Said lady then goes on to ask me how to fill in the Return by requesting a technical calculation for last year. I answered her question of course, and wish her the best of British with the Foreign and Non-resident pages which are hardly logical even to us professionals (we always seem to have to do work-arounds to get them to make sense). I have not had a response to my somewhat injured one, but am not holding my breath. Needless to say I advised her that if she sent me the information she could have emailed copies of the Return and accounts for approval easily by the end of July. It would be inconvenient but I will always try to be flexible to meet my clients’ needs. I am not holding my breath, though.

Late on Thursday, I saw another new client for the first time. It turned out his previous adviser had died, and no one seemed to be running the practice now. I think the accountant was unqualified but nevertheless may have been very good at what he did. The client had obviously found his service good. In these tragic circumstances it is a reminder that we should always allow for someone to take over the reins of our business if we become sick or die suddenly as this guy did as a result of an accident. We owe it to our clients and also to our families as it is better to have a saleable business as a going concern than a business which is as dead as the owner.

If not lessons, I feel I have had some useful reminders. I must check that my nominated successor is still happy to run my practice in the event of my incapacity as I have directed. I will call her to check.

Wednesday, 8 July 2009

Out with the old…

Like most other people in my business, nearly all things in my office are done online. The tax returns have to be submitted by FBI (file by internet); we can read the Revenue manuals online, download their booklets, read the professional magazines and have website communities of fellow professionals. In other words, we have access to every possible resource of information without resorting to the printed word. Then, if we need something printed, then we print it ourselves,

Many readers of this piece will recognise this; some will be fellow tax professionals and others will have found their business lives completely changed or based from the start on information technology.

This leaves me with a problem though. I have sets of the bibles of UK direct tax, Simon’s Taxes, and of the more recent indirect tax regime, De Voil. They constitute a very large number of loose leaf volumes of many pages in plastic covers and they have not been updated for six or seven years. Actually I had them as hand-me-downs when I started out on my own. They were surplus to requirements from an office that was closing. I could not have afforded to pay for the updates, and although some case law commentaries might still be relevant, the legislation has changed so much especially with the on-the-hoof goal-post moving of recent times. I hope that is not a surfeit of metaphors.

The books have to go. I need the space and have to think what to do. Are they of any interest to anyone? Shall I take them down the tip, take the pages out of the covers and recycle the component parts. Can I sell them on EBay – six years out of date? I guess the tip is odds-on favourite. Any offers – free to a good home?

Friday, 12 June 2009

Credit where credit’s due - HMRC v Annabel's

HM Revenue & Customs has claimed that it has struck a blow for lower-paid workers in the form of restaurant and nightclub staff. As many of you will know, there is a common system in restaurants where tips are collected whether through cash or as additions to credit card billing and allocated to a member of staff, the troncmaster, who is responsible for delivering shares of these gratuities to his or her colleagues. Normally the person who has the distribution responsibility deducts PAYE as appropriate which is dealt with separately from the normal wages. Yes, some cash tips go straight into pockets, but that’s another story.

Probably in common with many establishments, it turned out that Annabel’s, the well-known London nightclub, was paying its workers less than the National Minimum Wage (NMW) on the grounds that when seen in conjunction with the tips paid by the troncmaster the total earnings exceeded the NMW.

HMRC took a dim view of this and issued enforcement notices against which the employers appealed, claiming that the monies received in total by the employees satisfied the minimum amount specified under the NMW regulations. The Employment Tribunal and subsequently the Court of Appeal agreed with HMRC that the minimum wage had not been paid by the employers and they were in breach of the rules, and thus restaurant and nightclub workers must be paid the NMW before taking into account tips.

This is indeed a landmark decision which will benefit many thousands of workers who will now get at least the National Minimum Wage plus tips, even if it means that restaurant bills will be going up to cover the shortfall in monies taken. HMRC deserves credit for clamping down.

Should we feel sorry for the Annabel’s employees who have been so exploited in the past? Probably not, because at such a high class establishment the punters tip very generously and word is most Annabel’s staff are higher rate taxpayers already.

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Tuesday, 9 June 2009

New tax amnesty and old habits

We are starting to hear a little more about the new tax amnesty in the UK, called by HM Revenue & Customs the “New Disclosure Opportunity (NDO),” which follows on from the 2007 amnesty. Now we know that since the original amnesty, which followed on from HMRC’s victory in the Courts over the UK banks defending unsuccessfully their Channel Island branch customers, HMRC has come by a lot more information. Indeed I can infer from what I have heard on the grapevine that the acquisition of information concerning the Lichtenstein accounts has borne fruit, and will continue to do so. Therefore I think that the NDO is aimed at this particular tranche of (non) taxpayers and may be the reason for the bullish £2Bn tax take punted in the Daily Telegraph report.

I guess my advice to the miscreants would be to grab the 10% fixed penalty (plus interest on late-paid tax) while they can; of course my advice is always to come clean because at least in theory, the more tax the fraudulent evaders have to pay, the less the tax burden for the rest of us (I wish). To my mind, failure to pay thousands or millions in tax which is properly due to the Exchequer is little different from robbing a bank or stealing millions in gold bullion.

There are those who have been caught already between amnesties, which is bad luck or just desserts for not having come forward the first time. There really will be no excuse for lying low in the next amnesty, and to be honest (me, not them) they would be well advised to talk to their tax advisers, accountants or lawyers now in readiness to make complete disclosures. If they do not, or if the disclosures are incomplete then it may well mean jail time (being British and pedantic I would like to say “gaol time”). Still, it might be hard to persuade die-hard evaders to put their hands up.

I am not taking the Revenue’s side so much as the side of truth and honesty. That said, if anyone wants to speak to me with a view to their coming clean on their undeclared income and gains, I will be pleased to represent them in dealing with HMRC as long as I am satisfied they wish to make a full disclosure. Naturally I offer a very discreet and totally confidential service.

Wednesday, 27 May 2009

Doing the decent thing

Sometimes in my line of work we have to lift our heads from what we are doing and take a step back. Are we really doing the right thing? Today I was asked to quote for dealing with the accounts and tax return of what purported to be a business. The owner was concerned at the level of fee he was paying his present accountant for the preparation of the annual accounts and tax returns.

Having had a look at the work involved, I quoted a fee that was apparently much the same as the amount charged by the present adviser. In a sense I was pleased that my nose for what was fair was in line with the market. My USP is that I give more for the money in terms of value, because not only do I carry out the compliance at a fair price, but I am always available to clients on the telephone, giving proactive advice and help my clients be more efficient.

In this case I was concerned that I was being asked to quote for a low turnover business which consistently makes losses and has done for years. There was no other income available against which to set off the losses, for reasons I will not go into. HMRC, if they would ever think about it, would say that this was not a true business but a hobby, and that the losses should not be tax deductible elsewhere.

I said to my prospect that I thought the “business” really was a hobby, and that it would save a great deal in accountancy and tax compliance costs if the present agents were to ask HMRC to agree that the activity was a loss-making hobby and that tax returns and accounts would not be required in the future. Of course I gave away the chance to bid for the work, and probably the present incumbent will lose the business, but I think they should have given it up anyway rather than churning through a pointless process for a regular annual income. I am not saying they were unethical; just not thinking about what they were doing. What do you think?

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Wednesday, 20 May 2009

Has common courtesy had its day?

I try not to make this a whingeing blog. For that reason, if I complain about our dear friends at HM Revenue & Customs, it is the system, bureaucracy and stilted thinking that annoys me, not the staff who have to carry out the wishes of their masters. I cannot recall in recent years ever having had a difficult conversation with a Revenue employee, other than in the rare context that the person was not prepared to strike the best deal I had hoped for concerning a client under enquiry. Certainly there have never been angry exchanges.

Having put the record straight about the dear Revenue, I have to say that most of the time I have good relations with all my clients, my subcontractors and my suppliers (well, except the bank which is still vicious with its charges; however, since we never speak, I am not sure it constitutes a relationship). With regard to clients, if I feel uncomfortable with our communications I try to get to the bottom of it, and if we are still not getting on, I ask them to use someone else. That has been a very rare situation in the seven year life of my business, partly because one develops a feeling about a prospect before signing him or her up, and sometimes it is better just to suggest they go elsewhere.

Well, this past month two incidents have got me going. The first involves a quite major (for me) client whom I gained through a referral. The company needed some remedial tax work in order to claim some extra tax back from HMRC. I re-did two pretty complex Corporation Tax Returns which had originally been submitted by a Big Four firm. I have found out that after the FD needed help with an accounting matter (which I did know about) and asked a local firm to look at it, they have now done all the tax work for this year for my client without even asking for professional clearance. I am pretty upset, and whilst I do not know whether the firm in question just did not understand that my firm was the registered agent in succession to the Big Four firm, whether they just went for it, or the client is to blame, one way or another between them they have contrived to keep me out of the loop and de facto I have lost the job. I had tried to keep up by repeatedly asking the client about progress towards providing the information I needed, but I have been the furthest from anyone's mind. I should have been told that my services were being summarily dispensed with. The now ex-client is to his credit very apologetic and evidently embarrassed, and is a nice guy, but I am still left high and dry.

A month or so back, I had a response to my one and only paper ad which appears monthly, and went to see the prospect, who told me that he felt remote from his current adviser who never spoke to him. We had a good meeting, he gave me copies of his last Tax Return and accounts to take away, and signed an authority for me to act on his behalf in dealing with HMRC. I asked him to let his current accountant / adviser know of his decision before I wrote to that firm for professional clearance. I heard nothing more for a number of weeks, but on telephoning today I am told that not only was he staying with the current firm, but they had already done his latest accounts and Tax Return. He was going to tell me, but hadn't got round to it. He hoped I didn't mind.

Now, I do accept that my firm is not the only one out there, but the elements that go with my work for clients include great service, regular communication (I do not ever charge for telephone calls and am always happy to speak to a client) and where possible at least one face-to-face meeting a year. I charge nothing extra for this because I think clients should always have the Waitrose quality rather than cheap and cheerful, or worse, cheap and surly.

I always hope and dare to expect that clients will treat me as I treat them, and if they have a confession to make that they are “seeing someone else”, I will get it early rather than stumbling upon them in fond embrace. Is that too much to ask?

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Monday, 18 May 2009

Taxpayers as customers and the service they receive

I, in common with most other taxpayers, resent being called a customer of HM Revenue & Customs, when there really is no choice of supplier. We are captives of the system and we cannot take our business elsewhere. This is an old saw, but if we are customers, we have to ask what we are getting in terms of service; value for what we pay is another matter, and one of a political nature.

HMRC, or at least the Inland Revenue as they were called, did once upon a time provide a service to individual taxpayers, prior to Self Assessment. Of course many people feared the tax man as they thought, even though going back a long time the majority of staff were women as now. However, with minor errors in Tax Returns or even quite major but obviously unintentional incorrect completion of Returns, one could expect a letter suggesting a correct interpretation, or very often a telephone call from the Tax Office along the lines of “Have you forgotten your bank interest? Drop us a line with the figures and we will make an adjustment.”

Now it is true to say that there was a lot wrong with the old system. There was a tradition of issuing estimated assessments every year against which the taxpayer or the adviser would appeal as a matter of routine, but this was largely a question of regulating the flow of tax payments as routinely one would offer a payment on account. It was a daft system latterly (that is prior to 1996-97) but it was a system that was many years out of date. The estimated assessment routine became more fashionable in the latter stages before Self Assessment as the Revenue realised that they had to get money in. When I started in tax, one rarely saw an assessment issued unless a Tax Return had been put in, and there was little incentive for the more laissez faire taxpayers to do so. Why put in a tax return and have to pay tax, cutting into one's holiday money for St. Trop?

So, something had to be done, and though there had been tightening up of interest charges for late payment of tax, there really needed to be a system of making people submit tax returns and fining them if they didn't, as other jurisdictions already did. I think the Revenue had looked at America's Internal Revenue Service and thought they were along the right lines.

Anyway, the major change was to make people responsible for calculating their own tax liabilities, and with the wholesale introduction of a new computer system they had an automatic checking facility and automated fines and levies of interest charges. The major triumph at the time was to start massive cost cutting (this is one thing we cannot blame the current Government for) by getting rid of more qualified staff who actually knew about tax in favour of computers and call centre staff. Not all of this happened at the same time; there has been and will continue to be for a while yet an ongoing process of closing tax offices in favour of call centres and reducing the numbers of personnel who actually understand tax issues.

As the onus is now on the “customer” to calculate his or her tax due, this means that many who originally filled in the figures and waited for an assessment now have to either employ someone to prepare the accounts and tax return or wade into the online service and hope the figures they put in are the correct ones, especially if they are based on prepared accounts.

I earn my living to quite an extent by preparing Tax Returns and accounts for people who are not confident or know they are not competent to do it themselves. Obviously I am not complaining about this, but I think it is unfortunate that the amateur has to wade through so much information to manage without help. The Tax Return Guide is helpful with the basics, but cannot educate anyone in all the tax rules that we professionals have to know, and that is fundamentally unfair. It means that the individual taxpayers largely have to pay someone else to do what the Civil Service used to do on their behalf.

It is not as though information is very easy to find on the HMRC website. Although at a tax professionals' meeting with HMRC we were told that the website was being made much easier to use, I had to use Google to find on the HMRC website what their own search facility could not: that 5.75 million tax returns were filed online for 2008-09 by the deadline of 31st January 2009. I suspect a good proportion of those filed were by agents such as my firm. There were many glitches using HMRC's own online program, such as an inability to bring forward trading or lettings losses from a previous year. There was a work-around involving writing a note to oneself for next year. I did one Return using HMRC's own software, and had I not been a professional I would have been driven to distraction and probably given up.

The point of writing this piece is not to say that we should go back to the bad old days of estimated assessments, and the confusing-for-many previous year basis of taxing trading and untaxed sources. It is just that over ten years down the line of Self Assessment there is still so much work to be done in terms of improving the system and getting an HMRC website that is fit for purpose. Yes, the information is mostly there and the site is vast, but if a tax and internet geek like me cannot whistle up the content I need in short order, what hope is there for someone who has little tax knowledge, because that person will not even know what he or she is looking for? HMRC need to look at the news websites such as the BBC and CNN to see how the categories can be drilled down better into general headings, with menus underneath, sub menus and so on, so that amateurs (and journalists trying to check the ins and outs of MPs' expenses or whatever) can find what they are looking for.

Why has it taken so long to make the system work, and how much longer is it going to take? When is the “customer” going to benefit from doing all the work on the Government's behalf? Is not the taxpayer in reality more of a part-time contractor or employee engaged by the Treasury?

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Wednesday, 13 May 2009


We read here that Hazel Blears is to pay £13,332 on the sale of a second home. How is she going to do this? Presumably her accountants or tax advisers got the documentation right so that she successfully avoided a liability by making the appropriate election. The only way she can get HMRC to accept the money is by saying she made an error or worse, deliberately misled them. She will not be happy if they charge interest and penalties in addition to the CGT.

Perhaps she thinks the way to pay this voluntary tax is to just send a cheque. If HMRC cannot match the amount paid against a current liability, they will want to just send the money back. Remember that following the change in treatment of offshore income received by non-domiciled residents in UK, advisers on US tax told their UK resident clients that they should pay their tax due in the UK on US and worldwide income received in the period 6th April to 31st December 2008 before the end of December 2008 so as to have it matched with and set off against US tax due for 2008. The problem with this was that UK tax would not have become due before 31st January 2010, and HMRC's reaction was to try to repay the tax, thus defeating the object. Does Hazel know something we don't, or is this just political expediency without worrying about the consequences? I can guess, but answers on a post card please.

Update 14th May

Hazel Blears might have read my blog yesterday! I heard on BBC radio this morning that because HMRC would not be able to accept a cheque if they could not allocate it to a known liability (given that she has done nothing that she was not legally permitted to do), an official from HMRC was summoned to Westminster last night to accept the £13,332 on behalf of the Public Purse. I think it might have been better used if paid to a charity for the homeless. This is gesture politics at its worst, and really, you couldn't make it up, could you?

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Tuesday, 12 May 2009

Property flipping and knee jerk reactions

I must admit that the publicity about some Members of Parliament with two or more residences changing their designated main residence to one they are about to sell has me a little concerned because of all the publicity around it, and because of the public's ire. The principal residence capital gains exemption is there for good reason, and whilst as with any rule it might be possible to exploit it to one's advantage, the main purpose of electing as to which is the main residence is actually to prevent hardship or difficulty. Often people acquire a second property through the necessity, perhaps related to a job or through inheritance, and electing as to which property is the main residence avoids unnecessary debate with HM Revenue & Customs at a later date. If a large family home were to be treated inadvertently as the second property, then upon moving, a large tax bill might prevent the purchase of a suitable replacement with similar and adequate accommodation. There has to be a rule determining which property attracts the exemption. Of course the system might be manipulated, but it is not a “loophole” as many commentators have described it.

If it is thought that MPs or ordinary taxpayers are taking serious liberties with what amounts to serial property dealing, then HMRC can look at the background and might believe that they are participating in an “adventure in the nature of a trade”, the profits of which would be liable to income tax, so it is not sensible or true to say that the tax man or tax woman does not have some powers to clamp down. With all the publicity MPs have received, those who have abused the system more seriously may certainly expect to receive letters from HMRC, who read the newspapers like anyone else. I should be concerned if there were some sort of knee-jerk clampdown emanating from Gordon Brown or Alistair Darling which might catch and be unfair to the innocent taxpayer.

Any system can be used or exploited. Readers of this piece might be interested to read about the late Frankie Howerd's ex-partner using the new Civil Partnership legislation to avoid Inheritance Tax and pass his estate tax free to their “son”. It is very ingenious, but just because rules can be exploited and manipulated by the clever or even the unscrupulous does not mean that they are wrong in principal or have to be scrapped in favour of some onerous and unfair regime which is detrimental to the greater “innocent” population.

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Monday, 11 May 2009

What's cooking with HMRC, MPs and networking?

It was interesting to meet HMRC representatives at the Essex Branch CIOT/ATT meeting last week, and they seemed a pleasant and friendly bunch. However, of the contingent of six (v attendance of only about 25 members) a couple had come all the way from Yorkshire to Chelmsford. I could not quite see how this was cost-effective.

I took the trouble to make notes, but cannot see on re-reading them that I really learned very much. One lady was able to assure us that they were working hard to improve the website, including the deplorable search function (generally it is better to tell Google to search the HMRC site) and to tell us that we practitioners had been re-labeled as “tax agents and advisers”, an unexpected re-branding from outside. Maybe they will stop calling their hapless taxpayers “customers” but the customer word was repeated during the meeting a number of times so any move from upstairs has not reached the grass roots.

I did get some reassurance that HMRC is still interested in the small fry compliance failures such as letting income, casual earnings and bank interest (historical interest at present in more ways than one) and that they were still keen on rounding up reluctant customers. This sort of work is welcomed by me for one, and I do not see why anyone should get away with not paying tax which should be due. I am all for tax planning and saving clients tax, but am definitely not in favour of tax evasion planning!

I sent out my tax newsletter out this week. The Budget was not very nice; in fact rather depressing, though I did avoid it by being away. Still, there was no escape from the email and I am thoroughly up to speed. I have little hope that the Finance Bill will be scrutinised any more than others in recent years. Frankly, there was little help for small business and and it seems unlikely that MPs even understand anything about trusts and the proposed 50% tax rate from next April. Still, they have the exposure of their expenses to worry about. Frankly, even many of their “justifiable” expenses paid by the Exchequer would be taxable in an ordinary mortal's hands. They are like anyone else entitled to indulge in property dealing, but please, not with my money. No names, no pack drill, but some of the shenanigans I have heard of these past few days might be treated as trading liable to income tax rather than capital gains exempt due to flipping properties within the private residence rules. Some of this might be beyond HMRC now in terms of enquiry windows depending on how it was all reported to HMRC at the time.

In May we are definitely into the new season of tax returns etc.. I do like to meet face-to-face as many clients as possible at least once a year. The two I met with last week are really both some of the nicest people I know and they cheered me up. I learned a while back not to work with clients with whom I felt the relationship was difficult because there is much less pressure if we like our clients and they like us.

I am always on the look out for more nice clients and am trying a couple of new marketing strategies including some positive networking with as much giving as possible. I will let you know how I get on. Maybe barbecue networking will catch on in the long hot summer the Met Office is forecasting?

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Tuesday, 7 April 2009

Render unto Caesar...

One of the problems we tax advisers have is in dealing with people, generally as prospects, who simply don't want to pay any tax at all. Somehow, the current climate of cracking down on tax avoidance (legal) as well as tax evasion (illegal) seems to have passed by these people. Usually they go further: “Why should this Government get their hands on this money? I did not vote for them. They won't spend it wisely. It is immoral how much they try to take.” Now many of us have these sentiments, but those of us who are law-abiding and understand the law (which is the overwhelming majority) grin and bear it and pay our taxes.

There are ways of tax avoidance, and these days I find myself felling uncomfortable with aggressive contrived schemes, none of which I have recommended in recent years. Of course there are tax shelters we can all use, such as various types of pensions, ISAs, National Savings Certificates and Premium Bonds, to name but a few of the obvious approved devices. Let me know and I will find you a good IFA.

Every now and again though, these people of the alternative persuasion turn up. They may be ageing hippies come into money, or ageing hippies or anarchists who suddenly have an expectation of money, although no doubt they condemned the rich and their wealth when younger. Now some money might be about to fall into their hands, inherited from their careful parents, or from some capitalist scheme in which they are involved, or from damages they expect to get through the blame culture because they feel wronged, and suddenly it is a different game. The name of the game is greed, avarice, call it what you will, and their twenty-year-old selves would have been shocked if they knew what they would become.

I talk these prospects through their options, which for UK-based people with UK-based family histories are fairly restricted, they get all upset at not being able to keep all their money, and they spurn my preliminary advice because it is not what they want to hear. I never hear from them again, and to be quite frank that is a great relief.

Render unto Caesar the things which are Caesar’s, and unto God the things that are God’s”

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Tuesday, 24 March 2009

March 2009 Tax Update and newsletter

As it is frowned upon to paste a blog in more than one place on the Web, please follow this link to the newsletter. I do hope you find it useful.

Tuesday, 3 March 2009

HMRC Roadshow Essex

The headline billing of the event I attended last week was as above, but upon arrival I was handed a brochure in which HM Revenue & Customs welcomed me to their Business Advice Open Day. The venue chosen, the Five Lakes Hotel was excellent, with plenty of room downstairs for the various stands as well as excellent conference rooms for the seminars going on throughout the day. We will gloss over the catering for which one cannot hold HMRC responsible.

I had heard on the grapevine that the roadshow was coming to Essex, but booked online using the information sent in a mail shot. In view of the very large number of attendees it was clear that the advance information and booking system had worked very well, for which credit should go to the organisers.

I am a tax professional, and the event was very much aimed at business in general, and small businesses in particular. Nevertheless, I have to say that I gained quite a lot from the day. Seven of the twenty-four stands represented various divisions of HMRC. They were promoting heavily their online services, and naturally encouraging businesses that had not yet taken the plunge to do so, highlighting the incentives and advantages. They had a stand where one could chat about VAT, and being a direct tax man myself I sounded them out on an issue which I had just started thinking about and had not got round to consulting an expert. The input was useful and the chap was very helpful.

HMRC also had stands for international trade (customs duties etc.), National Insurance and Research and Development Tax Credits, and one for the Olympics, the actual purpose of which I did not manage to ascertain, and for general advice. All the staff I spoke to were helpful.

Various other Government agencies were represented, from ACAS and Companies House through to local authorities and the Environment Agency. As one would expect, Business Link was very prominent, and they also ran some of the seminars. The non-profit concern Prime was also there, reflecting the reality that older people becoming unemployed need to consider how they might make a living in a hostile environment, perhaps becoming self-employed. Again, all the personnel on the exhibition stands were very helpful and I collected a lot of useful literature.

Turning to the seminars, I managed to fit in three. The first I went to was presented by a representative of the Intellectual Property Office. It was really excellent and the presenter is to be congratulated. The seminar was very informative and at a level designed not to blind everyone with science, and though I have been round the block, I learned quite a lot from it. It was made interesting by including a number of very brief examples of key points involving major companies of which we had all heard. It was really very good value for a 45 minute session.

The second seminar was frankly a demonstration of how not to do a presentation. The subject was “An introduction to Importing and Exporting”. It was a real “Death by PowerPoint” recitation, and rather than talking about the nuts and bolts of how to do things as was the IP talk, it consisted of listing the numbers of all the forms to be filled in at each stage of the process of importing or exporting, and frankly not much else. The tax rates on the slides were out of date, which seemed to surprise the presenter.

The last seminar I went to was from Business Link, and entitled “How to manage your business through a recession”. Wearing my critic's hat as a small business adviser myself, there was indeed some good generic material which would be useful and make people think. A few minutes were spent on dealing with the banks, and as the presenter was an ex-bank manager (of which there are going to be a few more) he did know what he was talking about. The Captain Mainwarings of today are useful people to know when you can get to talk to them. Anyway, this was a good presentation with useful information as to where to get further help, business coaching and training.

I enjoyed the day and HMRC deserve a good deal of credit for staging the event. They do need to use experienced and competent presenters rather than just experienced staff at their seminars, but maybe I am nit-picking at what was a very worthwhile exercise. If you have an HMRC Business Advice Day in your area, I recommend that you make the time to go.

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Friday, 13 February 2009

Casualties in the tax world

It seems there are a considerable number of people in the accountancy and tax world who have lost their jobs, and many more who will fear the axe. I was surprised to hear of a quite senior person who had left his Big Four job at a regional office having moved house and uprooted his family to move there. No matter what “leaving package” he has been given, the reality is that if he does not find another post soon his standard of living will fall and he and his family will have to draw in their horns. There are many people in the job market now in our sector and the over forty-fives will have great difficulty in finding jobs even after the recession recedes, though realistically that may not be for two or three years, even taking the more bullish view.

What will our redundant colleagues do whilst the economy bottoms out, and will they all find it harder to get back in in a profession where there is a culture of filling roles from younger and cheaper trainees rather than appointing the more experienced?

I wonder how smaller practitioners will be affected by new payers forced to come into the market as sole practitioners or small partnerships. In the online world this is easier than it used to be, but for those used to maintaining a good standard of living there would be considerable pain whilst building a practice against those of us who came into the market from the last accountancy recession. I think that many will be forced to go elsewhere and be more flexible.

I remain optimistic for my own business because it already “lives lean”, whilst providing a quality service, and there are only so many clients out there though there will be more start-ups as time moves on. For an established firm, it is important to maintain standards and market as well as we can. My firm had an advantage in that it was born at a time when there was only a downturn in the accountancy world. Now it is national and global. It is a sad situation when able people who have worked hard to be qualified and to be good at what they do, only to be dispensed with en bloc in a numbers game.

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Wednesday, 21 January 2009

Online issues and January procrastinators

I do not normally use the HMRC online software to do Tax Returns as third party is much less hassle. However, I did have occasion to try it recently and found that in dealing with lettings where there is a loss in the year and a loss brought forward the HMRC system is unable to aggregate them and carry them forward. When I telephoned the helpline and finally got through I was told it was a known issue and I should make a diary note of losses brought forward for 2008-09.
I would have thought that this loss scenario would be the most common given the highish interest rates on mortgages that prevailed to the end of 2007-08. It is extraordinary that this issue has not been sorted out. I decided the safest approach was to make a white space note about it.

I have just taken a call from a new enquirer. He sold his company twelve months ago for a lot of money, received a termination pay off as well, has a lot of paperwork to go with it and can I quote a fee for working out his tax position without having seen any detail anyway? Can I do his Tax Return for 2007-08 by Saturday week?

Well, no I cannot quote other than the high fee I told him to err on the safe side. Would you ask a painter to quote to decorate your house if he hadn't been to it? Could we do it anyway in the time when we haven't seen any of the paperwork in detail and other clients are in front of him? We're happy to do it in February and in the context of £100 fines it seems more important to get it right given the amounts involved rather than lose sleep over a late-filing penalty. Anyway, what kept him so long?

I am sure our marketing friends would think I missed a trick somewhere and sales people would think I should have "closed", but what with the shortage of telephone boxes to change in I am not sure what I could promise if the Return had to be done by the end of the month. I believe I did the right thing and am not going to lose any sleep over it.

Back to work with the other January late runners and thank goodness for my more considerate clients!

Monday, 12 January 2009

Tearing my hair over small company housekeeping

Like others in the profession I try to drum into my clients that they should practice good housekeeping in their businesses, remember that their company's money is not their own and to ask me before doing anything out of the ordinary. This is the time of year when we tend to find that some clients have ignored our advice and painted themselves into a corner from which even I with my skills and long experience have difficulty getting them out in a painless fashion. There are some golden rules in running a company and I am not normally into quoting Government ministers, but this is what Margaret Hodge recommended in 2007 when at the DTI:

1) Act in the company's best interests, taking everything you think relevant into account

2) Obey the company’s constitution and decisions taken under it

3) Be honest, and remember that the company's property belongs to it and not to you or to its shareholders

4) Be diligent, careful and well informed about the company's affairs. If you have any special skills or experience, use them

5) Make sure the company keeps records of your decisions

6) Remember that you remain responsible for the work you give to others.

7) Avoid situations where your interests conflict with those of the company. When in doubt disclose potential conflicts quickly

8) Seek external advice where necessary, particularly if the company is in financial difficulty.

All this is pretty important – keeping the company's money away from the owners' own money, minuting all payments to directors and all dividends to shareholders, and avoiding conflicts with personal finances. Obvious stuff and I even send the above list to new owners of companies.

The other golden rule is asking their tax adviser before doing anything they haven't done before. I really could scream sometimes because often even after we get a client's books and records in it is only with close questioning that we can get to the bottom of what they have done. This is not because they are dishonest but because they are suddenly too embarrassed to tell us what they have done as they know we will not be pleased. It is like dealing with naughty children and we just have to be patient, but why do we have to find out when up against deadlines? It's no wonder I'm getting thin on top but I always present a calm demeanour and will never tell a client off except in the most polite terms.

The real point of this piece is not to have a moan, but to emphasise the importance of good record keeping, good planning and asking advice before doing anything out of the ordinary. Even for small companies and businesses good corporate governance is essential. It is only common sense after all!

Monday, 5 January 2009

Recession blues or an opportunity?

The tax world is not immune from the current economic problems and already many tax department employees of larger UK firms such as KPMG have been made redundant, most particularly in the corporate sector. The financial press has reported employee shedding by KPMG during much of 2008 and we must assume that other firms are also making their staff redundant. These are strange times and it will be shattering for those who suddenly do not have a job and may have difficulty finding a position anywhere given the surfeit of people suddenly on the market.

One supposes that whilst the employment agencies may have a huge number of candidates on their books, they are also facing the immediate future with trepidation, given the limited opportunities.

Few of those perhaps very capable and well qualified tax specialists now out of work will have much immediate prospect of work. Whilst personal tax specialists might try to eke out a few pennies going self-employed there will be meagre pickings as it is the wrong time of year to be starting and almost none will be commercially street-wise in understanding how small independents find work in the first place.

I cannot suggest that I thought myself particularly lucky when I found myself in the position the newly redundant in our sector are now in; seven years ago I did not want to be redundant and indeed thought I was a pretty good performer. My then employer panicked somewhat over the Arthur Andersen debacle / crash and embarked on a last-in first-out campaign with its staff. Therefore I had my own recession to deal with seven years ago, and it took me the best part of a year to reconcile myself to running my own business. Now of course I would not want to do anything else, despite the fact that conditions are undoubtedly very difficult with fee resistance and slow payment being a particular problem. It is a time to sell on value and at least I know many of the tricks now.

I believe that the opportunity small practitioners have is in compliance. Of course none of us can really sell what is perceived as very cheap. We have to buy equipment, software, reference resources and CPD quite apart from the overheads of running an office. However, small is definitely beautiful in terms of income-to-cost ratio. The particular trend I have seen is actually an increase in demand from clients for tax compliance, but at the same time advisory work has dropped off. One place where there is no recession is enquiry work, and that is largely thanks to HMRC (did I think I would ever say that?) in their campaign against the black and grey economies, which has pushed several new clients into my lap. No, I am definitely not complaining.

It seems to me that my marketing must concentrate on good value compliance with useful advisory work available. Indeed I would recommend it to anyone in my sector and of similar small size. We can succeed where others with larger offices, overheads and a need to provide training cannot.

So, the answer is to stay positive, offer value for our clients, and give them every bit of help we need. We need to get out and network, meet as many people as possible and help them. I know it might be hard to grasp in our sector, but give out some free generic advice and a helping hand, send out a newsletter, use on line facilities to keep as high a profile as possible and keep reminding your business contacts what you do. If you are stuck for marketing ideas talk to my invaluable friend and marketing expert Fraser Hay. This last paragraph applies to everyone in business too, including my clients, not just us working in the tax sector.

We have to stay positive because we have no choice, but to reiterate, there is an opportunity for the small practitioner. Call me on 01702 205066 or email jon(at) if you need clarification. Good luck!

Jon Stow