Friday, 17 December 2010
A typical example is a discovery of some undeclared bank interest. HMRC writes to my firm and to the client. We check what has happened and there is indeed some undeclared interest but the bank actually provided incorrect information to the client and to me at the time the Tax Return was prepared. We write with the correct information and explain that it was all entirely the bank's fault.
HMRC person then writes to us and asks us to explain the omission, which we already have. It is as though no one has read our letter properly. We write back referring to the previous letter and repeating the perfectly reasonable explanation.
HMRC then writes requesting payment of a penalty for carelessness in addition to the tax which is obviously due. Now, there may be technicalities which would allow HMRC to call an innocent mistake, due to a bank's failure to deliver the correct information, careless. However, in any reasonable sense no one has been careless except the bank, which gave its customer the wrong information and HMRC the correct figures.
Once upon a time a Revenue Inspector could apply his or her judgment to any issue and act with a little discretion based on common sense. Now it is a question of sending letters one, two and three quite literally by the book and no matter the circumstances.
I hope letter four will not be in the book because we have written a strong response to HMRC's last effort. Of course they have on their side that it is not always cost effective for the client to resist too much, but then again I may just be in a pro bono mood.
Friday, 10 December 2010
Wednesday, 1 December 2010
This one is different. Firstly, the client has been submitting Tax Returns for very many years though not until the last few with my firm's help. Secondly, the liability shown is apparently for the year ended 5th April 2000 (yes, 1999-2000) when the client self-assessed and actually (according to this record) received a repayment, which is now indicated to have been excessive.
There is no record of the underpayment on the separate Statement of Account on-line, and of course I called HM Revenue & Customs. The person I spoke to clearly thought I was mad. Her records only went back to 2003-04 (which one might expect), and as she could not see the screen I was looking at she really did seem to think I was imagining the whole thing. “It's right here in front of me” I said. “Well, I can't see it. It's not on the Statement.” “Yes, I know, but it's on my Agent's record for the client”.
There are times when if we were Basil Fawlty we would beat our head on the desk, but having had a word with her manager the HMRC person said she would send me a copy of the statement not showing this alleged underpayment and a copy of which I have already. This action will presumably allow HMRC to record that they have dealt with the issue, but probably the screen will show this supposedly uncollected tax forever. Of course I will not keep looking at it as I have other things to do, and yes, I could claim concessional relief, but there is no point as no one in HMRC can see the record even if I can.
I could rant about the time wasted, but it has given me a chuckle and reminded me of Basil with the absurdity of it all.
Thursday, 18 November 2010
Of course there is the usual whining from commentators and journalists that the taxpayer should not have to pay for this, and the Royal Family should stump up a good deal of the cost.
Well, like it or lump it, but the Royal Family is a tremendous asset to the United Kingdom. Overseas media take a huge interest. The Royals are still worth a huge amount in terms of exports and attract millions of tourists from around the world, many of whom will come especially for the wedding. Manufacture of memorabilia is already in full swing, and William has made sure by use of her engagement ring that the Diana factor will feature heavily. Money is going to pour into our country from around the world. Yes, a lot of people are going to make serious money and yes, a lot of tax is going to be raised by the Exchequer and it will be a great deal more than the cost of running the wedding including all the policing and security. It is probably a much better money-raiser than the Olympics.
No money is going to be diverted from hospitals or welfare because the tax raised is going to be extra money. I am less a Royal fan than I was, but let us not get diverted by those who have an agenda other than their pretence of social conscience.
Let us enjoy the Royal wedding and the financial benefit the Exchequer, our clients and we will derive from it.
Friday, 22 October 2010
The pensioner telephones HMRC and after half an hour or so, gets to speak to someone, to ask for a form. None arrives.
The pensioner calls me (he is a relative) and tells me the tale. He tells me he is worried; he followed up his call with a letter on 1st September but had heard nothing. The October deadline is approaching. I told him that HMRC were unlikely to read his letter of 1st September until around Christmas. He said “I suppose I will have to try to file on-line”. Indeed that will be the case by the time I get to see him to help, otherwise he will have a £100 fine.
I don't like this blog to be a continual whinge about HMRC. However, most of the non-technical stuff I have to deal with is about this sort of nonsense where HMRC are simply not delivering any sort of service to those they have the temerity to call customers. The problem is partly about money, but many of the basic failures appear to be to do with management, organization and common sense. After all, if you tell a taxpayer he should fill in a different form, surely you should send him that form?
Saturday, 16 October 2010
I duly completed this process for a new client, but the client did not appear on my on-line list of clients on HMRC's website. I called the on-line help desk and hung on for ages (well, twelve minutes) listening to their muzak before giving up and sending an email
“We gained authorisation as agent for this client two weeks ago via the on-line procedure but he does not appear on our on-line list in the agent’s pages on the website. Could you please investigate this and append his details to our list?
Please advise when this has been done.
Thanks and regards”
“Dear Mr Jon Stow
Thank you for your email.
Unfortunately we need more information to progress your enquiry. Please contact the Helpdesk on 0845 60 55 999 and have to hand your Agent Code and access to a computer. Then one of our advisors will be able to assist you further.
For security reasons specific personal data may have been removed from this email.
Online Services Helpdesk”
I responded, a little irritated I admit:
“I will telephone later, but only emailed you after hanging on for 12 minutes on the telephone this morning waiting in vain to be dealt with. Can't you call me?”
“Dear Jon Stow
Thank you for your email.
We are unable to arrange a call back, we have all advisors on incoming calls to ensure we answer as many calls as possible.
For security reasons specific personal data may have been removed from this email.
Online Services Helpdesk”
Well, firstly they may be answering as many calls as possible but clearly there are many they are not answering, including mine. Secondly, in the time it took to reply to two emails, or even only to the second one, surely they could have picked up the phone and talked to me?
HMRC are so useless and inflexible in communication now at every level. Wholesale cuts appear to have been as much at the expense of common sense as money, but no matter how much agents and taxpayers keep pointing this out, and despite initiatives such as Working Together, HMRC's meetings with tax and accountancy professionals, where it matters no one is listening; apparently not even their head honcho, Dave Hartnett who was charged with making the cuts by Gordon Brown.
Frankly it is not only costing us agents money in wasted time, the inefficiency and lack of leadership and responsible staff must be costing HMRC more than it saves in reducing their staff's ability to deal with issues to the lowest common denominator.
Postscript: In the interest of fairness I should say that by telephoning on a Saturday I managed to speak to a helpful lady fairly promptly and it looks like the matter will be resolved, thanks to her. However, HMRC's delivery of customer service leaves a lot to be desired, not least that we would rather not be called customers.
Wednesday, 13 October 2010
Thursday, 7 October 2010
From the tax profession's angle we think of him as the man who lost the silver bullion case against the Inland Revenue. He put a lot of money into silver bullion with a view to making a fairly quick profit at a time in the Sixties when the pound Sterling was on the slippery slopes of devaluation. To cut a long story short he was found to be trading and liable to income tax on the profits of that trade. It is one of a few cases where one or very few transactions has been construed as a trade rather than an investment strategy. There is more technical commentary I could make but this is not the time or place.
A couple of the obituaries noted that Sir Norman was a “tax exile” in the Isle of Man. There has even been some criticism of him for having made his money and then going offshore to keep more of his income. Actually the Isle of Man is quite a nice place to go when you reach normal retirement age. Sir Norman only went when he was 65. It has a mild climate and quite low rainfall, especially when you realise it is sandwiched between a wetter Ireland and Lake District. Anyway, why should it be deemed immoral to retire to a nice place and pay a lower rate of tax as a bonus?
By the same token, is it immoral to work in a Middle East country with no income tax and at a high salary and (oh dear) not be earning it in one's country of origin , the UK, and therefore avoid being charged to tax by being non-resident? I would have thought it was a way of being responsible and making provision for family, and after all, if you are not present in a country in which you are not paying tax, you are not using the facilities that taxes are supposed to pay for?
Has it really come to this? Have politicians and commentators been brainwashed into criticising anyone who either accidentally or deliberately makes arrangements to pay less tax? Goodness me! If we use the facilities of the hotel we should expect to pay for them. Why is anyone expected to pay for the facilities they no longer use, especially if their hard-earned cash has in the past helped to build this facilities.
Artificial contrivances to avoid paying tax may or may not be morally questionable depending on your point of view. They probably are. Using tax free investment options must be OK since the Government allows for them in legislation. Using methods of reward that suffer lower taxes is no different from buying your food at Lidl instead of Waitrose or Fortnum and Mason, is it? We buy our petrol at the cheapest places and avoid motorway service areas. We have the choice. Why pay more?
Not being in the UK is a matter of lifestyle choice, surely? I wish politicians, some journalists and tax campaigners would grow up.
Thursday, 16 September 2010
- Letter advising of a new Universal Tax Reference and advising that a Tax Return will have to be completed in future.
- Letter advising that a Tax Return will not be required in future.
- Tax calculation form showing HMRC's computation of the annual liability.
HMRC likes to refer to taxpayers as “customers”. We always say that if we taxpayers were customers we would take our business elsewhere. If we were really customers we would be contemplating loss of customer service without a cut in our charges. Anyway, in the end it is one more cut in HMRC which will make them more inefficient at a time when a few more properly qualified staff could actually bring them more money in. At the same time there is more cost and inconvenience to the public
I am all for cutting waste. It seems very short-sighted to make cuts which will end up costing more money and making communication harder. Are HMRC so deep in their dark tunnels that they have lost touch with the real world? It often seems like it.
Sunday, 12 September 2010
There are a couple of worrying things which go beyond the “failure” of HMRC's PAYE system. It has to be remembered that Dave Hartnett, the Permanent Secretary for Tax, who has taken a lot of flak for a slightly undiplomatic comment on BBC's Money Box is not a politician but a Civil Servant. If he were politician he would perhaps be more careful, but anyway he would gave been out of office with the change in Government if he had been simply in the pocket of Alastair Darling and more significantly, Gordon Brown. Of course in the longer term there might be a conflict with the new administration, but Mr. Hartnett has been in the higher echelons of HMRC for a while now.
The point is that the cumbersome PAYE system is not perfect. It is better than it was in providing information and that is how the discrepancies in tax collected have come to light. HMRC has been forced to make many spending cuts over the last few years, which can't have helped. These were mainly driven by Gordon Brown as Mr. Hartnett told a number of tax practitioners on the one occasion a couple of years ago when I had a chance to talk to him. If the system were perfect we would not be having a new consultation which is now in play to see how it can be overhauled.
Mr. Hartnett can be careless with his words as he was on the radio and perhaps when talking to us tax advisers a couple of years ago. He may be overly suspicious of motives behind questions as he seemed a little paranoid about the supposed involvement of all tax advisers in tax avoidance when he addressed the meeting I was at.
That does not mean that his privacy should be treated as a target by the media Yes, he is in charge of an important Government department, and should be more media-savvy. However, he didn't get to the top because he was no good. He was a successful Inspector of Taxes and was involved in a number of high profile cases on the Revenue's behalf. He is at the top because he is good and not because he is a politician.
I knew he lived in Hertfordshire because he told our group. I have no interest in his house or what cars his family owns. He is not a footballer or rock star who feeds off media interest and is seen as fair game for exposés (if anyone should be?). What he has, he has earned, but it is none of our business, and nor is it the business of a possibly fictional neighbour of his, quoted in a Sunday newspaper story.
Monday, 23 August 2010
Banks apparently treat HNW customers no differently from the rest of their customers. They may give their service a different title such as Private Banking or Premier Banking, and in theory HNW customers might have a real person allocated in a branch whom they can talk to, but when it comes to the important things they seem to be in the same boat as everyone else.
I have had considerable trouble with one bank (light blue eagle emblem). Some years ago a client had an enquiry into her tax return when apparently the bank had failed to advise her of all the deposit interest she had received and consequently it did not go on the return. This was despite the bank's assurance they had found details of all interest arising to the client. It turned out that where an account had been closed before 5th April it did not show up on their list and consequently the interest was not notified to the client. If the account had been opened within the past year neither the customer nor the agent would be looking for interest details since the account would not have had interest to declare in the earlier year.
Now it has happened again even though I wrote three letters to the Bank last year and the client eventually had to make a special journey to the branch to get the relevant information. Somehow, and quite properly, the bank always manages to advise HMRC concerning all the accounts, but not the recipients of the interest, their own customers.
My client is likely to face a penalty and certainly interest on tax which should have been due last year. She cannot be expected to know whether the figures the bank gives her are complete when they open and close “bond” accounts with such frequency, and an aspect of being wealthy is that there is much more to keep track of and that is why HNWs pay extra to have people manage their affairs. Despite her Premier Banking plainly the bank does not deliver.
Of course the client and I will complain. The bank will apologize and then very likely will re-offend, and it will be so difficult to spot the offence until the letter from HMRC drops on the mat.
Do you have the same trouble with the banks? How do you deal with it?
© Jon Stow 2010
Sunday, 18 July 2010
Image via Wikipedia
As you will know if you have been a regular reader of Taxing Times, about a month ago I copied all the postings up to date to my main business website, and you can see them here together with the new postings since the transfer. However, a guy can change his mind. I realised I did still want to continue to talk about the day-to-day running of my business and express my views perhaps a little more freely than might be appropriate on a company website, so I have decided that this blog will live on. At the same time, we have had the opportunity to introduce a new look and I hope you like it. Please do follow both blogs.
One of the problems that HMRC “customers” experience is getting their correspondence dealt with. Actually the real issue is the length of time HMRC may take to actually read what has been sent to them, As a practitioner, I know that some of my clients find it hard to believe how long things take. Some matters can be dealt with easily over the telephone, but anything involving the completion of a paper form can take absolutely ages.
HMRC admits that 7% of post relating to PAYE Coding issues is currently not dealt with three months after receipt. One particular consequence I have seen is that a client has now received three questionnaire forms P161 relating to a new private pension. I filled in the first one my client received promptly and it was signed and sent off. Meanwhile over three months HMRC's computers have churned out two more. I have explained to the client what is happening and have telephoned HMRC but that makes more work for me for which I will not be paid.
I keep my clients is the loop, but HMRC's delays in dealing with simple matters do stretch credibility. To be fair, they are open about these deficiencies and have kept us agents informed. I am not divulging some secret information from a Revenue mole.
Of course the problems are due to spending cuts; not the programme of cuts now proposed by the Coalition, but the cuts imposed by the previous Government. HMRC has far less qualified staff (people who know about tax who would command higher salaries) and relies on call centres for much of their interaction with the public. The operators are only trained in the basics and if they are presented with anything beyond those they have to send an email to an anonymous person in the relevant office and even we agents are not told who so it is harder for us to follow up if something isn't dealt with.
Do you experience delays dealing with HMRC? Is there any practice topic you would like me to cover?
© Jon Stow 2010
Sunday, 30 May 2010
If you have been kind enough to subscribe for an email alert here, may I trouble you to do so again the new place, if you so wish?
Thank you for reading and I hope to see you again soon in the blog's new home.
Saturday, 24 April 2010
Image by alancleaver_2000 via FlickrI am not going to tell you how long I have been working in tax, but suffice it to say I have a lot of experience. Things have changed so much that it seems to me that the public in general still entertains ideas about tax which are long outdated if indeed they were ever correct in the first place.
Once upon a time in the UK tax system, people did not get tax bills unless they actually sent in their income tax returns. In the distant past, there were two arms of the old Inland Revenue. One dealt with assessing tax at the standard rate (now called the basic rate) after deducting personal allowances, and the other charged the higher rates of tax which were due. This higher rate of tax was called surtax, only a small percentage of the population had income which went into the surtax bands, and the Revenue did not send out a tax bill until they had a Return; some were sent in very late for understandable reasons.
I am telling you this because strangely, some people still believe in a similar philosophy. If they delay sending in a tax return, they believe they won't have to pay the tax. That is not a good approach to modern taxation and at the very least will incur interest charges and statutory penalties as well as a wild guess by HMRC in terms of a tax demand in the absence or a return.
The biggest change to taxation in the UK in the last fifty years or so was the introduction of the Self Assessment process in the nineties. Effectively this is supposed to do what it says on the tin. The taxpayer has to work out his or her tax liability and pay it to HMRC. HMRC checks the figures using their software. Not surprisingly many taxpayers use agents such as my firm to do their tax returns for them and work out their tax positions. This huge shift of responsibility from HMRC to the taxpayer to calculate the tax due was a cost-saving measure in terms of the number of staff theoretically needed to be retained as HMRC Civil Servants. The costs saved by the Government were shifted to the taxpayer who either had to spend valuable time working out his or her tax position, or pay someone else to do it
The shifting of responsibility also shifted the burden of scrutiny, at least initially, to the taxpayer and the agent. Prior to Self Assessment, as long as there was full disclosure of the facts in a tax return, there was a tendency for taxpayers and sometimes for their agents to “try it on”.
For example, I remember a long time ago a science writer claiming in his accounts for a new and expensive pair of glasses (spectacles was the technical term) on the basis that he could not see to do his work without them. He insisted that my then firm put in for the deduction. We knew that a real person in an Inland Revenue office should look at the accounts and write us a letter saying why the expense had been disallowed, which would be on the basis that the client needed the glasses in the course of his everyday life, not just when he sat at his desk to write. As you might understand, a claim for some tax relief on a microscope would have been more in order. Actually the accounts went through unchallenged and the glasses got tax relief. This was felt to be acceptable in our office because the Revenue had not been misled but had not picked up on the deduction when they had the chance.
Now we have to do HMRC's job for them, and they are anyway far more aggressive in chasing down supposed errors and incorrect claims in the returns that they pick out for enquiry after we have done all the work for them. They will attempt to charge penalties for anything much beyond simple errors, and will certainly charge interest on tax paid late as a result of an amendment to a return.
Doing HMRC's job for them entails scrutiny of every item of expenditure and every allowance claimed. We have clients who will be very unhappy to accept our advice. As you will understand, especially in view of incidents such as the spectacles affair, many people still do not accept that the tax world has changed. We get comments along the lines of “in my old company we used to claim for our days at the races” even though this was either a benefit that never got charged to tax or was client entertainment which should have properly disallowed in the company tax computations even way back.
We have to be strict with claims for deduction of expenditure, we have to present as much information as we can about any unusual item and we have to follow strict accounting rules, which was not always the case. We have to report any uncorrected errors we pick up, and under the Money Laundering Regulations we as agents have to report any suspicions we have concerning possible dishonesty spotted in the course of our business; that of our clients (fair enough) and former clients but also other people's clients, and we must not tell the people reported that we have done so.
I have no problem reporting the dishonest of course. What is a worry is that I could be punished for not suspecting someone that a Government Agency thinks I should have.
Nowadays, we have to report any even mildly artificial scheme to avoid tax when making a tax return. We have to put up with bullying enquiries made by HMRC where they may be wrong, but the cost of going to the Tax Tribunal to appeal may be more than a client can afford in monetary terms in exceeding the extra tax which might be due. An appeal might be simply more than the client can stomach in terms of worry. HMRC is not always right. Their interpretation of the law is not always correct but they might have their way because if a taxpayer sees the leviathan coming for them that person may throw in the towel..
So, in summary, we cannot “get away” with a claim which would not stand proper scrutiny, our records must be good, and we must remember that taxpayers challenged by HMRC are guilty until proven innocent. Do not ask me to try anything on. I will make a claim for you if it has good merit and precedent because I have been round the block. I will do my best and might well know a quite legitimate relief that a taxpayer-client would not know about. Just don't tell me that you want to claim a deduction because someone at the club or on the checkout at the supermarket told you it was all right.
© Jon Stow 2010
Thursday, 1 April 2010
Where a lump sum payment is made to a prospective new employee, it will be taxed as advance pay for future services unless it represents compensation for some right or asset given up on taking up the employment. An example going back to the 1950s was where an amateur rugby player gave up that status upon turning professional. In those days there was no turning back to amateur status and therefore to return to Rugby Union from the professional Rugby League. His payment was held not to be taxable. In modern times the case for a payment escaping tax would be hard to sustain given the general attitude of HMRC where even a perfectly arguable situation would fall in the face of the expense of defending it.
Usually a payment to a prospective employee about to join will be an emolument of his or her employment and therefore subject to tax and NIC. Effectively it is a signing-on fee similar to that offered to former England goalkeeper Peter Shilton upon his transfer from Nottingham Forest to Southampton (Shilton v Wilmshurst (64TC78) 1991). Lord Templeman explained “An emolument 'from employment' means an emolument 'from being or becoming an employee.' The authorities are consistent with this analysis and are concerned to distinguish in each case between an emolument which is derived 'from being or becoming an employee' on the one hand, and an emolument which is attributable to something else on the other hand.'”
Peter Shilton's payment was found to be taxable in full and almost always this will be the rule for payments made to employees prior to or upon their starting a new job.
© Jon Stow 2010
There are cases where such payments are not taxed at all, which are those post-death when an employee has died in service, and in some cases payments due to disability may qualify for exemption. Those are outside the norm.
For the most part termination payments are taxable under special rules. The first £30,000 of a leaving payment will be exempt from tax if it is an ex-gratia payment and therefore non-contractual. One may have to make the case to HMRC that the payment is not for services rendered and that there was no obligation on behalf of the employer.
Otherwise, payments in lieu of notice (PILONs- how we love these acronyms) are taxable if contractual in the sense that the employee's contract specifies that the employer will make a PILON if the employee is asked not to work notice.
If the contract does not specify this, being silent on the position where the employee is asked to leave without working notice, then the first £30,000 may qualify for the tax exemption because it then represents “damages” for breach of contract. However, if the employer habitually follows the practice of paying terminated employees in lieu of notice even though the contract does not specify this then HMRC may take the view that the first £30,000 is taxable because an employee would have the expectation and the employer probably the intention from the outset.
A true redundancy payment should qualify for the £30,000 exemption, but must be supportable as genuine on the evidence available.
If you are starting to think this whole area of leaving payments is a minefield, you would be right. If you are an employer planning on letting some of your workers go, you should get professional advice.
If you are an employee on the receiving end of both your notice and a proposed payment, you would also be wise to get professional advice before the agreement, and also in completing your Self Assessment Tax Return later. The level of taxation on any non-exempt amount might also depend on what level of income you have in the year you receive your payment, and often if you are not seeking further work you will benefit by having your termination payment at the beginning of a tax year in April or May so that it will not be aggregated with a whole year's pay.
The golden rule for golden handshakes is to seek professional advice.
© Jon Stow 2010
Wednesday, 31 March 2010
There is no point in publishing here a commentary on the Budget announcements. The newspapers have covered what there was in depth, and for a more insightful examination of the Budget scraps I recommend AccountingWeb.
The real Budget will be from the post-election administration in May. It is going to hurt, whoever delivers it, but we will have more certainty that measures already announced will actually come in, and will know about those new ones as yet unannounced. That is all!
Wednesday, 10 March 2010
The case was not remarkable in the sense that many people treated as self-employed have subsequently been found to be employed, and it was unremarkable also in that the usual tests were applied, which are in respect of the amount of control the provider of work has over its workers. The remarkable element is that Weight Watchers have gone so long in the UK without HMRC having mounted a challenge. I suppose they would have been taking advice from their accountants over a number of years.
In this case the tribunal determined that there were a number of indicators that WW leaders, those who run the classes around the country, were employees and that the wordings and requirements of their contracts made them so. These included:
1.WW could replace a leader if they did not feel the leader was representing WW correctly in a contract which existed between the company and the member, not between the leader and the member.
2.The Company decided on the timings and places of meetings indicating a degree of control.
3.Most of the guidance to help the leader hold successful meetings given by WW was 'mandatory rather than aspirational'.
4.WW required certain targets of the leaders including maintaining their weight within their 'gold goal weights'.
5.The takings collected in meetings were insured by Company and had to be paid over within 24 hours of being collected for them.
There are other rules concerning the taking of holidays, regular supervisory observers being sent to classes by the company and so on, which appear to indicate that the company is very much “hands-on” when it comes to controlling their workers in the field.
To be self-employed and to borrow from HMRC's booklet ES/FS2, one needs to ask:
• Can the worker hire someone to do the work, or take on helpers at their own expense?
• Can the worker decide where to provide the services of the job, when to work, how to work and what to do?
• Can the worker make a loss as well as a profit?
• Does the worker agree to do a job for a fixed price regardless of how long the job may take?
I have no argument with these and if a worker does not satisfy these basic principles then he or she is probably an employee.
Of course no two cases are exactly the same. The Company is going to appeal against the tribunal decision and they may make a good case for all I know, but it does indicate for every business that before deciding a worker is self-employed they need to look at the facts on their merits.
As a result of the defeat of the company by HM Revenue & Customs, £23M has been provided in the company accounts as a liability which may have to be met, and this would be in respect of the PAYE tax and Employer's and Employee's National Insurance Contributions over a number of years for which they may now find themselves responsible. The possible tax hit has been shown as $37M in the international group's accounts.
I am not sure whether this sum is related to the full PAYE liability or if the Company is assuming that they can take into account tax already self-assessed and paid by their workers on their hitherto presumed self-employed basis. Guidance from HMRC following a fairly recent case, Demibourne Ltd v HMRC SpC 486, says HMRC will effectively allow credit for such tax assessed on a self-employed basis in these cases. Where the worker has not paid tax self-assessed, the Company will not have a remedy.
We await the appeal with interest, but remember that if you tell a worker when to turn up and how to do the job and that person has to ask for time off and holidays, he or she is probably an employee, whether an engineer, a bar person or an office cleaner.
© Jon Stow 2010
Sunday, 7 March 2010
-Income tax rates to rise and personal allowances to reduce for wealthier clients.
-Future changes to rates applicable for dividends, trusts and NICs.
-New 50% income tax band.
There are further complicated rules for pension relief restriction and the end of well-established tax breaks for furnished holiday lettings (currently enjoying business tax advantages). There is speculation about an increase in capital gains tax and I have heard different forecasts from various commentators.
We have about three weeks to do some quick planning which may mitigate in some part the higher tax payable on income receivable after 5th April 2010. It might be slightly less if restrictions are brought in with the 2010 Budget, for which we still await a date.
From 6 April 2010 there are higher rates of tax and fewer reliefs. Those earning in excess of £150,000 will be subject to a ‘super-tax’ of 50% on income over that threshold.
Furthermore, personal allowances will be restricted for those earning more than £100,000, at the rate of £1 for every £2 of income above that figure. As the current personal allowance is being frozen at £6,475 this means the full allowance will be extinguished at an income level of £112,950.
The gradual tapering of the allowance – within the narrow banding of £100,000 to £112,950 – means that where income falls within these limits, the effective rate of income tax is 60%.
In the current fiscal year ending in April it may be possible to convert income chargeable at 50% to gains chargeable at 18% or even an effective 10%. It would really depend on the circumstances of course, so no idle promises.
From 6 April 2010 there will be three rates of tax on dividend income. Where income falls within the basic rate band, the 10% tax credit will extinguish any liability, as before. The equivalent rate for 40% taxpayers remains at 32.5%, but a new rate of 42.5% will be introduced where income will be taxed at the new rate of 50%.
National Insurance contributions (NICs) are due to rise from April 2011 (a further year on), but if these go ahead as planned they will add another 1% to the rate, which is a significant uplift and may be a very sobering thought as people look ahead. Businesses could consider paying themselves in advance through salary or dividends, or paying their employees early bonuses but these are tough times from the point of view of cash flow. Still, any available option should be considered.
Our clients' finances and tax positions need to be looked at in the round; taxation of small businesses is inextricably linked to the reward and taxation of their owners and their families. Whilst high earners will bear the brunt of the initial increases, every taxpayer will feel the effect. These are tough times and tough decisions need to be made, although not to the long-term detriment of the businesses themselves. In addition, with a General Election in the offing we can only plan in the short term based on what we know now.
If you know anyone who may be affected make sure that their accountants and tax advisers are reviewing their tax positions in these next few weeks. Of course you may wish to talk to me about how I can help. Not everyone will have the flexibility to adjust their financial strategy, but it is worth checking.
Wednesday, 24 February 2010
Flattered though I am that Dave Hartnett might be one of my loyal readers, I really do not believe that accountants, tax advisers, bookkeepers or any allied profession should have a special deal if they have been fiddling their taxes. All such groups should be treated more harshly if they are on the fiddle in the same way as crooked HMRC employees, bank employee thieves and bent coppers because all are in a position to know more clearly what is right and what is wrong.
We are in a privileged position of trust and if our professions cannot be trusted then “quis custodiet ipsos custodes?"; certainly not our professional bodies or HMRC because any action taken by them in terms of policing would be after the event? Anyway, after any settlement under the Accountants Tax Plan, should an offender be reported to his or her professional body? Presumably not in terms of HMRC confidentiality, but should the transgressor be banned as a tax agent?
HMRC is sending out dreadfully mixed messages to the profession, with the big stick in one hand and the soft soap in the other. Give us a break in terms of working with us as agents, but please don't give any dodgy accountants a way out.
© Jon Stow 2010
Sunday, 14 February 2010
At these sorts of times and particularly in advance of an election the parties find themselves painted into a corner. Are they honest and admit that services will have to be cut and that charges will have to be made in the NHS and in education, or do they keep quiet and get on with doing what they perceive is necessary when in power after May (we still assume the election will be in May)? Will taxation be raised even more after May?
Regular readers of this blog will know that my view is that increases in taxation are counter-productive because they encourage dishonesty. I don't like it, but that is the reality, especially in the cash businesses HMRC hate, but frankly are not equipped to do anything about. Those professionally represented businesses have a close eye kept on them by the likes of us, but many who are not and particularly those who are not even registered at all (the black economy) are very hard to catch. This does not bode well for the immediate future because we then have a division between the honest and highly-taxed legitimate law-abiding business and the dishonest who are better off because they do not pay their taxes and are robbing HMRC and therefore all the rest of us doing our best to stay on the straight and narrow..
So, what do we professionals do? There is some tax planning which seems tempting in terms of the 2009 Pre-Budget Report. We know that the rate of income tax is going up to 50% for taxable income over £150,000. There is also a withdrawal of personal allowances on income over £100,000, which means that there is a marginal rate of 60% for incomes just over £100K and when you add in National Insurance the situation seems scary. What do we tell our clients to do? Have their bonuses now (unless they are in the bankers' trap), have them much later, or leave the country?
Well of course, it might be an idea for owner-managers to pay themselves dividends at 32.5% instead of 42.5% after April if they are in that sort of league. It might be sensible for spouses and partners to equalise their incomes to reduce rates, but frankly those sorts of arrangements may well be in place, especially as the income-shifting legislation is currently on the shelf because it was impractical and ill-thought out. However, being impractical and ill-thought out has not always prevented legislation from being introduced, and there is still the spectre of perhaps a higher charge on dividends in general or an imposition of NIC.
Our clients should talk to their financial advisers in view of the changes to the pension regime from April and the further restrictions on tax relief on premiums paid.
The whole point is that I cannot remember a period of so much uncertainty in the tax world. In past years we have planned ahead, but now we can and must take action on many fronts before April, because we know not what is round the corner. Our planning may not help our clients after April, but we must talk to them to see what we can do now.
From a business point of view, the one thing worse than a recession is the inability to plan ahead, because who knows what tax costs are round the corner? That is why I wish the party in power could be more candid about its general plan on tax increases. I wish the opposition would say that whilst it cannot reduce the proposed increases in the short term it will not invent any new taxes and that it will cut services, so that at least we know where we stand. The election is badly needed in terms of politics, but it is getting in the way of all our lives in terms of knowing where we stand or fall. How can a business make plans if it has no projection on costs?
Thursday, 4 February 2010
There is a moral case to pay a fair share of tax. We may not like a particular Government but we all use the infrastructure, the roads, education, the health service and so on, and we should cough up according to our fair share. There are occasional refuseniks who choose to withhold a portion e.g. of their perceived share of the defence budget, quoting moral grounds, and they may at least appear principled if foolhardy in making a futile stand against the system, though at least gaining publicity for their cause.
What really gets my goat is those who dodge the system, take cash so that it does not go through their books and appear in their accounts (“save the VAT, mate?”) and those who fiddle in other ways, such as inflating their business expenses. None of these people are clients of us professional practitioners of course, because if we sign them up they are in the system they wish to avoid, and subject to our scrutiny.
Just the same, it is certain that there are still many tax dodgers and if any are reading this, let me tell you that if you have dodged £5,000 of tax you have stolen it from the Government and from us taxpayers and it is no different from stealing £5,000 from the state-owned Post Office. The punishment on getting caught may not be the same, but perhaps it should be? It is money taken from our back pockets.
The financial penalties for tax evasion have been raised subject to various targeted initiatives in particular areas. Should we see more custodial sentences? How can more dishonest tax evaders be caught given the limited resources of HMRC? What do you think?
© Jon Stow 2010
Saturday, 16 January 2010
Given that we have had two opportunities for people to disclose their offshore bank accounts and we have the ongoing Liechtenstein Disclosure Facility, the HMRC tactic is simply to concentrate the minds of a particular group of taxpayers. I doubt that doctors are any worse or any better than many other trades or professions. I assume this must be the first of many initiatives targeting various sections of the business community.
Who will be next on the list? Pharmacists? Tyre fitters? Plumbers? Wheel-tappers and shunters? Accountants and allied professions? It is a novel idea to put each sector under the microscope, but it will take an awfully long time to get through the list. I hope HMRC gets some tax dodgers to confess, but doubt the tax take will be significant from each campaign, especially given the disappointing response to the recently closed second campaign on offshore accounts.
© Jon Stow 2010
Details of the HMRC Tax Health Plan
Tuesday, 12 January 2010
My perception is that service businesses have had a very poor year, and it is perhaps poorer in 2009-10 than for the 2008-09 period to March last year.
I believe there is a huge gap between the self-employed (and I include micro businesses operating through companies) and those still in employment, living on at least the same salary or wage that they have had previously. The latter group has benefited from slight deflation and the desperation of the stores to shift goods at smaller margins, but I believe principally because the crash in interest rates has given employees with mortgages extra cash to spend. I remember from childhood the game we used to play, calling out "I am on Tom Tiddler's ground". Those still waged or salaried with lower household costs are spending what used to be the mortgage money at the sales, rather than saving it for a rainy day as many of us might think they should. They are in the privileged if uncertain position of Tom Tiddler's ground. Saving is bound to be rather discouraged also because of the lower interest rates, but people have forgotten how to be prudent and save.
I worry that the whole effect of a 0.5% bank rate is to distort the true economy (understandably in many ways) but means that many more chickens are likely to come home to roost as small business struggles along, the jobs market contracts on some of the current big spenders, and the tax hikes bite after the election. The latter will come, no matter who is in Government. Thus the double-dip graph of the nation's economic forecast - a "W" - seems the most likely scenario with little sustained improvement for two or three years.
That is how it seems on the ground as a small business owner looking after other small business owners, and I wish it were different.
© Jon Stow 2010
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