You CAN talk to real people at HMRC

Image via WikipediaJanuary is not my favourite month from the perspective of Self Assessment Tax Returns, though fortunately I avoid maximum stress by not taking on every last-minute prospect, giving my procrastinator clients an early “last warning” and not doing hundreds of tax returns anyway.

The biggest problem in January concerning Self Assessment is in speaking to HMRC employees in call centres who know only what is on their screens, are unable to make decisions on specific requests, don't necessarily have the information we want or are not authorised to give it.

Contrast this. I had occasion to call a Corporation Tax Office this week. The officer was helpful, we did not have a pointless barrage of security questions, she was exceedingly helpful and she changed the tax return periods while we spoke just as I asked. She was maybe a little brusque with a rougher telephone manner than one would get from the call centres, but she did the job and left me feeling happy. Above all, she did not waste my time but helped me solve a problem.

It may sound trivial but it proves to me again that organisations get better results and are more efficient if they empower their employees. I wish this ethos were prevalent throughout the leviathan that is HMRC.

What is your experience?

More fun with HMRC's audit of old tax liabilities

Looking at the on-line record of one of my clients the other day I noticed that a new underpayment of tax had appeared amounting to just under £500. So what, you may say. It is well known that HMRC have been trawling through their PAYE records looking for underpayments.

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.

A brief history of my time in tax

Image by alancleaver_2000 via Flickr

I 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

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.

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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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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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.

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!