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The new tax evasion laws are coming…here’s what businesses need to know

Proposed changes to current tax evasion laws aren’t set to take effect until two months’ time, however, it would appear HMRC is already stepping up its criminal investigations into corporate companies.

From September this year, failure to prevent tax evasion will become a criminal offence, as part of new legislation that is set to be implemented under The Criminal Finances Act 2017. 

In this article, David Gillies, Tax Partner, explores what these new measures mean for businesses, which have already seen HMRC publicise a number of criminal investigations into several high-profile companies.

Two months ago, The Criminal Finances Act 2017 was given Royal Assent. Within Part 3 of the Act, two new Corporate Criminal Offence provisions were created, one that applies to UK taxes and the other, foreign tax evasion offences.

These new tax offences, which apply to UK and non-UK tax (where there is a UK element), have attracted widespread publicity, not just because they carry major repercussions for businesses, but because they represent a huge change in strategy for the first time in ten years.

Making tax evasion prosecution easier

Essentially, the new measures are designed to make it easier for HMRC to prosecute companies and partnerships for tax evasion. More specifically, businesses will be liable:

  1. For criminal acts committed by employees, who encourage or assist tax evasion carried out by other individuals, such as customers and suppliers and;
  2. Even if senior management were not involved or were unaware of the activity.

While it’s widely reported that the financial and professional sectors and larger corporate companies are at greatest risk of being penalised by the new legislation, all businesses, regardless of the industry in which they operate are being advised to pay close attention to it. Key questions businesses might want to ask themselves right now include, ‘Are we prepared for a tax evasion investigation from HMRC?’ and ‘What measures, systems or procedures do we have in place to defend ourselves?’

‘Reasonable procedures’

Unfortunately, not all companies will fully tune into the new legislation until it directly impacts them. However, what many don’t realise is that this could actually jeopardise their own defence if they were to be investigated by HMRC, who only have to hold a suspicion in order to start taking action. In all cases, the only acceptable defence that can be presented by organisations is having ‘reasonable procedures’ in place. Failure to evidence such procedures can result in criminal prosecution and unlimited financial penalties.

According to guidance published by HMRC, ‘reasonable procedures’ include measures ranging from risk assessments and due diligence to communication and top-level commitment. (To see the draft guidance in full, click here).

We’re on the cusp of seeing one of the biggest shake-ups in tax evasion law. In just a matter of weeks, the actions of just one individual could see entire organisations being investigated for tax evasion and facilitators will be viewed in the same light as tax evaders. While there’s no way of knowing which companies will be investigated going forward, it is possible to make sure you’re prepared by making sure you have the right processes, or ‘reasonable procedures’, in place.

If you have any questions or want to find out more about the implications of the Corporate Criminal Offence provisions for your business, contact our tax specialists on 01905 777600 or mail@ormerodrutter.co.uk.


DSC4366About the Author

David Gillies specialises in private client tax, advising on personal tax with an emphasis on inheritance tax planning, trusts, tax efficient structuring for property portfolios and residence and domicile status. He has worked for “big 4” firms as well as smaller practices.


Spring Budget 2017: how will the announcements affect you?

Following the UK’s historic vote to leave the EU, and with Prime Minister Theresa May poised to trigger Article 50, Chancellor Philip Hammond presented the Spring Budget against a backdrop of economic uncertainty. Figures from the Office for Budget Responsibility revealed that UK economic growth is now expected to reach 2% this year, before falling to 1.6% in 2018.

The Chancellor announced a range of significant measures for businesses and individuals, including a support package for firms in England affected by the business rates revaluation and the announcement that unincorporated businesses and landlords with turnover below the VAT registration threshold will have until 2019 to prepare for quarterly reporting.

Also unveiled in the 2017 Spring Budget was an increase in the main rate of Class 4 national insurance contributions (NICs) to 10% in April 2018 and a reduction in the tax-free dividend allowance, which will fall from £5,000 to £2,000 in April 2018.

Our Budget Report provides an overview of the key announcements arising from the Chancellor’s speech. However, it also looks beyond the more sensational measures and offers detail on the less-publicised changes that are most likely to have an impact upon your business and your personal finances.

Additionally, throughout the Report you will find handy tips and ideas for practical tax and financial planning, as well as an informative 2017/18 Tax Calendar.

Don’t forget, we can help to ensure that your accounts are accurate and fully compliant, as well as suggest strategies to minimise your tax liability and maximise your profitability.

Click the link to download the Spring Budget 2017 Summary.

Have a question on the Spring Budget 2017? Leave a question or comment below and we can offer you expert advice.

At Ormerod Rutter we understand that finances and tax can sometimes be confusing. We have 15 expert partners to hand that can offer expert advice on all financial matters, no matter how big or small. We pride ourselves on having big firm capabilities and family firm personality. Have a question or want to discuss your personal or business finances? Give us a call on 01905 777600.

* Please note that all information contained in this article is for informative purposes only and that we cannot be responsible for any errors or omissions.*

*Since the Budget the government has now made a U-turn and will not be increasing the National Insurance Contributions from the self-employed. This was overturned as it went against one of the main Conservative manifestoes promises of not raising taxes. 

Payments On Account: Everything you need to know

What are Payments on Account?

Payments on Account are a method of paying towards future self-assessment tax bills. They are payable twice a year and each payment is normally 50% of the previous year’s tax liability.

Payments on Account are payable by midnight on 31 January and 31 July.

How does it work?

The first instalment is due on the 31 January. This amount will be 50% of your previous tax year’s tax liability. This is the same day that a balancing payment must be settled for the previous tax year.

The remaining 50% will be due by 31 July.  This enables your tax liability to be spread out throughout the year.

How about an example?

You owe £4,000 on earnings between 6 April 2015 and 5 April 2016 (excluding Class 2 National Insurance).

This amount will need to be settled by 31 January 2017. On top of this, a payment of £2,000 will need to be paid at the same time and again on 31 July 2017.

This means that when you file your self-assessment tax return for 2017 you will have already paid £4,000 towards it.

If you have overpaid, you will be due a refund. If you have underpaid, this difference will need to be settled by 31 January 2018.

Are Payments on Account voluntary?

If the tax bill from the previous year was over £1,000 then Payments on Account are required. However, if more than 80% of that year’s tax liabilities have been paid at source (e.g. through PAYE) Payments on Account are not required.

Can Payments on Account be reduced?

It is not unusual for earning’s to fluctuate year to year. If this is the case and earnings are forecast to be lower for the next financial year; an application can be made to reduce the Payments on Account via HMRC.

It is worth noting that if earnings remain the same and do not decrease after you have reduced the Payments on Account, that the difference will need to be settled by the preceding January plus any interest accrued.

Have a question on Payment on Account? Leave a question or comment below and we can offer you expert advice.

At Ormerod Rutter we understand that finances and tax can sometimes be confusing. We have 15 expert partners to hand that can offer expert advice on all financial matters, no matter how big or small. We pride ourselves on having big firm capabilities and family firm personality. Have a question or want to discuss your personal or business finances? Give us a call on 01905 777600.

* Please note that all information contained in this article is for informative purposes only and that we cannot be responsible for any errors or omissions.*

Making Tax Digital Update

The UK government’s response to the Making Tax Digital consultations has finally been published and has broadly been welcomed by business leaders and the tax profession.

With the exception of a very few, it is expected that all businesses will be required to hold their accounting records digitally and submit quarterly updates to HMRC. In addition to this, an end-of-year reconciliation will be required to ensure all financial activities have been recorded.

Criticisms of the report have focused on the short timeline for further consultations for the legislation and also the cost of transition during the first year.

The government will continue to consider issues contained in the report, such as the exemption threshold, so the features in the report are not a finalised list of changes.

Here is a list of some of the proposed decisions for Making Tax Digital:

  • Businesses will be able to continue to use spreadsheets for record-keeping, but they must ensure that their spreadsheet meets the necessary requirements of Making Tax Digital for Business – this is likely to involve combining the spreadsheet with software
  • Businesses eligible to use ‘three line accounts’ will be able to submit a quarterly update with only three lines of data (income, expenses and profit)
  • Free software will be available to businesses with the most straightforward affairs
  • The requirement to keep digital records does not mean that businesses have to make and store invoices and receipts digitally
  • Activity at the end of the year must be concluded and sent either by 10 months after the last day of the period of account or 31 January, whichever is sooner
  • Charities (but not their trading subsidiaries) will not need to keep digital records
  • For partnerships with a turnover above £10 million, Making Tax Digital for Business is deferred until 2020

You can view the full report here

Due to the overwhelming response to the initial consultations, the government is taking more time to consider issues raised alongside fiscal impacts.

Have a question on Making Tax Digital? Leave a question or comment below and we can offer you expert advice.

At Ormerod Rutter we understand that finances and taxes can sometimes be confusing. We have 15 expert partners to hand that can offer expert advice on all financial. We pride ourselves on having big firm capabilities and a family firm personality. Have a question or want to discuss your personal or business finances? Give us a call on 01905 777600.

* Please note that all information contained in this article is for informative purposes only and that we cannot be responsible for any errors or omissions from use of this information.*

VAT: Flat Rate Scheme Changes

HMRC has announced that, as from the 1 April 2017, all businesses using the Flat Rate Scheme or intending to use the Scheme will have to consider (in addition to the existing conditions) whether or not their VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period; or
  • greater than 2% of their VAT inclusive turnover but less than £1000 per annum, or proportion thereof (ie, £250.00 per quarter or (£83.33 per month).

If this criteria is met then the business will be regarded as a “limited cost trader” and MUST apply a fixed Flat Rate percentage of 16.5% to its’ VAT inclusive turnover.

All businesses using or considering using the Flat Rate Scheme should now review their status.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600

Pre VAT registration input tax claims – HMRC approach challenged

Have you been affected by HMRC seeking to restrict input tax claims on pre VAT registration costs?

A newly VAT registered fully taxable business has historically been allowed to fully recover VAT incurred in the following circumstances:

  • on services incurred up to 6 months prior to VAT registration and that have not been supplied on to a third party
  • on stock and assets purchased up to 4 years prior to VAT registration, to the extent that the goods or assets are still on hand at the date of VAT registration and are being used by the business (an apportionment may be required if some have been sold).

However, HMRC has recently been seeking to restrict VAT on qualifying goods and services by attempting to view the “use” of such goods or services over their useful, economic life, and dis-allowing, proportionately, any “use” of the goods, assets or services prior to VAT registration.

A number of businesses have received Assessments of VAT or have been instructed to amend their VAT returns.

This approach has been found to be incorrect and inconsistent with EU legislation and HMRC has now issued Revenue and Customs Brief 16 (2016) confirming that taxpayers who have been assessed or had their input VAT restricted in this way may now seek a refund.

Correcting Errors – Making a Claim?

If you need help with making an input tax claim, please contact us now.

Be warned there are time limits in place to correct errors, which are as follows:

  • 4 years from the end of the VAT period in which any adjustment was made; or
  • 4 years from the end of any VAT period Assessed by HMRC.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600.

The Making Tax Digital consultation has ended…

On 7 November 2016 the Making Tax Digital (MTD) consultations came to an end. First outlined in the 2015 Budget, it is a move to transform the tax system to make it the ‘most digitally-advanced tax administrations in the world by 2020.’

The controversial plan is set to raise £1bn in additional tax revenue but there is criticism about the potential costs and administrative burden for businesses and individuals.

The six consultations that have taken place are:

  1. Bringing business tax into the digital age
  2. Simplifying tax for unincorporated businesses
  3. Simplified cash basis for unincorporated property businesses
  4. Voluntary pay as you go (PAYG)
  5. The tax administration consultation
  6. Transforming the tax system through the better use of information

There is also a separate overview for small businesses, self-employed and smaller landlords.

The consultation was initially planned to begin in April 2016, but was delayed until later in the year. With the reforms set to be introduced in 2018 businesses and individuals want to know how this will affect them going forward.

What we do know is that all unincorporated businesses and landlords with a turnover of less than £10,000 a year will be exempt.

Additionally, HMRC has said that it will delay the start of MTD for ‘some other small businesses’ to give them enough time to get used to the digital record keeping and submitting of quarterly updates. HMRC then goes on to say that they expect all tax returns to be done digitally by 2020.

With feedback from the consultation due before the end of January 2017, we are actively looking at any changes that may be implemented; and are here to help you during this transition.

If you have any questions or concerns about MTD please feel free to contact us at mail@ormerodrutter.co.uk or calling the office on 01905 777600.

Have you renewed your Fee Protection Insurance?

For those of you who have joined our Fee Protection Insurance scheme against the costs of dealing with an enquiry by the tax authorities, you should have received a renewal letter with the costs of the scheme for the next twelve months, and paid to rejoin.

The renewal date was 31 October 2016.

However, it is not too late to act if you haven’t already. Simply check the quote that should have been sent out to you and make the relevant payment or, if you cannot find the relevant paperwork, ask for a revised renewal quotation to be sent to you.

If you are not familiar with our fee protection insurance, here is a brief overview of the service.

“Tax investigations can be intimidating, and with HMRC growing increasingly more powerful, an investigation into your affairs is more likely than ever – even if you’ve paid all your tax. Although we work hard to keep your tax affairs in order, compliance doesn’t necessarily keep you safe.

If you are unlucky enough to have your business investigated by HMRC then our expert team are on-hand to guide you through the process. Our knowledge and experience of dealing with HMRC at all levels will ensure you achieve the best possible outcome. Even if your records are in order and you have paid all your tax, the cost of preparing and presenting your case for investigation can be an unwanted and expensive overhead, which also why we also offer our clients Fee Protection Cover.”

Fee protection covers you for the costs of any compliance check we deal with on your behalf, regarding Income Tax, Corporation Tax, PAYE, National Insurance, CIS, IR35, VAT, National Minimum Wage, IHT and Child Tax Credit enquiries.

A copy of our service summary can be found here

The cost of our Fee Protection scheme is significantly less than the cost of a tax investigation. Is it really a risk worth taking?

If you have any questions about Fee Protection Insurance please feel free to contact us on mail@ormerodrutter.co.uk or by calling the office on 01905 777600.

Tax Investigation: What does the taxman know about you?

HMRC are stepping up their tax avoidance crackdown, and they’ve got a hi-tech weapon to help them do it.

Only a few years ago tax investigators faced many months of preliminary information gathering before deciding whether a taxpayer was liable to a tax investigation. Now they can do this in seconds.

HMRC has invested over £80 million in developing their Connect software, a powerful computer programme which accesses databases of personal and commercial financial information and matches findings to tax returns to flag discrepancies.

The system is able to link a tax payer to property addresses, companies, partnerships and trusts, accessing more than 30 sources of data which currently fall within its scope – and now its reach is increasing.

 

It is reported that from next year Connect will become even more powerful, as HMRC gain access to files held by banks and financial firms based in British overseas territories. From 2017, Connect is set to go global, with access to data in 60 countries.

HMRC use Connect to find undeclared tax and have reportedly secured an additional £3bn in tax since its launch in 2008.

Access to additional data will increase their ability to identify activities or assets which are not being properly taxed. For example, by accessing Land Registry databases and mortgage information, Connect can identify the price you paid for a property and flag areas where capital gains tax is potentially owed.

We have already seen HMRC target online marketplaces for their records recently and as Connect gets more powerful they will be able to access this data quicker, cross-referencing it with your bank account and other records to identify discrepancies. If you become the subject of an investigation, Connect could even examine your social media activity for evidence of spending, travel or ownership of property and assets.

 

The strong message from HMRC is that it’s much better to get your records in order now, rather than try to hide. Penalties are based on taxpayer behaviour, so if you voluntarily disclose an issue your penalties are likely to be much lower than if HMRC discover it and approach you.

HMRC campaigns are also in place to give taxpayers the opportunity to bring their records up to date under the best possible terms. Businesses who accept card payments and landlords who collect income from residential property are two of the current targets being encouraged to voluntarily disclose.

 

If you have any concerns or you need help staying on top of your taxation matters, contact us today. We can offer advice on planning for the future of your business and assistance in dealing with income tax (self assessment), corporate tax, capital gains tax, inheritance tax, stamp duty, VAT and PAYE. Insurance against tax investigations can also be arranged.

Call us on 01905 777600 to arrange a free initial consultation.

Inheritance tax planning for farmers and agricultural land

If structured correctly, farmland potentially benefits from generous reliefs from inheritance tax. This is a complex area and HMRC examines all claims very carefully. Anyone who owns farmland for any purpose, and even working farmers, should take advice about their inheritance tax position to ensure that their affairs are in order. Taking action now with effective inheritance tax planning could protect your land from an Inheritance Tax charge of 40%.

In certain cases, subject to strict conditions and a period of ownership test, agricultural property can qualify for up to 100% inheritance tax relief. However, this only applies to the pure agricultural value of the land concerned, so any possible hope value from the possible sale for development purposes can’t qualify.

Farmland often also qualifies for inheritance tax business property relief, which may cover any hope value from redevelopment, as this is not restricted purely to the agricultural value of the land. However, the land must be part of a business activity that will be continued by the owner and strict conditions also apply to this relief.

Farmers who diversify out of farming into other activities, such as fishing and fish farming, wind farms and let cottages can potentially continue to benefit from business property relief if they meet the necessary conditions, although agricultural property relief will cease to be available.

The farmhouse must also be taken into consideration. Usually the significant element of private use of the farmhouse means that it is not eligible for relief as a business property. However, there are some cases where the farmhouse qualifies for agricultural property relief. The size and character of the farmhouse is take into consideration and again strict conditions apply.

Inheritance tax relief for farmland, business and agricultural property is a highly complex area with many aspects to take into consideration. Many land owners will want to pass the farm down to their children as they reach retirement age, and at this stage it is vital that the correct structures are put in place in order not to lose the valuable reliefs available.

There are many different options available, such as bringing the children into a farming partnership which holds the farmhouse as an asset, or gifting the land to a family trust. Each situation is different and care should be taken when choosing an appropriate course of action to ensure that the various tax reliefs are utilised effectively.


 

This article is designed to highlight some of the issues surrounding business and agricultural inheritance tax relief, and we highly recommend that you seek professional advice when considering your own situation and planning for the future.

Ormerod Rutter are specialists in inheritance tax and estate planning, with a detailed understanding of how these reliefs work. If you would like to discuss this further, please don’t hesitate to contact us and speak to David Gillies.

Landlord tax the latest target in tax avoidance crackdown

Landlord tax is the latest target of a HMRC campaign to collect undeclared income, as part of a series of campaigns running since 2007 in their continued tax avoidance crackdown.

HMRC campaigns are aimed at groups of taxpayers where they suspect a higher risk of tax error. Since introducing them in 2007, HMRC have reportedly collected over £596 million in tax from people making voluntary disclosures, and over £338 million from follow up activities.

The legal sector have recently been targeted with the Solicitor’s Tax Campaign, and previous campaigns have been aimed across the full spectrum of businesses and professions, including healthcare and doctors, electricians, plumbers and offshore accounts and assets.

The current Let Property Campaign is an opportunity for landlords to bring their tax affairs up to date and declare previously undisclosed income to the tax authorities under the best possible terms.

If you rent out property in the UK or abroad you may be able to take advantage of the Let Property Campaign to bring your tax affairs up to date.

Find out more by downloading our Let Property Campaign Fact Sheet.

If you are considering making a disclosure, or have received a letter from HMRC regarding the Let Property Campaign, we strongly recommend that you obtain professional advice.

If you are a letting agent who is concerned about how this may affect you or your clients, or you have been approached by HMRC, we can help.

For more information, or for a free initial consultation, please contact us to speak to Anthony Middleton.

HMRC Let Property Campaign

The Let Property Campaign is an opportunity for landlords to come forward and declare previously undisclosed income to the tax authorities.

We are currently seeing more individuals receive a letter from HMRC under the title of the Let Property Campaign.

We recommend that landlords who have undeclared rental income make a voluntary disclosure to the tax authorities using the Let Property Campaign. Lower penalties and payment plans can be negotiated for those who come forward and make what is known as an unprompted disclosure to the tax authorities.

If HMRC have sent you a letter under the heading Let Property Campaign, the disclosure will be classed as prompted and the penalties charged less favourable. Remember, penalties are tax geared, and are based on a percentage of the tax due as a result of the previously undeclared income.

Should the Let property Campaign close without you receiving a letter under the Let property Campaign or you having made an unprompted disclosure, and HMRC later find out about the undeclared income, then penalties will be severe, potentially up to 100% of the tax due and landlords risk being investigated under Code of Practice 8/9 with the possibility of a criminal prosecution.

Landlords should also remember that HMRC have a wealth of information to identify individuals who have not declared rental income. This includes computerised records from other government agencies including the Land Registry, together with the details passed to them by letting agents who have been compelled to pass the names and contact details of registered landlords.

For further information, or to arrange a free initial consultation please telephone Anthony Middleton on 01905 777 600.

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