The Blog

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.

Government urged to reconsider National Living Wage

Business groups including the Federation of Small Businesses (FSB) and the National Farmers Union (NFU) have written jointly to new Business Secretary, Greg Clark, urging him to reconsider ‘ambitious’ targets for the National Living Wage (NLW).

At least 16 trade associations have recommended that Mr Clark “exercise caution” and would ideally like the Government to drop the current target, which could see National Living Wage rise from its current hourly rate of £7.20 to around £9 by 2020.

The National Living Wage was introduced in April 2016 and is paid to workers aged 25 and over. If current targets are met by 2020, the NLW will represent one of the highest minimum wages in the G7.

They have also called for the restoration of the original powers of the Low Pay Commission (LPC), the independent committee that recommends minimum wage rates every year. The original remit of the LPC was to recommend minimum wage increases that went as far as possible without costing jobs.

However, its new task is to ensure that the rate reaches 60 per cent of median earnings by 2020, “subject to economic growth”.

The letter argues that in light of the “economic uncertainties the country faces” following the vote to leave the EU, firms might find themselves unable to support such a rise.

Despite the pressure however, the Government is expected to proceed with current plans, with a Treasury spokesman saying that it is committed to building an economy that “works for all”, meaning both employers and employees.

Brexit and Business in Britain: What’s next?

On 23 June the UK voted to leave the EU. Currently the decision to invoke Article 50 and give official notice to exit the EU has not happened. As ‘Brexit’ seems to be raising more questions than answers, many UK businesses are wondering what happens next.

VAT

UK VAT law derives from European law and was introduced as part of our original accession to the Common Market in 1973. It is also one of the largest revenue generating taxes for the UK government. As such, it is unlikely to be abolished or significantly changed as a result of Brexit.

However, the way UK VAT currently operates is closely connected to our EU membership, so once the UK has left the EU we may see some changes come into place. For businesses operating mainly within the UK the effects are likely to be less than for more internationally-focused businesses.

Once we leave the EU, the government will have more flexibility over setting VAT rates and liabilities. The current single claim mechanism will cease to apply, making the process for UK businesses to reclaim VAT incurred in EU member states more administratively complex.

We may see the UK maintain a parallel VAT system for the first few years because of the confusion and cost changes would cause.

Customs duties

The UK is currently part of a customs union with other EU member states, which means that goods can flow freely without customs duties or import VAT.

Brexit negotiations are likely to try and preserve these arrangements, but it is likely that the transactional costs of trading with the EU will increase. Additional costs in the form of customs duties may also be considered.

Outside of the EU, the UK will be able to negotiate free trade agreements with other countries, although these agreements can take many years to implement.

UK employers of EU workers

At this stage the arrangements for existing EU workers in the UK is unclear. Speculation in the media has suggested that there are several possible arrangements which may come into place:

  • Those employed may remain in the UK without any restrictions
  • Entry restrictions may be imposed on EU workers
  • EU workers may have to gain a new type of permission to stay

Employers are advised to carry out some contingency planning, such as formalising current EU workers’ employment with paperwork showing that they were employed prior to the Brexit vote.

Emergency Budget

The Chancellor has discounted the possibility of an early Budget in response to Brexit. We can expect the Autumn Statement to set out a roadmap of how the UK’s tax and spending plans will evolve going forward.

Outside the EU, the UK government will have even more flexibility over the administration of taxes and much will depend on the negotiations which take place once Article 50 is invoked.

What’s next?

Until formal negotiations start it will not become clear what ‘Brexit’ really means for business in Britain. These detailed negotiations will determine the exact arrangements going forward.

It is important not to act in haste while so much remains unclear. At this stage there is not enough information to make decisions, however over the coming months we should start to see some clarity over how the UK’s relationship with the EU will evolve.

Businesses should focus on staying informed at this stage and be prepared to undertake some contingency planning on key issues as the political and economic landscape becomes clearer.

HMRC targets ‘late’ taxpayers with text message warnings

UK taxpayers and Small and Medium-sized Enterprises (SMEs) have reported that they have been receiving ‘threatening’ text messages from HMRC.

According to reports, the tax authority has been using new means to inform businesses and individual taxpayers that they are being ‘monitored’ – and to request that they pay debts.

A study has revealed that the text messages are successfully increasing payments among ‘late payers’.

According to a HMRC report, text messages warning taxpayers that they “may face penalties” for late payments have increased payment rates by 7 per cent, whereas those informing taxpayers that they are being ‘monitored’ have raised payments by 3.8 per cent.

Furthermore, the number of ‘late payers’ hitting their payment deadlines after receiving these, or other HMRC text messages, has increased by 50 per cent, according to the tax authority.

However, the news comes at a confusing time after UK crime watchdog Action Fraud reported a rise in complaints of ‘bogus’ telephone calls, text messages and emails from fraudsters, purporting to be from HMRC, and requesting similar action.

A police spokesperson told Action Fraud: “Fraudsters will use various hoaxes to try and scam money out of people so please be vigilant about any unsolicited phone call – remember that the bank or police or HMRC would never ask for your PIN over the phone or send a courier to collect cards or cash”.

Only a third of taxpayers happy with HMRC services, says study

According to a new study, only a third of individual taxpayers say that they would describe HMRC as ‘fair and efficient’.

The statistics come from HMRC’s own data, after the tax authority carried out a satisfaction survey among personal and business users.

Following recent criticisms over HMRC’s diminishing telephone services in the wake of Making Tax Digital (MTD), just 45 per cent of Small and Medium-sized Enterprises (SMEs) told the tax authority that they would describe its telephone services as ‘good’.

Only 43 per cent of individual taxpayers agreed.

Furthermore, more than half of individual taxpayers and 43 per cent of SMEs added that they thought HMRC did not ‘have the right systems in place’ to sufficiently prevent taxpayers from making tax return errors which provoke ‘unnecessary investigations’.

Experts predict that thousands of taxpayers fall victim to making ‘honest mistakes’ on their tax returns every year – which inevitably results in HMRC conducting thousands of investigations.

Filling out tax returns can be a complex and lengthy process and a tax investigation can be provoked only too easily – especially when access to HMRC telephone advisers is growing increasingly limited.

If you need help accurately completing your tax return or you need advice about tax investigations, contact us to arrange your free initial consultation today.

Government urged to overhaul Minimum Wage following Brexit vote

The Government is being urged to overhaul the UK’s minimum wage policy following the vote to leave the European Union, with warnings of damage to the economy and businesses if it does not.

According to the British Chambers of Commerce, the Government’s “politically driven” approach to setting the national living wage could cause it to become “unaffordable” to hire staff.

The lobby group argues in its submission to the Low Pay Commission’s consultation on future increases that a failure to calibrate the policy could push up prices, raise unemployment and even force companies out of business.

As of April 2016, the minimum wage for workers over the age of 25 rose by 7.4 per cent to £7.20 and it is proposed that the national living wage could rise to £9 by 2020.

However, the BCC said that the decision to leave the EU means it is vital to return to an “evidence-based” approach when setting the wage floor, otherwise it could lead to increased prices or even bankruptcies.

The group argues that the national living wage policy was set before the result of the vote and therefore the Government should reassess the policy in its aftermath, taking into account new economic data and forecasts, once these become available.

It is the BCC’s contention, based on “conservative” forecasts that the minimum age should rise by 2.4 per cent to £7.39 next April because “pressing ahead blindly” towards the £9 target would hit small businesses hardest.

Given that these organisations account for over 99 per cent of all private sector businesses and employ more than 15 million people, this would be disastrous.

Have HMRC got you in their sights?

Is a visit from the taxman a risk you can afford, or are prepared to take?

HMRC are more determined than ever to ‘claw back’ unpaid tax and ensure all tax due is paid. Millions of pounds have been allocated to target tax evasion and avoidance and the number of people being investigated by the taxman has doubled in one year.

Every year HMRC investigates hundreds of thousands of individuals and businesses in the UK. A tax investigation could happen at any time and everyone is at risk.

HMRC’s increased aggressive stance means more and more innocent businesses and individuals are likely to be investigated. Even if you have done nothing wrong, you are still at risk. HMRC don’t need a reason to investigate you and they can investigate anyone at any time.

You could be at greater risk than you think

Anyone who submits a tax return faces a real threat. HMRC are using a piece of highly efficient software which is accessing and trawling through your financial information right now.

The ‘Connect’ system has access to vast databanks holding information about every taxpayer and their businesses, income, assets and transactions.

From 2017, Connect will go global, with access to further data in 60 countries. It can identify tax discrepancies in seconds which can trigger a tax investigation.

A tax investigation could cost you – even if you’ve done nothing wrong

If they investigate you, HMRC will expect your professional adviser to explain how the computations have been prepared and how the amount of tax payable has been derived. As your trusted adviser, we will also be best placed to support and advise you through the enquiry process and to deal with any specific issues that arise.

Few individuals or businesses have budgeted for the cost of professional services should an investigation arise. However, if you are investigated it could be a substantial upfront cost, and for many this is more than they can afford at short notice.

Protection is available

We recommend that all our clients consider subscribing to our expert Fee Protection Service. If HMRC target you, we are on hand to guide you through the process, and by investing a small amount in our protection service now, you can rest assured that the professional fees are covered too.

A small cost now could save you thousands of pounds in the future.

If you’re currently an Ormerod Rutter client, you can request a free quote online now. If you’re not a client but would like to discuss this further, please contact us to speak to Anthony Middleton.

HMRC launches Worldwide Disclosure Facility

A new online disclosure facility has launched this week, giving offshore tax evaders a final chance to settle outstanding tax on their wealth hidden offshore ahead of new data sharing arrangements and tougher penalties due to be introduced.

HMRC launched the Worldwide Disclosure Facility (WDF) on 5 September 2016, following the closure of offshore disclosure facilities such as the Liechtenstein Disclosure Facility at the end of last year.

According to HMRC’s figures, tackling tax evasion brought in £26.6bn by tackling tax evasion and avoidance in 2014-15. Since 2010, £2.5bn has been raised from moves to tackle offshore tax evasion.

HMRC announced at the time that one final disclosure facility would be launched to enable those with offshore irregularities to come clean to the taxman, but there has been little detail about how this will work until now.

This last chance to get your affairs in order comes before HMRC starts to receive an unprecedented amount of data to assist their crackdown on tax evasion. Over 100 countries have committed to new international agreements that will allow HMRC to access even more data about overseas accounts held by taxpayers.

The WDF is available to anyone who is disclosing a UK tax liability that relates wholly or in part to an offshore issue. This includes:

  • Income arising from a source outside the UK
  • Assets situated or held outside the UK
  • Activities carried on wholly or mainly outside the UK
  • Where the funds connected to unpaid tax are transferred outside the UK

Anyone wishing to disclose a UK tax liability in relation to the above is eligible to use the WDF You first need to notify HMRC that you will be making a disclosure. Once you have notified HMRC, you will have 90 days to:

  • Collate the information needed to complete the disclosure,
  • Calculate the final liabilities including tax, duty, interest and penalties, and
  • Complete the disclosure, using the unique disclosure reference number provided when notifying.

The WDF offers no special settlement terms, unlike earlier schemes which offered reduced penalties. This means that those who come forward will pay the tax in full, with interest, and they could still face criminal prosecution.

There are a number of consultations running at the moment looking at the level of penalty/sanctions to be imposed on those who do not come forward during this disclosure opportunity, bearing in mind that this is the is the last of many facilities aimed specifically at offshore issues. One suggestion is that there will be a penalty of between 100% and 200% of the tax due if someone is discovered to have not used this disclosure opportunity when they should.

The WDF will run until September 2018. It is possible to make a disclosure under the WDF using the Digital Disclosure Service (DDS) launched in April this year. According to HMRC, one of the benefits of the DDS is that it removed the need for taxpayers to seek advice and help from accountants and professional advisors, as they can disclose by themselves.

However, we would strongly advise against disclosing by yourself if you are considering using the WDF. Professional support can make it much easier to collect the required information, ensure your calculations are correct and negotiate the best possible settlement terms within the required 90 day deadline.

If you are considering making a voluntary disclosure under the Worldwide Disclosure Facility, contact us and speak to our Tax Investigations Manager Anthony Middleton for your free, confidential consultation today.

HMRC issues digital tax accounts consultations for businesses, self-employed and landlords

 

 

HMRC has published six consultation papers unveiling new details about its plans for Making Tax Digital (MTD).

The controversial plans to move to digital tax accounts are expected to raise nearly £1bn in additional tax revenue.

The move to online filing of tax information by all taxpayers and businesses at quarterly intervals was first outlined in the 2015 Budget and has attracted considerable concerns about the potential costs and administrative burden for companies and individuals.

Last month The National Audit Office (NAO) released a report which said that HMRC are failing to fully estimate the costs of the new system to SMEs and must veer away from over-ambition.

Consultation on the issues was set to begin in April, but has been delayed until now, even though the reforms are set to be introduced from 2018.

HMRC says it has made a number of changes to the proposed design in order to ease the transition. These include removing more of the smallest businesses from the requirement to keep digital records and update quarterly.

All unincorporated businesses and landlords with a turnover under £10,000 a year will be exempt.

In addition, HMRC now says it will delay the start of MTD for some other small businesses, to give them extra time to get used to digital record keeping and quarterly updating, and will exempt digitally excluded businesses. However, it states that it expects to deliver ‘the end of the tax return by 2020’.

The six consultations are:

  1. Bringing business tax into the digital age
    This considers how digital record keeping and regular updates should operate. It includes discussion of HMRC’s plans to release a suite of APIs to ensure business software can communicate with HMRC’s systems and consideration of the requirements of those using spreadsheets for their accounting. It confirms that they will not provide free software and consults on the possible provision of financial support for businesses who need to purchase new IT to manage the changes.

 

  1. Simplifying tax for unincorporated businesses
    This looks at changing how the self-employed map accounting periods onto the tax year (reform of basic period rules), extending cash basis accounting to larger businesses and removing the link to the VAT threshold, reducing reporting requirements for businesses and removing the need to distinguish between capital and revenue for businesses using cash basis accounting.

 

  1. Simplified cash basis for unincorporated property businesses
    This proposes to extend the cash basis for trading income to unincorporated property businesses – providing an option for landlords to be taxed on the cash basis rather than using the accruals accounting basis. HMRC says this could benefit over 2.5m property businesses.

 

  1. Voluntary pay as you go (PAYG)
    Under this proposal, unincorporated businesses, sole traders and landlords could make voluntary PAYG payments in respect of their income tax/national insurance contributions/capital gains tax from 1 April 2018 and to VAT from April 2019. This would also extend to incorporated businesses in respect of their corporation tax from 2020.

 

  1. The tax administration consultation
    This covers aspects of the administration framework needed to support Making Tax Digital, outlining more detail about what the transformed tax system will look like by 2020. It also sets out proposals to align aspects of the tax administration framework across taxes including the simplification of late filing and late payment sanctions.

 

  1. Transforming the tax system through the better use of information
    This consultation focuses on how HMRC will make better use of the information it currently receives from third parties to provide a more transparent service designed to reduce end of year under and over payments. From April 2017 HMRC says it will start to use PAYE information during the tax year to calculate whether the right tax is being paid and to notify taxpayers where that is not the case via the digital tax account.

 

  1. Overview of changes for small businesses, self-employed and smaller landlords
    A separate consultation document provides an overview of the changes which will have the greatest impact on small businesses, the self-employed and smaller landlords. This highlights what HMRC views as the most critical issues for these groups.

 
The consultation period runs until 7 November 2016.

UK inheritance tax move to hit non-domiciled property owners

The Government plans to extend its inheritance tax (IHT) rules to cover properties held by non-domiciled residents in an offshore entity.

Under new guidelines from the Treasury issued in a consultation paper last week, residential property will be liable to inheritance tax (IHT) even if it is owned by an offshore trust.

As part of 2015’s Summer Budget, the Government announced it would be amending the rules for non-dom residents, particularly in terms of IHT.

Under the new guidelines, non-dom residents who own residential property in the UK will be subject to inheritance tax from April 6 2017. “This charge will apply to both individuals who are domiciled outside the UK and to trusts with settlors or beneficiaries who are non-domiciled,” according to the Treasury’s consultation paper.

It added that no change will be made to the taxation of UK property which is held by corporate or other structures and which are owned by UK domiciled individuals or by trusts made by UK domiciled individuals.

Many advisers have welcomed this clarification, but there are concerns that this might alienate current non-doms and deter wealthy individuals or families who are considering moving to the UK.

There had previously been hints that tax relief may be available for those who decide to remove UK properties from foreign company ownership structures, but the Treasury has now decided reducing the tax costs associated with restructuring UK property ownership would not be appropriate.

In the consultation paper the Treasury says: “While the Government can see there might be a case for encouraging de-enveloping, it does not think it would be appropriate to provide any incentive to encourage individuals to exit from their enveloped structures at this time.”

The Treasury said the reason for the planned changes is because non-doms currently enjoy a significant advantage over other individuals in this area.

The Government has now opened a consultation on the new IHT rules, which will run until 20 October 2016, but said the rule change it has outlined has been determined to be the best option and it is currently developing a framework for implementation.

Businesses able to submit ‘voluntary’ tax payments under HMRC’s PAYG proposals

Sole traders, landlords and unincorporated businesses will be able to submit ‘voluntary’ tax payments towards unexpected tax liabilities, under new HMRC proposals.

The news comes alongside the much anticipated publication of six consultation documents into HMRC’s ‘Making Tax Digital’ campaign, which the tax authority hopes will make all tax “100 per cent digital by 2020”.

HMRC’s proposed pay as you go system is one of many unanticipated changes to Making Tax Digital outlined in the tax authority’s latest consultations, which were published this week.

The proposed system will allow taxpayers to take full control over how often they wish to pay, and how regularly – although businesses with an annual income of £10,000 or more will also find themselves under new obligations to report accounts information to HMRC “at least quarterly” according to the consultations.

HMRC has said that their optional voluntary system will apply to the likes of Capital Gains Tax (CGT), income tax and national insurance (NI) contributions from 1 April 2018 – and to VAT from April 2019.

By 2020, HMRC hopes PAYG will also be open to incorporated businesses in respect of their corporation tax affairs.

Proposals under Making Tax Digital are complex and confusing, and taxpayers and businesses alike are advised to seek advice, to determine exactly how HMRC’s tax overhaul will affect them personally.

The Association of Taxation Technicians (ATT) recently branded Making Tax Digital “the biggest change to the way taxpayers will engage with HMRC since the introduction of PAYE in 1945”.

The end of salary sacrifice?

HMRC has revealed plans to limit tax and national insurance savings from salary sacrifice schemes.

In a 17 page consultation document released this week, HRMC stated that the government does not believe benefits-in-kind, effectively paid for by employees through reductions in gross salary, should be provided by employers at a cost to the Exchequer through salary sacrifice arrangements.

Plans were unveiled to change tax legislation so that where a benefit-in-kind is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer national insurance contributions, even if it is normally exempt.

Among the salary sacrifice schemes set to be hit are life insurance policies and mobile phone contracts, which will become taxable on employees. However, the paper did state that not all current schemes will be hit by the changes to the rules.

The purpose of the salary sacrifice consultation is to explore the potential impact on employer and employees should the government decide to implement these changes.

Several health-related benefits-in-kind such as the cycle to work scheme are not included as the government wishes to encourage their use. The consultation is also not asking for views on employer pension contributions, employer-provided pension advice and employer-supported childcare provision.

The consultation will run from 10 August 2016 to 19 October 2016 and the government is interested in hearing from employers, trade organisations and other interested parties who may be affected by the proposed changes.

The consultation on salary sacrifice for the provision of benefits-in-kind can be viewed here.

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