HMRC | ClearSky Accounting Blog

Wednesday, January 18th, 2012

HMRC faces calls to change penalty process and don’t get hooked by ‘phishing scam’.

Whatever you do, do not leave your self-assessment online tax return until the last minute this year!

The final countdown to the self-assessment deadline is always a hectic time of year for anyone involved in taxation in the UK, but this time around seems particularly fraught.

Things have not been helped by what seems a continuous stream of bad press for HMRC in the early stages of 2012. This includes news this week that 20,000 HMRC call centre staff are planning to strike on tax return deadline day. This is in protest at what the Public and Commercial Services (PCS) union described as trials that could pave the way for widespread privatisation in HMRC at a time when tens of thousands of civil service jobs are being cut. This relates to HMRC’s plan to trial two private call handling companies in HMRC tax credit contact centres in Cumbria and Scotland which I assume is part of the wider cost cutting exercise in the public sector.

The deadline for online self-assessment tax returns is midnight on Tuesday, 31^st January and fines for late filing start stacking up the very next day so please do not leave it to the last minute, especially as you may not be able to access help from HMRC on the phone. It’s never easy to get through to them at the best of times and any industrial action, should it go ahead, will only make this worse. I personally rang the helpline twice last week and was on hold for well over five minutes on each occasion before giving up.

Speaking of HMRC fines, I was interested to note that in a recent Tax Tribunal, the judgment included that HMRC is ‘deliberately’ waiting months to let small businesses know they have a missed a tax filing deadline so that it can generate additional income from late payment fines.

Under current policy, companies which don’t file their tax returns by the May deadline are not sent a computer-generated reminder until September. This means that they are liable for at least 4 months worth of penalties from the outset.

The judge who made the ruling in the Tribunal said: “It is no function of the state to use the penalty system as a cash-generating scheme. We have no doubt that any right-thinking member of society would consider that to be unfair and falling very far below the standard of fair dealing expected of an organ of the state.”

HMRC has said it will appeal the decision but if it is upheld up to 100,000 businesses could be entitled to refunds worth millions of pounds so we’ll be keeping a close eye on this one moving forward.

Finally this week, don’t get caught out by the latest ‘phishing’ scam.

Fraudsters are sending out emails to taxpayers in the run-up to the self-assessment deadline which informs individuals of a tax rebate and provides a link to a fake HMRC website which then asks them to give their credit card or bank details. Please be very wary if you have received such an email as HMRC will only ever write to you via the post if you are due a rebate with a P800 form and a payment order. They will never ask you for your credit card of bank details.

If you are, or have been, affected by any of the above we’d love to hear from you so please leave a comment.

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Friday, January 13th, 2012

Regular readers of this blog will have noticed that HMRC has been getting a fair amount of stick in recent weeks, most of which you could argue has been self-inflicted. However, there was some interesting news this week which could be a plus for small businesses currently in conflict with HMRC.

The tax authority is piloting a scheme in North Wales and the North West of England which will act as a dispute resolution service. Under the banner of the Alternative Dispute Resolution (ADR) service, independent HMRC facilitators who have not been involved in the case will be used to resolve disputes that arise during HMRC’s compliance checks. This is designed to avoid tribunal hearings and reduce costs for both parties. HMRC notes that in a separate pilot of the scheme in 2011, 60% of these disputes were either fully or partially resolved, with the “overwhelming majority” fully resolved.

Now, how a panel of HMRC employees can be truly independent is a debate for another time, but on the face of it this scheme seems to be a step in the right direction towards removing some of the red tape and burden of process which can stifle small business in the UK. It should also be a way of avoiding going through costly tribunals which are in nobody’s interest. We’ve had personal experience of a costly tribunal recently with one of our clients and fortunately it went in our favour, however the ADR could have been a much better way of resolving the issue. We’ll be watching this pilot scheme with interest.

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Friday, January 6th, 2012

Just before Christmas we mentioned that HMRC was under a bit of a media attack after accusations that it was ‘cosying up’ to big businesses and agreeing to secret tax settlements.

Well, only a few days into 2012 and it looks like its ‘batten down the hatches’ time at HMRC again. This time, the media storm centres on HMRC’s Business Records Checks (BRC), a new scheme which was piloted last year and one that aims to clamp down on accounting discrepancies by small businesses. Any business found to be at fault can expect a fine of up to £3,000.

On the face of it, BRC does not seem to match with the Government’s commitment to reducing red tape, a point that has been echoed by a large number of MPs and organisations such as the Federation of Small Businesses who accuse HMRC of harassment. For a small business the days of HMRC taking a relaxed approach to minor mistakes and allowing them to be rectified appear long gone.

Under BRC, HMRC was planning on inspecting over 20,000 businesses from April to check that their tax returns are backed up by correct paperwork going back a number of years. However, in the face of mounting criticism and political pressure it has promised to undertake a full strategic review of the project in consultation with relevant bodies.

This is good news but I would not expect the issue to go away completely. The current Government and economic climate is placing an increasing emphasis on tax take and as the UK seeks to balance its books this is only going to increase.

Of course well managed businesses have nothing to fear but this does demonstrate the benefit of having a close working relationship with your accountant and the importance of working with an accountant that knows your business intimately. If you are a ClearSky client, you can always approach your personal accountant to discuss any concerns you may have. They are a business savvy bunch by nature themselves and understand running a small business inside and out.

A quick reminder

Whilst we are on the subject of HMRC and keeping good records, don’t forget that the deadline for filing your online self-assessment tax return is Tuesday, 31^st January 2012.

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Wednesday, December 21st, 2011

Amongst all the flak faced by HMRC this week for ‘cosying’ up to big businesses when negotiating tax settlements, the Revenue announced some interesting changes to the way limited companies can be wound up. These are worth noting for limited companies of all shapes and sizes.

Under the current rules, when a limited company is wound up, a final distribution of funds can be made to shareholders after creditors have been paid. Shareholders can also benefit from low rates of Capital Gains Tax due to Entrepreneurs Relief. This is all made possible due to what is known as Extra Statutory Concession (ESC) C16.

However, HMRC deemed this to be a form of tax avoidance and wanted to limit the amount of funds that can be distributed this way to £4,000. The new limit announced this week is £25,000 which is good news for some but a lot of organisations are unhappy as a lot of businesses will still be affected as a result.

As reported by Contract Eye earlier this week, according to HMRC, “In 2010 about 325,000 companies were dissolved informally and struck off without going into liquidation. It is possible that some companies making large distributions on the cessation of business may now opt to be formally wound up, in order to protect the tax position of their shareholders.”

Andrew Gotch, representing the Chartered Institute of Taxation, said:

“HMRC’s announcement of a higher ceiling is a step in the right direction. £4,000 would have been a ridiculously low level which would have rendered the legislated concession barely worth having. £25,000 is an improvement, but we would have liked to have seen a higher limit calculated per shareholder, or indeed no limit at all.

“The Government’s argument is that a low limit is needed for anti-avoidance purposes, but we have been offered no evidence that this concession has been abused. I hope the Government will consider a further increase to, or removal of, the ceiling during this proposal’s legislative passage so that the new law genuinely reflects the original concession.”

It’s worth keeping an eye on the new rules as they pass through the legislative process and if you think this might impact on you or your business it’s definitely worth having a chat with your personal accountant.

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Friday, October 7th, 2011

I’ve noticed this week that a number of small businesses, specifically personal service companies and contractors, have been receiving notifications of fines from HMRC due to the late filing of their P35.

Companies need to file a P35 form every year which is a summary of end of year payroll returns for all employees. A company that has no employees, such as the ones mentioned above need only make a ‘Nil P35’ notice to HMRC ahead of the deadline in May.

Unfortunately the process for filing a Nil P35 notice is a little old school to say the least. Companies have to physically write to HMRC and it would appear that there has been a little lapse in their filing as a number of businesses are now receiving penalty notices informing them of £400 worth of fines when they believed it had all been sorted. It’s an odd situation as businesses that do actually have a P35 to submit can do so online.

It’s also a little strange that HMRC have waited until the fines reach £400 before writing to businesses which they could have done in May when the fine was only £100.

We’ve received almost 200 on these notices from clients and if every single case we can demonstrate that we did file on time. Unfortunately, and for whatever reason, HMRC didn’t capture this data. We are now in the process of working with HMRC to have these fines rescinded.

The good news is that there seems to be a new system on the way from HMRC that will allow companies to make Nil P35 submissions online.

If you are a ClearSky Accounting client and you receive a penalty notice don’t forget to forward this on to us so we can take care if it for you.

A quick reminder

Don’t forget, if you are due to pay PAYE tax then the deadline for it to clear in HMRC’s bank is 22nd October.

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Wednesday, February 2nd, 2011

HMRC has recently announced it will be imposing fines of up to £3,000 on small businesses that fail to manage their books properly. This could be a crippling amount for small businesses and new start-ups so here, Derek Kelly, Managing Director of ClearSky Accounting, the business start up specialist, discusses how doing what you love, and letting the experts look after the things you hate can make all the difference to a successful business.

Read the rest of this entry…

Friday, December 17th, 2010

The Government finally sounded the death knell for Employee Benefit Trusts (EBTs) after the Finance Act 2011 was published last week, and it’s fair to say that the announcement surprised no one. HMRC has been quite aggressive in its language when discussing tax avoidance of late and the clamp down was expected, particularly so when you consider that the additional tax take for HMRC as a result is conservatively estimated at around £500 million a year.

And whilst EBTs had a place when those using the schemes were made fully aware of the risks involved and knew exactly what the scheme was and how it worked, thousands of contractors when facing investigation by HMRC, will have felt they were mis-sold to.

Contractor accountant companies such as ClearSky, and our sister umbrella company Parasol, have worked hard to raise standards and encourage best practice in the contractor services industry over the years. However, not all service providers shared this vision and this has ultimately been to the contractors’ cost. Not many will now shed a tear for EBTs.

There will be a large number of contractors looking at alternative options for running their business now as the clock ticks down to the implementation of the Finance Act in April and we’ve already had a large number of phone calls from contractors and freelancers asking us to explain the new legislation and discuss the options that are open to them.

We’ve been directing them to some of the online guides that are available as well so here is the link again for anyone who would find them useful.

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Thursday, September 23rd, 2010

HMRC has been turning its attention on what it calls the sharp rise in the number of allegedly illegal dividends and director loans drawn by the owners of limited companies in recent weeks.

Read the rest of this entry…

Friday, July 16th, 2010

I was really pleased to be invited to take part in an online forum hosted by The Guardian yesterday, which, as part of the careers section of its website, had brought together a panel of experts to answer readers’ questions on freelancing.

The focus was on the creative, media and PR industries but a lot of the questions, particularly the accounting type questions which I was brought in to address, had a similar theme to a lot of the queries we see on the main contractors forums every week and relate to day one of being a contractor; how do I set myself up and what is the best way to manage my finances, making sure I don’t fall foul of the tax man?

It’s clear from the discussions I see, and take part in, that there are a lot of very experienced contractors out there who have a very firm grasp of accountancy for their business. However, there are also a fair number of ‘bar room’ experts who don’t always offer the most accurate advice, or pass on second hand advice they’ve picked up ‘from a mate.’

As per the advice I would always give to any contractor looking to set up their own limited company, do your research, make best use of all the online guides, and its always best to talk to a professional, specialist contractor accountant.

You may think that good advice can be quite costly, but it won’t be as costly to your business as bad advice.

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Friday, July 2nd, 2010

The coalition government went live with its ‘Your freedom’ website this morning, to much fanfare and Deputy PM, Nick Clegg, doing the rounds of the BBC’s various breakfast broadcasts.

The purpose of the website is to give the British electorate the opportunity to feedback to government on which laws and legislations they would like to see changed or removed all together.

Some commentators and opposition politicians have approached the ‘Your freedom’ website with a great deal of cynicism but for those of us in the contracting world, in which IR35 has loomed large for over a decade, it could be the best chance yet of having IR35 abolished, or at the very least simplified with added clarity!

The PCG has been campaigning for some time now to have IR35 abolished, and it’s fair to say the results have been mixed. I’ve spoken about the legislation being a focus point of a lot of politicking during the last election and there has been conflicting messages about IR35’s future in the press in recent weeks.

What can’t be denied though is the fact that contractors would prefer to see IR35 abolished and replaced with much clearer and transparent legislation.

Well if that is what you want, I believe the Your Freedom website is the best opportunity yet for us as an industry to speak out and we should be mobilizing to do so!

The PCG currently has around 20,000 members. The FCSA, of which our sister company Parasol is a founding member, looks after the collective interests of over 50,000 contractors, and if encouraged to do so, that is a lot of voices calling for IR35 to be abolished, something that the government will be forced to pay attention to.

At the time of writing there are already of 10 separate threads on the Your Freedom website discussing the abolition or replacement of IR35, citing its debilitating effect on small business and enterprise and bemoaning the relatively small tax yield it has produced in return. We will be adding our voice to that list and encouraging the contractors, agencies and business groups we work with to do the same.

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