Monday, September 29, 2008

Tax charge on parking spaces at your place of work

I seem to be experiencing deja vu all over again ;-)

In September 2007 the papers were full of reports along the lines that:

Commuters face a £350 tax on workplace parking spaces in an attempt to encourage them out of their cars and on to public transport.
Then in January 2008, much the same:

The Treasury is considering plans that will allow local authorities to levy a tax on companies with car parks.

And now, again:

Commuters could be taxed to park cars at work
The story remains pretty much the same in that Nottingham City Council aims to become the first authority to introduce the Workplace Parking Levy (WPL), with at least eight other councils ready to follow its lead. For each liable parking space, Nottingham City Council plans to charge an annual levy of £185, rising to £350 within four years of its planned implementation in 2010.

This all seems to stem from the Integrated Transport White paper that was published over ten years ago.

If memory serves however this would not be the first time that workers would be 'taxed' for driving to and from work.

A charge was introduced in the early 1980's I think but workplace parking was then exempted from taxation as a benefit in kind in the 1988 Budget, because it was deemed too difficult and complex for employers and the Inland Revenue to assess liability. Since then there has been no such charge.

Any payment or reimbursement of expenses in connection with the provision for, or use by, an employee of a car parking space at or near the employee’s workplace is not chargeable to tax. Equally the provision of workplace parking as a benefit, or by way of vouchers or credit tokens, is also exempt from tax. This is in stark contrast to the position as regards many other benefits provided by employers. In particular all other costs of traveling to and from work are treated as a taxable benefit if paid or reimbursed by an employer.

Before the last standard tax charge for workplace parking was implemented I recall dealing with a letter from (what was then) the Inland Revenue. The Inspector was arguing that the provision of a car parking space on office premises was a taxable benefit in kind. We responded that there was no cost to the employer in this regard but the Inspector argued to the contrary. His view was that rent and rates etc needed to be apportioned to arrive at the 'cost to the employer'. I recall that we didn't concede and that the introduction of a standard scale benefit charge was introduced shortly thereafter (and then abolished in 1988).

The element of this issue that always amused me may be apocryphal. Remember that senior officials of the Inland Revenue used to be allowed to park their cars at their Central London HQ in Somerset House. Could the potential imposition of a benefit in kind charge on those responsible for creating policy and enforcing the law have had an impact on their desire to avoid or abolish the benefit in kind charge on workplace parking? And what now of Local Council Officials? I suspect that times have changed and that different views will prevail. What about you?

Online filing by agents (accountants) and the new style tax return

I hear that the typical rejection rate being suffered by accountants who are filing online is up from 5% to 30% this year. Whereas in the past almost all (95%) of returns were accepted, this year almost one third are being rejected.

One has to ask whether the online filing system is fit for purpose. When Lord Carter announced that the filing deadline was being brought forward he identified what has become known as the Carter principle:
“nothing is launched until it’s been tested and proved fit for purpose.”
This year HMRC have arguably been over ambitious - by introducing new style tax returns at the same time as two other changes are impacting the system.

Firstly the new earlier filing deadline of 31 October has been introduced for paper based tax returns. To their credit HMRC are encouraging taxpayers to take note of this new deadline and accountants are reporting that many clients are supplying their tax return information earlier than in previous years. This is good news.

Secondly (and this is having a similar impact to the new filing deadline) there is a growing awareness that the enquiry deadline is now linked to the date that tax returns are filed. Thus, the sooner you file your tax return, the sooner you can be confident that your tax position is final. If HMRC want to open an enquiry they now have to do so within 12 months of the date the return is filed. Previously the deadline was 12 months after the following 31 January, so the earlier you filed your return the longer you gave HMRC to look at it.

But it is the new style 'simpler' tax return that is probably the cause of the increased filing rejections. Apparently the tax software houses are fed up with the queries that they are getting from agents. In many cases the queries relate to HMRC systems rather than the tax return software itself. This situation is not new of course. A number of professional bodies submitted a report two years ago (E-filing of personal tax returns survey) and little seems to have changed - other than the layout of the tax returns. Whilst this may make it easier for unrepresented taxpayers to compete the form, one wanders as to the sufficiency of the testing undertaken as regards online filing of the new form - both using HMRC and proprietary software.

Any readers care to share their views and experiences?

Friday, September 26, 2008

"Reasonableness" and HMRC powers

I attended a joint ARC/CIOT event at the Treasury last night. This included a debate about HMRC powers in the context of the new compliance checks.

One of the speakers was Richard Davey from the HMRC, Powers and Safeguards Team. He coped well with a number of pretty challenging questions from the audience. One point in particular though stood out for me.

In the context of the extent of HMRC powers Richard said that their "VAT powers have been massively reined in". When asked for an example he stated that the 'reasonableness' requirement now introduced "represents a massive sea change".

If that's true then it's tantamount to an admission that in the past HMRC officers were exercising their powers 'unreasonably'. Indeed that they have carte blanche to continue doing so until they are first required to be 'reasonable' on 1 April 2009. Seems quite an apposite date!

The alternative view is that there is already an implicit obligation to exercise powers reasonably - in which case how much of a change is this and are there better examples (any examples) of how HMRC's new powers constitute a reining in of those currently available?

Thursday, September 25, 2008

Website upgrade in progress

The Tax Advice Network website is undergoing a small upgrade on Thursday 25 September.
This blog is unaffected but none of the other links will work until the upgrade has been completed.

We apologise for any inconvenience. If you have an urgent need for tax advice or support, please telephone the office and we'll do our best to help you.

Our local rate number is: 0845 003 8780
Alternatively you can call: 01635 574 160

Monday, September 22, 2008

HMRC's dedicated agent phone lines

Over 25 years ago when I started working in the tax world we could all phone our local tax offices. If we had a simple query it was quite easy to speak to someone familiar with the taxpayer client in question.

In recent years this has become less and less easy as tax offices have closed and taxpayer records have moved to central locations. Also we have had to endure HMRC call centres whose primary role is to assist taxpayers. As a result the hardworking HMRC staff involved were not best suited to respond to calls from accountants and tax advisers. As a result practitioners have been complaining for some years now about the time they are forced to waste trying to reach someone who can help them when they call HMRC.

HMRC have been attempting to find solution and are now rolling out new facilities for tax agents (ie: accountants and tax advisers). A detailed press release recently provided full details of the new procedures concerning Agent Dedicated and Priority lines

The new Agent Dedicated Lines are intended for all agent enquiries for taxpayer-specific calls about Self Assessment and PAYE (Pay As You Earn) for individuals and partnership matters.

One of the objectives here is to encourage agents to use dedicated agent priority lines (using local rate 0845 numbers). The intention is that such calls will be given priority and answered faster by an adviser who has at least 12 months experience. If necessary you will be transferred to technicians to ensure your query is answered wherever possible during your first call.

Feedback to date by reference to a trial run at East Kilbride and Bradford Contact Centres since just before last Xmas, suggest that the new approach is a 'significant improvement'. That may not be saying very much of course.

What experiences have you had calling the dedicated agent phone lines? Please add comments to this thread.

Thursday, September 18, 2008

IR 20 Residence and Domicile - a unique opportunity

This is a first (I think). HMRC are seeking input from anyone and everyone to assist them in updating their IR20 guidance. During my long time involvement with the ICAEW Tax Faculty I have contributed to many, many representations and responses to consultations documents. Whilst these are invariably published on HMRC website it is rare (if not unprecedented) for HMRC to openly seek input to an update of their guidance. It's a good move and one I applaud.

When I used to be in practice IR20 was effectively the 'bible' to which one referred when advising clients on the tax consequences of almost any residence related issue.

In normal circumstances we would all have treated IR20 the same as any other HMRC guidance. That is, simply as a statement of their views. But the guidance amplified the legislation and indicated a pragmatic approach by HMRC that provided a greater degree of certainty as regards how they would apply the law. It was invaluable.

All this changed however when HMRC argued against their own guidance in the Gaines Cooper case. They won before the Commissioners and at the High Court. Subsequently the Government changed certain aspects of the law concerning residence and domicile. The profession has since been waiting to see an updated version of IR20. It is evidently out of date in many respects now but apparently will not be formally withdrawn until next March when the new guidance should become available.

So if you have any clients affected by the tax laws related to residence and/or domicile you may care to identify the key issues which currently prevent you from providing definitive advice. Equally you may want to obtain specialist advice on such matters, in which case I do hope you will speak to one of the members of the Tax Advice Network. (You can use the 'search' facility - top right of this page - to access relevant profiles and then make your choice using whatever criteria are right for you).

Wednesday, September 17, 2008

Contractors continue to lose out - Dragonfly case is just a symptom not a problem

The press have given plenty of space to the High Court decision last week in the case of Dragonfly Consultancy Ltd v HM Revenue & Customs. The case concerned a contractor, who had provided his services through both his own intermediary company and an agency to the AA. I will use this case to highlight some key points relevant to anyone who supplies their services to an 'employer' (or a company that would be their employer were it not for some special arrangements).

Raw facts
Mr Bessell, the contractor in question, had been working on the assumption that his company was not caught by IR35. HMRC believed otherwise and succeeded in their claim both before the special commissioner and the High Court. HMRC's argument was that Mr Bessell would have been an employee of the AA but for the imposition of his company (Dragonfly Consulting Ltd). HMRC's success means that the company is liable to account for tax in accordance with what we know as the IR35 rules.

What does all this mean? Well, even if you're familiar with IR35 and the various indicators of an employment relationship, you would be forgiven for finding some of the reports a little confusing. (The case is complicated also be the fact that an agency was supplying the services of Dragonfly/Mr Bessell to the AA).

It is by no means clear why the taxpayer was encouraged to take his appeal to the High Court. As is generally well known, such appeals have to be on points of law. No new facts can be introduced. This is one of the reasons why it is SO critical to present the best possible case before the Commissioners. You get no second chances. Many taxpayers have come unstuck when considering an appeal only to find that their case was poorly presented and argued before the Commissioners.

The detailed facts in this case are too complex to set out in this blog. Suffice it to say that, as reported in the press, the Judge placed particular emphasis on the lack of a 'right of substitution'. This was in the context of the contract between the agency and the AA - even though there was a right of substitution in the contract between Dragonfly and the agency. The Judge held that this right was ineffective in practice for a number of reasons. (eg: it wasn't replicated in the other contract, it never happened and was never likely to happen as the AA wanted the services of Mr Bessell personally).

What this all seems to mean is that anyone involved in cases where the IR35 rules could be in prospect needs to be more confident than ever that:
- ALL of the contracts in the chain are watertight - ie they avoid any deemed employment status between the contractor and the end-user 'employer';
- The FACTS accord with the contractual terms;
- The end user 'employer' is also clear and consistent as regards the contractual terms and the facts. Thus, for example managers responsible for the contractor would need to treat him/her as an independent contractor.

As ever the most frustrating aspect of all such cases is the lack of joined up thinking as between employment law and tax law.

End user 'employers' are keen to avoid engaging contractors as employees. This is invariably due to a combination of:
a) the onerous legal obligations imposed on employers by employment laws; and
b) the obligations to pay employers' NIC at 12.8% of all staff pay. This is, in effect, seen as a payroll tax and best avoided by NOT taking on staff.
However it is the onerous obligations imposed by employment law that really drives the 'employer'. It must be as the daily rates received by independent contractors are often much, MUCH higher than the same people would earn if on 'staff'.

Underlying problem
Employers suffer few disadvantages if they refuse to engage workers as employees. That is as long as the 'employer' doesn't pay the independent contractors direct. If they do and HMRC successfully challenge the arrangements, then it is the 'employer' who is penalised.

This is what drove the rise of personal service companies. 'Employers' avoid the prospect of being liable for payroll taxes by refusing to engage independent contractors direct. In effect the 'employers' insist that the contractor forms their own company. This means that if there is a problem with the taxman it is down to the contractor and his personal service company to resolve.

For some years the tax system relevant to contractors who ran their business through such a company was very attractive. It favoured the extraction of income from such companies by way of dividends and this reduced the tax payable by the contractors on their earnings. And this led to the introduction of the IR35 rules (so called because they were initially set out in the 35th press release issued by the Inland Revenue on Budget Day 1999) . The aim of the legislation foreshadowed by that press release is to ensure that if someone is, in reality, an employee of the end user 'employer' the personal service (intermediary) company must effectively tax their income as earnings. This limits the possibilities to reduce taxes by drawing money out of the company by way of dividends.

In effect the only person who can lose is the contractor.

Tuesday, September 16, 2008

Where to establish your offshore property investment company

This is a follow up to yesterday's post in which I set out the 'myth' of investing in property overseas using an overseas company.

Recently I was asked in which overseas tax haven should someone base their company if, despite the views I shared yesterday, they were comfortable with the idea.

Here's how I replied:

1 - As I said in yesterday's post - I don't give tax advice any more.

2 - Tax avoidance (the legal approach ) as opposed to tax evasion (illegal) is not that straight forward. Anyone who indicates an immediate willingness to provide a definitive answer to that question does not have a full understanding of the tax issues. And that includes many so called experts based in those tax havens.

3 - The answer will depend upon a number of factors including:

- Short term and long term plans,
- likely levels of rental income,
- whether you will want to extract that income,
- the extent to which you will be borrowing money to fund the property investments,
- how any interest will be paid,
- how long you are prepared to tie up your money,
- where you are domiciled (nb: this is a VERY different concept to where you are resident),
- where you plan to live in the future,
- whether you have been or will be resident in the UK for more than 7 years,
- your family circumstances now and any likely changes into the future,
- the local laws of inheritance in each of the countries in which you will own property,
- the amount you are prepared to invest in overseas tax structures (which will depend on the sums you will have invested in property overseas),
- the countries in which you will be investing and the double tax treaties they have with the tax havens in question,
- the terms you are prepared to have (or already have) in your will,

NB: That list is off the top of my head and not intended to be comprehensive.

It can be very short sighted to invest without first seeking out a good independent overseas tax planning expert (such as one of the relevant members of the Tax Advice Network) and paying for advice on a complex subject like this.

The alternative is to act on partial advice or hearsay and take a chance. In my experience people who do this ALWAYS regret it later. Sometimes within a couple of years - but normally five to ten years later.

Monday, September 15, 2008

The myth of investing in property overseas using an overseas company

I often hear it suggested that 'you can set up your own overseas company and avoid UK tax'. I suspect that many people may well be either mislead or disappointed when they learn the truth.

Let me try to clarify the position:
If you are UK resident then, in almost every case, any company that you own and control is DEEMED to also be UK resident - wherever it may be based. This means that your 'offshore' company will have to report its worldwide profits and losses to the UK Revenue (HMRC) each year. UK Corporation tax will be payable on any profits - although there will normally be some offset for any corporation taxes paid in the country where the company is based.

Of course there may be all sorts of fancy things you can do to avoid your company being taxed in the UK. The most common way that you might be advised to do this is to allow someone who is not UK resident to own the shares in YOUR company, and for you to avoid managing and controlling the company. This idea is less appealing than OWNING your own company as it means that someone else owns the company for you. It would need to be someone you can trust implicitly.
If in practice you do consider that you still own the company and are MANAGING and CONTROLLING the company then, whatever the paperwork might say, it's YOUR company and you would be EVADING tax if you told the taxman anything else.

So do watch out for supposedly legitimate and apparently knowledgeable property and 'tax' people, who tell you that you can legally AVOID being liable to UK tax on any profits that YOUR company makes offshore. It just ain't that easy.

Although I have a broad knowledge of the UK tax system and despite reaching, arguably, the top of my profession, I decided last year that I no longer wanted to give tax advice. I revealed the reasons for this apparently strange decision in a leading Comment article in Taxation magazine in July 2008. Instead of giving tax advice I now run the UK's largest network of independent specialist tax advisers. If you want reliable expert tax advice on offshore tax planning - or indeed on any other tax matter, please don't ask me for tax advice. However I'm very happy to recommend members of the Network who, between them, cover the full range of tax issues and problems you may have encountered. You can view their profiles, ratings and testimonials on our website.

Monday, September 8, 2008

Local income tax will never happen

Well, 'never' may be a little strong, but those who advocate the idea rarely seem to think through the consequences and the full implications. I think it's extremely unlikely that local income tax (LIT) will ever replace council tax (or local rates).

The latest advocate of LIT is Alex Salmond of the SNP. Different proposals to abolish Council tax formed part of the manifestos of the Scottish National Party and the Scottish Liberal Democrats during the Scottish Parliament general election of May 2007. The SNP version involves the centralised distribution of funds raised from the new tax throughout the Scottish local authorities whereas the Liberal Democrat's proposal devolves the distribution to individual authorities.

The last time the subject came up a few years ago it was the Liberal Democrats who were proposing the idea - they wanted to Axe the tax (Council tax). I remember an occasion when the then leader, Charles Kennedy and Vince Cable explained their proposals to an invited crowd at Chartered Accountants Hall over breakfast one morning. I posed a number of questions as to the practicalities of a local income tax - none of which could be answered with any degree of conviction.

By way of summary:

The arguments for LIT seem to be predicated on two basic ideas:
1 - A dislike of Council tax - which was a rushed replacement for the hated 'poll tax';
2 - A desire to reflect ability to pay; ie: the rich should pay more than the poor.

Extending the basic principle as applies for income tax generally to payments for local services has a degree of logic but also reduces the accountability of local councils. It would also reduce the number of staff they need to administer the system as compared with Council tax. Either redundancies or inefficiencies would be a natural consequence. Of itself that's not a reason to avoid the introduction of LIT. So why do I think it so unlikely? Principally because the practicalities are such as to scupper the plans IF anyone thinks them through before pressing ahead with their plans. Much the same could have been said as regards the dreaded 'poll tax' of course and that still came into being. But it was then hastily replaced by the present Council tax.

This blog is not the place to debate variations on Council tax as such but it is worth setting out some of the practical challenges that are generally overlooked by those advocating LIT:

Winners or losers? More people pay income tax than pay Council tax at the moment - so the tax burden would be spread and there would - by definition - be lots of losers! That's never an attractive prospect for those in power.

Is it fairer? Only those who are liable to pay income tax would pay LIT. So, if your tax favoured investments, residence status or business losses mean you have no liability to income tax in one or more years, you would have no liability to LIT. Of course, we could have special rules for such cases...

Wealthier vs low income communities? If local income tax was to the basis for generating funds for local authorities then those with a wealthier population would have more money or a lower level of LIT. Those with lower income communities would require greater subsidy from the wealthier areas. So we would need special rules in such cases....

Collection process? Either we would all need to file multiple tax returns or LIT would need to be administered by HMRC. Indeed, it has to be the latter as any other collection process would be madness. Employees would have their LIT coded out and be even more concerned than they are already about the level of tax deducted from their pay. This would create an additional burden on employers. BIG companies might be able to cope but smaller employers are close to their limit as regards the time, effort and complexity of the system they already have to administer. LIT could be the straw that breaks the camel's back. I fear it would lead to more 'cash in hand' payments that escape the tax system.

What about the self employed? Whenever anyone talks about LIT in theory, they refer to employees. But the self employed make up a growing section of the community. Their income can fluctuate by an enormous amount each year. They pay income tax anything from 9-21 months after they have earned their profits. They are supposed to have put the money aside to cover the liability. In practice if their income falls they often struggle to pay their tax. Would they get special treatment re LIT in years of falling income? We could have special rules to operate in such cases...

Effective rate of income tax? LIT would effectively add a few pence to the basic and higher rates of income tax. Regardless of any attempts at marketing spin the additional charge would be recognised as an additional tax levy. Instead of paying tax of 'only' 20% or 40% of your income you would be paying 23% or 44% (for example). The fact that the extra was hypothecated to your local Council would be of no compensation.

Do you agree with my summary or do you have an alternative view? Please add you comments to this post.

Friday, September 5, 2008

Inheritance tax - what's the point if it's just for the super rich?

The Tories are reported to have decided on a major increase in the IHT thresholds if elected. Why?

At the moment the first £312k of an estate is exempt from IHT (Inheritance Tax). The Tories had previously pledged to increase this 'nil rate band' to £1m. The £2m figure quoted in the press arises because the 'nil rate band' can now be transferred to the surviving spouse when a husband or wife dies. (And yes, the same rule applies to civil partnerships).

At this level the number of people whose estates will be subject to IHT when they die will be just a handful. Yes? Well, how different will that be to the current position?

According to HMRC figures reported in the press, only 44,000 estates actually paid IHT in 2007-08. That amounts to around 7% of the number of people who died in the UK and that percentage is likely to fall significantly now that the nil rate band is transferable. And that reduction was the rationale for introducing the transfer option. This all means that there is no reason to assume that IHT was about to start hitting hundreds of thousands of families each year. Anything but. So why the fuss?

Last year the Express newspaper group mounted a death tax crusade - effectively a campaign for the abolition of IHT. When the Chancellor announced that the nil rate band would be transferable the Express claimed victory. The Taxpayers' Alliance has mounted a similar campaign. Populist and simplistic nonsense? Maybe.

Now is not the time to explore the arguments for and against the principle of IHT - or a variation thereof. It was introduced in 1986 just a few years after I started out as a tax adviser. Previously, from 1974, we had a Capital Transfer Tax, the top rate of which was reduced to 60% in 1984. And before that simply 'Estate Duty' (introduced in 1894) .

You might think that I would be in favour of taxes that are designed to only hit the super rich, as members of the Tax Advice Network would be engaged to help with the related tax planning (and minimisation). Sorry. Such taxes are simply a sop to what has been termed the 'politics of envy'. With such taxes the populist aim of trying to tax the super rich has been satisfied in theory but in practice the sums collected will be relatively insignificant. The time and effort required to manage, update and administer such taxes could all be used to greater effect.

Having said that I couldn't in all conscience argue for the total abolition of all forms of IHT either. As I said to the Editor of the Daily Express last year:
"You seem to be calling for the abolition of a hated tax without drawing attention to the consequential need to either increase taxes elsewhere or to reduce Government spending. I am no defender of IHT but I' d be wary of raising public expectations that a tax could be abolished without any related consequences."
So, rather than watch politicians simply moving the goal posts I'd prefer to see a decent public debate as to the options and the arguments for and against each of these.

[I was going to stop there but I am aware of a booklet "How to defend Inheritance tax" - published by the Fabian Society in association with the TUC. Many of the themes therein were, it seems, first aired at a seminar on 'The ethics and politics of inheritance tax' (hosted by the Public Policy Unit at Oxford University in September 2007). So maybe that debate has already started]

Thursday, September 4, 2008

"Tax bible size" - The increasing volume of tax legislation

I was amused to see a photo in the paper today to accompany a story drawn from Tolley's press release: New tax 'Bible' has four volumes. This being the 'yellow book' of tax legislation that I grew up with before the CCH red and green versions also started to become popular.

The increasing complexity of UK tax rules was highlighted after the latest Tolley's tax bible hit bookshelves at more than double its size 11 years ago.

This year's Tolley's Yellow Tax Handbook runs to 10,134 pages spanning four hefty volumes, up from just under 5,000 pages in 1997.

And Tolley's publisher LexisNexis said the 2008 edition would have been even bigger if it had not increased the number of words on each page.

The photo comprised a pile of ten year's worth of 'yellow' books alongside a member of staff who was only marginally taller than the pile.

I was reminded of the ICAEW Tax Faculty's latest commentary on the same subject. For some years they have been reporting their benchmarking monitor of tax complexity known as Big Ben’s Statutory Tax Burden. It compares the number of pages in each Finance Act and uses this as a simple, but effective, proxy for how complex our tax legislation has become.

This year's Act contains 451 A4 size pages. As this paper size was only adopted relatively recently the Tax Faculty has made the necessary adjustment when identifying comparative figures. In July they reported that the average number of pages in the second half of the noughties (2005 to 2008), is 407 which is 30 per cent more than in the equivalent period beginning ten years’ earlier, 1995 to 1999. It is nearly 3 times greater than in the early 1980s when I qulaified as an accountant and started to specialise in tax work. In those days the average size of a Finance Act was only 153 pages.

This year’s Finance Act also has the dubious honour of containing the greatest number (46) of Schedules of any Finance Act over the past 30 years.

I've said it before and I'll probably say it again. Good luck to those of you who continue to be able to keep track of all relevant tax changes and laws. Regular readers will know that I've given up on that myself - I explained my reasons here. Instead I established the Tax Advice Network that enables you to access specialist tax advisers who still enjoy keeping upto date and providing expert tax support. - And when I see reports like this one I count myself very lucky!

Monday, September 1, 2008

'Take care to avoid a penalty'

HMRC have published a new leaflet, 'Take care to avoid a penalty', which they suggest (in their latest Agent update) advisers could give to clients. That would mean obtaining bulk copies of the leaflets and they don't tell us how or where we could do this. Shame.

In practice I imagine that many accountants and tax advisers will instead prefer to replicate the content of the leaflet in their own newsletters and articles on their websites. That's been the approach that many have adopted in the past - however well written have been HMRC (and previously Inland Revenue) leaflets.

Is the current leaflet comparable with any of those that have gone before? Previous leaflets have contained 'guidance' which we might have thought was too biased towards the Revenue's perspective. Also we will have wanted to evidence the fact that WE, the advisers, were providing advice rather than simply encouraging clients to read copies of HMRC leaflets.

I just wonder whether the new penalty regime warrants a distinctive approach. Yes, we could all replicate HMRC guidance and supplement this with insights and advice. But will this have the same impact on clients?

Before you dismiss the idea out of hand, do reflect for a moment on the SIGNIFICANT changes that are addressed by the new leaflet. Will clients take more notice of yet another letter or article written by their adviser or to the messages direct from HMRC contained in this leaflet?

Here's an extract:
If you take reasonable care to get it right, we will not charge a penalty if you make an error. Some of the ways you can show you took reasonable care are:
• keeping accurate records, which you regularly update, to make sure your tax returns are correct
• saving your records in case you need them later
• checking what the correct position is when you don’t understand something, or seeking advice from us or a tax professional
• telling us promptly about any error you discover after you send us a tax return or document
If you are not yet already familiar with the new penalty regime, you should be aware that it is effectively already in place. This leaflet contains a useful outline. If I were still in practice I think I would send copies of HMRC leaflet together with a brief covering letter. In this letter I would emphasise the MAJOR shift in the way penalties are to be charged in future. If a client is able to to show that they took 'reasonable care' (over and above appointing the adviser) then, if any mistakes occur, any penalties may be reduced to zero. That wasn't the position in the past and it's not simply a change in Revenue practice. It's the law.

If you think this through theere is another clear implication of these changes. I've seen it suggested that if a client is facing a 30% penalty for failure to take reasonable care, the accountant may be pressurised (or volunteer?) to say to the client: "Blame us and the penalty will be reduced to nil!"

I suspect that the potential for such accusations will serve to increase the number of negligence claims being made against accountants if, in the future, a client suffers a 30% penalty.

What are your thoughts about the impact of the new penalty regime? Please add your comments to this post.