Sunday, November 30, 2008

HMRCs dedicated phone numbers for agents

These are the numbers that accountants and other professional agents can call rather than the more generic helplines that taxpayers and the public call.

It's nearly a year since HMRC committed to provide this facility in response to complaints that agents were frustrated and wasting time calling the generic helplines. There are now over 60 distinct lines available - one in each HMRC Contact centre.

When you call an Agent Dedicated Line, you will be:
  • given priority and answered faster;
  • put through to an adviser who has at least 12 months experience; and
  • transferred to technicians if necessary to ensure your query is answered wherever possible during your first call.
This initiative has been building up over the last year and the numbers are for use by agents only. The contact centres are open Monday to Friday 8am - 8pm and Saturday 8am - 4pm except Belfast which is open Monday to Friday 8.30am to 5pm.

There is a separate and distinct priority number for agents dealing with tax credits: 0845 300 3943.

I note that in the press release announcing the availability of the last of the agent dedicated lines, (HMRC - Why don't you give us a call?) there is a rather strange statistic. It states that
"over 170,000 agents have called HM Revenue & Customs (HMRC) Agents Dedicated Lines (ADLs) since they started being rolled out three months ago."
I'd accept that over 170,000 calls have been made to the ADLs. But the suggestion that there are anything like 170,000 agents in the UK strikes me as excessive. I'd welcome suggestions as to how to arrive at a more accurate figure.

Misuse of anti terrorism powers raises concerns about potential for misuse of HMRC powers

HMRC now have very wide powers and there is a widespread concern across the profession that taxpayers have insufficient safeguards. **

The police raid on the London home of MP Damian Green, on his Kent home and on his constituency office was conducted using anti-terrorism powers. There has been no suggestion that his involvement in leaks passed to him had anything to do with official secrets. The media, MPs generally and all commentators seem unanimous in their criticism of what appears to be a gross misuse of power by the police.

My reason for referring to this new story on the TaxBuzz blog is that it provides further evidence (if this were needed) that HMRCs powers are also capable of being misused. Indeed I am sure that there are already greater constraints on the Police in this regard than there are on HMRC. And yet still the police were able to rely on anti-terrorism laws to justify their raids on Mr Green.

Senior officials at HMRC have sought to explain why they need to have the new powers afforded to them by Schedule 36 of FA 2008. These follow on from the additional powers contained in FA2007. The entire powers review has been the subject of much discussion and debate. Throughout it seems that HMRC have rejected the profession's near unanimous calls for effective statutory safeguards to prevent misuses of power by HMRC staff and officials.

Such requests invariably seem to fall on deaf ears. On occasion we have heard variations on the usual old cliches:
....would only ever apply to established tax debts once all the normal avenues for appeal had been exhausted, and after repeated requests for payment had been ignored.

Any powers to access bank accounts should we acquire them, would only be used ....after we had exhausted all efforts at contacting the defaulter.

“The cultural message across HMRC is collect the right amount of tax, and not the maximum amount, and to ensure that taxpayers receive their entitlements”

“there are diametric views as to what is actually a safeguard”

it’ll be alright on the night

“Trust us – we shall be reasonable”.
I hope that the events of last week will serve as a lesson. A lesson as to why it is so important for the law to contain effective protection against those who would misuse the wide powers afforded them by the law. It's important as regards anti-terror laws, it's important as regards HMRC powers and it's important for civil liberties. And I've never before been concerned that as an innocent person I had anything to fear from the application of UK law.

**I addressed this point in a recent blog: HMRC powers - the rational arguments that these go too far. This by reference to the 2008 Hardman memorial lecture presented for the ICAEW Tax Faculty by International Tax Barrister Jonathan Schwarz.

Tuesday, November 25, 2008

VAT changes will HURT small businesses

Despite my comment in a previous post that I'm not a fan of instant Budget analyses I did find myself in a bizarre situation yesterday. I was providing instant comment and analysis as regards the likely impact of the VAT cut announced in the PBR. Or, as at least one radio station insisted upon describing the move, "VAT slashed". Somewhat of an over exaggeration I thought especially as many traders won't change their prices to reflect the change.

We had of course had time to consider some of the related issues as the reduction from 17.5% to 15% in the standard rate of VAT had been widely leaked beforehand.

I wasn't alone in noting the practical issues for small businesses. These are two fold:

  • No compulsion to lower prices but retailers especially may be expected to explain that they've included the VAT rate cut in any wider discounts they are offering; and
  • Significant time, effort and hassle arising from the need to recognise the rate change in their accounting records and systems.

  • Beyond this I haven't however seen any other references (yet) to the VAT nightmare before Christmas that will ensue when everyone gears up for the change back to 17.5% over the festive holiday period next year.

    The Government it seems takes a contrary view. Their impact assessment anticipates that the average cost per small business will be less than £100. This comprises £7 for familiarisation, £25 for repricing, £13 for extra bookkeeping, £25 for extra accountancy costs and £13 for system changes and upgrades. They've also allowed a further £10 for purchasing patches or upgrades to accounts packages whilst recognising that these may be provided free by software suppliers.

    Would readers of this blog care to share their views by way of comments as regards these cost figures?

    Would anyone have been interested?

    Accountants who have heard me speak about marketing related issues for accountants will be aware of my disdain for instant Budget commentaries. These tend to do little more than regurgitate what was in the Budget day press releases. There is rarely time or space for informed comment.

    Do clients really like them? Are they really of any value? The papers will invariably contain more detailed summaries, analysis and comment than any one firm's overnight Budget commentary. And within 48 hours it's often out of date as more related documents are published by HMRC and Treasury revealing more details of the announcements contained in the Budget. What makes the Budget announcements worthy of all that time and concerted effort to provide instant comment as distinct from the other tax chnages and developments that occur throughout the year?

    So, thank you to anyone who came to this blog looking for our instant analysis and comments. Thank you but we didn't produce one. We have however commented on some of the specific issues and will continue to do so as further details and implications become apparent.

    Thursday, November 20, 2008

    HMRC powers - the rational arguments that these go too far

    Earlier this week I attended the 2008 Hardman memorial lecture presented for the ICAEW Tax Faculty by International Tax Barrister Jonathan Schwarz. His theme was 'Rights and powers: protecting the legitimate interests of taxpayers.' And his subtitle was "Taxpayer Rights in a Constitutional Democracy"

    I have attended numerous seminars, meetings and discussions on related subjects - that is, the new HMRC powers as set out in part 2 of Schedule 36 FA 2008. I have also made a passing reference to these in a previous post on this blog: The end of the old paper bag jobs?

    I thought I understood the arguments raised by those in the profession who fear that the powers go too far and could be misused. Equally I had some sympathy with HMRC's position, which was well defended during the ICAEW Wyman Symposium earlier this year. I would summarise this simply as: HMRC argues that it needs these powers to ensure that dedicated tax evaders do not escape on technicalities.

    Jonathan's hard hitting views included a well argued observation as to the police state nature of the powers and the prospective consequences of the absence of effective safeguards.

    A number of points specifically stuck in my mind:
    • the new powers are the tax equivalent of the police's right to 'stop and search';
    • as the powers are already on the statute book we need to focus on adding specific statutory safeguards;
    • the unfettered power for HMRC officials to enter private homes should however be removed from the statute book;
    • the proposed taxpayer's charter will, by definition be inadequate even if given simplistic statutory backing;
    • taxpayer rights cannot be effectively addressed by an aspirational document (ie: the proposed charter). They need to be properly endorsed by parliament in the same was as were HMRC powers;
    Whilst listening to Jonathan I realised that I had previously allowed myself to be misled by the HMRC arguments. I firmly believed that in reality no one within HMRC would have the time or inclination to abuse the new powers to the detriment of innocent taxpayers.

    After the lecture Jonathan took questions from the floor. The last one was more of an observation by Anne Redstone. But, for me, it summed up the fears that I have not previously shared. She recalled a friend from her days at a girl's Convent school. The friend had asked her mother if she could go on the pill. Her mother wasn't happy and likened the idea to acquiring a beautiful ball gown, even though the school didn't have an annual prom. "The thing is, she told her daughter, once you have it you will want to use it."

    The fear that so many commentators and practitioners have is that HMRC's powers will be misused. Many of us do not doubt the honest intentions of those at the top of HMRC who have championed the introduction of the new powers. We do not doubt the sincerity of their motives and we may even trust most of them. But it will be less senior officials who get to play with these new toys.

    And, lest anyone should doubt how such powers can be used in ways not intentioned, we do not need to look very far for a worrying example. How about the use of the Prevention of Terrorism Act to freeze Icelandic assets?

    Tuesday, November 18, 2008

    Know your limits

    A senior official at a big publisher told me recently how he once prevented what could have been a major PR disaster. His marketing team had been working on the copy they wanted to use to promote a new easy to use online tax service.

    Their favoured headline?
    "For when you want to advise on something you know nothing about"
    Fortunately the official immediately recognised the potential downside of such a headline. If an accountant used the service and then gave advice which turned out to be wrong he might try to sue the publisher. Indeed the promotion also ran counter to the Guide to Professional Conduct for those working in tax. I have referred to this before on the TaxBuzz blog. (I sit on the pan professional body working party that is updating the 2004 version for the ICAEW, CIOT and 5 other professional bodies). One key paragraph often comes to mind:
    “Members will from time to time find themselves having to advise on matters which require specialist knowledge. In such circumstances they should be careful not to go beyond their own level of competence and, if necessary, should seek help from a specialist in the field”.
    Thus it won't surprise regular readers if I offer an alternative solution 'for when you want to advise on something you know nothing about'. Don't. Don't risk getting it wrong. Our tax system is now so complex there is no shame in admitting to a client that the matter in hand requires specialist input. Doctors adopt this approach all the time. So do dentists. So do all wise professionals.

    Indeed one has to question whether any 'professional' would ever advise a client on something the professional doesn't really know about.

    And if you do want to speak with a VISTA (Vetted Independent Specialist Tax Adviser) I hope you know where to start!

    Monday, November 17, 2008

    Hutton on Estate Planning - all tax books should be written this way

    I've been attending Matthew Hutton's very useful Monthly Tax Review sessions for some while now. We share a desire for sharing knowledge and for commenting on current tax developments.

    One big difference between us is that Matthew has made time to write a heavyweight book on 'Estate Planning'. I have a copy in front of me as I type this. I can't imagine how Matthew managed to do this on top of his other regular activities. More than that though Matthew has set a new standard for tax books as he has committed to publishing monthly updates. Indeed the entire book is also available as a web based resource thus making it very easy to find just what you are looking for. The book was initially published in September 2008 and the online version already now benefits from 2 updates which are incorporated into the text.

    When I was in practice and researching technical material I knew how important it was to check the publication date of any books to which I referred. And I sympathised with the publishers who were reduced to promoting out of date books when the authors had not updated them. Very few tax books require no updates at all during the year.

    Hutton on Estate Planning was evidently written as a labour of love and Mathew is to be congratulated on his commitment and dedication. I love the sub-title "Practical Solutions to Today's Problems" as this highlights the approach he has adopted throughout the book. The text is also sprinkled with highlighted 'tax traps' as well as extensive case and legislative references.

    If I were still involved in the provision of tax advice myself this is one book I would want on my shelf. More than that I would also want to be able to access the ebook version too. Without it you are reduced to having to check various sources to identify the impact of new case law, HMRC publications and related material that arises throughout the year. I suppose that if I was a dedicated reader of a pre-existing annual publication on the same subject matter I might remain 'loyal' but I'm not sure that there is a comprehensive alternative and especially one that is kept so uptodate throughout the year.

    And for those who wonder about Matthew's commitment in this regard - do note that he has proved his credentials as he has been writing monthly tax updates for fifteen years already.

    As I said above, this book (on and offline) sets a new standard for tax publications. It won't be easy for the mainstream publishers to replicate this but it's something they will need to consider.

    Edit: I'm delighted that, having read the above post, Matthew has offered a discount to readers of the TaxBuzz blog who are members of the Tax Advice Network. If you are interested in the online version of the book, just quote 'TAN' when you email Matthew on to qualify for the 10% discount.

    Friday, November 14, 2008

    Beware of tax schemes you don't understand

    A firm of accountants recently lost a court battle with their PI insurers to cover negligence claims arising from failed tax avoidance schemes. What can we learn from this?

    Thinking back, this isn't a scenario I have previously mentioned during my talks on how to protect your firm and avoid professional negligence claims. I've addressed many related points though, including the risks that advisers run when they promote tax schemes that they don't understand.

    The recent case involved partners at Kidsons (now part of Baker Tilly) who sold tax schemes that the Inland Revenue subsequently ruled inadmissible. This led, as it does so often, to claims from clients that they had not been adequately informed of the risks.

    Kidsons expected such claims to be covered by their PI policy but the insurers refused to pay out claiming that they had not been notified of the claims in good time. This is another point that I stress during my talks. The need to satisfy what is a key term in all PI policies - to notify all circumstances that could led to a claim - not simply to notify claims as they arise.

    The tax schemes in question were marketed by a company called Solutions at Fiscal Innovation Limited which was owned and managed by Kidsons. I would assume that the schemes in question had the benefit of Counsel's opinion as to their legality and the expected tax outcome. Such schemes invariably do. But these Opinions are not guarantees and, as this case shows, woe betide anyone who underplays the risks when promoting such schemes to clients.

    And, as I also regularly point out - the time lags in such cases can be significant. From what I can tell it seems likely that the schemes in question were being promoted in the late 1990s. It was seven years ago in October 2001 that the insurers were first notified that there could be problems. It it evident that the 'fiscal engineering' was unsuccessful and I would assume that the tax outcome was resolved in 2003 or 2004 (probably arounhd 5 years after the planning took place). The dispute between the accountants and their insurers rumbled on with a High Court case in August 2007 and now the Court of Appeal decision in October 2008.

    The three key points that I would highlight here are:
    • The dangers of advising clients about the expected outcome of tax avoidance schemes when you do not have the technical expertise to fully appreciate the risks and key issues;
    • The importance of ensuring that clients appreciate the risks such that they cannot claim to have been a victim of 'mis-selling';
    • The liklihood of 'schemes' being challenged by HMRC and of such challenges dragging on and on.
    • The importance of notifying your PI insurers whenever you become aware of circumstances that could lead to a negligence claim.

    Wednesday, November 12, 2008

    Cancelling the small company tax rise won't help NOW

    This morning I posted a blog in which I explained why none of the headline demands for tax cuts would have the desired impact. Quite simply because they won't reduce the taxes payable in the immediate future.

    I have another example of such a tax cut to add to the list. And this one I'm afraid emphasises how out of touch are the MP's who vote on these matters.

    The alternative view would require me to attribute a high degree of cynical game playing to the 18 MPs who signed a parliamentary motion. Is it really possible that they only did so for the PR that has followed despite knowing that the tax to which they refer will not be payable until 2010. So, even if the Government did as requested the impact would have NO IMPACT at all on cashflow during the recession.

    Sadly - I think it more likely that the MPs genuinely think they are trying to help (and secure some positive PR) and are wholly unaware of how ineffective would be a successful outcome to their demands. ie: they do not understand even the most basic of points about our tax system - ie: when tax is payable.

    According to press reports the MPs have called on the Government to "back down on the plan to increase corporation tax on small businesses from 21% to 22%". Amazingly the claim is being supported by the Federation of Small Business which I would have hoped did understand how the tax system works.

    Quite simply corporation tax is payable on profits made during an accounting period. The rate of corporation tax on small company profits (upto £300,000) is to increase by 1% to 22% from 31 March 2009. It will only be payable ON PROFITS MADE AFTER THAT DATE. And corporation tax is not payable until 9 months after the end of an accounting period.

    By way of example - assume 12 month accounting periods ending:
    • 31 March 2009 - Subject to corporation tax of 21%. Payable 31 December 2009.
    • 30 April 2009 - Subject to tax at 21% on 11 months profits and 22% tax on profits in April 2009. All payable 30 January 2010.
    • 30 September 2009 - Subject to tax at 21% on 6 months profits and 22% tax on 6 months profits from April 2009. All tax payable 30 June 2010.
    • 31 March 2010 - Subject to tax at 22%. Payable 31 December 2010
    So tell me, how does cancelling the increase from 21% to 22% help small companies facing the recession at the end of 2008?

    Talk of tax cuts hits the headlines but is unlikely to hit our pockets

    I was interviewed on BC 3Counties radio on Monday about the stories that had appeared in the press suggesting that tax cuts were on the way. I said that many of politicians speaking on the subject were revealing how little they know about our tax system. Either they are woefully ill informed or simply ignorant on the subject.

    I’ve amplified below some of the points I made during the interview:

    There will be no income tax cut part way through the current tax year. Neither HMRC nor any commercial tax software would be able to cope with the necessary calculations. So any such change would either be deferred until the start of the next year (see below) or it would need to be back dated to the start of the current tax year (6 April 2008) as was the recent change in the personal allowances – to compensate for the abolition of the 10p tax rate. Even then a back dated rate change would be unprecedented and I’m doubtful the software would be able to cope as it’s never had to do so before. And no one with experience of HMRCs software would have an confidence that it could cope with a back dated change.

    Even if the basic rate of income tax were to be cut from 6 April 2009, this would only flow through to employees’ pockets some time after May 2009 – due to the way that the PAYE system operates. So, no immediate impact or benefits other than headlines.

    For the self employed the position is even worse – if the basic rate of income tax is cut from 6 April 2009 this will generally only affect the tax payable on, wait for it, 31 January 2011. That’s when the self employed settle their tax bills for 2009/10 so such a tax cut would not impact our pockets for almost two years. That’s hardly going to make a difference to how people feel about spending over the next few months.

    What about a cut in VAT? Well, let’s leave aside the need for the Government to first obtain authority from Europe for such a cut and assume that follows. Would a cut help ‘now’? It might do IF all shops and suppliers pass on the cut to consumers. But there’s no guarantee they would do so. The basic rate of VAT has been unchanged for so long that most people are used to VAT inclusive prices.

    Assume the rate drops from 17.5% to 10%. Will a shop that charges £58.75 (being £50 plus VAT) reduce their prices to £55 (£50 plus 10% VAT) straight away or will they find it easier to revise their price upwards from £50 to £53.40. VAT at 10% on this takes the full price figure upto £58.75. And then price tickets don’t need to be changed. INCREASES in VAT would be passed onto consumers straight away but I’m not sure that cuts would be. Having said that a cut in VAT is otherwise the fastest way to get a tax cut to the majority of the country. But it’s also VERY expensive for the Government.

    Increases in tax credits would be targeted on those on lowest incomes and equate to an increase in ‘benefits’. Sadly. As I have said before, the tax credit system is not fit for purpose and claims can only be backdated by 3 months so many people lose out as they did not anticipate their income falling to a level that would qualify for tax credits.

    Reducing Employers NICs would have an immediate impact on employers (big and small) but would do nothing to help the self employed or the small companies with no employees.

    Talk of tax cuts hits the headlines but is unlikely to hit our pockets