Late filed VAT returns claiming repayments are penalised

It is crazy isn't it. I've copied below an extract from today's issue of our weekly practical tax update. Implicit in the note is something described as lunacy by one of our readers:

"a VAT return due 31 January with tax payable is not late if filed online 6th Feb but is late if filed 1st Feb with a repayment due?"

And he's right.

The logical, reasonable route for HMRC to follow would have been to apply a consistent rule regardless of whether the return shows a liability or a repayment to be due. To penalise traders who are due a refund for filing tax returns earlier than those who have a liability seems quite absurd.

This rule is however the standard HMRC position. "If you submit your return online, you must pay your VAT electronically, so if your return shows net VAT to be paid to HMRC, you get seven extra calendar days to submit your return."

The reason this is more relevant now than normal is that some accountants and traders may have decided to focus on filing personal tax returns online before the 31 January deadline. And in so doing they have held off finalising VAT returns.

Now, to be fair HMRC have made it clear that late filed returns claiming a repayment will not themselves result in a surcharge or penalty. However, HMRC will record the late filed return as a default. And they will issue a surcharge liability notice extension to extend the trader's surcharge period because of the late return, but HMRC won’t increase the rate of surcharge.

Here's the full note from our newsletter.

The VAT returns for the quarter ended 31 December 2008 are also due for submission by Saturday 31 January 2009. That is unless you or your client has opted to submit the VAT return online, when the deadline is normally extended to 7 February 2009 for both the return and the VAT payment. However, this seven-day extension does not apply where:

• A VAT repayment is due;
• The business has not traded in the period;
• The annual accounting scheme is used; or
• Payments on account are required because the business has an annual VAT
  liability in excess of £2 million.

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MP expenses row: The tax angle that's getting missed

The row about disclosure of MP's expenses is about more than the shameful attempt to exempt disclosure of their expenses from the Freedom of Information Act.

We also have to consider the lax rules as regards their receipts for those expenses. These came to light last year when the current system was described as "deeply unsatisfactory" by the Information Tribunal. Liberal Democrat MP Norman Baker, who won his own FOI battle to get MPs' travel expenses broken down, told the BBC the judgment had been "inevitable".

The press focused on what they called the 'John Lewis' list. My interest was more in the reports that:

"Each MP can claim about £23,000 a year and can submit claims of up to £250 without a receipt and up to £400 a month for food".

Along with this revelation was the suggestion that detailing all of their expenses and retaining all of their receipts would be too onerous for MPs.

And that's the bit that, to me, is so very shameful. Why should MPs be exempt from the very rules that they impose (through HMRC, the taxman) on all of their constituents?

MP's do not pay tax on their reimbursed expenses. And that's right as long as those expenses were properly incurred on fulfilling their roles as MPs. With no obligation to retain receipts as evidence of the expenses they have incurred, there is no proof that the expenses were properly incurred. And that's exactly what the taxman says to all self employed taxpayers, all employees, all directors and all entrepreneurs. If you want to avoid becoming liable to pay tax on reimbursed expenses then you must retain receipts and proper records.

On 1 April 2009 HMRC gain new powers as set out in Schedule 37 of the Finance Act 2008. This authorises HMRC to specify what they consider is a 'statutory record' that taxpayers will then need to produce to prove that, for example, expenses were properly incurred for genuinely business reasons. Sdly such a power will never be imposed on MPs if they continue to be expemt from having to retain receipts.

It is a total disgrace that public officials should be exempt from a similar requirement. If the obligation to retain receipts for all receipts is too onerous for them it's too onerous for everyone. If it's a reasonable obligation to impose on taxpayers generally then it's even more important for MPs whose expenses and salaries are funded from the public purse.

The taxman wanted the new powers in Schedule 37 because there are some people who do not tell them the truth. For example claiming thast they have incurred business expenses that were more of a personal nature. Are there perhaps some MPs who might be similarly tempted or who might have done this in the past?

What do you think?

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Is there a future for Tax Boutiques in the UK?

As we move into 2009 and whilst many accountants are focused on helping dilatory clients beat the 31 January filing deadline I thought I'd reflect on a development I noticed taking place in 2008.

Was it my imagination or did there seem to be an acceleration in the demise of independent tax boutiques? There were a number of catalysts and different firms reacted in different ways but I'm aware of long standing boutiques that no longer exist as a result of one or more of the following:

• Anti-money laundering rules requiring unregulated firms to register with HMRC;
• Clarification of HMRC and the courts' view as regards the availability of legal professional privilege in the context of tax advice;
• Absence of sufficient regular work flows to cover all overheads and generate a profit;
• Widespread reduction in appetite for structured tax avoidance schemes;
• Difficulties in securing fast enough take up for such schemes before they were blocked;
• Acquisition by a larger practice looking to boost it's tax capability.
  

Of course there remain plenty of tax boutique firms around. But as we move forward into the recession I suspect that the long term survivors will be those independent advisers providing quality, client centered advice from the lowest fixed cost base. After all, how does the client (be it a tax payer or an accountant) benefit if they instead obtain specialist tax advice and support from a niche practice with a flashy office, trainee staff and other indirect and heavy overheads. It will invariably be more expensive but will it be commensurately better? How can anyone tell?

One of the challenges for those seeking Vetted Independent Specialist Tax Advice is how to find someone capable of providing that quality, client centered advice. And it was to resolve this quandry that I established the Tax Advice Network in 2007. And we've now introduced a facility for users to rate our tax advisers and to post testimonials to assist other users (like on Ebay and Amazon).

I tend to think that the number of boutique tax practices will reduce further this year with more independent tax advisers seeking admission to the Tax Advice Network. But I would say that wouldn't I!

What do you think?

Tax tweets on Twitter

Sorry. I appreciate that few regular readers of the TaxBuzz blog will be familiar with Twitter. It's a microblogging service and I recently wrote a piece on my ambitious accountants blog explaining why Twitter is not for accountants.

Having said that I thought I would share on here a selection of the of the UK tax related comments that I have picked up from Twitter in recent days and at the end I've asked a question. I would stress that these have all been posted by third parties:

19 Jan
Just recieved a letter from the Inland Revenue that was posted on 17th Dec 08, so only a month late. Big Ups to Royal Mail on that one!

Inland Revenue's helpdesk: "We are too busy to answer your call" - *Click*. Astounding.

16 Jan
I know a dude who's found a bug on Inland Revenue's site. He's been in touch but he keeps getting 'not interested' mail back. What to do?

I just made a deal with the inland revenue, I feel so dirty.

14 Jan
About to phone up the inland revenue and give them hell. Oh yes.

Some people simply will not take 'No' for an answer. Particularly those employed by the Inland Revenue.

I've vanished off Inland Revenue's radar. Cant believe I'm actually trying to get back on it! Surely this is an ideal situation to be in! :D

11 Jan
ooh... make sure you leave 7 clear days ahead of deadline if doing a tax self assessment online and not already registered!

8 Jan
Inland Revenue's online services are now available to businesses. See your tax payments and liabilities. Functional, but a little clunky.

finally got answer from Inland Revenue. Only taken 15 weeeks. Ho hum

6 Jan
Well it's 03.42 and the inland revenue site is still not doing what I need it to surely it's not busy with traffic at this time

Question (this IS from me)
Do you see any value in tracking such comments made by people on Twitter? If not, are there any words/topics you might want to 'follow'?

Suspects in criminal cases have more rights than in tax cases

A recent article in Taxation magazine reminded me of this concern that I first expressed some years back.

Peter Vaines, is a tax lawyer and a partner with Squire, Sanders & Demspey. In his article he notes that taxation inhabits an 'extraordinary place' in our legal system.

"An individual is better protected by the law if he is suspected of a serious crime than if he is suspected of not paying even a comparatively small amount of tax. HMRC can demand information, enter premises, raise assessments and enforce the payment of tax on grounds which would barely scratch the surface in the criminal process."

Like Peter I appreciate that the burden of proof differs as between civil and criminal cases. However HMRC do not even have to prove their case to the civil standard. It is the taxpayer who has to prove that he or she is innocent to the civil standard. Almost all of the legal protection afforded to a suspected burglar are unavailable to someone suspected of failing to disclose all of their income.

I also share Peter's view that we need to ensure that taxes are paid properly. However I tend to the view that too many obviously guilty people are acquitted under the criminal law due to 'technicalities'. The 'tyrannical powers' that HMRC now have (to use Peter's description) were sought so as to reduce the prospect of tax evaders escaping justice.

Peter refers back to Jonathan Schwarz's Hardman memorial lecture to which I referred on this blog last November. HMRC powers - The rational arguments that these go too far. Peter highlights another key point made by Jonathan. That HMRC simply have too broad a coverage and that it would be much better for them to confine their attentions to taxation and not be burdened by social security benefits at one end and criminal activities such as the importation of endangered species and drugs at the other.

Peter endorses Jonathan's view (as do I) that HMRC are being asked to do too much and that this risks them destroying the very prize the Government seeks.

"The willing co-operation and compliance by the majority."

The key question, I believe, is whether HMRC do restrict the use of their newly liberated powers to the more serious cases or whether we perceive a clunking iron fist across the board. Until recently I was hopeful that the use of their powers would be restricted. More recently I have begun to fear that I was being naive - and wrote about how the Misuse of anti terrorism powers raises concerns about potential for misuse of HMRC powers.
I suppose we shall just have to wait and see!

Watch out there's a fake HMRC website about - and other scams

The current scam starts with an email that purports to come from HMRC and reminds taxpayers of the 31 January deadline for filing tax returns. (NB: This is the deadline for online filing as 31 October was the deadline for filing paper based tax returns).

The email reads "Over the last annual calculations of your fiscal activity we have determined that you are eligible to receive a tax refund of £99.23. Please submit the tax refund request and allow us 3-6 days in order to process it."

It then contains a link which claims to go to the HMRC website. However, it actually takes users to a fake website - designed to look exactly the same as the real one. Unsuspecting victims are then asked to enter key financial data before being redirected to the real HMRC website. In the meantime their financial data is used to remove money from their bank accounts and they may be unaware of this for some time.

HMRC's website contains two valuable pages on the subject of spoofs, scams and frauds:

• Warnings about what to look out for in scams and fraud attempts by email.
  
• A list of the known Existing fraud attempts which lists current known scams, frauds and spoofs.

If you are generally concerned about online frauds, phishing emails and scams, you will find loads of helpful advice and tips here: Get safe online

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7% of records in HMRC's system contains errors

I picked this up from The Register last week.

The problems came to light after enquiries by Tory MP for Putney Justine Greening concerning a constituent who had found errors on their records. Apparently the Government has admitted that HMRC's frameworks database contains mistakes in just over 7% of the records (ie: mistakes were found in 3.5m records out of a total of 47m).

The frameworks database feeds information into various other databases held not just by HMRC but other departments too. How many of HMRC records with mistakes have been amended? How serious are or were the mistakes? If 3.5 million have been identified this suggests to me that the mistakes are simple and obvious ones. Otherwise how would anyone know they were mistakes?

Justine Greening apparently told The Register that: "It shows there are substantial problems with records so it is no wonder there are problems with tax returns and probably tax credits too."

She said she had tried to investigate why her constituent had their record changed wrongly, but the Treasury was very vague about what the process was for changing records - the department would only say that they can be changed for "business needs".

Apparently Justine will be asking more questions on this issue when the House gets back to work.

The frameworks database only contains quite simple information - first, second and surname, title, sex, data of birth, address and National Insurance number. Hence my view that the mistakes must be quite simple and obvious.

Justine suggested to The Register that: "Many people are probably unaware what is wrong."

She may be right but how serious is this likely to be in practice? Sorry. Let me be more specific. How many of the mistakes are likely to have a serious impact? As in people being associated with someone else's records? Or being denied tax reliefs, tax credits or pensions due to the wrong date of birth being recorded and not corrected?

Whilst I would like to hope that we could aspire to have zero mistakes in these important records, I'm a realist. I would imagine that a certain level of mistakes is almost inevitable in any large database. So how bad is this situation really? I'm sure you'll tell me......

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It's not just married couples who are 'punished by tax system'

Does it really need an 'influential think tank' to state the 'bleeding obvious'? Sadly the answer is 'yes' as the media feed off such reports. As a result more MPs are likely to become aware of the issues and there is a greater chance that changes will follow. Not a big chance - but greater than there was before the report has been publicised.

Today we have the report Individualists Who Co-operate, published by Civitas. The Daily Telegraph leads with just one key element of the report: Married couples 'punished by tax system'.

In fact the system doesn't just punish married couples, it punishes people who live together - married or not. And, as I have explained on this blog before, a BIG part of the problem is that the Tax Credits System is NOT fit for purpose. The Civitas report makes two related points:

• Working tax credits encourage part-time work instead of full-time work;
• The system penalises the formation of couples - some parents can be over 20% worse off if they live together.

Before Christmas I was listening to various commercial radio stations and couldn't escape the repeated adverts about tax credits (which replaced many of the old social security benefits some years back). This campaign seemed even more insidious than in previous years. One of the ads sought to encourage tax credit claimants to tell HMRC if their relationship status had changed and if they had moved in together. In effect, "If you now live together your tax credits will be cut so do tell us so that we don't overpay you and have to claim it back later."

The more the media give credence to reports that tax is an issue to consider when getting married the more accountants will need to be familiar with ALL of the related tax issues. In this context I have said before on this blog that More and more accountants will find themselves having to advise on tax credits. And although their motivation for doing so will be to assist clients in securing the levels of tax credits to which they are 'entitled', it could also lead to them being asked about the impact on tax credits claims if a couple marry.
The answer is simple. Marriage isn't a relevant factor - entitlement to tax credits is determined by household income levels regardless of whether or not the couple are single, married or in a formal civil partnership. It's living together that can reduce your entitlement. Who said "Families are very important. They stand for social cohesion, as against the breakdown of society."

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