Monday, April 27, 2009

Stopping the duff accountants and 'tax agents' spoiling it for the rest

HMRC published a new consultation document last week - the latest in a series under the heading 'Modernising Powers, Deterrents and Safeguards'

The document is titled 'Working with Tax Agents' and it explores how HMRC interacts with 'tax agents' - a phrase said to include "accountants, solicitors, payroll bureaux, specialist advisers and VAT specialists." The main target of any changes that follow are intended to focus on the small number within the tax agent community whose work falls below a professional standard.

The consultation is intended to raise issues and ask questions rather than propose definitive solutions. It contains assurances as regards "the reinvigoration of regular 'working Together' meetings between groups of local tax agents and HMRC staff".

I've no doubt there will be cynics who will doubt the sincerity of some of the aspirations set out in the document. In my view however I think the message has finally got home. Accountants and tax advisers are a critical element in making our tax system operate effectively. This is something that representatives of the main professional bodies have been trying to bang home for some years now. I recall Ian Hayes, my predecessor as Chairman of the ICAEW Tax Faculty, telling us how he had been stressing this point at every opportunity some years back. And many of us have repeated it more recently.

Simply stated, with ever reduced internal resources, HMRC need to be able to rely on the work done by reputable accountants and tax advisers. If you are in practice you have a choice. You can either help your clients to fulfil their legal obligations and do so in a professional manner, or you can (deliberately or otherwise) keep your clients' tax bills to a minimum through dubious means whilst hoping that HMRC's stretched resources will not catch up with you or your clients.

Now is not the time for cynics to dismiss this invitation to contribute to the debate. I think it's a once in a lifetime opportunity to contribute to HMRC's plans to enhance its relationship with accountants and tax advisers. This invitation is a direct result of the efforts made by many in the professional bodies over many years of debate and discussion with HMRC.

The Tax Advice Network will be formulating a response and welcomes contributions from 'tax agents' who have considered views but do not intend to respond to the conultation themselves.

Do please add your comments to this blog post or email us through the feedback facility on our website.

Wednesday, April 22, 2009

VAT Office tells caller to ring the Tax Advice Network

When people call us they are normally put through either to the Tax Advice helpline or to whichever of the tax advisers they have chosen from our website.

Around 4.30 today a caller (Tina) was put through to me as my assistant was unable to determine what she required. Tina offered to quote her enquiry number to me. I thought maybe she had called us by mistake. Perhaps our number is very similar to an HMRC office. But no, she had called the number she'd been given by the local VAT office!

(Given the rate at which HMRC are shedding staff at the moment I wonder if the day will come when there are more tax advisers within the Tax Advice Network than left in HMRC?!)

Once we had established what had happened, Tina was equally confused as to why HMRC had given her our number. She thought it was because no one at HMRC was able to resolve her enquiry and they wanted to get rid of her.

This seems unlikely to me. Tina is a bookkeeper for a client in the catering industry and wanted clearance as to whether certain supplies were zero registered. She'd been told to go to a specific page of HMRC website but had been unable to find the relevant contact details thereon. It took me less than a minute to do so. Why had the person she spoke with at HMRC been unable to assist her? Maybe they don't have access to a computer?

I also questioned whether the clearance facility was really what Tina wanted. I suggested that she might get faster and more reliable advice through our Tax Advice helpline. Equally if she wanted help with a formal letter or anything that involved more than a few minutes on the phone, she should speak to one of the VAT specialist members of the Tax Advice Network.

I'm not complaining - indeed I'm thrilled - that HMRC are directing people with complex tax problems to the Tax Advice Network. Thank you to whoever it was and by all means do it again.

Quickies from the Budget

Almost against my better judgment I was posting tweets* during the speech and immediately afterwards, quoting the #budget09 hashtag link that enabled others to follow an aggregation of everyone's tweets* on that subject.

For the record here is a selection of the comments I tweeted* (most recent is at the bottom)

(* If you don't know what I mean when I refer to tweets etc, you may find this article about twitter on my other blog helpful)

Darling claimed that tax cuts announced in PBR are helping people now. Not true for self employed who won't benefit until 31/1/10 #budget09

Darling claims that retail price index will be NIL next year. So will standard VAT rate stay at 15%? #budget09

Darling has evidently accepted the loss relief he announced in PBR was overly restrictive. A good move. Shows he listened. #budget09

Darling will consult (hooray) as to how to achieve a reduction in tax relief for pension cont'ns for those with incomes > £150k #budget09

Will high earning public sector workers (>£150k) be equally penalised re pension provision paid for by their employers? #budget09

Darling claimed the £50k pa investment allowance introduced 2 yrs ago to be increased. No one has had a penny relief from it yet. #budget09

Why does he think that changing cap allowances for the current year will help NOW? Tax relief won't flow through until late 2010. #budget09

Misleading to suggest that anyone has seen tax go down this month. PAYE changes will first apply in May. And for the s/e 31/1/10 #budget09

Increasing taxfree limit of ISAs won't help many as interest rates are so low the tax charge is of little impact. #budget09

And the trap for the Tories. Labour puts up top rate of tax to 50% - to force a comment as to whether it will be kept or reduced. #budget09

Starting to go through the 93 Budget Notices. I think a BIG issue has been overlooked. #budget09

While I look for the BIG one, note that the increased 40% first year capital allowance will not affect tax cashflows until 2011 #budget09

VAT registration threshold is only up to £68k - not the £100k implied in @BookMarkLee April Fool Budget leak. No surprise. #budget09

NB:Budget effectively encourages entrepreneurs. Don't draw high earnings - Build business for the future; Tax will be just 18% #budget09

Budget tax changes can't help self employed until 2012

Although written in advance of today's Budget I can predict with reasonable confidence that most tax changes announced later will have NO IMPACT on our pockets until January 2012. That's right 2012 (twelve).

Let me explain:

The current tax year (2009/10) started on 6 April 2009. It ends 5 April 2010. There is almost no prospect of the Chancellor changing the rates of income tax that we pay in the current year. The new rates and allowances that took effect from 6 April were announced last year.

In any event, although employees pay tax each week or month through the PAYE system, the self employed pay tax in 3 instalments. If the rate of tax payable for the current year were to change this will only impact the tax paid by the self employed on 31 January 2011.

If, as is more likely we are told of tax changes that come into effect from 2010/11 - then the impact will not be felt by the self employed until 31 January 2012. This is when they will be liable to pay the balance of their tax bills for 2010/11.

The same dates are relevant for Capital Gains Tax. Thus:
For capital gains made in the current tax year - the tax will be payable on 31 January 2011.
For capital gains made after 6 April 2010, the tax will not be payable until 31 January 2012.

Hope that helps clarify things. Now let's see what Mr Darling has in store?

Two dozen tax changes this year announced BEFORE today's Budget

Let's see now. What's more relevant to hard pressed taxpayers struggling with the impact of the recession? The announcements that the Chancellor makes later about FUTURE tax changes? Or the tax changes that are impacting the tax payable THIS year?

I have explained in a separate blog that there is invariably a long time lag between Budget announcements and the time that they actually impact the tax bills payable by the self employed.

With due credit to the ICAEW Tax Faculty, (who first collated a list) here's a list of 24 tax changes that will have more of an immediate impact than almost anything the Chancellor might mention during the Budget later today. (NB: Tax rates and allowances for 2009/10 appear at items 1 and 2 of the second list 'From 6 April 2009'):

From 1 April 2009:

  1. New powers and safeguards covering PAYE, VAT, Income Tax, Capital Gains Tax and Corporation Tax. I've blogged about these here and here.
  2. New time limits for tax claims and assessments. Many are now 4 years rather then the 6 years they were previously.
  3. New two-tier system of tax tribunals - a 'first-tier tribunal' and an 'upper tribunal'. General Commissioners, Special Commissioners and the VAT & Duties Tribunal no longer exist.
  4. Corporation tax rates were to change but will now remain 28% (main) and 21% (small) for Financial Year 2009.
  5. The Corporation Tax Act 2009 (CTA 2009), produced by the Tax Law Rewrite project, received Royal Assent on 26 March 2009. It came into force on 1 April 2009 and has effect for corporation tax purposes for accounting periods ending on or after 1 April 2009 and for income tax and capital gains tax purposes for the tax year 2009/10 and subsequent tax years. Although, the CTA 2009 does not change the effect of the law it does correct some minor anomalies. It also incorporates two extra-statutory concessions and one statement of practice. Particular features include the removal of references to 'schedules' and 'cases 'and the amalgamation of profits arising from UK and non-UK sources.
  6. New rules for tax relief for business expenditure on cars (Corporate) – capital allowances will be dependent on emission levels. Hire charges for cars will only be restricted for cars emitting over 160g/km using flat rate of 15%. The new rules for cars are that those with:
  • Emissions below 160g/km go into 20% pool
  • Emissions over 160g/km go into 10% pool
  • 100% FYA still available for cars not more than 110g/km
  1. Headline rate of Industrial/Agricultural Buildings Allowances falls to 2% (was 3%).
  2. Amended loan relationship rules for accounting periods beginning on/after 1 April 2009. Where one company releases a trade debt owed by another, the debtor will not be charged on the amount released. As before, the creditor company does not get relief for the amount written off.
  3. Changes to simplify the entry and leaving rules for small businesses using the VAT flat rate scheme, see PBRN25, 2008 Pre Budget Report Notes. The entry test requiring total business income to be less than £187,500 is removed completely. Eligibility to join the flat rate scheme will be determined solely by the turnover of the business.
  4. VAT staff hire concession ends (announced in Budget 2008). This had allowed employment businesses supplying temporary staff to charge VAT only on their own fees and not on wages paid by the client to workers.
  5. Turnover ceiling for using a published VAT retail scheme is raised to £130m, , see PBRN24, 2008 Pre Budget Report Notes.
  6. Newly rated premises qualify immediately for small business rate relief.
  7. For 2009/10 only empty premises with rateable value below £15,000 are exempt from business rates.
  8. Expenditure incurred on or after 1 April on restoring long term derelict land may qualify for land remediation relief.

From 6 April 2009:

  1. New rates of tax free allowances for 2009/10: eg: personal allowance up from £6.035 to £6,475
  2. Income tax rates and bands for 2009/10 eg: basic rate of 20% (unchanged) will now apply to incomes upto £37,400 (previously £34,800)
  3. Employers with 50 or more employees have to file their employee starter and leaver notifications and similar pensions notifications online.
  4. Mandatory e-filing of PAYE end of year returns by small employers (<50>
  5. A new A4 version of the P45 form replaces the old style A5 form.
  6. Changes to form P46 (Car), used for reporting the private use of cars supplied by employers.
  7. Benchmark rates for day subsistence introduced - HMRC have introduced a set of benchmark scale rates that employers can use to make certain day subsistence payments free of tax and NI to employees who incur allowable business travel expenses. Employers do not have to use the benchmark rates. They can reimburse their employees' actual expenditure or apply to HMRC to agree a scale rate appropriate for their business needs in a dispensation.
  8. Only earnings up to ‘upper accruals point’ of £770 per week will accrue entitlement to the income related S2P. Earnings between UAP and upper earnings limit incur additional NIC but for no extra pension. Upper earnings limit rises from £40,040 to £43,875, giving an increase in annual NIC payable by many higher rate taxpayers, of £383.
  9. Leaflet IR20 replaced - Booklet IR20: Residents and non-residents – liability to tax in the United Kingdom has been replaced by booklet HMRC6: Residence, domicile and the remittance basis. Any practices associated with IR20 – whether overtly expressed or not – will not apply from 6 April 2009, unless provided for outside of IR20 (in statute law, in case law, in a published extra statutory concession, or in a guidance note).
  10. New rules for tax relief for business expenditure on cars (unincorporated businesses) as for companies, see above.

Tuesday, April 21, 2009

Budget night summaries - worth the effort?

My summary is better than your summary. Actually they're all pretty similar. So similar in fact that I see little point in devoting time and effort to producing an overnight Budget summary.

Over the years I was in practice I often worked as part of a team (and latterly even led the team) that worked late into the night attempting to produce a unique Budget night summary. I never felt it was worth the effort - even when we moved to web based copy rather than printed summaries. In almost every case such summaries did little more than regurgitate what was in the Budget day press releases. There is rarely time or space for informed comment.

Some firms defend their attempts on the grounds that clients like them. Really? Or are they just being kind. 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. And in time some of the least well thought out ideas will be modified (if we're lucky) before new rules come into force. I'm quite sure this will happen, for example, as regards the taper provisions related to the 45% top rate of tax announced last year - which causes an unintended rate of 60% on some income bands between £100k and £150k.

If you really feel it's necessary then, in my view, it's much more cost effective to buy in a Budget summary from a commercial source - and to share this with clients and contacts in a branded cover. This approach allows you to satisfy the (supposed) client demand whilst allowing you to focus on key elements of the Budget that might be of immediate relevance to key clients. In recent years there haven't been many such issues as most tax changes are now announced so far in advance. The reduction in VAT from 17.5% to 15% last year is the exception that proves the rule! ;-)

This year of course even more attention than usual is being focused on the Budget. But how clear will the commentaries be as regards the impact of the tax changes that Mr Darling announces? ie: When will the tax changes actually hit taxpayers' pockets? I'll post a separate blog about this.

On past performance most commentators will only have time to replicate the headlines and spin that are contained in the main Budget press releases. I'm happy to let others do that. I'll explore and explain the TaxBuzz over the coming weeks and month as further details and implications become apparent.

"Despite the Budget - minimise your tax". (How?)

"5 ways to lower your revenue bills" - These are headlines on the 'Your Money' page of today's Daily Telegraph. The online version seems to be a different list titled: 'How to cut your tax bill'

Two things struck me about the print edition. The first was that someone had almost certainly changed the title from "5 ways to lower your TAX bills" - which is presumably the list that the journalist was asked to construct. The second was how inapplicable to most people were the five tips. And in this respect the Telegraph is no different to most other papers that I see.

Of the 5 tips, 2 were related to reducing tax on savings, one encouraged more pension savings, one was only relevant for people making significant capital gains and the final one related only to people who have stopped working or who don't pay any tax.

The tips are fine so far as they go but they're hardly mainstream in my view.

How does this happen? Is it really that there is nothing that the average reader can do to reduce their tax bills?

I assume that the Editor asks someone to get an uptodate list as this should be of interest to readers. Journalists then call up friendly tax accountants and tax specialists and ask for some generic ideas. I've contributed to such lists in the past and I also frequently assist journalists who need practical and commercial insights into our tax system.

Most of the points in the online version of the article appear to have been contributed by IFAs rather than by tax advisers. Most strange.

If I'd been asked about compiling such a list this week I would have suggested that the problem arises from trying to compile one generic list. I'd say that, in theory, at least 4 are required. One for employees, one for the self employed, one for those who run their own company (which is not the same as running a self employed business) and one for the Retired and savers. If you want a generic list that is of little real benefit then by all means repeat the age old tips about checking tax codes (without giving any tips as to what to look for when you check them) and the old favourite of holding investments jointly with your spouse - only relevant to a sub-set of married readers.

The telegraph is not alone in publishing such standard lists; Equally, there's no need to get 'clever, clever'. Having said that there is in fact very little that most employees can do to reduce the tax on their employment income - it's more a question of just checking that there are no mistakes being made. And that's the other problem, who'd want to publish tips lists that alienate the majority of readers by saying that your tax bills are pretty fixed but here are some tips for the self employed and those running their own companies?

Just to be clear, I'm certainly not thinking about including anything that could be termed abusive. But I do frequently hear about people who are paying more tax than they need to because of simple oversights or a lack of understanding about the tax system.

Maybe members of the Tax Advice Network should construct such lists and I could offer them more widely through the taxbuzz blog. Anyone interested?

Tuesday, April 7, 2009

HMRC - Pay up to make them go away

This is one of 3 consecutive posts inspired by last night's TV programme 'Taking on the taxman'. The first gave my take on most of the key elements of the programme. In the second I focused on the issue of bankruptcy orders.

In this post I address an issue only touched on last night. To my mind, however this should have been the main focus of the programme. I'm sure it's far more common and insidious than the relatively rare bankruptcy. (And in so saying I do not for one moment wish to dismiss the seriousness of such occasions).

A retired gentleman received a tax demand that his accountant said was not payable. Further demands appeared and still the accountant said no need to pay. The accountant evidently tried but was unable to persuade HMRC to sort out their systems. The taxpayer's wife was not interested in the accountant's advice. She wanted to pay the tax bills to make the demands stop.

This attitude to tax demands is, I am sure, very common. When I get a notice form HMRC I know it's computer generated. I know that a real person probably hasn't been involved - despite the personalised messages that often appear. I accept and understand that this is how organisations that deal with tens of millions of people have to operate. But I was a tax practitioner for 25 years.

Most people do not have such experience. And for every person who understands the system there are thousands who do not. Many of them will adopt the same approach as did the lady in the programme. "Let's just pay the tax and make the demands stop." This makes it quite likely that large amounts of tax that is not really payable still gets paid.

There will be no records of this as it is the tax demands that were wrong. This will not be apparent until and unless the taxpayer's affairs are reviewed by a specialist tax adviser who really understands the system and all of the relevant rules.

In the same vein I've heard plenty of people over the years suggesting that individuals in HMRC routinely play the 'threat' game when it comes to disputes. ie: "Pay up the tax we demand or pay even more in fees to argue the point, and you may not win." Perhaps this will happen less with the new appeals system that came into effect at the start of this month.

What do you think? Did you watch the programme? Please add your views and thoughts as comments on this posting - just click the 'comments' link directly below.

HMRC making people bankrupt

This is one of 3 consecutive posts inspired by last night's TV programme 'Taking on the taxman'. The first gave my take on most of the key elements of the programme. I've also shared additional observations about one aspect below and one other in the next post.

The first story in the programme focused on a cock-up that resulted in a taxpayer being made bankrupt despite having having overpaid and being due a VAT refund. Ultimately he received £50k compensation which was a fraction of the money he had lost. It was disgraceful. But rare? The key point is that it seems that the bankruptcy order was made without anyone having direct contact with the taxpayer. Eventually it was annulled but not before he'd lost his business, his home and suffered depression.

The reporter made a request under the Freedom of Information Act to see how often HMRC commences bankruptcy proceedings which are subsequently annulled. It seems that in each of the last 3 years HMRC has annulled about 100 Bankruptcy orders. The programme sought to suggest that all such cases were similar to the ones we had heard about.

The voice over did concede however that HMRC had explained that in many cases the annulment occurred once the outstanding debt had been paid. No one questioned whether such debts were always strictly due though.

Dave Hartnett stated that it was right that HMRC had the power to instigate bankruptcy proceedings when tax remain unpaid. I agree. BUT I would expect that such a power should be used as a last resort. The only reason I can think of for NOT requiring a senior official to authorise such use is if this would be too onerous - thus suggesting that the power is being used too freely.

And I wonder whether the use of bankruptcy orders is much like the £100 penalties for late filed tax returns? These are automatically generated by computer and subsequently waived or reduced once the outstanding tax return is filed and the outstanding tax (if any) computed.

What do you think? Did you watch the programme? Please add your views and thoughts as comments on this posting - just click the 'comments' link directly below.

Taking on the taxman

HMRC is such an easy target. And last night's TV programme 'Taking on the taxman' hit the spot. The real life stories were sad reflections of mistakes that have had a devastating impact on the individuals concerned.

This is one of 3 consecutive posts inspired by last night's TV programme 'Taking on the taxman'. In the second post I focus on the issue of bankruptcy orders. And in the third post I gave my take on a key issue only touched on last night.

For now here's my take on key elements of the programme:

Dave Hartnett CB, Permanent Secretary for Tax
Dave Hartnett, who was wheeled out to defend and explain HMRC's position did the best he could do. He refused to discuss specific cases and sought to point out that like any large organisation HMRC will sometimes make mistakes. I know Dave from my days as Chairman of the ICAEW Tax Faculty and I've seen him deal expertly and convincingly with challenging questions on many occasions. As such I am sure that his edited contributions to last night's programme were just that - edited.

Equally I'm sure that despite his denials the recent and prospective staff cuts in HMRC are having a detrimental impact on HMRC service standards.

The bankruptcy orders
I've extracted this element of my notes to create a separate blog post here.

The insider
We were given an insight into poor HMRC practices, pressures of over work and the evident impact of drastic staff cuts. I remain unconvinced that these make sense or that anyone on the inside seriously expects to be able to maintain (at best) or improve 'customer' service at this time - more's the pity. And in this regard I sympathise with HMRC as the staff cuts are being forced upon them and they have to defend them and cope. Not easy.

Tax charged on a redundancy payment
The programme made a big thing about how one taxpayer had expected his £29k (coincidentally just shy of the £30k limit?) termination payment would be tax free - as was indeed eventually agreed by the taxman. But, as were told, he had already invested the gross sum in a new business when he received an initial demand for £8k tax plus interest and an £8k penalty. This suggested to me that either his tax return was incorrect or that his employer had not supplied the 'right' information.

HMRC asserted that the termination payment “was taxable as additional wages.” This is a frequent argument and all too often proves to be correct - for reasons I explained in an earlier posting - 'No £30k exemption from tax when you leave a job'.

So was this taxpayer a victim of an out of control tax gathering department? Or a victim of a tax system that is complex and rules that appear inconsistent to the uninitiated? I prefer the latter explanation but that doesn't make for good d TV in a programme so evidently out to bash the taxman rather than the system. .

Tax avoidance
I didn't follow the juxtaposition of the other stories about HMRC mistakes with Vince Cable explaining that there are too many 'tax avoiders' round. This section of the programme also quoted the figure of £25bn tax lost "through perfectly legal tax avoidance". Hmmm. I think we've been here before.

What do you think? Did you watch the programme? Please add your views and thoughts as comments on this posting - just click the 'comments' link directly below.

Wednesday, April 1, 2009

Budget09 - Leak re BIG increase in VAT registration threshold

EDIT: The post below was an April Fool. My apologies to anyone misled who missed the big clue in the final paragraph. I also included an acrostic clue in the 9 paragraphs - which I have now highlighted. One or two people were obviously fooled and misled. I'm sorry. Many thanks to everyone else for all your positive comments on this post and for your many kind emails and messages.

I picked this leak up through loose twitter chat and then secured a copy of the relevant document which seems genuine. Have a look and make up your own mind. I've uploaded the full document here. The Ministerial briefing notes are most illuminating so I have copied them below.

22 April 2009



As you know, last year HMRC consulted on future changes to the VAT registration thresholds.

Plenty of comments were received as regards a number of options and on the desirability of change.

Respondents generally supported the idea of a significant increase in the VAT registration threshold.

Ignoring the strength of feeling is not a viable option in the current economic environment.

Looking at EU law and the impact of the recent movements in the exchange rate between sterling and the euro we are in a unique position to increase the VAT registration threshold to the highest permitted figure of 100,000 euros.

Following last year’s consultation the Treasury has sought and received confirmation that the UK’s VAT registration limit can be increased by reference to the [current] sterling/euro exchange rate. 100,000 euros = £100,000.

Obviously we hope that the exchange rate will improve but Treasury have advised that the VAT registration limit would not need to be reduced if this occurs.

Otherwise the subsequent change would have a serious negative PR impact for the Chancellor as did the reduction in the rate from 17.5% to 15% announced in the PBR.

Lastly we recommend that the Chancellor express his specific thanks to the Chairman of the Tax Advice Network for the insightful commentaries on his TaxBuzz blog