So what was that HMRC survey all about?

You may have seen headlines in the printed and online media last week claiming that "One in five businesses consider relocation over punishing tax regime" or that a 'poll' reveals that companies claim that "Red tape burden is on rise". I'll save the publishers' blushes by not providing links to them.

The background to this 'story' relates to a survey commissioned and published by HMRC last year. The results have only just been published.

In 2009 HMRC engaged TNS-BMRB to conduct their Large Business Survey. This involved 1,088 telephone interviews with large businesses in autumn 2009.

So the first thing to note is that the data is at least 9 months and possibly a year old. It may have a value to HMRC but it is almost irrelevant as a measure of current opinions.

HMRC have published the telephone questionnaire that was used and this shows that the target respondent was head of tax. If there was no one in that role the caller asked for the head of finance. It is also clear that this was:

a survey for HMRC to explore large business customers’ experiences of doing business with them.

and that:

The research will focus in particular on perceptions of change to HMRC’s relationship with it’s customers. The aim of the research is to help HMRC to be more responsive to businesses such as yours.

Deep in the questionnaire there are two questions which have been the focus of media coverage:

To what extent does HMRC's ADMINISTRATION of the UK tax system affect how competitive the UK is as a place to do business?

and

In the last 12 months. has your organisation considered re-locating the business, or parts of the business, from the UK to another country for TAX PURPOSES?

Looked at in the context of the whole questionnaire these seem startlingly out of place. Almost every other question relates to the relationship with and service provided by HMRC.

Going back to the 'news' stories referenced above, there are no 'claims' here. The first of the two questions asks for opinions out of context. The second question also seems designed to secure partisan responses. Many company Chairman and Chief Execs, seeing reference in the papers to the subject last year will have wanted to "consider" moving their business offshore. Once their Head of tax or FD has explained the necessary consequences however, few are taking the idea forward. Indeed, going back to last autumn when the question was asked, most will have wanted to wait for the outcome of the election. Views expressed under the previous regime are almost irrelevant now.

So what was the point of these two questions? Any ideas?

Copies of the full questionnaire and the report (outputs from the survey) are available on HMRC's website.

Don't be fooled. HMRC are NOT going soft...

The FT has published an article headlined: Tax officials to soften stance on avoidance. This is being picked up and widely misinterpreted in my opinion.

AccountingWeb asks: Is Dave Hartnett going soft? Elsewhere the FT's headline has been bastardised as: HMRC goes soft on tax avoidance and: Revenue 'to go softer' on tax avoiders. In the latter case at least the difference between avoidance and evasion is not made clear. The implication given is that tax evaders and avoiders will have an easier ride in future. This is misleading to say the least.

The author of the FT piece is the highly regarded Vanessa Houlder (although I suspect the headline was picked by a sub-editor). Let's see what's really going on.

I'll start by picking out a couple of key quotes from the article:

The Revenue’s fresh approach is primarily focused on business rather than wealthy individuals.

Mr Hartnett said: “If it is a strong case, we will fight to the death.”

Now let's go back to the opening paragraphs:

Revenue & Customs will adopt a less combative approach to resolving tax disputes with businesses in a move designed to cut a mounting legal logjam and unlock billions of pounds tied up in court battles over avoidance.

Dave Hartnett, permanent secretary for tax at HMRC, said there had been examples of officials being too “tough” in disputes over tax assessments. “HMRC is packed full of very intelligent people, but we are sometimes too black-and-white about the law,” he told the Financial Times.

I know Dave. The prospect of him going 'soft' on 'abusive' tax avoidance, whether undertaken by individuals or businesses is as likely as Gordon Brown being invited to join the coalition government.

Bottom line. This is all about a welcome change in the way HMRC approach tax disputes with large corporates. The central themes of the Litigation and Settlement Strategy (LSS), launched in 2007 are:

• Seek non-confrontational solutions where possible.
• Focus on issues that will best serve HMRC’s goal of tax gap reduction.
• Choose cases for their wider impact, as well as for their own value.
• Where we have a strong case we should seek full value from settlement, or take the matter to litigation.
• Do not pursue weak arguments.

The LSS was introduced in line with the Varney Review (Links with Large Business) principles which commit HMRC ‘to fewer enquiries, focused on material items and concluded more quickly’.

Not surprisingly HMRC are under pressure to reduce costs. They want to reduce the resources they tie up in long-lasting disputes and the number of cases they lose. In the real world of course even if HMRC are advised that they have a more than 50% chance of winning, it's likely that the taxpayer has been told the opposite (ie: that HMRC have a less than 50% chance of winning). Either side could still lose.

No doubt HMRC also want to speed up the collection of funds due to them from settlements. As the FT reports:

The recent £1.25bn settlement of the five-year dispute with Vodafone was an early indication of the policy change.

All of which points to a more commercial (as distinct from a 'softer') approach. Certain elements of the LSS may well be changing and that may be perceived as good news for companies in dispute with HMRC. Everyone's legal costs may fall as a result. There may also be a return to more 'horse trading'.

Overall though this only really affects companies involved in large scale disputes with HMRC. It should lead to faster resolution of disputes on realistic terms and less risk of having to go to court to prove your case.

As the FT report, HMRC are 'softening' their approach. They are not going soft. Only very naive or mischeivious advisers and commentators would suggest that this change in approach means HMRC walking away and letting more companies get away with 'abusive' tax avoidance activities. And as I highlighted above, "The Revenue’s fresh approach is primarily focused on business rather than wealthy individuals."

Why does it take HMRC 2 months to register the self employed?

A contributor to the blog brought this to my attention. On HMRC's website they say that the expected turnaround times for paper based self assessment and self employed registrations is currently 8 weeks. And that it will stay at 8 weeks until November.

The implication is that they would prefer the time lag was shorter than this. And that the position will improve but not until November. But 8 weeks from the posting of an application until confirmation is received of the self employment/assessment registration? As my anonymous contributor notes:

"Are they trying to ENCOURAGE the black economy?"

HMRC explain that the delay is due to the redeployment of resources to higher priority work. It is this that will result in the lengthy turnaround times for paper forms handled by the Central Agent Authorisation Team until 31 October 2010.

This seems to be yet further evidence that HMRC's staffing numbers were cut too sharply by Gordon Brown and that MORE staff are required to deal with basic functions such as the prompt registration of compliant taxpayers who want to register their liability to pay tax on time.

What if HMRC did the same as SOCA?

A comment on a recent blog post here has drawn my attention to a report in the FT: Deterrent letters put criminals on notice.

It seems that the Serious Organised Crimes Agency (SOCA) is writing to known criminals when they leave the country to tell them their departure has been noted and to “wish them a nice time”. And "welcome back" cards are sent to them on their return through ports and airports.

Apparently the rationale for this is the idea of rational choice theory, where people weigh up the potential benefits and costs of their actions. The cards and letters are intended to say to the individual: you have to make a choice, you can either play the game or not. And that every action and choice has its consequence.

I remember when the Disclosure Of Tax Avoidance Scheme (DOTAS) regime was first introduced in 2004. At the time I was Chairman of the ICAEW Tax Faculty and had many discussions about DOTAS with colleagues and Revenue personnel. I don't recall anyone referencing rational choice theory but I'm sure DOTAS was intended to have a similar impact to SOCA's letters and cards. The idea being that only the most positive risk takers would want to flag their involvement in structured tax avoidance schemes.

The practice seems to have been quite different. Many promoters (especially the naive and deceitful ones) tell taxpayers that DOTAS means the Revenue have approved the scheme. They haven't and they now make this clear on the Spotlights page of their website. Nevertheless taxpayers have NOT found their tax affairs generally bearing increased scrutiny as a result of the obligatory inclusion on their tax returns of their involvement in a registered tax avoidance scheme.

It's too late now but can you imagine the impact if, over the last 6 years, HMRC had written to everyone with DOTAS numbers disclosed on their tax returns? Such letters could have thanked taxpayers for complying with the law. The letters would also have explained that the taxpayer's affairs would now be under increased general scrutiny. This would only have had the desired impact of reducing interest in discloseable schemes if HMRC were seen to carry through with their threats. In practice they don't have the resources to do this. And these days any such letters would therefore be dismissed by the promoters of schemes as empty threats.

Do you agree? What do you think would be the impact of such letters?

Taxman says "pay up or else" to its 'customers'...

I've been reading an article in Taxation magazine about a new style of letter being sent out by HMRC. The article is titled: 'Just pay’ demands omit contact details. I too would have assumed this was an oversight but Taxation reports that HMRC have confirmed that the

"Lack of address and phone no. is deliberate."

I am afraid this reveals that (whoever authorised this within) HMRC has a complete lack of awareness and understanding of real life.

You can't blame HMRC for wanting to collect the monies that are due to them. It's absolutely right that they should write seeking immediate payment of overdue sums. And that their letters point out the consequences of a continuing failure to pay.

Taxation reports that:

While the ['just pay'] letters shows the company’s PAYE reference number, there is no HMRC office address included. Instead, space is used to say ‘No contact required. Please pay on receipt.’ The telephone number is given as 000 000 000.

HMRC have apparently explained that the reason for this deliberate exlcusion of a phone number or office address on what they call 'just pay' letters is that:

‘they are used on low-value, high-volume debts where the use of people-resources to chase would not be efficient’.

A department spokesman is also reported to have explained that:

‘Where a debtor has been repeatedly advised of their liability, through correspondence with contact details, but has not taken steps to contact us to resolve the issue, it is not unreasonable for us to assume that they have no need of contact and to ask them to “just pay” their debt,’

Er, YES IT IS UNREASONABLE.

In the case reported the tax wasn't due, there had been a mistake by HMRC. It's just as likely that the taxpayer hasn't opened previous correspondence or has put it to one side and forgotten to deal with it. Many people do not give their tax affairs the priority perhaps they should. Some taxpayers are more focused on generating profits from their business and put off dealing with papers from the taxman. Sometimes they simply forget despite good intentions.

When the taxman pursues outstanding monies it should ALWAYS make it as easy as possible for its CUSTOMERS to pay. It does that fine. HMRC must also make it as easy as possible for taxpayers to SEEK CLARIFICATION or to QUERY the amounts being claimed. A failure to recognise the need for this to be made EASY to do is poor CUSTOMER service. And, as we know HMRC does like to refer to taxpayers as 'customers'...

I'm sorry some people abuse such enquiry facilities. This is no reason though to deny all taxpayers the facility to easily check the veracity of demand notices. Especially when, as in the case of 'just pay' letters, these threaten legal action, including the seizure and sale of goods or bankruptcy, if payment is not made.

British Legion gift does NOT provide tax benefit to Blair

Look, I'm no fan of Tony Blair, but let's be fair. Some of the media are implying that his gift to the Royal British Legion is a tax wheeze. The misleading headlines include "Tony Blair could save £2.3m tax on British Legion donation".

All the tax relief does is to reduce the cost of the gift. And this is very different to the implication of the press reports.

The following numbers prove the point:

• Let's assume Blair's taxable income without the book is £10m. With the book advance/royalties it would be £14.6m. The bulk of this would be subject to 50% tax. Let's say £7m in total
• By giving away the £4.6m Blair's tax bill does indeed fall by £2.3m due to the 50% relief potentially available. But this isn't the whole story.
• If Blair was keeping the advance etc he would have a net £7.6m left after tax (being the £14.6m less the tax thereon of £7m)
• By making the donation he only has £5.3m (being what's left after paying tax on the £10m (£14.6m less the donation of £4.6m).

The key point is that he is still WORSE OFF to the tune of £2.3m. He's not benefitting through making the donation.

And let's remember too that if the gift qualifies for tax relief then the Royal British Legion will be due to receive a consequential tax payout from HMRC. This increases the value of the gift to the charity. It's why they generally encourage donors to confirm that monies are paid under the Gift Aid tax scheme.

What if the taxman asked.....?

On his Tax Research blog Richard Murphy has started a series of questions that he thinks the taxman should be asking. Such questions would, he suggests, root out undeclared earnings and thus help reduce the level of tax evasion by high earners.

He has so far identified two such questions:

#1: Who is paying school fees in cash?
The advantage of asking schools for such information is that the identity of the payment has to be unambiguously associated with a named person and address.

A commentator on Richard's blog suggests that it might be equally worthwhile to ask travel agents who has paid them in cash.

#2: Who is paying private medical fees in cash?
Again Richard notes that the advantage of asking private hospitals is that the identity of the payment has to be unambiguously associated with a named person and address. Such disclosures would not breach medical confidentiality – the detail of the procedure is not the subject of the enquiry.

I tend to agree that such information would provide useful ammunition for HMRC in the fight against tax evasion. Of course the private schools and private hospitals would be constrained from providing the information unless there was a legal obligation to supply it.

This may well be the case using the powers given to HMRC by Schedule 36 FA 2008.

Thoughts?

What sort of tax authority do you want?

I have long enjoyed reading the writings of Robert Maas, that doyen of the tax world whom I am also proud to call a friend. It was he who first got me involved in the LSCA and ICAEW Tax committees and who persuaded me to remain active in the tax profession when I considered moving on in 2001.

In addition to his prodigious published output Robert has also been blogging online about tax matters for even longer than me. He has just published the fourth of what may be a sadly lengthy series of pieces under the title: "What sort of tax authority do you want?"

It feels pretentious to say this but I hope that by referencing the series here it will get an even wider audience - as it deserves.

In the 'Journals of Robert Maas' this series highlights a number of tax cases. Each of them shows HMRC in a poor light. Or as Robert puts it:

"it intrigues me that HMRC felt it worth the damage to their reputation to take the cases before the Tribunal."

In the fourth of his series Robert highlights the following 3 cases:

• Cameron v HMRC - where the taxpayer was effectively penalised for getting his tax return in early;
• Wessex Continental Travel Co Ltd v HMRC - A VAT officer gave misleading advice and HMRC did not comply with it's Charter obligations to "Help and support you to get things right”.
• Chamberlain v HMRC - HMRC argued to bankrupt a professional person who they knew the legislation had not intended to tax.

The first blog post in the series focused on the case of R (on the application of Valentines Homes & Construction Ltd) v HMRC. In his commentary on this case Robert's challenges included:

Is that the sort of tax authority you want? One that gleefully puts a pregnant woman under the stress of believing that they intend to collect tax in excess of that decreed by parliament and then at the latest possible date, just before the Court hearing, say that they don’t intend to do so after all. It is not the sort that I want.

Is that the sort of tax authority that you want? One that seeks to avoid payment of a reasonable claim by taking technical legal points rather than approaching the claim on its merits – and in order to do so seems happy to wash in public what seems to be very dirty linen indeed. As both a citizen and a taxpayer, it is not the sort of tax authority that I want.

You get the idea.

Are company cars "appreciated by all"?

I was intrigued by David Cameron's reference to company cars in an interview published in the Sunday Times. He was drawing an analogy between what the Government is doing and the methodical turnaround of a failing business. It was making a lot of sense to me.

Then about half way through he noted that:

"the next step for the spending review is to identify the spending I'd describe as "acceptable in the good times, unaffordable in the bad times". To continue the business analogy, employee benefits such as company cars might fall into that category. They are appreciated by all, but if you're suffering losses for the third quarter in a row, you've got to drop them."

In principle I can follow the logic although keeping employees onside is also crucial. Indeed the analogy breaks down as cutting the provision of company cars would actually represent a cut in the employment costs of the business. If the failing business cannot afford to remunerate its workforce it should not simply cut one element of the remuneration package.

My second concern with the PM's statement was how out of date is the sentiment behind it. I thought most employers had stopped providing company cars as a perk/benefit some years back.

It was 1994 when the basis for the tax charge was changed to focus on the list price of the car (and will often be set by reference to 35% of that figure). As the increased tax charges hit employees' pockets so company cars ceased to be an attractive employment 'benefit'. The system changed again in 2002 to focus on the CO2 emissions of the car. And these days few employees appreciate the provision of company cars as a perk, once they understand the associated tax charge - other than perhaps those employees with very low CO2 emission vehicles.

The benefit in kind charge for a company car is a set % of the 'list price' ranging from 10% for cars with emissions upto 120g/km, upto a maximum of 35% for cars with emissions of 230g/km. The relevant % will be applied to the full 'list price' including including all the manufacturer options and any other extras. Thus, as the vehicle cost increases so does the tax liability.

I'd be interested to know if many people still value the old company car perk. Please let me know.

In the meantime, you can find the the CO2 emissions for most cars using the SMMT website. Another useful site for finding out the changing tax charges on company cars is UK Carline.

Is there any future for tax amnesties in the UK?

It seems that only 5% of those doctors and dentists, targeted by the amnesty dubbed a 'Tax Health Plan' (THP), actually came forwards to voluntarily settle any outstanding tax liabilities.

The BBC has recently reported that:

Tax officials have harvested £9m in unpaid tax from 1,500 medical professionals, although 30,000 were approached in a disclosure campaign.

Pockets of the medical profession are accused of failing to declare payments for consultations, medicals and other fees, backed by details of payments that HMRC has received from sources such as National Health Service trusts, private hospitals and medical insurance companies. So what can we surmise from this development?

Medical professionals have either been unaware of this 'tax amnesty' or have ignored the facility. Or maybe they have been advised to do so by their accountants.

The situation is just as bad, if not worse, for offshore disclosures where the reported takeup is again very low. The first such 'facility' was announced in April 2007. Over 3 years ago. Since then has there been any publicity given to tax fraudsters who failed to play ball? More recently we've had the ODF and the LDF.

Amnesties only work if people think they are seriously at risk of penalty if they fail to comply. Does anyone really believe that HMRC have the resources to pursue more than a small fraction of the remaining medical professionals who have not come forward voluntarily? Or all the holders of offshore accounts? Maybe most of them have nothing to hide and thus nothing to fear? Maybe some of those targeted by the 'amnesties' have simply put their house in order and hope thereby to escape attention in the future.

Do people make a reasoned judgment over the odds of being caught? And of the consequences?

In my view there are 3 possible reasons for the failure of recent tax amnesties:

1- HMRC over-estimating the scale of the problem. Maybe the typical sums unreported by medical professionals are too small per head. Rather than 'fess up' the taxpayers simply get it right going forwards. Maybe much of the interest on the offshore accounts has been properly reported or is legitimately not subject to UK tax.

2- Inadequate PR. Has HMRC relied too heavily on accountants and tax advisers to tell their clients, the majority of whom are already compliant? Where were the radio and tv adverts encouraging people to comply - like the ones that are broadcast re tax credit claimants and benefit fraudsters?

3- Insufficient numbers of HMRC staff. Gordon Brown's disastrous plan to decimate HMRC staff numbers means there is a tide of departing investigation officers. They cannot easily be replaced. Most were experienced, able and fair. Without them many advisers consider HMRC's threats to be empty. Here's the latest - again only in the professional press. Accountancy Age reports a spokesman from HMRC who has issued a "stark ultimatum":

“We’re only 50 yards into a marathon. Those who don’t come forward will face naming and shaming and in the most extreme cases will be prosecuted.We always win in the end.”

My inclination is to respond: "If only that were true". What's your view?

Tax Directors say iXBRL will drive takeup of corporate tax software

Over 60% of Tax Directors who responded to a recent survey anticipate making greater use of corporate tax software due to new iXBRL obligations.

This is one of the conclusions from Winmark’s third benchmarking survey of in-house Tax Directors.

Out of over 100 respondents to the Tax Director Network survey, 15% said that they do not currently use corporate tax software and a further 12% said they use such software only to a very limited degree. When asked whether they anticipate that their departments will make greater use of corporate tax software in the coming year, 60% said “yes, due to the new iXBRL efiling obligations”.

The move to iXBRL is clearly fueling greater interest in the benefits of corporate tax software. A surprising number of organisations still seem to rely on spreadsheets although this may be due to perceived constraints in the currently available software.

Clearly the requirement for consistent iXBRL tagging will mean that more organisations will be using corporate tax software by this time next year.

Copies of the executive summary of the survey report are available on request from Winmark Research. The full report will only be available to members of the Tax Director Network and to others who completed the survey.

The end of IHT avoidance schemes?

For some reason Inheritance Tax (IHT) avoidance seems to be considered even more of a sport than efforts to avoid other taxes. Actually there are probably 3 reasons for this:

1. Some people consider the tax to be unfair in principle (unlike for example income tax and capital gains tax);
2. There is an even longer lead time between IHT planning and the time when anyone can be certain as to how effective (or ineffective) was the effort to reduce the IHT bill; and linked to this point
3. The fact that IHT avoidance schemes have not, to date, been covered by the Disclosure regime (DOTAS).

This is about to change. HM Treasury and HMRC are aware that tax avoidance schemes are being used to avoid the IHT charge that arises when property is transferred into trust. FA 2010 included legislation to close down two such specific schemes. The concern, however, is that the full extent of such activity in this area is not known. And the time lag already mentioned means it can be many years before schemes become known to HMRC.

Including IHT in the DOTAS regime should help HMRC identify schemes and users at an early stage. I doubt this will reduce the number of adverts in the weekend money pages to 'reduce your IHT bill'. But it may mean that IHT planning has to become more bespoke and specialist. Nevertheless I am sure that the 'sport' will continue for many years to come. Don't you?

A tax scheme in two tweets

Full marks to Gareth Hughes of the Hughes Partnership in Solihull He managed to tell me about a tax scheme and what he thought of it in just two tweets (on twitter) last week.

I've edited out the name of the promoter:

• I went to an eye opening seminar a few weeks back re tax strategies.

• They all centred round the loan concept (post Dextra) & charge commercial interest that is never actually paid. Commercial?!

Reminded me of a blog post here last April: "Have a look at this scheme and tell me what you think"