Tax related April fool stories 2010

I wasn't the only one.
Yesterday I posted: New HMRC penalties for anyone responding to scam emails. I've added a note below of some of the best responses I received. My apologies to anyone who was 'fooled' despite my best effort that it simply raise a smile and flag the importance of avoiding scam emails.

Taxation magazine went with: Window fitters' disclosure opportunity

AccoutingWeb had: Proposed ‘iTax’ will damage UK economy

Any more?

Best responses I received to my post (which I also sent out by email):

I think this might be an April Fool. However given some of the strange things HMRC have been doing recently…….
- Paul Gayton

Please note that we now charge a £100 penalty for sending us unsolicited emails.
- Chris Young

The email falls under the definition of “deliberate wrongdoing” and will result in the prosecution of another innocent adviser!
- Peter Tucker

Mark I think this cannot be legally enforced and have written to my lawyers to undertake a judicial review. They said it would cost £25,000 but I have told them to go ahead on the strength of your e mail. Somebody has to take a stand.
- Joseph Robinson

New HMRC penalties for anyone responding to scam emails

Regular readers will know that I always try to share insights into topical tax related news stories. Today, I need to share with you details of a secret (until now) plan that HMRC been working on. It is a rather sneaky way to secure tax geared penalties from taxpayers and agents (ie: accountants and tax advisers). The problem is that there is no easy way to avoid this.

As you may know HMRC have become increasingly concerned by the scam tax rebate emails being sent out by fraudsters. HMRC are also annoyed as they get the blame whenever anyone gets ripped off after disclosing their personal data in response to the fraudsters requests. Todate HMRC have simply publicised the fake emails and warned taxpayers not to respond or to provide any confidential data. But too many people ignore this advice so it is about to become an offence to respond to such scam emails.

HMRC's new plan will see them checking on whether taxpayers and agents are taking HMRC's advice. As of today HMRC will call taxpayers and agents at random and ask them to quote their 12 digit internet filing passwords. Whatever happens you must not reveal the password to HMRC as this would breach all security protocols. And, according to some little publicised small print in the Budget Red Book it will result in you becoming liable for a new tax geared penalty.

On the other hand, if HMRC call you today and you do the right thing, ie: refuse to divulge your password, you will be transferred to a pre-recorded facility. This will invite you to press a number on your telephone keypad. The different numbers signifying your feedback:

Press 1 if you have forgotten the first part of your password
Press 2 if you have forgotten the second part of your password
Press 3 if you have forgotten more than two characters from your password
Press 4 if you have forgotten where you wrote your password down
Press 5 if you have forgotten the code you used when you wrote your password down
Press 6 if you would not disclose your password to anyone even if you could remember it
Press 7 if you have an offshore account and have forgotten to tell HMRC about it
Press 8 if you would like to hear these options again as you have forgotten why you need to choose a number on your telephone keypad
Press 9 if you think this might be an April Fool.

In the unlikely event that you get a call from HMRC asking you about your password today. I suggest you press 9.

Have a good day! And, if you're a registered user of the Tax Advice Network website, do look out for this week's genuine practical tax tips newsletter that will be with you this afternoon. We wouldn't want you to think any of the commercial, timely and topical advice it contains is a joke!

No £30k exemption from tax when you leave a job

There's a common and dangerous misconception. And I saw it again in the Sunday Times yesterday, in a piece entitled: MPs plump up their ‘golden parachute’ pay. This suggested that:

"When disgraced MP Derek Conway stands down from parliament at the next election he will receive £31,645, of which the first £30,000 is tax free."

I suppose it's possible that there is a special rule for MPs (it wouldn't be the first time) but I suspect that the reporters had fallen into the all too common trap; that of assuming that the first £30,000 is invariably exempt from tax if paid in connection with one's departure from a job.

It's not. There is no automatic exemption.

What is the position then?
Firstly statutory redundancy payments are automatically free frlom tax. But the quantum of such payments is limited. So for additional amounts, there is a tax rule that means that upto £30,000 MAY be exempt from tax. It's set out in Section 401 ITEPA 2003 (previously s148 ICTA 1988). BUT this rule only becomes relevant if certain criteria are met. No one can afford to assume that their situation will automatically pass the tests.

The basic rule is that any sums paid by an employer to an employee are subject to tax if paid in accordance with a contractual obligation, if paid for work done, if paid for work to be done or if such payments are part of the employer's standard practice when someone is asked to leave their job. That's the basic rule. Only statutory redundancy payments are definitely tax free.

So when an employer makes other payments to employees the basic rule doesn't catch them. This is where s401 comes into play. It states that any other payments are taxable too - except for the first £30,000 paid in connection with the termination of employment. But this is only the case if the payment isn't taxable in full under the normal rule. And HMRC also use another rule to challenge the tax free nature of termination payments when these are paid to people aged over 50. The argument goes that the sum is taxable as an unapproved retirement benefit.

Coming back to the case of the MP referenced above I would have expected the normal rule to apply as the payoffs are contractual and (consequently) standard practice for MPs. This may well come as a bit of a shock if they were expecting to get £30,000 tax free.

What happens if you get it wrong?
Taxpayers are required to report their 'tax free' lump sum on their tax returns. The taxman invariably checks back to determine whether relevant details were properly reported by the employer. And if HMRC are not satisfied that all is correct the taxman will then seek payment of tax from the employee. For people receiving redundancy payments in early 2009, the relevant tax returns are those for the current tax year. These will not be filed until later in the year - or as late as January 2010. It could be months later before the tax demands start being issued - long after the lump sum has been spent.

Further information
Expert advice is available to help anyone who wants to learn more about how to avoid the traps here. Simply get in touch with one of the members of the Tax Advice Network who specialise in this area.

On a related issue the Low Incomes Tax Reform Group offers a fuller explanation of the tax rules on redundancy.

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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