"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?

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.

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.

BN73
22 April 2009

DRAFT – SUBJECT TO MINISTERIAL APPROVAL
NOT FOR WIDER CIRCULATION.

A FAIRER DEAL FOR SMALL BUSINESSES ON VAT THRESHOLD

MINISTERIAL BRIEFING

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 www.taxbuzz.co.uk