Instead of customers, why doesn't the taxman call us...?

Have you noticed the way that the taxman refers to you as a 'customer'?

I know it's grated with many taxpayers and accountants ever since the old Inland Revenue started to use this word some years back. Then they merged with HM Customs & Excise and the new HMRC still calls us 'customers'.

The argument they use is that they want to be able to use just one word when referring to all sectors of the public to whom they have a responsibility. That's both taxpayers and tax credit claimants.

The first alternative I come up with was 'stakeholders'. But that goes further than taxpayers and tax credit claimants.

I recently asked for further suggestions on Ecademy and received the following responses:
- Tax Liability Owner
- Victims
- Lemons (as in "squeeze them until the pips squeak")
- They can call us whatever they like as we're never allowed to argue with them anyway. So how about 'the disenfranchised majority'?
- We need to find someone involved in organised crime. There must be a common term for the people who pay a bit of squeeze for "protection".
- How about "Codees"? Anyone who deals with the tax authorities has to have a code, so that's the common element.
- I wonder how they refer to "customers" internally. Punters?
- I was going to say Victims - but, as that's already taken, how about "Mugs"?
- Suckers seem appropriate for both parties only the first party should have blood tagged in front;
- Cash cow?
- How do pickpockets name their victims?
- Users of HMRC's services
- Citizens [although companies aren't citizens and you don't have to be a citizen to be subject to UK tax]

Having thought about this further I've realised that 'taxpayers' isn't strictly accurate anyway. We have to file tax returns whether or not there is any tax to pay,

HMRC's February 2009 Consultation Document on a Charter perpetuates the idea of 'customers' although it's clear that this isn't an obvious or universal collective noun even within HMRC:

They say they will "test the Charter with staff, stakeholders and customers prior to the launch";
They "have held a deliberative[?] event with customers, representative bodies and staff";
As part of their previous engagement they provided an opportunity "for stakeholders" to provide written comments" and they received 42 responses from "representative bodies, businesses and individuals";
The Executive summary states that "a tax Charter could play an important role in ensuring that the tax system is understandable and accessible to all taxpayers";
Then, in Chapter one we're all "customers" again;

By the way I have yet to find anyone who likes being called a customer of HMRC. Equally none of the conventional dictionary definitions I have traced support the idea that it's an appropriate term.

On balance my preferred solution is to call us all:

The CBI - Companies, Businesses and Individuals.

But I guess that could get confusing.

So please share your views as comments on this blog:
a) do you like or loathe the way that HMRC use the word 'customers'?
b) do you have any suggested, workable and printable alternatives?

The first returns subject to the new tax penalty regime

The new rules were largely set out in Finance Act 2007 and came into force on 1 April 2008. However, the old rules have continued to apply over the last year and many people are confused as to when the new regime will first become relevant.

Typically the first returns subject to the new rules will be as follows:

VAT - Returns for 3 months to March 2009;
Corporation tax - Returns for accounting periods starting on or after 1 April 2008;
Income tax and CGT - Tax year ending 5 April 2009.

Previous posts on this blog that have also addressed the new penalties regime include: The new penalties regime - making tax taxing; and 'Take care to avoid a penalty'

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.

Tax relief for Networking - can you or can't you?

I'm told that some accountants tell their clients that they shouldn't claim tax relief for the mileage involved in traveling to networking events. I'm astonished by such a suggestion.

As most of us know, what matters to the tax man (and more importantly the underlying tax rules) is the taxpayer's objective when incurring costs. Were these incurred for business purposes? Is there a specific rule that denies tax relief (eg: as there is for entertaining expenditure)?

Someone who is an employee probably won't be able to claim tax relief for networking related costs that come out of their own pocket. In most cases they'll be fine though as their employer will reimburse them. This is as important for directors of their own Limited companies as it is for all the business expenses they pay for personally (in error?).

The self employed (and the limited companies that pay or reimburse networking costs) can generally claim tax relief for the costs of attending and of getting to and from business networking events. The test is whether the expenses were incurred "Wholly and exclusively" for business purposes.

Even if someone enjoys networking (and some of us do) this does not disqualify the related costs. Tax relief is still available if the costs satisfy the tests above. So what matters is whether attendance is driven by a desire to build relationships and advocates that could lead directly to new work or introductions to prospective new clients? Invariably these are the primary purposes. And they are evidently directly related to increasing the level of business. Networking is just another form of business development; it's a marketing cost; face to face business promotion and advertising. And as such it's tax deductible.

The water can get muddied if the promoter effectively downgrades the Networking element of the event and focuses on the provision of free food and drink. And of course the retention of related receipts (and maybe even the promo material) would form part of the necessary record keeping to support valid claims for tax relief.

I'd welcome comments on this blog post especially from accountants who have advised on this topic and where they draw the line.

Real time feedback for HMRC from Twitter

Over the last couple of weeks of January I noticed a number of Tweets* that reflected real time complaints, frustrations and problems being faced by taxpayers who were trying to satisfy the 31 January online filing deadline.

People were also using Twitter* to share their views about paying tax last month. OK. It wasn't quite 'fascinating' but then again I don't have a vested interest in the tax system - beyond helping people to access specialist tax advice through the Tax Advice Network.

I'm aware too that many accountants and agents encountered their own issues when trying to use the online filing system in January. However few accountants would have had the time or inclination to Tweet about it on Twitter.

In 2009 Twitter is likely to go 'mainstream'. An increasing number of UK celebrities are using it and talking about it on tv, radio and in the wider media which is also covering the story generally eg: the Telegraph last weekend. I suspect that the number of users in the UK is set to explode. (Having said that, I don't expect UK accountants to become advocates of this new micro-blogging phenomenon - and I explained my reasons on this blog post: Twitter is not for accountants)

But, if HMRC seriously want to keep on top of website problems they could monitor Twitter to note the references to 'HMRC, 'taxman', 'Inland Revenue', 'file my tax return', 'tax office', 'pay my tax' and the like. It's not particularly complicated and could be done using a service such as Tweet Scan or TweetBeep.

(I doubt HMRC would be thanked if they started to 'follow' anyone on Twitter! ("HMRC is now following you" is not something anyone would want to hear!)

In 2008/09, as in previous years, HMRC was reliant on professional bodies like the ICAEW Tax Faculty and CIOT to pass on details of problems as and when these were reported by members. This is a much longer-winded process than it needs to be in future.

I suggest that someone within HMRC is deputed to explore this new phenomenon and how it could be used to identify and resolve website issues faster than has ever been possible in the past. Monitoring tax related tweets will also provide a unique insight into how real people relate to the taxman.

(For the same reason all large corporates, public figures and brands may wish to monitor what is being said about them in the Twitterverse. Many people within the twitter community would suggest that there are good reasons to go further than this and to engage with people who Tweet about big businesses - but this is all well beyond the scope of this TaxBuzz blog)

If you’re on Twitter you can tell your followers about this by clicking here to: Tweet a link to this blog post. You can send the tweet, which contains a shortened link or you can edit it before sending it.
And you can follow me @bookmarklee and @TaxAdviceNet depending on your interest.

---

*Twitter is a micro blogging service that encourages users to simply Tweet their answers to the question - "What are you doing right now?" The potential uses of Twitter go a lot wider than this and there are many related websites and services that make it easier to use and to gain benefits from so doing.