HM Revenue & Customs (HMRC) is extending the Alternative Dispute Resolution (ADR) tax trial which provides Small and Medium Enterprise (SME) customers with an alternative way of resolving tax disputes in compliance checks.

ADR involves an independent person from HMRC (called a ‘facilitator’), who has not been involved in the dispute before, and who will work with both the customer and the HMRC case owner to try to broker an agreement between them. ADR has proven to be an effective way of resolving tax disputes in a quick and efficient way, not just for tax but in the commercial world as well.

In this stage of the trial, ADR will be available to SME customers, where a tax issue is in dispute, but before an appealable tax decision or assessment has been made by HMRC. Initially this stage of the trial will be limited to customers based in North Wales and North West England.

ADR covers both VAT and direct taxes disputes, and entering into the ADR process will not affect the customer’s existing review and appeal rights.

This employment tax expert says, be careful this is not for everyone. The example situations provided are where HMRC would probably get their backsides kicked if it went to Tribunal, so it will wrap up a case quicker BUT there is the other side of the equation as well and remember this is only open to 2 areas. If you find yourself in this situation, call us today on 0800 917 9176

The Government’s Comprehensive Spending Review (CSR) highlighted the need to adopt a consistent approach across HM Revenue & Customs (HMRC) in tackling tax avoidance risk. So what have HMRC done, you would hope tackle the massive corporate tax avoidance schemes that are well known, past and present, but no …… what is the highest risk, you guessed it, SME’s, this employment tax expert despairs.

To address the expectation in the CSR and focus on effectively tackling tax avoidance, HMRC has created four specialist teams to handle compliance checks into direct tax avoidance schemes used by small and medium enterprises (SMEs). SMEs are companies, partnerships or self-employed businesses with a turnover of under £30 million and with less than 250 employees.

The teams are located in:
Central – Stoke
East – various locations
South East – Bournemouth
London and Anglia – Luton

HMRC is currently transferring approximately 1,850 ongoing SME compliance checks to these four teams and aims to complete this by the end of January 2012. HMRC customers and their authorised tax agents and advisers (if appropriate) will be advised (in writing) of a change to both case officer and office dealing with the check.

From 1 December 2011, the teams will deal with all SME compliance checks which involve direct tax avoidance risks, so if you find your self in this position, please call us on 0800 917 9176

HMRC has opened a new specialist unit to target taxpayers holding assets offshore to evade tax, the Offshore Co Ordination Unit. This follows a sequence of initiatives to counter offshore practices – notably the recent deal with Swiss banks, the acquisition of data on accounts held at HSBC and other banks and successes achieved by the Liechtenstein Disclosure Facility (LDF), HMRC is staffing up an Offshore Co-Ordination Unit (OCU) with analysts, technical tax experts and experienced investigators.

Starting out with a team of 25, the unit will eventually have a staff of 100 to deal with income and capital held offshore to avoid UK tax.This employment tax expert thinks that they are hardly throwing resources at this with a team of 25!

However, this could be because back in October, HMRC wrote to 6,000 people whose names appeared on a CD-ROM that was reportedly stolen from the premises of HSBC’s Geneva branch inviting them to come forward. Already, around 500 serious fraud and criminal investigations are said to be in progress as a result of the data gathered.

Under the Swiss tax deal, banks will withhold a percentage of clients’ interest and pay it to HMRC, which should negate the need for buying illegally gained CDs. HMRC also have the luxury of more and more information coming in through a range of information-sharing agreements. The OCU will use this intelligence to develop “innovative” new ways of tackling offshore tax evasion, HMRC have said.

Exchequer secretary to the Treasury, David Gauke, commented: “The launch of this specialist unit, together with the other valuable work the department is driving forward in an effort to tackle offshore evasion, underlines the fact that offshore tax cheats are fast running out of places to hide.”

The OCU will work as a stick in parallel with the LDF carrot to encourage offshore account holders to make voluntary disclosures. It is yet another plank in the £900m campaign to crack down on evasion (and avoidance), shakes head, when will HMRC ever learn that tax avoidance is legal tax planning and concentrate on the tax evaders, to bring in as much as £7bn a year by 2014. Also underway are numerous trade-focused task forces to investigate sectors where there is a high risk of underpayment. If you are impacted by any of these initiatives, please call us today on 0800 917 9176

HMRC has capped penalties for late returns of payment information to contractors under the Construction Industry Scheme. The scheme has proved controversial with contractors. Since 1 October penalties have been capped at £3,000. Before then, however, penalties for failing to register with the scheme were £100 per month and some penalties could amount to tens of thousands of pounds. In some instances where firms had neglected to register in the first place, they were being hit with notices for £20,000 and more. One firm was landed with a penalty of £80,000, which had built up over a year because the firm had failed to register as a contractor.

The new penalty regime came in on 1 October and only applies to penalties levied since that date however if you are faced with penalties under the old regime, contact us today on o800 917 9176 and we will assist you in mitigating these liabilities

The Tax Health Plan (THP) was one of the first targeted tax disclosure opportunities, it was aimed at doctors and dentists with miscellaneous sources of income such as from writing medical insurance reports, working as a locum, or for signing certain certificates. Taxpayers who opted to use the THP were required to make a full disclosure and pay all tax, penalties and interest due by 30 June 2010.

HMRC are now confident they have processed all the disclosures from the THP. So they are now writing to over 2,500 doctors and dentists who did not take advantage of the THP, but who HMRC believe received some untaxed income. If your client receives one of these letters, they will have only 21 days to reply to HMRC.

If the taxpayer does not respond to HMRC within this time scale, the likely result will be a determination of tax due. A ‘determination’ is raised by HMRC where a tax return has not been submitted. Note, there is no right of appeal against a determination. It can only be superseded when the taxpayer makes a valid self-assessment, which means submitting a tax return. Where the taxpayer has submitted a tax return, HMRC can amend the taxpayer’s self-assessment if the enquiry window is still open, or otherwise issue a discovery assessment.

HMRC have used their powers to obtain lists of payments made to medical practitioners from pharmaceutical companies, insurance companies and locum agencies. These lists may not be entirely accurate as names and addresses can be confused. Sometimes the funds may be received and taxed in a personal company or partnership, when the payer believes they have made the payment to an individual.

Some serious cases will be referred directly to the Revenue and Customs Prosecutions Office for criminal investigation. If this happens to your client be sure to contact us without delay, on 0800 917 9176.

HMRC has said it will stick to a plan to introduce a ‘real-time’ pay-as-you-earn tax system by 2013, despite concerns from employers and payroll software companies that the timetable is “unachievable”.

As part of a plan to modernise PAYE, which was introduced in 1944, employers will send information about tax and national insurance they deduct from employees’ wages to HMRC when they are made – rather than at the end of the tax year as happens now.

The current system causes overpayments and underpayments of tax because some information is out of date.

RTI timetable

Q: When will it happen?
A: Employers and pension providers will begin to use the RTI service during April-October 2013. All employers will use the RTI service by October 2013.

Q: How can employers be sure it will work?
A: HMRC will pilot RTI with volunteer software developers and employers and pension providers for a year, starting in April 2012.

Q: How can employers be part of the pilot?
A: Plans for the April 2012 pilot are already well advanced and no additional employer volunteers are needed. However HMRC are looking at how to bring more employers onboard later in the 2012-13 tax year.

Q: As an agent who files PAYE submissions for a number of employers, do I need permission from my clients before I could take part?
A: Yes. An agent would need to have the agreement of the client employer.

Real-time earnings information could be sent to HMRC automatically using payroll software via the BACS payment network. The new system is expected to be working October 2013.

In a response to an HMRC consultation in December last year, three quarters of respondents who had a view on the proposed timetable for introducing real-time PAYE thought it was “UNACHIEVABLE”.

But in a summary of responses to its consultation document on real-time PAYE information HMRC said the timetable for the introduction of the “universal credit” in 2013 to replace many benefits and tax credits meant “there is no flexibility in terms of the ultimate go-live date of RTI.”
which is quite frankly ridiculous.

To help smooth employers’ transition to real-time earnings information HMRC said it would “align its employment records with those of the employers”, hmmmmm and that should be interesting to witness.

Software suppliers told HMRC in the PAYE consultation that the proposed timescale did not allow sufficient time to develop and test products in time for to be ready by April 2012, but did they listen ………….?

In a concession to software companies, HMRC has said that not all software products would need to be ready for real-time PAYE by April 2012. Instead, software products will be tested for one year – starting in April 2012. Software suppliers and employers can volunteer for the scheme.

Karen Thomson, associate director of policy, research and strategic visibility at the Chartered Institute of Payroll Professionals (CIPP), said the trial of the payroll software should flesh out any “anomalies”. Employers who make payroll errors under the new system, such as telling HMRC the wrong hours worked by an employee, or the wrong leaving date from a job, could be responsible for an individual losing their benefit entitlement because the Universal Credit will rely on PAYE information, Thomson said, so a sysytem that 3/4 of respondents thought was being rushed and has a major impact on benefit entitlements, has simply not been thought through and will crash and burn if the existing timescale is pursued

HMRC has warned Employers about silly mistakes on their PAYE/NIC/Payroll end of year forms

In 2009/10, more than 500 PAYE forms incorrectly claimed to employ A N Other, 128 staff were entered as Mr, Ms or Mrs Dummy, and 40 employees had apparently reached the grand old age of 200.

Nearly 600 employees had surnames that included the letter X, while 75 had the surname ‘casual’. Other surnames included ‘worker’ and ‘student’. A large number of employees were simply referred to as ‘unknown’.

Jim Harra, director of customer operations of HMRC, said: “Most employers get their PAYE returns right. The few who do not cause problems for their employees, for example, incorrect deductions of tax.

“Around 80% of errors in employee data are due to an incorrect name, date of birth or national insurance number – straightforward information that can be collected and checked quite easily.

“So, whether employing ‘Mr or Mrs J Smith’ – or even ‘Mr or Mrs A N Other’, please use the full and official name on PAYE paperwork.

“First names are very important, especially for common surnames. We really want employers to check that they are sending us the right details for all their employees, to make life easier for them, HMRC and their employees.”

and just remember the stick that goes with is message is that of PENALTIES, you have been warned

A new Tax Disclosure opportunity aka The Tax Catch Up Plan began on 10 October 2011 and according to HMRC represents an opportunity for those delivering tuition and coaching in the fields of academia, sport, leisure, or music, but they have caveated it to say, ,this is not an exhaustive list who have undisclosed tax liabilities, to come forward and settle with HM Revenue & Customs.

Now, if you potentially fall into this category, this employment tax expert strongly suggests you take specialist advice BEFORE contacting HMRC, especially by phone or the internet. I will give you a clue why, because HMRC have been very, very sneaky – asking you how much penalty you should pay, now that’s a new one. Think laterally it’s like a salesman asking what your budget is, you will never get the best deal by providing this information and it has far reaching consequences with this “opportunity”.

The Tax catch up plan is also full of veiled threats that could intimidate the unwary, including some incorrect information – so if you think you may need to contemplate using this disclosure facility, call us today on 0800 917 9176

From 6 April 2012 HM Revenue & Customs (HMRC) will be able to ask employers to pay a security where there is serious risk that they won’t pay over their PAYE tax deductions or Class 1 National Insurance contributions (NICs).

so why have HMRC has been given this new power:

According to HMRC businesses have repeatedly told them that they resent the unfair advantage gained by those who don’t meet their tax obligations. HMRC have stated that they are determined to pursue those who won’t pay, to make tax fairer for all. This employment tax expert is a bit more cynical, seeing will be believing as I for one am sick to death of companies going under and then phoenixing again the next day, week or month

HMRC already have the facility to ask for a security for VAT, insurance premium tax (IPT) and environmental taxes, so why has it taken so long to sort out PAYE/NIC?

The required security will usually be either a cash deposit from the business or director – held by HMRC or paid into a joint HMRC/taxpayer bank account – or a bond from an approved financial institution which is payable on demand.

HMRC have stated that they will use securities to tackle the handful of employers who deliberately try to defraud the government. These employers:

deliberately choose not to pay
engage in phoenixism – this is where a business evades tax by becoming insolvent and then sets up a new company the next day to continue trading
have no qualms about building up large PAYE or NICs debts, including penalties
do not respond to HMRC’s attempts to contact them

These employers will have deducted this money from employees’ pay packets under the pretext of paying their employees’ income tax and NICs.

HMRC will calculate the amount of the security on a case by case basis – depending on the amount of tax at risk, the previous behaviour of the employer and other risks. Those being required to pay a security can appeal against this decision.

As with VAT, if an employer fails to provide the security for PAYE or NICs, HMRC can prosecute them. The sanction is a fine, not a custodial sentence.

Payment of any 2010 -11 PAYE Settlement Agreements (PSA) are due on 22 October for electronic payments, or 19 October 2011 for any postal payments.

As 22 October falls on a Saturday, if you pay electronically your cleared payment must reach the HMRC bank account by Friday 21 October so you will need to initiate your payment earlier than usual. If you pay late, you may be charged a late payment penalty.

A warning, as well – do not include your PSA payment with your 2011-12 PAYE/NICs payment or pay using your Accounts Office reference otherwise it will be allocated to the wrong record and you may receive a reminder – nice to know HMRC can bring together employer records, not. This employment tax expert recommends that you keep a note of when you pay

Instead HMRC states that you should pay your PSA payment using the correct unique reference. The payslip issued to you shows you what the reference is. It is a 14 character reference beginning with ‘X’.

If you’re sitting here wondering what a PSA is and whether you should have one, chances are that you might, so get in touch today on 0800 917 9176