HMRC’s discussion paper on PAYE that has just been issued outlined the most significant reform proposals for the PAYE system since it was introduced 66 years ago.

The new proposals comprise two main elements – the provision of ‘real time’ payroll information and centralised collection of tax and NIC.

Under the new system, information on PAYE deductions would be collected at the time employers pay individuals (real time information), using the BACS system. Responsibility for the calculation of the amounts of tax, NIC and student loan repayments and their deduction would remain with employers.

With real time information, employers paying electronically would send HMRC details of an employee’s pay; the deductions of tax, NIC and student loan repayments; together with information about the payee’s identity. This would be for all employees, including those from whose wages the employer is not required to deduct any tax, NIC etc.

The information would be produced automatically by the computerised payroll system when raising the payment and would be sent to HMRC via the BACS electronic payments system as part of the payment instructions but the reality of such proposals have been called into question. This employment tax expert whole heartily agrees with Karen Thomson, associate director of policy, research and strategic visibility at the IPP who has stated that “Whilst many support the idea of real time data, there are a lot of operational issues that need to be sorted out.

“The big issue here of course is central collection. The IPP has huge concerns about this and at this moment in time would not support it. The discussion document suggests that the employer, via the banking system would work out the gross pay and inform HMRC what statutory payments to deduct and so on. The banks would then (via BACS) calculate what tax and NICs are due. They would then notify the employer what is taxable and what NIC-able. All of this means that employers would be issuing a payslip which outlines the gross pay but not the net pay.

“The other issue is that government departments are having to reduce their spending by up to 25%. At the moment, employers field a lot of PAYE enquiries from employees. If HMRC is responsible for calculating tax and NICs, they will be the ones employees turn to with questions – and they’re over-stretched when it comes to answering queries as it is.”

It really doesn’t take brain of Britain to work out that giving HMRC at the current time more responsibility for answering tax payers queries is a seriously bad idea – how many of these people “dreaming up” such proposals have tried to contact HMRC via the normal channels?

Tax investigations are taking a new, slightly sinister twist – HMRC are allegedly demanding personal financial records from business people, without proper grounds for suspicion.

This comes about at a time when Section CH223430 of HMRC’s Tax Investigation handbook appears to have “disappeared. Now I know you’ll be asking what the hell is this reference all about, well it tells inspectors that they need to find something significantly wrong, questionable or suspicious in a business’s record (ie they need to ‘break’ the record) before they can demand personal financial details from an owner or director of that business.

A number of people have noticed that this has become worryingly commonplace, Anne Eager, enquiries manager at RJP, stated:

“I have had requests for private bank records from my clients in opening letters. When I challenged the request, the inspector said that it was to save time, as he felt it was very likely there would be issues with the records.

He added it was a ‘standard approach’ under the new regime.”

In other words HMRC are indulging themselves in fishing trips into people’s private bank records. Once HMRC have access to those records every payment into the account would be under suspicion, and it would be for the taxpayer to prove that the payments in do not constitute taxable income. Innocent until proven guilty – not in the tax world!

and what you may ask has happened to Section CH223430 will return , HMRC claim it will return but why was it removed/dropped in the first place?

Anyone who has a debt with HMRC, whether it be from a Tax Investigation, employer compliance review, employment status review, PAYE/NIC/CIS or Self Assessment you need to take heed of what is happening regarding HMRC debt collection agents.

To begin with, those out in the field are now not allowed to contact HMRC offices to validate the debts that they are being asked to collect. Why you may ask, well there are two very different reasons:
1.The support teams back at base do not have the time to take phone calls – this is the official explanation; or 2. That HMRC is preparing the ground for this work to be given to private debt collection agencies (The Budget announced that a further £500m of debt will be handed over to private agencies). These private agencies, will obviously not be able to phone up HMRC offices and ask for details from confidential records.

HMRC have conducted a bizarre pilot scheme to test whether going down the route of private debt collection agencies would work. Think really bizarre and then carry on reading …

The agencies were given a tranche of work to do, and a control tranche was left with HMRC teams (but was left completely untouched).

and the result, that’s right, the debt collection agencies won!

Fast forward to reality and it will be no surprise that over half of the debts that HMRC debt collectors are given to chase up are in fact incorrect but rather than the onus being on HMRC to prove the debt, these collectors are told that if they are challenged by a “customer” the onus is on the “customer” to prove that HMRC are wrong, which is morally wrong and goes against our judicial system of innocent until proven guilty. So imagine what it’s going to be like with private agencies

All herald the end of IR35, the complex and utterly futile attempt at raising extra revenue by re categorising self employed individuals as deemed employees – not quite! Although the Small Business Minister, Mark Frisk said in an interview with the Daily Telegraph that “Individuals selling their services through small companies have their taxable income policed by the so-called IR35 legislation.This will now be abolished. We want to make sure that we could undertake a comprehensive review of small business taxation in a way that makes the need for the current IR35 legislation redundant.But we want to make sure whatever we change is a lasting settlement. One of the problems with IR35 is that it’s a constantly changing set of rules.”

However, no sooner had he made this statement than people behind the scenes were scurrying around stating that he had NOT said it would be abolished. Now I like plain speaking so when I hear “This will now be abolished” I don’t think there are many areas of confusion but here we go again spin, retraction, review, consultation these are now what those immortal 5 words actually mean, so watch this space because no one who is self employed is off the hook

The Time to Pay arrangements that have helped many a business struggling with cashflow may be a target for cutbacks in the Budget next week. There have already been moves to place restrictions on those wishing to delay payments in respect of £1m by placing requirements on these companies to be reviewed by one of a panel of approved accountants, these then provide a report to support or otherwise the companies claims. However, this latest rumour could cause a lot more problems with the economy still fragile but in order to get this into context, this employment tax expert must also state that they disagree with time to pay arrangements for PAYE, VAT and CIS deductions – controversial you may think but pause for a moment – this money has never belonged to and never will belong to the company, the Company is simply an unpaid collector of taxes and the payments should definitely not be part of Company cashflow. This apart Corporation Tax and Self Assessement tax should still have a strictly controlled ability to apply for time to pay arrangements as this could mean the difference between companies staying afloat and getting through the recession and folding. These latter points cannot be underestimated, so long as the company in question represents something that is a viable proposition, so fingers crossed the sweeping rumour that Time to Pay arrangements will go unilaterally is just that … a rumour!

Answers on a post card to this one …

Very quietly, this one seems to have snuck through and it’s hardly surprising!

Lesley Strahtie (CEO of HMRC) has been made Dame Commander of the Order of the Bath, in the Queen’s birthday honours list.

Given that HMRC is bottom of the league of civil service departments, as judged by its own staff, and given that the taxpayers (“customers” as Ms Strathie prefers to call them) aren’t impressed either, why has she been made a Dame – a reward for failure or just preparing her for the Christmas season, as there is no other logical explanation

HMRC have screwed up again big time by sending 50,000 taxpayers personal and obviously confidential information to other taxpayers – but once again teflon HMRC aren’t to blame – perish the thought, it’s the fault of a print supplier.

People who have been affected have received a letter signed by Paul Gerrard, director of tax credits, saying “I wish to apologise for this error and any inconvenience that it might cause. I would be very grateful if you could return the incorrect notice in the envelope provided.”

HMRC said they were alerted to the problem last weekend.

“HMRC takes data security extremely seriously,” they said in a statement.

“Unfortunately an error has occurred in one of the tax credits print runs causing some customer information to be wrongly formatted.

“Investigations are underway to identify the cause of the problem and we will be contacting affected customers in writing this week, apologising and providing a corrected award notice.”

Interestingly, they have stated that ID theft could not result from the error (well that’s a relief) or is that altogether true. One taxpayer received details of someone elses work, childcare and pay details
This employment tax expert says it is happening too often and HMRC refuse to accept the blame, taxpayers personal details should remain confidential otherwise how can we trust these people!

So in an effort to simplify the tax position of self employed individuals, the Coalition has announced that they are to review IR35, which in theory is good news. Far too much time and money has been taken up with HMRC pursuing employment status reviews that have led absolutely no where. The latest case being that of Novasoft – it only took a mere 8 years to resolve and guess how it started – readers of this blog will as this employment tax expert has warned about it since it began – that helpful little offer by HMRC to review self employed contracts free of charge. All those people who think they can get something for nothing take heed – this whole case stemmed from an unsuspecting person naively thinking that this was the route to go because of course HMRC are completely impartial aren’t they?
Well a mega lesson has been learnt here – the individual may have finally won but it cost him £’000′s and 8 years of his life – a high price to pay, so where do we go from here – well just be very careful reviews are planned, timescale not mentioned and even worse HMRC are carrying on blindly opening tax investigations into new IR35 cases so if you are concerned about your employment status contact the experts because you don’t want to be the next statistic

An investigation of what you may ask yourself but it’s all very circular as you will see and unfortunately it comes back to the fact that more companies will be subject to employer compliance visits, tax investigations to raise funds to feed our national debt.

But am I the only person who wonders who exactly we are in debt too – as we’re in trouble, Greece is up the creek without a paddle (except for the Euro zone bailout and who has funded this), and then we see that Portugal and Spain are heading in the same direction – so if someone could enlighten me as to who precisely is the ultimate loan shark in all of this I would be very interested.

So to feed the national debt we are being told to prepare for tax rises and spending cuts and this is where HMRC play their part, so be warned every last penny will be squeezed out of the unprepared or ill prepared company and individual – butchers, bakers and candle stick makers or should that be health professionals, lawyers and gas fitters

HMRC have gradually been introducing various penalty changes and “in year” late payment penalties are something new for this tax year but there has been very little publicity about this latest addition to the employer compliance review/tax investigation/Construction Industry Scheme review regime.

So what does this actually mean from both a PAYE/NIC compliance and CIS compliance perspective – well, it means there are no opportunities to hold onto monthly PAYE and CIS payments to HMRC to aide cashflow and then catch up at the year end. Now paying late will register a default and these defaults will be tracked throughout the year and then only after the end of the tax year will penalty notices be issued – because let’s face it this is when HMRC can obtain the highest yield from you. It has already been confirmed that they won’t issue the notices “in year” so don’t think that you have got away with it because it will be stored up for the end of the tax year and then bang, the penalty notices will arrive.

Statistically HMRC will be looking for unusual remittance patterns so don’t go down the misguided route of thinking “how will they find out?” because you’ll be walking into the next stage of the the new compliance regime that of “real time record reviews”. Keep reading for further updates on this very important development …