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 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

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 been forced to respond to a Freedom of Information Act request and confirmed the following:

• The new Business Record Check annual target is 20,000 visits, which represents a 30,000 reduction from the original objective of 50,000, as outlined in the Business Record Check Consultation Paper.

• The 20,000 annual target has been reduced on a pro rata basis for this tax year. 12,000 Business Record Check (“BRC”) visits are due to be conducted before March 2012.

• The 30 staff who carried out the original ‘Test and Learn’ BRC visits between April and July from Edinburgh, Irvine, Liverpool, Manchester, Portsmouth, Sheffield, Stockport and Sunderland tax offices are going to be assisted by a further 90 staff. More tax offices are going to be involved. The additional 90 staff are being drafted on to the BRC Team between September and November 2011.

In addition to this second round of BRC visits which have already begun, HMRC is also revisiting businesses deemed to have been keeping inadequate records during the first ‘Test and Learn’ exercise. The follow up letters state the intention is ‘to check that the appropriate improvements have been made.’

There is no official clarification from HMRC yet as to whether fines will be levied for poor record keeping during the second round of BRC visits, although HMRC has previously said that businesses visited during the ‘Test and Learn’ phase would not receive fines unless in the most significant circumstances

HM Treasury will continue in its fight against tax avoidance by the UK’s wealthiest people with the recruitment of an additional 2,250 tax inspectors.

Speaking at the Liberal Democrats annual conference in Birmingham, Danny Alexander, chief secretary to the Treasury, confirmed that the additional HMRC staff will move into new anti-evasion and avoidance jobs targeting around 350,000 taxpayers.

More than 1,000 of these new HMRC roles are being advertised this month.

Mr Alexander said: “These [350,000 wealthiest taxpayers] are the people who pay or should pay the 50p rate of tax. And my message to the small minority who don’t pay what they owe is simple, I agree with the Chancellor. ‘We will find you and your money’ and you will pay your fair share.”

Alexander also said that this package was already bearing fruit: “I promised you we’d collect an extra £7bn a year by the end of the Parliament; and I can tell you we’re already on track to raise £2bn this year.”

The Lib Dems have also vowed to put an income tax threshold of £12,500 “on the front page of its next manifesto” up from £10,000.

“Some people have argued that we should change our tax priorities and focus our limited resources on cutting taxes for the wealthiest instead,” said Alexander. “At a time of austerity, this argument simply beggars belief. If we are all in this together, those with the broadest shoulders must bear the greatest burden.

“Fair taxation of the wealthiest is key to our deficit reduction plan. Of course, if a better way can be found to raise the money from this group, I will be willing to consider it. But right now we must focus relentlessly on those who are struggling. And we need to make sure tax owed is tax paid.”

HM Revenue & Customs (HMRC) has announced trials of a Single Compliance Process for tax enquiries across a range of taxes.

By simplifying and standardising the process for compliance checks HMRC believe they will “improve customer experience” and reduce costs as the check will only take as long as the risks and behaviours encountered dictate. Mmmm, call this employment tax expert a bit of a cynic but this single tax process has been tried before and this “new” idea is somewhat open ended

The trials of the new process will run for six months from 20 June 2011 (put back from 1 June 2011) in 10 different locations across the UK:

Reading/Slough,
Newcastle,
Warrington,
York,
Exeter,
London Euston and
Southampton in England;
Cardiff in Wales;
Belfast and
Edinburgh/Dundee.

The new process will be rolled out nationally from January 2012, subject to the results of the trials, so not pre empting anything there then!

David Gauke, Exchequer Secretary to the Treasury, said:

“This Government is committed to relieving the burden on businesses. We know that agents, individuals and businesses find some of HMRC’s current compliance practices drawn out and costly. A Single Compliance Process could help HMRC improve the customer experience and reduce costs.

HMRC is working directly with agents via the Compliance Reform Forum to help develop it, and will continue to work with them during the pilots.”

The Single Compliance Process will focus solely on the risks and behaviours identified in cases and throughout the life of the compliance check, irrespective of the head of duty (VAT, Income Tax, Corporation Tax and PAYE) involved. The process will be capable of addressing lower risk cases at an appropriate level, but will also increase in intensity should the approach be warranted.

This employment tax expert wrote some time ago about the disgrace that was the MPs expense saga. It was quite simple, an employee would be under a PAYE/NIC investigation, if found guilty, sacked and likely prosecuted, so why should MPs be any different. This is not a political statement, bring it on any MPs, any parties should be treated like anyone else. So finally today do we see some justice:

Former Labour MP David Chaytor has been jailed for 18 months after he pleaded guilty to making false Parliamentary expense claims. He pleaded guilty to three counts of false accounting relating to rent and claims for IT consultancy work that he had never been required to pay for.

He had asked for rent money covering homes in London and his constituency but it later transpired the properties were already owned by him and his mother.

Peter Wright QC, the prosecutor, said: “We say Mr Chaytor knew the rules, and we say why else would he produce false documents in support of his claims otherwise?”

This should make an interesting landmark for other cases due to be heard and let’s make sure that Parliament are also going to have to deal with business record checks – remember guys, accurate and adequate records!

HMRC are going to be on the attack in order to raise £600m starting this year (remember this number as you will need it later) so how are they going to do it – well, HMRC published a Consultation Paper on 17th December announcing that they intend to start a programme of Business Records Checks (BRCs) that will review both the adequacy and accuracy of business records within the SME sector.

This employment tax expert thinks that HMRC should invest in a good dictionary when it comes to the word consultation because once again they haven’t even waited for the period of consultation to expire (which it does on 28 February 2011) the programme of checks will happen starting in the second half of this year with HMRC projecting 50,000 reviews annually for the next 4 years. Their excuse is that the Consultation is merely concerned with how to implement the programme, not whether it is the right thing to do.

The BRC programme will also have a nasty sting in the tale as it is backed up by a tariff-based penalty regime for failure to keep proper records. The maximum penalty for failure to maintain business records currently stands at £3,000. HMRC have said that they do not intend to have a regime which simply levies £3,000 every time there is a failure to keep proper records – but watch this space because with a bit of cunning maths, HMRC have already stated in their impact assessment that this initiative will bring in £600million over the four years. Now that’s 4 years x 50,000 reviews x £3,000 penalties which comes to an amazing £600million

So now is the time to make sure that your records are correct because this is merely the tip of the iceberg, inadequate or inaccurate records will be only one part of the review and then you’ll be into a full employer compliance review/tax investigation. Contact us today to see how this employment tax expert can stop your company being a statistic

I was talking to a VAT colleague of mine who was commiserating with me about the fact that the Inland Revenue have got “all these new powers” and the fact that Customs have had them for years. The reason for this empathy – they knew that it had taken sometime for things to settle down, cases to be tested etc in relation to over exuberant (let’s be generous, it’s Wednesday!) officers, well be warned here we go again in relation to the Inland Revenue.

It is important that tax payers and advisors are not simply intimidated when faced with what amounts to threatening behaviour by compliance officers – this employment tax expert for one would like to hear your experiences of the new regime. Put in simple language the top brass at the Revenue are quite frankly bricking it, in relation to what may occur in the first 12 -18 mths – they are anticipating problems but what have they done to reign these people in – very little at ground level. Some are already running around threatening people with formal action even when they have no legal obligation to provide information – don’t get me wrong, we are not talking about offshore accounts and banks these are people who are not under review. One case brought to our attention this week was where individuals have already provided a response, regarding contractual terms of engagement, but the compliance officer doesn’t like the answer – ie it does not agree with their opinion, as it yields no money, so they are now threatening these people – well guess what we’re not standing for this and we urge all our readers to be aware of this sort of abuse of power and get in touch – if we don’t bring these people to account no one will – you have been warned!

HMRC Compliance visits – every company should be absolutely scared witless about what HMRC are doing. They are going to spend an unprecedented £1billion on HMRC enquiry compliance visits to companies in order to collect additional PAYE & NIC. if you are not prepared for them they it’ll cost you a fortune and believe me they’re not frightened of bankrupting you. So you need to do something about this now as they’re coming to get you big style!

Check this video from the Chartered Institute of Tax about HMRC powers: