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 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

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.

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.”

HMRC’s campaign against disguised remuneration is designed to prevent employers, in particular City firms or football clubs, from disguising large payments to employees through loans and trusts – employment benefit trusts (EBTs) – in order to avoid or defer income tax or national insurance contributions.

A new schedule in the Finance (No. 3) Bill 2011 will treat loans, money or other assets held in trust but linked to an individual as PAYE income. HMRC also plans to bring forward a similar treatment for NICs. The regime came into effect on 6 April 2011, but will apply in some cases dating back to 9 December 2010.

Draft legislation on disguised remuneration published by the government in December 2010 was criticised for being complex and too broad. Tax experts warned that the anti-avoidance law would catch many remuneration structures that were not designed to avoid tax.

The new disguised remuneration provisions only apply to schemes that use a third party such as a trust, individual or company.

The disguised remuneration guidance, which is due to be finalised in the autumn, attempts to clarify how the law will work in a number of situations including:

Clarification that employee car ownership schemes wholly run by the employer or other companies in the same group will not be covered by the disguised remuneration arrangements
Normal dividend payments following a share transaction will not be caught by the new rules

In the past EBTs were extremely popular but now using an EBT for any kind of tax efficiency is unlikely to work in all but some very limited cases.

In light of current tax investigations by HMRC, it is worth reminding you guys of the ability of HMRC to Name and Shame Tax Evaders

HMRC can publish the following information, unless doing so would prejudice an ongoing criminal investigation or cause serious risk to the taxpayer’s safety:

- The taxpayer’s name (including a trading name or pseudonym);
- The taxpayer’s address or registered office address;
- The nature of the taxpayer’s business;
- The amount of the penalties charged and the tax involved;
- The periods when the errors arose; and
- Any other information that HMRC considers necessary in order to make the taxpayer’s identity clear.

Taxpayers cannot appeal against the decision to publish their details, although they can appeal against the imposition and level of the penalty.

However, HMRC will not publish a taxpayer’s details if the tax they deliberately evaded is less than £25K or if the taxpayer voluntarily tells HMRC about the errors before HMRC begin a compliance check.

HMRC Tax Investigation into plumbers has begun in ernest

Five plumbers have been arrested and around 600 are under civil investigation by HM Revenue & Customs (HMRC) for failing to pay the right amount of tax.

The arrests and investigations have taken place during a campaign targeting plumbers which invited them to put their tax affairs in order. Some of those involved owe up to £150,000.

This is the start of co-ordinated action and more raids are expected to take place over the coming weeks across the UK, including Yorkshire, Kent, Cambridgeshire, Tyne & Wear, Midlands and South Wales.

John Pointing, Assistant Director, HMRC Criminal Investigation, said:

“These raids and arrests of ‘ghosts’ – people who have not declared income from the work they do – are the culmination of months of work by HMRC.

“We provided a chance for those we have arrested, and the 600 we are investigating, to come forward voluntarily and put things right. These arrests send a clear message that HMRC will take action against those who choose not to come forward and pay the tax they owe.”

Mike Wells, Director HMRC Risk & Intelligence Service, said:

“These arrests are just the start. HMRC is considering hundreds of further cases for criminal investigation in the plumbing and medical professions. Some people may have thought we were bluffing when we said we have information that we will use to prosecute tax evasion.”

Under the Plumbers Tax Safe Plan (PTSP), plumbers, gas fitters, heating engineers and members of associated trades who owe tax that they had not declared faced a penalty rate of only 10 per cent, with a maximum of 20 per cent if they disclose in full. They have until 31 August to arrange for payment.

If you are worried about these developments call us today on 0800 917 9176