Employment Tax Expert

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

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 It can only be superseded when the taxpayer makes a valid self-assessment, which means submitting a tax return.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.

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.”