Online Accounting News

The Scotland Act 2012 came into law on 1 May 2012. The Act gives the Scottish Parliament the power to set a Scottish rate of income tax which will be administered by HMRC for Scottish taxpayers. The new Scottish income tax rate is expected to apply from 6 April 2016.

If for example, the Scottish Parliament set a rate of 9%, the Scottish rates of basic rate, higher rate and additional would all be 1% less than the rest of the UK. Conversely, if the Scottish rates were set higher than 10%, the Scottish rates would be proportionatly higher than the rest of the UK. The income tax rates will apply to all Scottish taxpayers. HMRC will publish further guidance in due course.

The Act also fully devolves the power to raise taxes on land transactions and on waste disposal to landfill, to the Scottish Parliament. This change is expected to take effect from April 2015. The Scottish Government may choose to levy taxes that are similar to SDLT and landfill tax but will also have the power to design the taxes in a different way. Revenue raised from the taxes will remain in Scotland for use by the Scottish Government.

The Act also provides powers for new taxes to be created in Scotland and for additional taxes to be devolved as well as a series of non-tax related changes.

Residential property that is purchased by certain persons (broadly companies, collective investment schemes and partnerships with a member who is a company or a collective investment scheme) will be subject to a 15% SDLT charge if the value of the property acquired exceeds £2m. The process of purchasing in this way is sometimes described as 'corporate enveloping'.

This measure will be applied to transactions completed on 21 March 2012 or later subject to transitional provisions for pre-existing contracts.

HMRC have clarified that the legislation makes it clear that the higher rate charge applies to all transactions where the contract is entered into on or after 21 March 2012. The transitional rules can therefore only potentially apply to transactions whose contracts were entered into on or before 20 March 2012.

HMRC have previously confirmed that there are two exclusions from the higher charge, for companies acting in its capacity as trustee of a settlement and for bona fide property developers who meet qualifying conditions.

The filing date for the 2011/12 PAYE Annual Return is 19 May 2012. The Return including a P14 for each individual employee and a P35 summarising the entire workforce must be filed. The vast majority of employers are required to file annual and in year forms online. If no return is due, HMRC must be notified — this can be done using the new 'No Employer Annual Return to make' email notification and will avoid HMRC sending unnecessary reminders or penalty notices.

Failure to file on time will almost certainly result in a late filing penalty. There is a penalty of £100 per 50 employees for each month the return is outstanding. HMRC have recently introduced a number of measures to help minimise the amount of penalties levied as in some cases, employers are unaware that their returns are late until they receive a first penalty letter in September covering a four month period of accrued penalties (a minimum of £400). This year HMRC will be issuing additional reminders to employers that have not filed by the deadline explaining that a penalty is due and what can be done to avoid it increasing.

Employers will also be liable to a penalty if they file their annual return on paper (with some very limited exceptions, such as not using the internet due to religious beliefs).

Fraudulent emails are still being sent to taxpayers. These emails aren’t genuine HMRC messages and should be disregarded. The emails are part of a 'phishing' exercise that use bogus e-mails and websites to trick taxpayers into supplying confidential or personal information. The 'phishing’ emails are being sent from inside the UK and around the world but the problem of fraudulent emails continues. The emails often start with phrases which alert taxpayers to the fact that they are due a refund of tax with the emails containing links to fraudulent websites.

Our readers are reminded that should they receive any email that appears to be fraudulent it is important not to provide any information before verifying the authenticity of the email.

Email addresses used for mailing these fraudulent emails include the following:

• services@hmrc.co.uk
• secure@hmrc.co.uk
• hmrc@gov.uk
• refund-help@hmrc.gov.uk
• service@online.com
• annual.tax@hmrc.gov.uk
• email@hmrc.gov.uk
• refund.alert@hmrc.gov.uk
• refunds@hmrc.gov.uk
• customs@hmrc.gov.uk
• srvcs@hmrc.gov.uk
• alertsonline@hmrc.co.uk
• info@hmrc.gov.uk
• noreply@hmrc.gov.uk
• rebate@hmrc.gov.uk

These are not valid HMRC email addresses.

The deadline for electricians to regularise their tax affairs is fast approaching. The Electricians Tax Safe Plan (ETSP) is designed for people who work (or worked) installing, maintaining and testing electrical systems, equipment and appliances — and covers any tax owed, for whatever reason.

The ETSP is aimed exclusively at electricians and offers an opportunity for them to disclose undeclared income and bring their tax affairs up to date. As a first step, qualifying taxpayers must notify HMRC by 15 May 2012 of their intention to take part in the ETSP either online or by phone. An actual disclosure along with an arrangement to make payment of all tax, interest and penalties due must be made by 14 August 2012.

Making a disclosure using the ETSP can significantly reduce the amount of penalties due and should avoid the possibility of criminal investigations taking place. Most disclosures under the ETSP umbrella will be subject to a penalty rate of 10% with a maximum rate of 20%. Electricians who currently have undisclosed taxable income are strongly advised to consider the benefits of making a disclosure under the plan.

HMRC will begin investigating those who have failed to come forward after the 15 May 2012 deadline and electricians found to have undisclosed liabilities will face substantial penalties and possible criminal prosecution.

Taxpayers who have not yet filed their self-assessment returns online for the tax year ending 5 April 2011 face a daily penalty of £10 up to a maximum of £900 i.e. for three months from 1 May 2012. If the return still remains outstanding further higher penalties will be charged from six months and twelve months late.

These penalties are in addition to the £100 automatic late penalty which has already been sent to taxpayers who missed the 31 January 2012 deadline.

HMRC had previously announced that they would treat all online tax returns received up to midnight on 2 February 2012 as if they had been received on 31 January 2012. The extension was granted because of possible last-minute disruption from a planned HMRC strike on 31 January.

The new penalty regime that applies to the late filing of 2010/11 self-assessment returns has the following elements:

• From 1 day late: An automatic £100 late penalty for late submission of a tax return even if taxpayers had no tax to pay or had paid any tax due on time.
• From 3 months late: taxpayers will be charged an automatic daily penalty of £10 per day up to a £900 maximum.
• From 6 months late: taxpayers will be charged additional penalties which are the greater of 5% of tax due or £300.
• Over 12 months late: there are additional penalties based on greater of 5% of tax due or £300. In serious cases this penalty may be increased up to 100% of tax due.

HMRC have already begun issuing daily penalties for paper returns which were submitted late. The paper returns were due on 31 October 2011 and the daily penalty regime began on 1 February 2012.

All employers are reminded that the filing deadline for submitting the 2011/12 PAYE annual return is fast approaching. The filing date for the annual return is 19 May 2012. The Return including a P14 for each individual employee and a P35 summarising the entire workforce must be filed. The vast majority of employers are required to file annual and in year forms online.

Failure to file on time will almost certainly result in a late filing penalty. There is a penalty of £100 per 50 employees for each month the return is outstanding. HMRC has recently introduced a number of measures to help minimise the amount of penalties levied, as in some cases, employers are unaware that their returns are late until they receive the first penalty. These have been sent in past years, by letter during September, covering a four month period of accrued penalties (a minimum of £400). This year HMRC will be issuing additional reminders to employers that have not filed by the deadline explaining that a penalty is due and how to minimise future penalties.

Employers will also be liable to a penalty if they file their annual return on paper (with some very limited exceptions, such as not using the internet due to religious beliefs).

The UK and Switzerland recently signed a landmark tax agreement that will introduce enormous changes to the taxation of offshore bank accounts in Switzerland from 2013.

Under the agreement UK taxpayers will have the option to make a full disclosure of their existing banking relationships in Switzerland and pay any outstanding taxes, interest and penalties or instead face a one-off tax payment deduction on 31 May 2013 to settle past tax liabilities.

At the time the agreement was signed, the one-off charge was to be in the range of 19% to 34%. The exact rate to be used will be calculated by reference to a complicated formula based on a number of different factors. Following a revised deal between Switzerland and Germany the one off-charge range is to be increased to between 21% and 41% in the UK.

This increase is allowed as part of a protocol to the UK and Swiss tax agreement which states that the UK can also apply a higher rate based on the Swiss — German agreement.

With effect from 11 April 2012, HMRC has established a dedicated bereavement services team to deal with PAYE and Self Assessment which arise when taxpayers die. The new team arose as a result of an HMRC working group with tax agents and the voluntary sector, to improve HMRC’s service to taxpayers and provide a single point of contact when finalising the PAYE and Self Assessment affairs of the deceased.

The R27 Form, which is used to help finalise the tax affairs of a person who has died has also been redesigned and a new section has been added in which a personal representative, executor or administrator finalising the deceased's estate can appoint someone to act on their behalf. A new section has also been added to the form to provide details of the surviving spouse or civil partner so HMRC can also review their tax arrangements. The new R27 form Reclaiming tax or paying tax when somebody dies is available online.

The deadline for online traders to regularise their tax affairs is approaching. The latest campaign to be launched known as the e-Markets Disclosure Facility targets taxpayers who should be paying tax on income they earn from buying and selling goods direct to others using online marketplaces such as EBay. The campaign does not target people who only sell a few personal items online as they are unlikely to be trading. HMRC have recently published a YouTube video to help taxpayers decide whether they meet HMRC's rules for trading.

As a first step, qualifying taxpayers must notify HMRC by 14 June 2012 of their intention to make a disclosure by completing an online notification form available at www.hmrc.gov.uk/campaigns/notify.htm.

An actual disclosure together with an arrangement to make payment of all tax, interest and penalties due must be made by 14 September 2012.

Making a disclosure using the e-Markets Disclosure Facility can significantly reduce the amount of penalties due and should avoid the possibility of criminal investigations taking place. Most disclosures will be subject to a maximum penalty rate of up to 10%.

Since 6 April 2012 HMRC have new powers to ensure that employers pay their PAYE tax deductions or Class 1 National Insurance contributions (NICs) on time. The new powers allow HMRC to obtain a security from employers where there is a serious revenue risk employers won’t pay over their PAYE tax deductions or NICs.

New guidance has recently been published on the process used to decide when a taxpayer will be asked for a PAYE & NICs security. The guidance is also relevant to securities for VAT and environmental taxes.

There are many reasons for non-payment of tax to HMRC including phoenixism, where businesses evade tax by becoming repeatedly insolvent only for a new company to be set-up again seeking to defraud HMRC. The changes will also target businesses that build up large debts to HMRC as well as those suspected of tax fraud.

The required security will usually be 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. The amount of security required will be calculated on a case by case basis. Businesses required to pay a security deposit will have the option to appeal any decision by HMRC. Businesses that fail to provide a security face a fine of up to £5,000, which will be enforceable by the courts.

A recent First Tier Tribunal decision has ruled that a property used as a holiday cottage qualifies for inheritance tax business property relief (BPR). The property was a large bungalow which overlooked the sea and had direct access to the beach. HMRC had denied BPR on the 25% share of a holiday cottage owned by a taxpayer who died in June 2006. However the taxpayer's executors appealed this decision to the First Tier Tribunal.

The Tribunal had to decide two issues:

1. Whether the holiday home had been used for the operation of a business in the 2 years before the taxpayer died. To be regarded as a business for inheritance tax business property relief purposes the business must be carried on for gain. HMRC accepted that if the use of the property did amount to a business it would be a relevant business property.
2. Whether the property was excluded from business property relief on the basis that the business consisted wholly or mainly of holding investments.

The Tribunal found that based on the years they examined, the rental of the holiday cottage had amounted to the operation of a business and that the operation had made a profit in two of the three years before the taxpayers death and continued to be running profitably in the part-year in which the taxpayer died. The Tribunal found that not only was the letting of the property a business but it was also a business which was conducted with a view to making a gain.

The Tribunal then had to consider the second issue at hand. The Chairman was clear that no 'intelligent businessman would consider such a property as Fairhaven to be correctly characterised as an investment. He would consider it to be a business asset to be exploited as part of the provision of services going well beyond an investment as such.'

The appeal was allowed in full.

The Chancellor announced as part of the 2012 Budget that legislation is to be introduced in Finance Bill 2013 that will seek to apply a cap to income tax reliefs claimed by individuals from 6 April 2013. Such a move would introduce for the first time a limitation to existing reliefs.

This cap will be set at 25% of income or £50,000, whichever is the greater. This will not affect tax reliefs that are already capped such as Enterprise Investment Scheme and pension reliefs. The principal reliefs affected are loss reliefs that can be claimed against total income, qualifying loan interest relief and reliefs for charitable giving.

The measure has already created much controversy particularly the effect on the level of charitable giving. HMRC together with HM Treasury will be consulting with interested parties prior to the publication of draft legislation later this year.

VAT Returns must be submitted online and payment must be made electronically for accounting periods beginning on or after 1 April 2012. This measure applies to virtually all VAT registered businesses in the UK.

Since 1 April 2010, all VAT registered business with a turnover exceeding £100,000 and all newly VAT registered businesses had been required to file VAT returns and make payments online. VAT registered businesses who were VAT registered before 1 April 2010 and had a turnover of less than £100,000 were able to continue filing paper VAT returns. However, since 1 April 2012, this option is no longer available and businesses that have not yet registered to file VAT returns online should ensure they do so as soon as possible to ensure that they are able to meet the online filing requirements.

VAT registered businesses can file VAT returns using either HMRC's free online software or using commercially produced software. In either case, businesses must have already registered and enrolled for the VAT Online service in order to submit a VAT Return online.

The Finance Bill 2012 was presented to Parliament on 26 March 2012. This is known as the first reading and there was no debate on the Bill at the time. The Bill contains the draft legislation for some of the proposals announced by the Chancellor in the 2011 and 2012 Budgets. The Bill is expected to have its second reading and a debate on 16 April 2012.

The Finance Bill will then go through some further stages in the House of Commons before proceeding through a similar process in the House of Lords prior to becoming an Act of Parliament.

The Finance Bill 2012 is formally known as Finance (No. 4) Bill 2010-12 as it is the fourth Finance Bill of the current Parliamentary session. On Royal Assent it will become known as Finance Act 2012.

The child tax credit has been designed to help lower income families with children. The income limit which was £41,300 in the 2011/12 tax year will be lower in 2012/13 for most taxpayers but will be based on personal circumstances. As a rough guide, claimants with only one child may not receive child tax credit if their income is more than approximately £26,000 and those with two children may not receive the credit if there income is more than approximately £32,200.

However, claimants with larger families, disabled children or who spend a lot on formal childcare, could still be entitled to some payments with higher incomes. Child tax credit is paid directly to the main carer in the family either weekly or monthly and is usually paid directly to a designated bank or building society account.

The working tax credit assists taxpayers on low incomes by providing top-up payments. The rules for couples claiming the working tax credit are also changing from 6 April 2012 with an increase in the minimum amount of working hours from 16 to 24 per week. One member of the couple will have to work at least 16 hours a week. Single people who are responsible for children (for example single parents) are not affected by the new rules.

The rules for backdated claims are also changing, from April 2012 claimants will only be able to backdate the increase in their entitlement by one month and not three months as before. From 6 April 2012, there are also changes to the tax credits rules where a claimant's income drops during the tax year as well as the withdrawal of part of the working tax credit known as the '50-plus element' for taxpayers aged over 50.

The problem of employers providing incorrect or incomplete employee information has once again been highlighted by HMRC. According to HMRC, the introduction of the new system whereby HMRC collect real time information (RTI) for PAYE will be greatly enhanced if accurate employee information is available. The RTI system, which is expected to be fully operational in 2013, will involve employers sending HMRC information about tax and other deductions from employees' pay when the employee is paid, rather than at the end of the year as at present.

Before joining the scheme, employers and pension providers will be required to go through a payroll alignment process. Having the correct employee information on file is an important preparatory step prior to the introduction of RTI. According to HMRC’s research over 80% of data issues are a result of incorrect information about an individual's name, date of birth or National Insurance number. According to data received from employers, employees have names such as Mr, Ms or Mrs Dummy and some have the surname 'Unknown'. Other employers claim to have staff with the names Mr A N Other, Mr Casual and Mr Worker.

HMRC have published a list of practical tips to help employers ensure they have the correct data on file. The tips include ensuring that an individual’s full and official forename(s) are entered and spelled correctly, that the correct date of birth is provided and that the correct national insurance number is used.

From 1 April 2012 the monthly deadline for submission of Intrastat declaration has been brought forward from the last day, to the 21st day, of the month following the month to which the trade relates. Intrastat declarations for the period 1 to 31 March 2012 are due on 21 April 2012 and all subsequent declarations will be due on the 21st of the month.

In addition, from 1 April 2012 the submission of electronic Intrastat declarations has become mandatory. HMRC will no longer accept Intrastat declarations on paper forms C1500 and C1501. Electronic Intrastat declarations must be filed using online forms or other electronic formats such as Comma Separated Variable File (CSV off line form) or Electronic Data Interchange (EDI). The changes form part of the Government's strategy to move to the greater use of digital channels.

Intrastat returns are used to collect statistical information on the movement of goods from the UK to other EU countries and vice versa. Any business that exceeds the exemption threshold for either arrivals or dispatches of goods is obliged to submit monthly returns. Businesses with annual EU trade above the delivery terms threshold are required to supply additional information relating to delivery terms on their statistical returns. The exemption threshold for arrivals (EU imports) is £600,000 and the exemption threshold for dispatches (EU exports) is £250,000.

HMRC have faced pressure to change the timing of PAYE penalty notices after a number of recent Tribunal cases highlighted the unreasonable delay taken by HMRC to send a penalty notice to taxpayers. In one recent case the Tribunal judge commented that 'the conduct of HMRC in desisting from sending out a timeous First Penalty Notice gives rise to conspicuous unfairness which would be recognised as such by any fair-minded objective observer.'

HMRC in conjunction with professional bodies and tax charities have been working on a joint initiative to achieve a number of service objectives in 2012. One of these objectives was to address concerns about the delay in informing employers that their PAYE end of year returns are late, and therefore subject to penalties. The deadline for submission of the P35 end of year employer return is 19 May each year and there is a penalty of £100 per 50 employees for each month the return is outstanding. Often employers are unaware that their returns are late until they receive a first penalty letter in September covering a four month period of accrued penalties (a minimum of £400).

HMRC have agreed to put the following measures in place to help minimise the amount of penalties levied:

• Changing the date when HMRC issue the 'Notification to complete form P35 Employer Annual Return 2011/12' from mid-February to mid-March 2012, so that employers will receive it much nearer to the end of the tax year.
• From 28 April 2012, where HMRC believe a 2011-12 P35 remains outstanding, an ‘Employer Annual Return Reminder’ will be issued. From 31 May 2012, a 'P35 Interim Penalty Letter' will be introduced and will be issued over a five day period, so that it reaches employers within a month of the filing deadline explaining that a penalty is due and what can be done to avoid it increasing.
• Improving the online guidance for submitting P35s online, including specific advice about the test-in-live service to reduce the number of employers who believe their test submission is the live submission.
• Instructing the Employer Helpline staff to tell employers about filing dates when setting up new employer schemes, to help them avoid a penalty.
• From 2013 there will be improvements on the information on the P35 to include a warning that the first penalty notice will cover four months.

The current round of HMRC’s targeted campaigns against tax avoidance started with the Offshore Disclosure Facility (ODF) in 2007. This targeted taxpayers with unpaid taxes linked to offshore accounts or assets. HMRC’s approach since then has revolved around offering specific targeted campaigns rather than general tax amnesties. HMRC have so far targeted specific sectors including plumbers, taxpayers with off-shore accounts, restaurants, members of the medical profession and late VAT registration raising more than £500m from voluntary disclosures and a further £105m from follow-up activity.

The latest campaign to be launched is called the e-Markets Disclosure Facility and will target taxpayers who should be paying tax on income they earn from buying and selling goods direct to others using online marketplaces such as eBay.

Launching the new initiative Marian Wilson, head of HMRC Campaigns, said:

'This campaign is part of a wider HMRC initiative to provide support and guidance to the public on tax evasion and is aimed at people using online marketplaces to buy and sell goods as a trade or business and who fail to pay the tax owed. Those who only sell a few items and who are not traders are unlikely to be liable to pay tax on what they sell and will not be targeted by this campaign.'

As a first step, qualifying taxpayers must notify HMRC by 14 June 2012 of their intention to make a disclosure by completing an online notification form available at www.hmrc.gov.uk/campaigns/notify.htm.

An actual disclosure together with an arrangement to make payment of all tax, interest and penalties due must be made by 14 September 2012.

Making a disclosure using the e-Markets Disclosure Facility can significantly reduce the amount of penalties due and should avoid the possibility of criminal investigations taking place. Most disclosures will be subject to a maximum penalty rate of up to 10%.