Online Accounting News

From 1 April 2012 all VAT Returns must be submitted online and payment must be made electronically.

This measure completes a process started 1 April 2010 when VAT registered businesses with a turnover exceeding £100,000 and all newly VAT registered businesses were required to file VAT returns and make payments online. Exceptionally, 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, from April 2012 this option will no longer be available and all businesses that have not yet registered for online filing and payment of VAT returns should ensure they do so as soon as possible.

The change will apply to accounting periods beginning on or after 1 April 2012 and for the first time, no further paper VAT returns will be sent to registered traders.

There are a number of benefits to filing online which are highlighted by HMRC in the news release including:

• An automatic acknowledgement that a VAT return has been received.
• A handy sum checker.
• An email alert to remind businesses when their next online return is due.

VAT registered businesses can file VAT returns using HMRC's free online software or using commercially produced software. In either case businesses must have registered and enrolled for the VAT Online service.

We would urge businesses that are still filing paper returns to ensure that they are properly prepared for this change.

The Chief Secretary to the Treasury, Danny Alexander, has announced a tax break for athletes that take part in the 2014 Commonwealth games in Glasgow. The move means that athletes from outside the UK will be exempt from UK income tax on any payment in connection with their performance in the UK.

Under UK tax rules a sportsperson not resident in the UK would usually be subject to UK income on UK earnings including a proportion of any worldwide endorsement income. This move is meant to help attract top athletes to compete at the Commonwealth Games and follows a similar exemption for the Olympic Games in London which was a condition of the London bidding process.

The athlete will remain liable to tax in the country in which they are resident and the tax break is only available to non UK resident athletes.

Announcing the exemption Danny Alexander, Chief Secretary to the Treasury, said:

'With six months tomorrow to go until London 2012, I’m pleased to announce this special exemption for Glasgow 2014 which will prolong the Olympic legacy and help spread the long-term benefits into Scotland. Everyone wants to see the best athletes compete at Glasgow 2014 and this exemption will make that more likely. Seeing the Sir Chris Hoy Velodrome today, it's clear that Glasgow will be an outstanding venue for the Commonwealth Games which showcases the best of UK and international sporting talent.'

The tax office has now begun to issue penalty notices to employers that have not filed their starter and leaver forms online in the period 6 October 2011 to 5 January 2012. The penalties for failing to file online range from £100 up to a maximum of £3,000 depending on the number of forms that should have been filed.

Penalty notices for not filing starter and leaver forms online are issued after the end of the quarters ended 5 July, 5 October, 5 January and 5 April. The requirement for employers with fewer than 50 employees to file their starter and leaver forms online was introduced on 6 April 2011. HMRC had confirmed that they would not charge penalties during the three quarters ending 5 July 2011, 5 October 2011 and 5 January 2012 but would issue letters to employers when they have not filed a form online. However, penalties will be triggered where an employer has incorrectly filed more than two forms on paper during the quarter to 5 January 2012.

The filing date for the 2010/11 annual return was the 19 May 2011. The Return including a P14 for each individual employee and a P35 summarising the entire workforce should have been filed by the deadline. The returns are now over 8 months late and HMRC have started to issue penalty notices where no return has been received. The penalty will be £100 per 50 employees for each month the return is outstanding for the period from 20 September 2011 to 19 January 2012. For a business with less than 50 employees the current penalty notice will be £400.

Businesses that wish to challenge the current penalty notices have 30 days to appeal to the office shown on the penalty notice. Any businesses with outstanding returns are urged to submit them as soon as possible in order to avoid any further penalties.

New regulations were introduced in April 2011 which changed the tax code that applies to certain payments of PAYE income made to an employee after cessation of employment which have not been included in the form P45. The new regulations introduced the '0T' (zero T) code which deducts income tax at the basic, higher and additional rates depending on the level of income in question, without giving any personal allowances. However, payments made in the form of share-based payments (those in the form of securities, interests in securities and securities options) continued to be taxed under the Basic Rate (BR) PAYE code whilst HMRC reviewed the operational effects a change to 0T would have on such payments.

From 6 April 2012, HMRC have proposed that the 0T tax code (and not the BR code) should also be used on a non-cumulative basis against share-based payments made to an employee who has left employment and which have not been included in the form P45. This change will align all post-employment earnings under the same tax code.

HMRC have now published for comment draft amendments to the PAYE regulations to enable this change. The closing date for comments on the proposed legislation is 16 February 2012.

It is apparent that a significant number of fraudulent emails are still being sent to taxpayers purporting to be sent by HMRC. The emails target taxpayers who may be expecting a refund of tax from HMRC and provide a link to a clone of HMRC's website where the recipient is asked to give their credit card or bank details.

These are not genuine HMRC messages and should be disregarded. It is a 'phishing' exercise that uses bogus e-mails and websites to trick taxpayers into supplying confidential or personal information. The emails are being sent from inside the UK and around the world.

In a recent press release HMRC confirmed that they only contact taxpayers, who are due a tax refund, in writing by post and currently don't use telephone calls, emails or external companies in these circumstances.

The Business Records Checks programme imposes penalties for significant record-keeping failures relating to Income Tax, Corporation Tax and VAT and applies to the self-employed, sole traders and businesses with a turnover of less than €50m and with less than 250 employees.

HMRC has confirmed that it has started a detailed review of the Business Records Checks project following criticism that its process of investigating small businesses’ paperwork had been poorly implemented. The project was launched on a pilot basis last year. HMRC now accept that:

'Business Records Checks pilots has caused considerable concern to the tax profession and that the project would have benefited from more detailed consultation with tax professionals at an earlier stage. In the light of these concerns, HMRC will undertake a strategic review of the project in consultation with the professional and representative bodies'.

In the meantime a limited number of pilots will continue and they will be evaluated as part of the strategic review.

No new legislation was necessary for the introduction of the business records checks as HMRC use existing legislation regarding both record keeping requirements and penalties for failure to comply with those requirements. HMRC had previously said that they would only levy a record-keeping penalty in the most extreme cases such as a taxpayer has no records or has destroyed them. HMRC have confirmed that no such cases have been identified to date.

A new Contractual Disclosure Facility (CDF) was launched by HMRC on 31 January 2012. The CDF is a facility for taxpayers to disclose serious tax fraud to HMRC. The CDF is only suitable for taxpayers who want to admit to tax fraud. It is not a method to notify HMRC about errors, mistakes or avoidance schemes where no fraud has taken place. If HMRC writes to an individual about a suspected tax fraud they will be offered the opportunity to use the CDF. The CDF can also be used by taxpayers wishing to disclose their part in a tax fraud.

Under a CDF HMRC will not criminally investigate and prosecute taxpayers over fraud disclosed as part of the CDF contract. However, the taxpayer must commit to the following:

• Tell HMRC about all taxes that have been deliberately evaded, with no exceptions.
• Give HMRC details of all taxes evaded within 60 days of being offered the contract.
• Sign a statement to say accurate and complete details of the tax fraud have been provided.
• Pay all taxes, duties, interest and penalties due.
• Stop any fraud immediately.

If all the conditions are met, the investigation will then be carried out using civil powers, with a view to a civil settlement for tax, interest and a financial penalty.

Under CDF there are 3 options:

• Owning up to fraud: the CDF route.
• Deciding not to own up to fraud: the denial route.
• Not replying to HMRC: the non-cooperation route.

Class 2 National Insurance Contributions (NICs) are paid by all self-employed taxpayers unless they qualify for the small earnings exemption or other exemptions that remove the necessity to pay. Class 2 NICs are payable at a flat weekly rate.

Since April 2011, payments for Class 2 NICs became due on 31 January and 31 July, the same dates as those of a self-assessment tax bill. The last Class 2 NICs payment request was issued in October 2011 and had to be paid by 31 January 2012. The next payment request will be issued in April 2012 and is due for payment by 31 July 2012.

The self-employed may continue paying monthly by direct debit or six monthly on the actual payment due date if they do not wish to stagger the payments. Class 2 NICs count towards payments such as the basic state pension, the employment and support allowance, maternity allowance and bereavement benefits.

New PAYE coding notices are being issued that inform taxpayers of their new tax codes for the tax year beginning 6 April 2012. They will be sent to taxpayers during January, February and March 2012.

The coding notices are designed to ensure that taxpayers pay the right amount of tax and that they include all the allowances and reliefs that they are entitled to claim and that income from all sources has been taken into account. Any taxpayers that receive a coding notice should check carefully that the information is correct as the coding will be used by employers and pension providers. If there are items that they do not understand they should be queried with HMRC immediately otherwise tax deducted from salaries after 6 April 2012 may be incorrect.

The issue of coding notices depends on the type of allowances and reliefs being claimed and whether these tend to change from year to year. In the absence of a formal notice of coding for 2012-13 employers or pension providers will be able to update tax codes on 6 April 2012 for changes to the basic, personal tax allowances.

Research and Development (R&D) tax credits were introduced for small and medium sized enterprises (SMEs) in 2000 and for large companies in 2002. R&D credits are a corporation tax relief that encourage innovation and enterprise within the UK economy.

A number of changes to R & D tax credits, which were announced as part of the 2011 Budget, were subject to state aid approval. The European Commission has now approved the increase in the small and medium-sized enterprise R&D relief to 200% which is effective on expenditure incurred on or after 1 April 2011.

Subject to Parliamentary approval the amount of relief is expected to increase by a further 25% from 1 April 2012 giving a total deduction of 225%.

It has been estimated that the Olympic and Paralympic Games will involve more than 50,000 contracts, worth about £6bn. The sectors affected range from construction, engineering and manufacturing to creative, merchandising and retail at 34 Games venues around the UK.

A news release has been published aimed at employers who plan to take on more staff for the Olympic and Paralympic Games to remind businesses to properly check their labour providers. Labour providers are agencies that supply temporary workers to meet seasonal and market demand — sometimes called 'gangmasters'.

There is a history of tax fraud and unpaid taxes (especially relating to VAT) through the use of labour providers. This mainly relates to businesses involved in the agricultural and food processing sectors, construction, hotels and leisure, security and other labour intensive industries.

The news release includes details of the different types of checks that can be carried out by people using labour supplied by a third party to establish the credibility and legitimacy of their supplies, customers and suppliers. This includes knowing about the financial status of any business that provides third party labour as well as investigating if the workers have the right to be working in the UK.

The deadline for submitting 2010/11 self assessment tax returns online is 31 January 2012. Taxpayers should also be aware that payment of any tax due should also be made by this date. This includes both the payment of any balance of self assessment liability for the 2010/11, plus any payment on account due for the current 2011/12 tax year.

Any taxpayers that are filing online for the first time should ensure that they register to use HMRC’s self assessment Online service as soon as possible. Once registered it can take up to 10 days for an activation code to be sent by mail. All filings must now be made online as the date for submitting paper returns has already passed.

Any returns that are filed after the 31 January 2012 deadline will be subject to the new penalty regime which begins with the 2010/11 self assessment returns.

The main features of the new penalty regime are as follows:

• From day one: taxpayers will be charged a £100 penalty even if they have no tax to pay or have 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 announced that with effect from 16 December 2011, they will be able to accept payment via the Faster Payment Service (FPS). The FPS was the first new payments service to be introduced in the UK for more than 20 years. The service enables electronic payments to be made and processed in hours rather than days. The scheme has been in use for a number of years but HMRC had been unable to accept the FPS and it still took around three days for payments to HMRC to arrive. The limits for payments that can be made using the FPS are individually set by banks.

HMRC recommends that taxpayers should contact their own bank or building society before making a payment to confirm that:

• The service is available.
• Whether there are any single transaction or daily limits on the amount you can pay.
• The latest cut off times for making a payment.

HMRC also reminds taxpayers of the importance in using the correct bank account details and reference number when sending a payment. This will help ensure that the payment is received promptly and correctly allocated and reduces the likelihood of penalties, interest or surcharges for late payment.

A tribunal case once again looked at the issue whether HMRC had acted unreasonably in delaying the time it takes to send a penalty notice to taxpayers. In the most recent case heard by the tribunal, the taxpayer received a penalty for late submission of a P35 end of year employer return. The deadline for submission of the P35 was 19 May 2010 and the first penalty notice was not received until 27 September 2010. In only the second paragraph of the tribunal judgement we are informed that HMRC had provided no explanation as to why the issue of the penalty notice was delayed 'for such an inordinate period of time'.

Following receipt of the penalty notice, the taxpayer filed an end of year return (on 25 October 2010) but further penalties were issued totalling £600. The taxpayer appealed the penalties and also argued that there was a reasonable excuse for the late filing. The Tribunal found in favour of the taxpayer and the appeal was allowed.

Interestingly, the judge commented that even if the reasonable excuse had not been accepted, he would still have reduced the penalty charge. The issue of HMRC not sending taxpayers reminders to submit P35s clearly concerned the tribunal judge as did 'HMRC’s dilatoriness in failing to send out a First Penalty Notice for four months or thereabouts'.

The judge was clear 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.'

The Chancellor has announced that the 2012 Budget will be held on Wednesday, 21 March 2012. The date was announced when the Chancellor spoke before the House of Commons Treasury Select Committee. This will be Chancellor George Osborne’s third Budget and will take place on the final Wednesday before Parliament's Easter break.

Details of all the Budget announcements will be made on a special Budget 2012 section of the HMRC website which will be updated following completion of the Chancellor’s speech next March.

Two Government departments, HMRC and the Department for Work and Pensions (DWP), have signed a twelve month contract with a leading credit reference agency to help tackle fraud and error.

All DWP means-tested benefits will fall under the scope of this collaboration, including Jobseekers Allowance, Employment and Support Allowance, Income Support, Pension Credit and Housing Benefit. HMRC expects to save £700 million over the life of the contract and the DWP expects to save £100 million over the same period. The credit reference agency will target £770m worth of overpayments lost to undeclared partners and/or income.

The Government says that a recent pilot with the same credit reference agency has already protected more than £16m of anticipated losses in tax credits which are now in the hands of fraud investigators.

At the launch of the new agreement, the Minister for Welfare Reform, Lord Freud, said 'We will catch and punish those who abuse the system and prevent fraud from entering in the first place.'

A recent case heard by the First Tier Tribunal concerned an appeal against a direction by HMRC that two separate rural businesses should be jointly registered for VAT. The background facts which were not disputed concerned a farm run by the same family since 1936. The farm is currently run by a married couple and their son and has been registered for VAT since the inception of VAT in 1973. The wife is not an active partner in the farm and has been running an independent B&B since 1975. The B&B has never been VAT registered and has always traded below the VAT registration threshold.

In 2009, HMRC visited the farm as part of their rural diversification project and the HMRC officer reviewed the books of the farming partnership and the B&B. Following the visit HMRC considered there was sufficient financial, economic and organisational links between the farm and the B&B to justify issuing a notice of direction. Effectively this would have bought the B&B trading activities into the farm VAT registration. The taxpayers appealed and the tribunal in deciding the case considered each of the 14 factors used by HMRC in arriving at their decision to issue the taxpayers with a direction. On examination, the tribunal found that the overwhelming majority of the factors were either neutral or weighed in favour of the B&B being treated as a separate business. The only factors were that the B&B shared the use of the farmhouse but there was no evidence that the farmhouse was used by the farming business.

The tribunal found squarely in favour of the taxpayer unanimously concluding that 'HMRC could not have been reasonably satisfied that there was an artificial separation of the farming and B&B businesses' and concluded 'that the B&B is not closely bound to the farming business by financial, economic or organisational links'. The taxpayers' appeal was allowed in full providing hope for other rural businesses targeted as part of the rural diversification project.

The Government published the Finance Bill 2012 draft clauses, explanatory notes and draft secondary legislation on 6 December 2011. The draft legislation is open for consultation until 10 February 2012 and the draft Finance Bill is due to be published after the 2012 Budget. The Bill and explanatory notes run to more than a staggering 1,100 pages. The majority of the measures in the draft were announced in the 2011 Budget and were the subject of subsequent consultations.

Some of the most important changes in the draft Bill include the following:

• Controlled Foreign Company ('CFC') - Legislation will be introduced in Finance Bill 2012 to repeal the current legislation and replace it with a new CFC regime.
• Patent Box - Legislation will be introduced to allow companies to apply a 10% corporation tax rate to profits attributable to patents and other qualifying intellectual property from 1 April 2013.
• R & D Tax credits - Legislation will be introduced to improve the R&D tax relief for both small and medium enterprises and large companies.
• Statutory residence test — The introduction of the proposed new statutory residency test will now be introduced with effect from 6 April 2013 and legislated in Finance Bill 2013. It was originally intended that the statutory residence test would take effect from April 2012.
• Seed Enterprise Investment Scheme (SEIS) — The new scheme will be launched from April 2012 to encourage investment in new early stage companies carrying on, or preparing to carry on, a new business in qualifying trades.
• Enterprise Investment Scheme and Venture Capital Trusts - Legislation will be introduced in Finance Bill 2012 to make simplifications to the EIS and to VCTs.
• VAT cost sharing exemption - The cost sharing exemption will be introduced. This is a provision within EU law that allows businesses and organisations that make VAT exempt and / or non-business supplies to form groups in order to achieve cost savings and economies of scale.
• VAT grouping - Legislation will be introduced to bring into law a long standing concession on the valuation of certain reverse charges applicable to VAT groups.

If you are travelling abroad make sure you comply with the following duty and tax free allowances.

Travelling to a EU country

Where tobacco or alcohol is brought in from another EU country no duties or tax will be payable as long as you can demonstrate that the goods are for your own use and that you paid the relevant taxes and duties on the purchase.

HMRC have published the following guidelines as to an acceptable maximum for personal use. Travellers that exceed these limits are more likely to be subject to further questioning.

• 800 cigarettes
• 200 cigars
• 400 cigarillos
• 1kg of tobacco
• 110 litres of beer
• 90 litres of wine
• 10 litres of spirits
• 20 litres of fortified wine (for example port or sherry)

Travelling to a non-EU country

Each adult travelling is allowed to bring the following back to the UK for their own use without any UK tax or duty liabilities.

• 200 cigarettes or 100 cigarillos or 50 cigars or 250g of tobacco
• 4 litres of still table wine
• 16 litres of beer
• 1 litre of spirits or strong liqueurs over 22 per cent volume; or 2 litres of fortified wine (such as port or sherry), sparkling wine or other alcoholic beverages of less than 22 per cent volume and
• £390 limit of all other goods including perfume and souvenirs. Taxpayers lucky enough to be arriving by private plane or boat for pleasure purposes can bring in goods up to the value of £270 tax free.

The UK Treasury recently announced that the European Commission had approved in principle a UK government scheme to discount fuel duty for remote island communities. The final Council decision authorising the United Kingdom to apply reduced rates to unleaded petrol and gas oil was made on 24 November 2011. The reduced fuel duty will cut petrol and diesel fuel prices in remote island communities by 5p per litre. The cuts are designed to help alleviate the high cost of fuel on the islands as well as the lack of other public transport options.

The scheme will apply to unleaded petrol, diesel, biodiesel, bioblend and bioethanol blend sold in the Inner and Outer Hebrides, the Northern Isles, the islands in the Clyde and the Isles of Scilly.

The new legislation came into force on 1 January 2012 although consumers will not benefit from the reduction until 1 March 2012. This is because fuel retailers will be able to claim a 5p rebate on fuel purchased from 1 January 2012 but to ensure they do not suffer any cashflow problems in passing on the discount to consumers the reduction will not hit the forecourts until 1 March 2012.