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Annual reconciliations of PAYE for the tax year 2012/13 are being issued to some taxpayers using the P800 form. The form shows HMRC’s tax calculations in respect of the tax year ending 5 April 2013. This form is sent to taxpayers after HMRC have received details of the salary, pension and tax paid for each individual from employers and pension providers. HMRC use this information to ensure the correct amount has been paid.
In the majority of cases taxpayers that pay tax through the PAYE system will have paid the correct amount of tax. However, if too much or too little tax has been paid, taxpayers will be sent a P800 form.
Taxpayers that have paid too much tax, will be sent a cheque, in most cases, within 14 working days from the receipt of a P800 Tax Calculation. Those that have paid too little tax will in most cases have the underpayment collected automatically through their 2014-15 annual tax code over 12 months. Where this is not possible HMRC will contact taxpayers to discuss the available options to pay the tax outstanding. The recovery of tax underpaid can usually be spread over longer periods in cases of financial hardship.
Any taxpayer that receives a P800 form should check that the figures quoted are correct.
The VAT rules, which allowed for full VAT recovery on the purchase of certain business assets used for both business and private or non-business, changed on 1 January 2011. Prior to that date businesses using the Lennartz mechanism could opt to recover all the input tax (subject to any partial exemption restriction) on the purchase of immovable property, boats and aircrafts up-front and make subsequent output tax adjustments to reflect any private or non-business use.
The change removes a significant cash-flow benefit for many businesses that may have benefitted from using the Lennartz mechanism.
A recent Tribunal case examined the Lennartz mechanism after HMRC issued an assessment in September 2010 relating to the VAT accounting periods for the quarters ending 09/06, 03/07, 09/07 and 12/08. The assessment related to the recovery of input tax allegedly over-deducted in respect of the purchase and maintenance of a helicopter by the taxpayer.
Ultimately, the Tribunal decided that the taxpayer could not rely on the Lennartz argument to justify its full recovery of input tax but it did accept that the purchase of the helicopter was for business purposes and therefore the taxpayer's appeal was allowed. In this case any private use of the helicopter had been invoiced by the company at normal commercial rates.
UK tax authorities have recently announced that they have been working with the United States and Australian tax administrations (the IRS and ATO) to investigate over 400 gigabytes of data as part of global efforts to target offshore tax avoidance and evasion. The data is still being analysed but it is thought that it will reveal the use of complex offshore structures by wealthy individuals and trusts in territories including Singapore, the British Virgin Islands, the Cayman Islands, and the Cook Islands.
HMRC’s press release reveals that 100 taxpayers have been identified who are under investigation for offshore tax evasion as well as more than 200 UK accountants, lawyers and other professional advisors who advise on setting up these structures. HMRC is urging UK residents with complex offshore arrangements to review the structures and to come forward if there are tax irregularities to be disclosed. Voluntary compliance can result in significantly lower penalties than would otherwise be the case.
Commenting on the announcement, Jennie Granger, HMRC Commissioner and Director General for Enforcement and Compliance said:
'Working with the international tax community to pursue offshore evasion is another important step in closing the net on tax evasion. There is nothing illegal about an international structure, especially in a globally integrated economy and these arrangements may be perfectly legitimate and may already have been declared to HMRC. However they may involve tax evasion, avoidance or other serious offences by taxpayers. What has to stop is using offshore structures to illegally hide assets and income'.
HMRC have published a second list of deliberate tax defaulters. The list includes 15 individuals, businesses and companies and the amounts of tax on which penalties are due and the amount of penalties charged.
A deliberate defaulter is a person who incurs a relevant penalty for one of the following:
- An inaccuracy in a return or document for a tax period beginning on or after 1 April 2010.
- A failure to comply with certain obligations, such as the obligation to notify HMRC of a liability to tax.
- A VAT or excise wrongdoing that occurred on or after 1 April 2010.
The legislation that allows HMRC to publish details of deliberate defaulters is contained in Section 94, Finance Act 2009. Taxpayers who make unprompted disclosures or a satisfactory fully prompted disclosure will not be affected.
The measure affects the following groups of taxpayers:
- Taxpayers (individuals, businesses and companies) who are penalised for deliberately understating tax due, or overstating claims or losses, of more than £25,000.
- Taxpayers who are penalised for deliberately failing to notify HMRC when required to do so, leading to a loss of tax of more than £25,000.
- Taxpayers who are penalised for deliberately committing certain VAT and excise wrongdoings, leading to a loss of tax of more than £25,000.
Taxpayers are reminded that the problem of fraudulent emails continues. The emails are part of a 'phishing' exercise that use bogus e-mails and websites to trick taxpayers into supplying confidential or personal information. These emails aren’t genuine HMRC messages and should be disregarded.
The phishing emails are being sent from inside the UK and around the world. 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. Any email that appears to be fraudulent should not be opened before verifying the authenticity of the email.
Email addresses used for mailing these fraudulent emails include the following:
These are not valid HMRC email addresses.
Families and individuals that receive tax credits should ensure that they renew their tax credit claims by 31 July 2013. Claimants who do not renew on time may have their payments stopped.
Claims should be renewed by completing the renewals pack that is being sent by HMRC. Claimants need to notify HMRC where there have been changes to the family size, child care costs, number of hours worked and salary. Details of previous years' income also need to be completed on the form to allow HMRC to check if the correct tax credits have been paid.
Any further changes which take place during the year should be notified to HMRC immediately, such as significant changes in salary or the birth of a new child.
Claimants should also be aware of the changes to the child tax credit system which took effect from 6 April 2013 in which the income disregard was reduced to £5,000. Any changes in income of more than £5,000 must be notified to HMRC without delay.
A taxpayer appealed against default surcharges levied by HMRC. A default surcharge is a penalty levied on businesses that submit late VAT returns or late payments. VAT registered businesses are required by law to submit their return and make sure that payment of the VAT due has cleared to HMRC’s bank account by the due date.
The defaults related to late payments of VAT beginning 2008 and were contested by the taxpayer who explained that there had been issues with HMRC and its predecessor body HM Customs & Excise (HMCE) dating back to a VAT Tribunal decision of April 2001. In fact the taxpayer had originally defaulted on a VAT payment as a result of burglaries at their business premises in 1993.
The Tribunal accepted that there has been a long history of incompetence, mismanagement and unlawful acts on the part of HMRC and its predecessor body HMCE and that issues between the taxpayer and HMRC had never been fully resolved. It was also noted that due to an upturn in business between 2001 and 2007 most VAT returns had been filed and VAT paid on time.
The recession of 2008 resulted in further late payments of VAT which the taxpayer contended was 'due to the cumulative effect of the previous 15 years’ financial damage, ultimately attributable to HMRC’s mistakes, incompetence and worse over the intervening period.'
There was no dispute as to the quantum of the calculation of the default surcharge, the appeal rested on whether the taxpayer had a reasonable excuse for late payments of VAT. However, the Tribunal, whilst accepting that the taxpayer had had a raw deal in their dealings with HMRC, the appeal was ultimately dismissed on the basis that the Tribunal could not accept that earlier problems were sufficiently linked to the defaults beginning in early 2008.
Employers are reminded that the filing deadline for submitting the 2012-13 PAYE Annual Return is 19 May 2013. 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.
Employers will be liable to a penalty if they file their Annual Return on paper (with some very limited exceptions, for example not using the internet due to religious beliefs).
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).
Employers that are not required to send an Annual Return can notify HMRC using an email form available on HMRC’s website. The introduction of RTI means that this is the last year that most employers will be required to file an Annual Return.
How are you coping with the new online filing of payroll information?
The introduction of the new system where HMRC collect real time information (RTI) for PAYE has begun. The changes take effect from an employers first payday on or after 6 April 2013 unless a later starting date has been agreed. The RTI system involves employers sending HMRC information about tax and other deductions each time a payment is made as part of the payroll process, rather than at the end of the year as was previously the case.
HMRC have confirmed that over one million employer PAYE schemes have started to use the RTI system since it was launched last month. Commenting on the announcement, Ruth Owen, HMRC’s Director General Personal Tax, said:
'RTI is bringing PAYE into the 21st century, and it is amazing that we have reached the one million mark in less than a month. This is at the top end of our expectations. However, we’re not complacent and are carefully monitoring submissions, but so far things are going well. We have had lots of feedback from many employers saying that RTI is easy to use. We know it will take time before all employers adapt to RTI, but any who haven’t started reporting in real time should do so quickly. All the help they need is on HMRC’s website.'
Employers and pension providers that have not yet begun reporting in real time are reminded that they are required to go through a payroll alignment process to check that their payroll records are complete and accurate. According to research undertaken by HMRC over 80% of data issues are a result of incorrect information about an individual's name, date of birth or National Insurance number.
Employers also need to ensure that they are properly prepared to provide PAYE information in real time. This includes considering the available payroll software options or updates required, developing proper procedures to capture all the necessary information and preparing contingency plans in case of computer / internet issues.
We would be very happy to talk with any employer that is struggling to meet the demands of this new system.
The Isle of Man Disclosure Facility runs from 6 April 2013 to 30 September 2016. The disclosure facility provides an opportunity for taxpayers with assets or investments in the Isle of Man (such as undisclosed bank accounts) to come forward and settle all outstanding tax liabilities.
The Isle of Man Government requires all financial intermediaries to notify their clients (known as relevant persons) and inform them of the disclosure facility before 31 December 2013 and also to send a further reminder six months prior to the disclosure period ending. However, HMRC are clear that it is a taxpayer's own responsibility to make any disclosure within the specified time limit and taxpayers should act accordingly.
The disclosure facility was brought about following the signing of a Memorandum of Understanding between HMRC and the Isle of Man on 19 February 2013. The agreement has a number of similarities to the Liechtenstein Disclosure Facility although there are also some important differences.
There are certain circumstance under which taxpayers are not eligible to participate in the disclosure facility as well as other circumstances where taxpayers may be able to make a disclosure but may not be fully eligible for the terms of the facility. This includes taxpayers under criminal or non-criminal investigation, taxpayers that have previously used another HMRC disclosure scheme and taxpayers that fall under the UK/Swiss agreement.
The Finance Bill 2013 was presented to Parliament on 25 March 2013. The Bill contains the legislation for many of the tax measures that have been announced by the Government. The majority of the measures in this year’s Bill were announced at Budget 2012.
The Public Bill Committee is expected to report on the Bill by 20 June 2013. The Finance Bill will then go through some further stages in the House of Commons (including the Report stage and Third reading) before proceeding through a similar process in the House of Lords prior to becoming an Act of Parliament.
When the Finance Bill was published, the Exchequer Secretary to the Treasury, David Gauke MP commented that:
'This year’s Finance Bill demonstrates the Coalition Government’s commitment to creating a tax system that is fairer, promotes growth and competitiveness and rewards work. These measures will equip us to compete in the global race and create an aspiration nation. They also demonstrate the Government’s commitment to developing tax policy in a transparent manner, consulting wherever possible, which is reflected in the many constructive comments we have had on the draft legislation'.
The Finance Bill 2013 is formally known as Finance (No. 2) Bill 2012-13 as it is the second Finance Bill of the current Parliamentary session. Upon Royal Assent it will become known as Finance Act 2013.
Employers are reminded that the deadline for submitting the 2012/13 forms P11D, P11D(b) and P9D is fast approaching. The filing date for all the forms is 6 July 2013. Late submissions can result in penalties being issued by HMRC.
Employers making online submissions will need to correct any problems with the forms before being able to file electronically. Employers who submit paper forms with errors will receive the forms back to be corrected and re-submitted.
Employers who have already notified HMRC that they do not need to complete P11D, P11D(b) or P9D forms are not required to take any further action.
HMRC have also issued an update relevant to the completion of the P11D(b) form for employers who were part of the Real Time Information (RTI) pilot during 2012-13. The forms will not be dispatched until around 2 July 2013 and may not be received by some
pilot employers in time to complete and return by the filing deadline. In the meantime, the form can be downloaded from HMRC’s website. HMRC have confirmed that due to the delay in sending the forms, employers who were part of the RTI pilot will have until
19 July 2013 to submit the forms.
Employers are reminded that the filing deadline for submitting the 2012-13 PAYE Annual Return is 19 May 2013. 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. Employers will 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).
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).
Employers that are not required to send an annual return can notify HMRC using an email form available on HMRC’s website. The introduction of RTI means that this is the last year that most employers will be required to file an Annual Return.
An interesting case that considered whether a taxpayer had a reasonable excuse for the late payment of tax centred on HMRC’s lack of clarity. The taxpayer was issued with a penalty for late payment of tax for the 2008-9 tax year.
The taxpayer had been made redundant during 2008-9 and his employer failed to operate PAYE correctly resulting in the taxpayer paying less tax than necessary. HMRC wrote to the taxpayer on 6 June 2011 to notify him that he had been under taxed and enclosed a Self Assessment return. It was not disputed by either party that the due date for the filing of the taxpayer's return and payment was 13 September 2011.
However, the taxpayer successfully argued that he had been let down by the imprecise instructions given by HMRC. This included instructions in the letter that the taxpayer should pay any tax due by 31 January 2010. In subsequent letters, HMRC stated that payment was due by 11 November 2011. The taxpayer ultimately paid the tax due in two tranches, the second of which was on 7 November 2011.
The Tribunal confirmed that the taxpayer ... 'was, within reason, confused by HMRC's failure to communicate properly. Where, as here, a penalty is sought to be imposed, the particulars of the obligations to which it relates should be specified clearly and precisely. That has not been the case.' The taxpayer's appeal was allowed in full.
Taxpayers who have not yet filed their Self Assessment returns online face a daily penalty of £10 up to a maximum of £900, i.e. for three months from 1 May 2013. If the return still remains outstanding further higher penalties will be charged from six months and twelve months late.
These penalties are on top of the £100 automatic late penalty which has already been sent to taxpayers who missed the 31 January 2013 deadline.
The penalty regime for late filing of Self Assessment returns has the following main 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 the 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 2012 and the daily penalty regime began on 1 February 2013.
HMRC recently announced plans to move away from 0845 numbers to 03 numbers. 03 numbers are non-geographic but are usually charged at the same rates as 01 and 02 numbers and are free with some telephone packages. HMRC expect that all premium lines will be switched to 03 numbers by the end of the summer.
From 16 April 2013 calls to the Child Benefit Helpline and the Guardian's Allowance Helpline have been changed to 03 numbers. The Child Benefit Helpline has changed its number to 0300 200 3100 and the Guardian's Allowance Helpline has changed its number to 0300 200 3101. The existing 0845 numbers will continue to work for around 18 months.
There is an Extra Statutory Concession (ESC) that deals with situations where HMRC have failed or delayed to use information provided by the taxpayer such as details of a change in income or details of a new or additional job. In certain circumstances HMRC can agree not to collect outstanding Income Tax from taxpayers where they have failed to use information received within 12 months after the end of the tax year in which it is received. This ESC has benefited may taxpayers who have provided relevant information to HMRC which has not been promptly acted upon.
In July 2012, a consultation document was launched on planned changes to the ESC. The ESC currently allows tax to be written off if taxpayers had a ‘reasonable belief’ that they had paid the right amount. HMRC proposed to change the test to replace the 'reasonable belief' test with a stricter test based around 'taxpayer responsibilities'. However, following respondents’ concerns HMRC have confirmed that they will retain the current ESC for the time being including the ‘reasonable belief’ test. HMRC have also pledged to be consistent in applying the current version. It is expected that the use of the ESC will reduce as the majority of taxpayers are now notified of their arrears within the 12-month time limit.
The Government is to introduce an allowance of £2,000 per year for all businesses and charities to be offset against their employer Class 1 secondary NICs’ bill from April 2014. The allowance will be claimed as part of the normal payroll process through RTI.
The Government is expected to consult on the details of this measure shortly and plans to introduce the relevant legislation later in the year. It is estimated that this change will remove up to 450,000 small businesses from having to pay National Insurance Contributions.
The Chancellor commented that 'For the person who's set up their own business, and is thinking about taking on their first employee — a huge barrier will be removed. They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax'.
Three new disclosure facilities have been launched which will allow taxpayers with assets in the Isle of Man, Jersey or Guernsey to come forward and settle any outstanding tax liabilities. The disclosure facilities provide a framework similar to the LDF - Liechtenstein Disclosure Facility.
The new agreements commenced on 6 April 2013 and will run until 30 September 2016. At the end of this period, HMRC will automatically receive information from banks in Jersey, Guernsey and the Isle of Man identifying all account holders. The package of measures was agreed between the UK and the governments of the Isle of Man in February 2013, and Guernsey and Jersey in March 2013.
HMRC’s Director General for Enforcement and Compliance, Jennie Granger, said:
'These disclosure facilities give an opportunity for individuals with investments in the Isle of Man, Guernsey or Jersey to make a voluntary disclosure of any undeclared tax liabilities to HMRC before we challenge them. People with overseas assets or investments who have correctly declared income to HMRC and paid tax have nothing to fear. Those who haven’t, and who do not make use of the disclosure facilities, face the prospect of a criminal investigation or a significant financial penalty, and the risk of having their name published, once the new information sharing agreement kicks in.'
Taxpayers who do not make full disclosures by the end of the programme will face much higher penalties and the risk of criminal prosecution.
A criminal gang have been jailed for a total of over 22 years in the first prosecution for film tax relief fraud. Film tax relief can increase the amount of expenditure that is allowable as a deduction for tax purposes or, if a company makes a loss, can be surrendered for a payable tax credit. In order to qualify for relief, films must be intended to be shown commercially in cinemas and at least 25% of the total production costs must relate to activities in the UK.
The gang told auditors that a Jordanian company was funding a budget of £19 million to make a film entitled A Landscape of Lives starring Hollywood A-list actors. HMRC investigators found that this was a sham production that was never going to be made. The investigators discovered that most of the expenses the gang said that they had incurred was a figment of their imagination and that most of the suppliers and film studios had never heard of the production. Fraudulent claims for a VAT repayment of almost £1.5 million and for film tax relief of over £250,000 were submitted. The gang was preparing a further claim for film tax relief of over £1 million when they were caught.
After they were arrested the gang came up with a plan to shoot a low budget film called A Landscape of Lies to hide their tracks but their plan didn’t work. As Assistant Director of Criminal Investigation at HMRC said: 'Falsely claiming VAT that is not due is illegal - so we are pleased that instead of this film flop going straight to DVD, these small-screen z-listers are going straight to jail.'