The Fizz! Blog

Taxman declaring war on accountants?

That's the claim of one Chartered Accountant based on HMRC's new plans to crack down on any part played by accountants or other tax agents in tax evasion.

To be honest, when I first read the headline, I thought it would just be needless melodrama.  However, it has to be said that the chap has a point.  The proposed new rules do appear, on the face of it, to redefine normal tax planning as "deliberate wrongdoing".  The proposed rules include the following:

(1) A tax agent engages in deliberate wrongdoing if, with respect to the tax affairs of one or more clients–

(a) the tax agent does an act that is capable (directly or indirectly) of bringing about a loss of tax, and

So far, so good, but subsequently they say:

(4) “Loss of tax” means loss of revenue from tax, and includes a loss involving a relief, deduction, repayment or credit of any kind.

Er, so if I advise a client, say, to claim tax relief for their pension contributions, or capital allowances on the cost of a new van, I'm causing a loss of tax involving a relief, right?  So I'm guilty of deliberate wrongdoing?

I'm sure that this ludicrous situation cannot be HMRC's intention.  Hopefully there will be enough of an outcry that the rules - just draft at present - are modified.

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Cut down on PAYE paperwork

Every year, employers are required to prepare a form called a P11D for any employee who has received "benefits in kind" - company cars, medical insurance, that kind of thing.

However, in theory the employer is also supposed to include payments made to employees to reimburse them for expense claims - even if the claims were purely for legitimately incurred business expenses.  The employee then has to make a separate claim to avoid being taxed on those amounts.

To avoid this fiasco, HMRC allow the employer to apply for something called a "dispensation" - it gives the employer permission not to include expense claims on the P11Ds.  Expenses that a dispensation might cover could include:

• Travel
• Fuel for company cars
• Telephone calls
• Business entertainment expenses
• Credit cards used for business

Many employers don't apply for a dispensation, and so either a) they and their employees have to fill in needless paperwork or b) they omit the expenses from the P11Ds without permission, which may well come back and haunt them in the event of a PAYE inspection.

It's easy to apply for a dispensation, but to make it even easier HMRC are now allowing businesses to apply for PAYE dispensations online. 

Making an application will save you time and risk in the long run.  Call us if you'd like to talk about it in more detail.

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HMRC's old bank accounts are closing - make sure you use the new ones

HMRC moved its banking last year, from the Bank of England to Citi and RBS.  Since then, they've continued to accept payments to the old accounts.  There will be thousands, or millions, of those payments, because lots of businesses have HMRC set up as a payee on their online banking system and just use the same payee month after month or year after year, and many others rely on old documents when looking up the taxman's bank details.

They've said, reasonably, that during 2010 such payments will start to be returned.  So if you make payments to HMRC online, make sure you update your records and use up to date details.  If you don't, then at best you'll be inconvenienced by having to make repeat payments.  Worse than that, you could incur interest charges or money could even go missing.

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Bogus tax refund emails still an issue

I've mentioned them a couple of times before, but our clients are still being bombarded bogus emails purporting to be from the taxman, offering a tax refund in return for bank details.  If anything, the emails are becoming more common, not less.  HMRC will pretty much never contact you by email about anything, and certainly not a tax refund.  So if you get such a request, bin it without hesitation.

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Offshore tax avoiders face £100m tax bill

This has been the big story in the tax world over the last few days.  Briefly, 2,500 IT consultants signed up to a tax avoidance scheme that exploited the detail of a tax treaty between the UK and the Isle of Man.  The effectiveness of the scheme was inevitably disputed by HM Revenue and Customs and legislation was subsequently brought into effect in 2008 that not only closed the loophole from that point onwards, but also closed it retrospectively before 2008 as well.

The fairness of that was contested by the IT consultants and by the company that organised the scheme, but they've lost in the High Court - it's been ruled that the retrospective legislation is valid.  Consequently, a lot of consultants have an awful lot of tax to pay - the suggestion is that 2,500 of them could have to pay an average of £40,000 each, plus interest and penalties - and one assumes that the promoter of the scheme may be facing legal action from lots of them.

I've often made the point in conversations with clients and presentations to groups that tax avoidance schemes of this sort can look tempting on paper, but in practice they're not really ideal for most taxpayers.  Firstly, there's no guarantee that they'll work - just look at what's happened here.  Secondly, even if they do work you could be looking at seven or eight years of uncertainlty before the legal process finally reaches that conclusion.  For most of us, rather than expending our time and emotional energy on expensive and uncertain tax planning schemes, it's better to just take advantage of sensible, mainstream tax planning strategies and devote the bulk of our energy to growing our businesses.

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