Latest news from Taxwise on tax investigations

We continue to face challenging economic times and there are no signs of any good news soon. HMRC activity has been well publicised and unsurprisingly we have seen unprecedented levels of claims. In the 6 months to 30 September 2011 claims notifications are in excess of 50% higher than the same period last year. A third of claims are PAYE and VAT compliance checks, 2% are Schedule 36 interventions with no reference to statute and 2% are cross tax enquiries covering income tax, corporation tax, PAYE and VAT in one enquiry. We are seeing HMRC focus on records, systems and controls and increasingly these checks do not relate to submitted returns.

Back to the 1980's with YTS??

http://www.bbc.co.uk/news/uk-politics-15878796

Interesting that youth unemployment has been relentless rising under New Labour since 2001, so its not a recent problem

Green Taxes - a con?

Under Gordon Brown’s stewardship as Chancellor, the tax burden on us all rose by about a third in real terms. Many of these tax rise were the so called “green taxes” designed to tackle the alleged problem of man-made climate change.

Of course, if the object of this tax strategy was to reverse the effects of man-made climate change, it was fundamentally flawed from the beginning. Unless every single nation on earth followed exactly the same strategy and it produced exactly the same change in behaviours then its impact on the climate would be precisely nil. Recognising this weakness (albeit a bit late) today Mr Huhne has called for a global legally binding climate change deal by 2015 (like that’s going to happen).

This week Mr Osborne has announced an extension of Mr Brown’s strategy and a whole series of new green taxes are winging our way. Quite apart from the weak logic of green taxes, new scientific research has emerged that virtually destroys the whole notion of man-made climate change.

New research by London’s Natural History Museum has shown that:

·         2 million years ago climate change caused East Africa to dry out and forced our ancestors out of the trees and made them walk

·         450,000 years ago climate change saw an Ice Age and it split human populations. In the north Neanderthals evolved while in the south Homo Erectus (our ancestors) evolved

·         55,000 years ago climate change caused Africa to be dry and forced Homo Erectus to migrate to Europe

·         25,000 years ago climate change saw another Ice Age. Sea level dropped 330 feet as a result and humans were able to walk to North America and populate it

·         14,000 years ago climate change saw the end of the last Ice Age and erratic weather patterns and caused humans to develop farming to stabilise food supplies

What is clear from the above (and conveniently ignored by the climate change proponents) is that:

·         Climate change has been a regular feature in the past

·         It has been caused by entirely natural events

There is nothing to suggest that any change in climate that may or may not be occurring today is man-made.

Of course, if climate change is NOT man-made, then the green taxes will have absolutely no impact on the climate and so are a “con”!

Handy answers to some topical tax questions

http://www.peninsula-uk.com/july_to_sept_2011_qas.pdf

Proposed changes to employment law

http://howespercival.cmail3.com/t/ViewEmail/y/53E9657CEE3574B8/5E8B42580143BF63A29558A201773426

Useful summary of the proposed changes to employment law. In the view of many, the proposed changes do not go far enough to balance the equation back to to an equal balance between employers and employees. All the rights still remain with the employees.

Tax and benefits

http://www.bbc.co.uk/news/uk-politics-13633966

This a great calculator. I can now see that each year I pay thousands of pounds more than I get in benefits fro the State. I like, most business, am thinking "what is the point of growing my business - I'm getting nothing out of it". And they wonder why the economy is not recovering? Where is the incentive?

Tax and benefits

Poorly performing employees

http://www.peninsula-uk.com/bottomlineexpress/479/Top-Ten-Tips-On-How-To-Deal-With-Employees-Poor-Performance.html

How to deal with poorly performing employees - useful tips from Peninsula!!

How to ensure a trouble free Christmas party

http://www.peninsula-uk.com/bottomlineexpress/478/HR-Rules-To-Ensure-A-Trouble-Free-Christmas-Party.html

General Anti Avoidance Rule

http://www.ion.icaew.com/TaxFaculty/23459

At present, the way tax legislation works is that the Government passes a law to say you can or can't do something. Some clever barrister finds a way around the rule and a tax scheme is born. it gets peddled by the big firms, millions of tax is avoided and then the Government is forced to bring in some specific anti avoidance legislation to stop the abuse (because they didn't draft the rules properly in the first place).

Usually therefore anti-avoidance legislation is not that relevant to most businesses.

However, the study group is now proposing a general anti avoidance rule.

This would work differently. Basically under a general anti avoidance rule, if the Taxman thinks you've done something to avoid tax then he can attack it.

Of course this potentially will hit quite common tax planning such as husbands and wives being in business together and splitting the profits, taking dividends instead of salary, making pension contributions instead of taking a salary etc.

Watch this space as this could be a very important development in tax legislation.

UK Debts

http://www.bbc.co.uk/news/business-15820601

Not my favourite commentator but a great summary of why we have huge debts - and it's all down to Mr Blair and Mr Brown saddling us with vast debts before the financial crisi hit in late 2008

Interesting update from taxwise

http://taxwise-express.com/w/m/0b1,ht15

IOD Growth plan

Plan to boost the economy

The Institute of Directors (IoD) has proposed a new economic growth plan which aims to improve business investment and development. ‘The Route Back to Growth’ contains several recommendations including:

1.	Monetary policy - Quantitative easing; launch QE2 in October with an initial £50 billion
2.	Fiscal rules - A new 35% of GDP public spending target by 2020
3.	Taxation - Remove the 50% top rate of income tax
4.	Taxation - Extended corporation tax cuts to 15% by 2020
5.	EU policy - Use future Treaty and/or budget negotiations to repatriate key employment powers
6.	Infrastructure - Ring-fence transport, energy and ITC infrastructure spending
7.	Energy policy - Do no harm - don’t sacrifice UK competitiveness for green credentials
8.	Education - Further expand free school provision with profit incentives
9.	Taxation - End the £100,000 personal allowance anomaly
10.	Competition policy - Intensify competition policy both domestically and within the EU
11.	Regulation policy -  Radical civil service reforms to promote de-regulation
12.	Employment Law - Nine major changes to free up the labour market
13.	Planning - Incremental ‘Green Belt’ and developer rights to propose, and reduce political influence over infrastructure planning
14.	Public sector performances - Greater decentralisation of public sector pay
15.	Public sector performances - No watering down of reforms to unfunded public sector pensions

The IoD claims that if its suggestions are adopted by the government, it could make the UK one of the most advanced economies in the world.

Worrying trends in business confidence

http://www.icaew.com/home/about-icaew/what-we-do/business-confidence-monitor?utm_source=memberalert&utm_medium=newsitem&utm_term=nov11&utm_campaign=practice

Bank lending to small businesses down by 9%

http://www.bbc.co.uk/news/business-15718590

UK economy - why are we not bust like Italy?

http://www.bbc.co.uk/news/business-15717770

HMRC task forces

HMRC's "Taxforces" Hit The Road

On 7th November HMRC released 5 separate press releases announcing the launch of 5 taskforces aimed at various parts of the UK focusing on varying potential areas of evasion.

In the North West and North Wales there will be two separate taskforces. The first will target tax evasion amongst landlords who own and/or rent more than three properties. The second will be focused on construction traders who are self employed or who run their own companies, where suppression of sales or over-claiming expenses is identified.

The South East is an area where HMRC has identified that there is an increasing problem with some taxpayers not submitting their statutory returns across Corporation Tax, Income Tax, Self Assessment, PAYE and VAT and the taskforce will be focused on this area. Whilst business activities may have ceased in some cases, or there may in fact be no tax liability, HMRC will be targeting those who are fully aware how much money they are due to pay but have made the conscious decision not to submit the necessary declarations.

In Scotland the taskforces will again target two separate areas. The first will be scrap metal dealers who are deliberately suppressing their income or inflating expenditure to evade paying the correct liabilities, and any that may not have registered their business with HMRC. The second group to come under the spotlight will be fast food outlets deliberately falsifying their records and mis-declaring their true sales levels to avoid paying the correct taxes. As part of this activity any business coming under inspection will also have its National Minimum Wage compliance reviewed.

Taskforces are specialist teams that bring together various HMRC compliance and enforcement teams to undertake intensive bursts of compliance activity, typically focusing on groups of up to around 600 taxpayers/businesses, in specific high risk trade sectors and locations across the UK.

These taskforces come as a result of the Government’s £900m spending review re-investment to tackle tax evasion, avoidance and fraud from 2011/12, which aims to raise an additional £7bn each year by 2014/15.

HMRC has announced it is planning 12 taskforces in 2011/12, with more to follow in 2012/13.

Mike Wells, HMRC's Director of Risk and Intelligence, said: “These taskforces will come down hard and fast on those who have chosen to break the rules and deliberately evade the taxes they should be paying. Honest businesses, however, have absolutely nothing to worry about.

“HMRC is clear – if you deliberately seek to evade tax we can and will track you down and you’ll face not only a heavy fine, but possibly a criminal prosecution as well.”

What is an employee - great article from Peninsula!

What Is An Employee?

This question has vexed many an employment practitioner over the years and remains one of the most hotly contested issues of employment law. No wonder, because the employment status of an individual is the very basis on which his employment relationship with you is defined. Getting the classification wrong - which is very easy to do - can have major implications on an employer not only in relation to the individual concerned but also the rest of the workforce.

Employment rights are granted dependent on an individual’s employment status. Employees are entitled to a raft of employment rights: maternity leave, paternity leave, parental leave, the right to request flexible working; rights upon a transfer of an undertaking; minimum periods of notice, statutory redundancy pay, the right to claim unfair dismissal; and the list certainly goes on.

Self employed people are not entitled to these employment rights because the idea goes that they have a greater amount of bargaining power to negotiate the contract under which work to be provided. Discrimination protection does, however, extend to self employed individuals so employers must bear this is mind. Further, just to make the situation a little more difficult, not all self-employment situations will attract this protection.

The third category of ‘worker’ is the most recent category to be formed and is somewhat of a half way house between an employee and a self-employed individual – a ‘worker’ carries traits of both but in employment law it is a completely separate entity.  Its creation came about because of the recognition that employment relationships are fluid and modern times did not lend themselves to the two limited existing categories.  Workers have some employment rights to avail themselves of, but substantially less than an employee. It is worth noting that as far as HMRC are concerned; this third category of ‘worker’ does not exist.

So what tests have been devised over the years to determine the status of an individual?

If an individual is an employee, the employer will exert substantial control over them. This is characterised by the employer having ultimate authority over the work that is done by the individual: the employer will set the times that work should be done, where it is done and how the work is done. The employer will provide the equipment for the work and will also lay down certain procedures that govern the relationship. For example, if an individual wants time off, he must request it according to the employer’s holiday request procedure. If he is sick and cannot attend work, he must report it via the sickness reporting procedures.

If there is a lack of obligation that binds the two parties to the contract, it is unlikely that the relationship will be one of employment. If there is no duty upon the employer to provide work to that particular individual, and there is no corresponding obligation on the individual to accept it when it is offered, this fact is quite often indicative that the individual is not an employee.

Perhaps the most fatal blow to the assertion of an employment relationship is the absence of the requirement for the individual to provide service. If the individual has the right to send a substitute then it is almost impossible for an employment relationship to be in existence.

Recent case law has added further considerations to the issue of employment status, and rather than clarifying matters, has muddied the waters somewhat. In Autoclenz v Belcher, the claimants were engaged as self-employed car valeters, and as such were entitled in their contracts to send a substitute. The contracts also provided that there was no obligation on the employer to provide work nor on the individuals to accept it. However, it was not the wording of the contract that persuaded the tribunal to find that the individuals were in fact employees, but the actual performance of the contract. No substitute was ever in practice provided by any individual, they turned up for work every day and work was always provided. In effect, this had varied the original agreement and the individuals were entitled to see themselves as Autoclenz employees.

It seems the favour has swung well and truly away from the employer in this situation, who must focus much more on the day to day performance of a contract in addition to the drafting of the contract itself.

R & D Tax credits

HMRC has set up a 'Voluntary advance assurance'; pilot to help small companies - including start-ups - to make their first Research and Development (R&D) claim.

Companies that take part in the pilot will have the support of a designated R&D specialist who will provide one-to-one support and advice on making a claim. The company and HMRC will agree a basis for the first R&D claim, and claims for the two subsequent Corporation Tax accounting periods.

Providing you use the agreed basis, these claims will normally be accepted as accurate without query from HMRC - unless a significant issue arises. You can find out more from your specialist R&D Unit.

Additionally, during the agreed period, you will have a designated contact who will be available to you to discuss any aspect of your R&D Relief claims.