Monday 26 March 2012

New tax on employyes and employers

Just received a booklet from the Pensions Regulator about the mandatory pension contributions. This will be a massive extra tax burden on employees and employers alike on top of the huge increases in NIC in 2011/12 that we've already had. Makes you wonder what you are getting for all your NIC contributions!

Unusual IR35 decision

A veteran IT contractor won a partial victory against HMRC in an unusual split decision over IR35 tax status.
The first-tier tribunal heard the case of JLJ Services Limited v HMRC in November when John Spencer, an IT contractor with more than 40 years’ experience in the industry, appealed the assessment by HMRC that he was caught effectively an employee who should pay income tax and National Insurance Contributions on his pay from Allianz Cornhill Management Services.
Through his personal company JLJ, Spencer had provided programming services to Allianz, via a recruitment company over a period of eight years.
Under IR35 rules Spencer would have been taxable as an employee if the notional contract between him and Allianz was akin to an employment contract. Over the eight-year period at issue, HMRC assessed Spencer’s total tax liability at £141,000.
Shaky Substitution Clause
One of Spencer’s main arguments for being taxed as a contractor was that the contract under which Spencer provided his services contained a substitution right, which is usually an indication of a contractor relationship.
However, the tribunal emphasised that the substitution right was not unfettered, given that the contract provided that any alternative contractor put forward by Spencer could be vetted by Allianz, noted law firmed Mcgrigors. Spencer was so specialised that it would have taken any replacement a few weeks to be productive, the lawyers added.
The tribunal said that the substitution clause had “very little reality” and had been inserted in the contract for tax purposes. In his decision, tribunal judge Howard Nolan also noted that a substitute contractor for Spencer was not offered over the seven year period.
For the first three years of the project Spencer worked on projects for Allianz, but from 2004 it became clear that Allianz wanted Spencer’s services permanently. It no longer engaged him for projects, the tribunal said.
The tribunal concluded that for the first three years of his work for Allianz Spencer was a contractor, but from January 2004 he was in effect an employee of Allianz.
“Certainly from January 2004, it would have been appropriate to regard the notional relationship as one of employment,” the judge ruled.
“We put the dividing line at 31 December 2003 because it was at that time that he was offered indefinite work, and it was from that date that renewals were agreed on an annual basis, and from which no further reference was made to particular projects.”
Paul Mason, manager of the contractor division at Abbey Tax Protection, said the ruling was unusual because IR35 tax cases are usually “cut and dried”, with all of  the work in a period under dispute either covered by IR35 legislation or not.
The tribunal ruling also showed that contractors who do general work for a client, rather than project-based work, and whose contracts are renewed every six months or year, become “part and parcel” of a client and are therefore more likely to be taxed as employees.

Unusual IR35 decision

A veteran IT contractor won a partial victory against HMRC in an unusual split decision over IR35 tax status.
The first-tier tribunal heard the case of JLJ Services Limited v HMRC in November when John Spencer, an IT contractor with more than 40 years’ experience in the industry, appealed the assessment by HMRC that he was caught effectively an employee who should pay income tax and National Insurance Contributions on his pay from Allianz Cornhill Management Services.
Through his personal company JLJ, Spencer had provided programming services to Allianz, via a recruitment company over a period of eight years.
Under IR35 rules Spencer would have been taxable as an employee if the notional contract between him and Allianz was akin to an employment contract. Over the eight-year period at issue, HMRC assessed Spencer’s total tax liability at £141,000.
Shaky Substitution Clause
One of Spencer’s main arguments for being taxed as a contractor was that the contract under which Spencer provided his services contained a substitution right, which is usually an indication of a contractor relationship.
However, the tribunal emphasised that the substitution right was not unfettered, given that the contract provided that any alternative contractor put forward by Spencer could be vetted by Allianz, noted law firmed Mcgrigors. Spencer was so specialised that it would have taken any replacement a few weeks to be productive, the lawyers added.
The tribunal said that the substitution clause had “very little reality” and had been inserted in the contract for tax purposes. In his decision, tribunal judge Howard Nolan also noted that a substitute contractor for Spencer was not offered over the seven year period.
For the first three years of the project Spencer worked on projects for Allianz, but from 2004 it became clear that Allianz wanted Spencer’s services permanently. It no longer engaged him for projects, the tribunal said.
The tribunal concluded that for the first three years of his work for Allianz Spencer was a contractor, but from January 2004 he was in effect an employee of Allianz.
“Certainly from January 2004, it would have been appropriate to regard the notional relationship as one of employment,” the judge ruled.
“We put the dividing line at 31 December 2003 because it was at that time that he was offered indefinite work, and it was from that date that renewals were agreed on an annual basis, and from which no further reference was made to particular projects.”
Paul Mason, manager of the contractor division at Abbey Tax Protection, said the ruling was unusual because IR35 tax cases are usually “cut and dried”, with all of  the work in a period under dispute either covered by IR35 legislation or not.
The tribunal ruling also showed that contractors who do general work for a client, rather than project-based work, and whose contracts are renewed every six months or year, become “part and parcel” of a client and are therefore more likely to be taxed as employees.

Butcher jailed in tax scam

A butcher who was found guilty of spending £3.3m of taxpayers’ money on a luxury lifestyle has been jailed following an HMRC investigation.
Gary Turner was sentenced at Leeds Crown Court to five years in prison and assets of £785,000 have already been restrained by HMRC, with confiscation proceedings underway to recover more of his criminal profits.
Turner owned concessions of Turner’s Butchers in local branches of Kwik Save, but when his business experienced a downturn in 1996 he started to siphon off taxpayers’ money.
His criminal activities funded a luxury family home, a bungalow for his son, expensive holidays, six high performance cars with private number plates, Fender guitars and Rolex watches worth more than £35,000.
Under initial HMRC enquiries, Turner claimed his fictitious accountant had all of his paperwork. However his lies and fake business records - including his supplier, the Botswana Meat Commission, who had never heard of him - eventually caught up with him.
He confessed to faking invoices as well as submitting false VAT repayment claims between £19,000 and £46,000, and admitting that his business, from 1996 onwards, was “all fake”.
District judge, HHJ Belcher said in court: “This crime was aggravated by greed, not need, and at the expense of the government and the taxpayer. Your crime hits all members of society; you have deprived the government of money and the NHS has been deprived also – the money could have been spent by the NHS. You and your family were the sole beneficiary of this crime.”
Peter Hollier, HMRC assistant director for criminal investigation said: “Tax fraud is a serious crime. Turner tried to play the system so he could live a life of luxury. He went to a great deal of effort to try to hide his lies but our investigators unravelled what he thought was a water-tight scam.”
Simon Rowlinson, specialist prosecutor for the CPS Central Fraud Group said: “Turner’s sentence is not the end of this case for the Crown Prosecution Service. We are now determined to go after Turner’s illicit gains and get that money back into the public purse for the benefit of the British public. Court proceedings will continue as we identify the assets bought with criminal money to confiscate, including houses, jewellery and other luxury items beyond the means of most working people.”

Online sellers

HMRC will host a Twitter Q&A – HMRC’s first – which will be about the department’s online trading campaign. It will take place from 3 to 4pm on 28 March. People trading on the internet who haven’t paid all the tax they owe are being invited to take part in the online Twitter question and answer session.
Details will be published in advance on HMRC’s Twitter account at @HMRCgovuk. People trading on the internet who haven’t paid all the tax they owe have been offered the opportunity to come forward and pay up under an HMRC campaign, the e-Markets Disclosure Facility.
Under the time-limited opportunity, online marketplace traders can pay the tax they owe and benefit from lower penalties that are available to those who come forward rather than wait for HMRC to catch up with them.
Further details are available from NDS.

HMRC clarification

HMRC has clarified its view on the record keeping requirements, completion of Self Assessment Tax Returns and interpretation of 'merely incidental' duties with regard to dual contracts.
The HMRC paper clarifies HMRC’s policy in relation to dual contracts which was explained in a Tax Bulletin article published in 2005. See EIM77030 Appendix 3: Non domiciled employees: dual contract arrangements.
Questions have been raised recently with HMRC regarding two issues that arise in dual contract arrangements –
(i)what documents does HMRC expect employers and employees to retain and make available in response to enquiries into dual contracts; how does HMRC assess the relevant risks of these arrangements; how an employee should return income from dual contract employments; and
(ii)what is HMRC’s technical and policy interpretation of “merely incidental” duties?
This paper is intended to clarify HMRC’s view on these two issues. It is not intended to replace Tax Bulletin 76, which addresses other issues as well in relation to dual contract arrangements.
The paper is available from HMRC.

Non Doms

The number of individuals registered with HMRC as non-doms in the UK has fallen by 16% in the two years since the £30,000 annual levy was introduced, according to a Freedom of Information request by law and tax firm, McGrigors.
McGrigors says a significant contributory factor to the fall from 140,000 in 2007/08 to 118,000 in 2009/10 - is the annual £30,000 levy on non-domiciles (the Remittance Basis Charge).
Ray McCann, tax director at McGrigors and a former assistant director at HMRC, said: ‘A lot of the wealthiest non-domiciles are highly mobile. Many of them will have taken the £30,000 charge as a signal that they are no longer welcome in the UK.
‘There are significant tax changes coming in April including allowing non-doms to remit income to the UK to finance commercial investments tax free. These should give a much needed boost to the UK and is likely to be a sign that the Government is worried about the numbers.’
Only 4% of non-doms pay the charge and the number is falling - from 5,410 in 2008/09 to 5,100 in 2009/10. Tax collection levels from the charge fell 6% to £153m.
But HMRC said that whilst there has been a drop in 2008/09, ‘it would be misleading to assume that the charge is forcing people from the UK’.
It pointed to other likely factors, such as the recession which seriously affected the financial services sector in which many non-doms are employed. It adds that the figures for 2007/08 were unusually high, creating the impression that 2008/09 represented a drop from the ‘usual’ levels of the non-dom population.
It said that since 2008 there was a significant number of people who were no longer required to indicate their status on their tax return – those who chose not to be taxed on the remittance basis.
An HMRC spokesman said: ‘The UK non-dom population has been steadily growing over recent years from 83,000 in 1997/98. Whilst the figures did drop in 2008/09 this is likely to be as a result of the wider financial situation and economic slowdown.’
It also stressed that the figures include non-doms who were unaffected by the changes made in 2008 and the fact that people are only required to indicate their domicile status where it has a bearing on their UK tax liability.

Friday 23 March 2012

Simplified accounting

Drawing heavily on proposals put forward last month by the Office of Tax Simplification, HMRC’s proposals are very far reaching, aimed principally at the 30% of small businesses that do not presently use a tax agent.
Those companies that do use an agent will also be permitted to adopt the simplification proposals.
Accounts for tax purposes
There will be a new optional basis for accounts for tax purposes. The mandatory accounting requirements for small businesses will be abandoned and small businesses will be permitted to choose either a full accounting basis for tax purposes, or a simple cash receipts and payments basis instead.
Consultation will be start on this in the next week or so, and businesses will be invited to comment on the proposals.
The proposals make it clear that standard allowances will be introduced for business use of home and of a car – likely to be 45p per mile for the first 10,000 miles and 25p thereafter to mimic the allowance for employees. Businesses can already choose to use this mileage rate if they are below the VAT threshold.
The allowance for business use of home is very likely to be £4 per week, in line with the amount employees can claim from April 2012.
The requirement to deal with capital allowances will be removed; indeed for most of the affected businesses the Annual Investment Allowance (AIA) of £25,000 would cover all of their capital expenditure.
The one possible distortion would be the purchase of a car which would normally attract a Writing Down Allowance of either 18% or 8% each year – but of course motoring will be covered by the per mile rate instead.
The proposals also note that the requirement to keep stock figures for tax purposes will end – a welcome help for some small businesses.
The OTS report suggested that this proposal should be available to very small businesses, but the Government has adopted the proposals with relish and stated that the new basis should be available for all businesses with receipts of up to £77,000 from April 2013. There will clearly need to be an anti-avoidance provision to prevent business splitting. Once businesses are within the scheme they will be permitted to grow up to receipts of £150,000 before being required to leave the scheme.
There is no doubt that this will be a popular proposal for business owners, but possibly not as popular with accountants and tax advisers.
Companies, as well as the self-employed will be able to opt for this simplified basis.
Disincorporation relief
The OTS also highlighted that it is difficult for those businesses which incorporated in the last few years to “change their minds” and go back to self-employed status. The government accepted this, and will come forward with proposals to help, although the detail of this is not presently known.
Business Tax Dashboard
From April 2012, businesses will be able to check online all of their taxes in one screen, by logging on to HMRC online services. The new Business Tax Dashboard has been developed for unrepresented taxpayers to help them keep track of what tax is due and what they have paid recently. It will bring together income tax liabilities for the business, VAT and PAYE & NIC (which will be more seamless once RTI comes in in 2013).
Tax and NIC
The merger of the operation of PAYE and NIC will go ahead, and in particular the NIC paid by the self-employed is likely to be merged in operation (if not in name). Consultation will start very shortly on this.
Guidance and support
HMRC also announced a package of measures of support for unrepresented small businesses, including webinars, video tutorials which can be accessed at any time, and providing a tax ready-reckoner for small businesses to help them estimate their tax liability.
Service standards
HMRC announced some service standard targets which affect small businesses (and their agents). The department will report against the following targets annually from
  •  To achieve a service level of 90% of call attempts handled
  • To deal with 80% of correspondence within 15 working days and 95% within 40 working days.
Improved digital services
HMRC plans to roll out single registration services for companies so that registering a company at Companies House will also include registration for corporation tax. Other businesses will be able to use a single registration service to register for all or any taxes that they choose.

Tuesday 20 March 2012

RTI

How much do you think the proposed new system will cost you?

The Real Time Information system, to support the new Universal Credit which will go live from October 2013, will require you to provide real time information to HMRC about individual employee’s situations, including how much tax is being deducted from each salary payment.


It contains an estimate of compliance costs, but the figures do not look very realistic to us. 

According to HMRC the 'one-off transitional compliance costs' (see fifth page of the TIIN) are as follows:

‘…the need to check and amend data held about existing employees, estimated as £35 million (on average around £20 per PAYE scheme);…
…training and familiarising staff with the new processes, estimated as £85 million (on average around £50 per PAYE scheme)

Monday 19 March 2012

Tax avoidance

Nearly 100 top local authority employees are being paid through limited companies - allowing them to secure lower tax bills.
A BBC investigation discovered that scores of council big earners are allowed to make their own tax arrangements instead of being through the PAYE system.
The situation was dubbed a "tax avoidance scheme, which is totally wrong" by public accounts committee chair and MP, Margaret Hodge.
It emerged after BBC Radio 4's File on 4 programme submitted a Freedom of Information request to more than 400 local authorities throughout the UK.
East London’s Hackney Council had the highest number, with 39 of its permanent staff paid through external companies.
In one case investigated by File on 4, the chief executive of Hammersmith and Fulham Homes Ltd – the council’s housing arm - was paid more than £900,000 through his company over a four year period.
The full article is available on the BBC website

Tax avoidance

Nearly 100 top local authority employees are being paid through limited companies - allowing them to secure lower tax bills.
A BBC investigation discovered that scores of council big earners are allowed to make their own tax arrangements instead of being through the PAYE system.
The situation was dubbed a "tax avoidance scheme, which is totally wrong" by public accounts committee chair and MP, Margaret Hodge.
It emerged after BBC Radio 4's File on 4 programme submitted a Freedom of Information request to more than 400 local authorities throughout the UK.
East London’s Hackney Council had the highest number, with 39 of its permanent staff paid through external companies.
In one case investigated by File on 4, the chief executive of Hammersmith and Fulham Homes Ltd – the council’s housing arm - was paid more than £900,000 through his company over a four year period.
The full article is available on the BBC website

Over paid tax

UK taxpayers will overpay an average of GBP421 (USD661) in tax this year, with 85% failing to act on reducing their tax bill, according to new figures.
The statistics, revealed in Unbiased.co.uk’s annual Tax Action Report, reveal that the UK will ‘gift’ GBP12.6bn in unnecessary tax to HM Revenue and Customs in 2012. The report also shows that over the last ten years, the UK has created a ‘tax waste mountain’ of GBP88.6bn. According to the website, 2012 represents the second highest tax wastage figure in that time. It comes second only to last year’s GBP13.5bn.
Breaking the figures down, Unbiased.co.uk says GBP7.26bn will be wasted in unclaimed income-related tax credits, with GBP2.45bn going on the failure to make use of tax relief on pension contributions. A further GBP997m is expected to go in wasted tax relief on charity donations, while GBP448m will be lost on inheritance tax waste. GBP403m will be wasted through unclaimed tax-free savings use, with GBP401m lost on the failure to claim child benefit. Penalties for the late filing of tax returns will cost GBP307m, the failure to use employee share schemes GBP118m, and the wasting of income tax and personal allowances GBP83m.
Despite this large bill, Unbiased.co.uk found that 85% of UK taxpayers state that they have not done anything in the past 12 months to reduce the amount of tax they pay. 50% believe they are already being as tax efficient as possible, with 27% unaware of how to become more tax efficient, and 14% stating they did not know why they haven’t taken steps to reduce their tax liability. Of the 15% who have taken action, 40% have changed the way they save or invest their money, while 22% have made a specific tax efficient purchase or investment.
Karen Barrett, Chief Executive of Unbiased.co.uk commented: ‘Looking back at the last decade and the tax wastage figures in our reports, the numbers are just as shocking now as they were then. This year marks our second highest tax wastage figure on record, only marginally falling from a record high last year. The message is clear — tax affects pretty much every one of us and with an average of GBP421 up for grabs for each taxpayer, we should take some time and effort to ensure that we are being as tax efficient as possible. Our stats show that a quarter of people who have taken steps to reduce their tax liability have done so by enlisting the advice of a professional adviser, such as an accountant or independent financial adviser.’
‘Tax can be a complex area to understand and our report clearly shows that as a nation we are struggling to be as tax efficient as we could be. The way tax impacts on our lives will differ from situation to situation but we call on everyone to ‘take tax action’ and to check whether there are any areas where they could improve their tax efficiency,’ Barrett concluded.
The report is available here.
(CCH Global Daily Tracker News)

Thursday 15 March 2012

Business entertainment

HMRC Reference: Notice 700/65 (February 2012) has been updated explains the treatment of VAT charged on business entertainment.

MP's slam HMRC

HMRC needs to be more accountable and open about the way it settles large tax disputes according to a committee of MPs which also said that the Revenue’s calculation of the UK tax gap is “flawed”.
The Treasury sub-committee report comes amid growing criticism over the way HMRC settles large tax disputes with companies after it admitted making mistake in a tax dispute with Goldman Sachs. Critics have accused HMRC of making “sweetheart” deals with big business and for being opaque in the way it settles tax disputes.
George Mudie, MP, chairman of the sub-committee said: “It is encouraging that HMRC has recognised that its processes for settling tax disputes were flawed and is implementing changes. However, serious questions remain about accountability and transparency with respect to HMRC’s governance, both at ministerial level and at board level.”
Although HMRC had done some “good work” in ensuring tax compliance there is still a long way to go if the tax gap – the difference between the amount of tax HMRC thinks it is owed and what it actually receives - is to be reduced significantly, Mudie said.
A report by the National Audit Office published last week said that HMRC had narrowly missed a target to increase tax yield by clamping down on tax evasion.
The Treasury sub-committee report said that the HMRC’s calculation of the tax gap is “flawed and risks focusing the minds of its employees on the wrong task: maximising revenue at all cost rather than ensuring that all taxpayers pay the right amount of tax.”
The committee added that it was seeking views on whether there is any value in HMRC continuing to publish the tax gap as an aggregate figure.
Other recommendations and conclusions in the report include:
  • HMRC should consider establishing a general tax disclosure facility to run alongside its targeted campaigns
  • For offshore campaigns to be successful, those who do not take up the opportunity to disclose unpaid tax to HMRC should be prosecuted
  • The new “assurance commissioner” who will be appointed to oversee all large tax settlements should appear before the subcommittee
  • HMRC’s proposed code of governance for tax dispute resolution should be explicit that the same rules apply to settlement of tax disputes with its large corporate customers as apply to settlements with all other taxpayers
Derek Allen, director of tax at Institute of Chartered Accountants of Scotland, said it welcomed the MP’s report.
“The committee’s recommendations should help HMRC align its resource more effectively tackling tax evasion and criminal behaviour with suitable penalties, prosecution and other deterrents,” he said.
When compiling its report on the UK tax gap the Treasury subcommittee questioned experts including John Whiting, tax policy director at the Chartered Institute of Taxation, Chas Roy-Chowdhury, head of taxation, at the Association of Chartered Certified Accountants, and Richard Murphy, director of Tax Research UK.
Murphy told the MPs that his estimate of the UK tax gap was £120bn, which includes around £25bn of late-paid tax.
“The Revenue’s figures suggest an evasion rate of around 7%,” Murphy told the committee. “My suggestion is it is around 13%. That would tie in with the World Bank figures, for example, published in the last year. I think that is a reasonable estimate. It means that roughly £1 in £8 of the UK’s economy is in the black economy.”

April VAT changes

It seems more people are taking an interest in VAT. That can only be good news for those who make a living from the indirect tax, writes Les Howard of Vatadvice.org.
From the beginning of April, all remaining VAT registered businesses will have to file their VAT returns online and pay electronically from 1 April 2012, but AccountingWEB’s editors noticed a lot of people are taking a renewed interest in the VAT registration threshold. On average around 150 people are checking Nigel Harris’s article on the threshold changes announced last March that came into force at the beginning of April 2011.
AccountingWEB’s tax editor, Rebecca Benneyworth speculated whether the two issues might be related. Could companies or advisers who have clients hovering around the threshold be checking to see if it’s feasible to deregistration and thus avoid the hassle of online filing? For quick reference, the deregistration threshold is currently £71,000.
To fill out the picture, this article will recap some of the points affecting business taxpayers, and suggest a simplification measure that would remove one unfair aspect of the current arrangement.
Background
The registration threshold - currently £73,000 - is the value of taxable supplies made by a person at which he or she is required to be registered for VAT. It is obligatory.
Where taxable supplies are less than this figure, the taxpayer can choose to register. Where they make business-to-business (B2B) supplies, as a rule of thumb, it will be worthwhile registering long before the threshold is reached. Indeed, some 20% of all VAT registrations trade below the threshold.
There is a distinction between “taxable supplies” and “exempt supplies”. Exempt supplies include services such as education, finance, health and so on. Such income is not counted for VAT registration purposes. A business having only exempt income cannot register for VAT (unless as part of a Ggoup registration).
Getting it wrong
VAT is very expensive if you get it wrong! With the standard rate at 20%, and penalties for misdemeanours, errors can be costly. So, if someone is late registering for VAT, the implications can be significant. With VAT being a key part of business life, it is striking how many people still register late.
From 1 April 2010, new penalty legislation applies to people who are late in notifying their liability to register. As with Self Assessment and PAYE penalties, the rates depend on whether the failure was careless or deliberate.
In some cases, a business that registers late can go back to customers and ask them for the VAT. However, this needs to be managed carefully, so as not to give the impression of a badly run business.
Recent developments
But it’s not just the threshold increase and “digital by default” that have raised the profile of registration. HMRC has targeted different business sectors with task forces to identify and collect underdeclared tax, including VAT. One of the key questions has been whether businesses should be registered for VAT. The VAT campaign result has prompted a leap in new VAT registrations; the mere threat of official HMRC action appears to have encouraged many small businesses to register.
Why have a registration threshold?
For many businesses, the threshold creates a real hurdle. This is particularly the case with retail businesses providing services, such as hairdressers, painters and decorators, etc. Once their turnover jumps from just-under to just-over the threshold, there is a potential loss of £10,000 or more in a year.
The main reason, I suggest, that HMRC has a threshold at all is to save costs.  Comparing the cost of managing a VAT-registered business against the tax revenue it produces suggests that it is less profitable for HMRC to maintain (or restore) a low registration threshold. The comparative benefit for small business is much less.
Interestingly, on the continent the thresholds tend to be lower. My own view is that everyone in business should be registered. This would remove the artificial hurdle that exists. It would also assist with identifying those who deliberately evade VAT by not registering.
Les Howard is a freelance VAT Consultant, working with SMEs and Charities, and providing specialist support for independent accountancy practices. He post regular items in his Vatadvice.org blog on AccountingWEB

Tax gap

A report from the Treasury Select Committee
On 9 March 2012 the Treasury Select Committee (TSC) published its latest report Closing the Tax Gap: HMRC’s record at ensuring tax compliance .This is a follow-up up to their July 2011 report Administration and effectiveness of HM Revenue & Customs :

The TSC took further evidence, including from David Heaton Chair of the Tax Faculty, on HMRC’s administrative and operational record at ensuring tax compliance.

The Tax Gap
A key element in deciding how to approach compliance is deciding the extent of the problem: what is the difference between the tax that is collected and what should be collected – the Tax Gap. The TSC thought that because the HMRC calculation was somewhat of an amalgam of different things it did not necessarily give an accurate figure of the aggregate Tax Gap nor was it a good guide to where HMRC ought to devote its limited resources to bring in more tax revenue.

The TSC invited further submissions on how the tax gap calculation can be improved, and whether it serves any useful purpose in HMRC’s work.

If readers have views on either of these two issues then please get in touch with Ian Young ian.young@icaew.com

Voluntary compliance
The TSC concluded that by far the best way to close the tax gap will be to encourage voluntary compliance. The TSC recommended that simplifying the tax system should be a legislative priority for the Government in the present Parliament. Taxpayers need to be clearer as to what are their tax obligations and the TSC recommended that HMRC commission a study to identify the biggest gaps in the public’s understanding of their tax obligations and to develop a strategy for addressing them. The TSC also thought that a general disclosure facility ought to be set up to run alongside the recent targeted campaigns.

Large Business
The TSC also looked at the Large Business Service and the way large tax disputes are currently settled. This work follows on from the reports of the Public Accounts Committee (PAC) on which we have reported earlier. The PAC has been very unhappy that tax disputes with large business have not been handled properly in the past and this has resulted in considerable underpayments of tax and interest.

The TSC noted that HMRC is going to establish a new post of Assurance Commissioner who will be part of the team to independently review proposed tax settlements in excess of £100m. It recommended that the new Assurance Commissioner should appear before the TSC after the publication of the proposed annual report on the outcome of HMRC’s dispute work.

It also recommended that HMRC’s proposed code of governance for tax dispute resolution should be explicit that the same rules apply to settlement of tax disputes with its large corporate customers as apply to settlements with all other taxpayers.

HMRC Governance
Finally the Report also looked at who is in charge at HMRC. It recognised that because HMRC is a non-Ministerial department it is not under the administrative control of a Minister and as David Gauke, who is in charge of the tax system, recognised;

‘The governance [of HMRC] is not [an area] where I, as a Minster, can in any way micro-manage how HMRC do it, but I would expect and hope that my concerns are reflected.’

The TSC recognised that there is a tension between HMRC maintaining the confidentiality of taxpayers’ affairs and in doing so being independent of politicians and, at the same time, the need for the department to be accountable to outsiders and to Parliament.

The TSC identified the following issues as requiring attention and said that it would return to these issues in future Inquiries:

·         the legal status of HMRC;
·         the power of Ministers to implement change in HMRC where it is needed;
·         the need to balance these issues with the need to maintain taxpayer confidentiality, and
·         the need to examine HMRC’s corporate governance.

Friday 9 March 2012

How to avoid constructive dismissal claims

Lord Sugar is as famous for his business success as he is for his “You’re Fired” catchphrase, but after seven series of ‘The Apprentice’ producing seven winners, only one still works for him.
Claire Best and Karen Plumbley-Jones of Bond Pearce recently wrote in HRZone.co.uk about Stella English, the winner of series six, who recently announced plans to sue Lord Sugar for constructive dismissal.
In a move that could result in a swathe of constructive dismissal cases, Lord Sugar is alleged to have told her that her contract would end in December and that he had already met his obligations to her.
Top tips to minimise claims
1. Have effective policies and procedures in place and ensure managers implement and communicate them
2. Address employee issues head on without delay and ensure that you are fair and consistent in your approach
3. Communication is key - be honest and open with your personnel and encourage them to act in the same way
4. Be fair and reasonable in all situations - as a rule of thumb, treat people as you would like to be treated yourself
5. Offer leavers an opportunity to reconsider.
Whether English will be successful or not remains to be seen as constructive dismissal claims are notoriously difficult for (ex-) employees to prove.
Constructive dismissal occurs when an employee resigns (with or without notice) and can show that they were entitled to do so by virtue of their employer’s conduct. But to succeed in their claim, it would be necessary to establish the following elements:
  • That there had been a sufficiently serious repudiatory breach (actual or anticipatory) by their employer of an express or an implied term of their contract. This is a high hurdle to overcome
  • That the employee accepted the breach, treated their contract as having ended and resigned in response to the breach. Whether they accepted the breach is a question of fact for the employment tribunal to determine
  • That they have not delayed too long in accepting the employer’s breach. If they delay, it could be seen as evidence that they have accepted it
If a staff member is successful in proving that they were constructively dismissed, it gives rise to a claim for damages for wrongful dismissal. If they have put in the requisite service (currently 12 months), they will also be able to claim unfair dismissal.
If an employee resigns and you have any reason to suspect that a constructive dismissal claim may follow, consider writing to them and offering them the opportunity to reconsider. Ask them to confirm their decision in writing within a couple of days.
If any conduct leading up to the staff member’s resignation could amount to a repudiatory breach or the resignation follows in the wake of a misunderstanding, this is your opportunity to explain the situation, remind the individual that they are a valued employee, invite them to a meeting to talk things through and hopefully head off a claim at the pass.

Claire Best is a solicitor and Karen Plumbley-Jones is a practice development lawyer at law firm Bond Pearce.

MPs to investigate retrospective tax

From Accounting Web
The Treasury Select Committee (TSC) will investigate moves to retrospectively tax institutions accused of avoidance following a Treasury crackdown at Barclays last week.
The bank emerged as the target for two retrospective measures to close “aggressive” Corporation Tax avoidance schemes worth £500m.
Prompted by The Sunday Telegraph after Barclays was forced to shut the tax schemes, the House of Commons committee confirmed that they now want to look at the issue as part of its study into the upcoming Budget.
A committee spokesperson told AccountingWEB that it is unlikely a dedicated enquiry will be pursued due to a “lack of space in the calendar”, which is full up until June.
The TSC is meeting this week to discuss its forward programme, however the spokesperson said: “I don’t know if it would warrant overriding some of the other things that we want to do in the coming months.”
Upcoming sessions that will present an opportunity to push the retrospective tax issue include the Budget session where Chancellor George Osborne is expected to go before the committee; the publication of a new report on closing the tax gap next week; and a UKFI session in a couple of weeks’ time.
The committee will take a broader view of the tax system and issues of clarity, where the tax avoidance issue will be one line of enquiry.
The spokesperson said: “You’re either avoiding tax or your not – there shouldn’t be two standards that you’re judged against. One is legal and the other is in this blurred grey moral area, where some people say you’re legitimately minimising tax for business reasons and others will say you’re avoiding it.”
Committee chairman Andrew Tyrie told the Sunday Telegraph: "Can retrospection be reconciled with the certainty a tax system needs in order to deliver an efficient economy? A simpler, more stable and fairer tax system is less likely to excite demands for retrospection."

Budget

http://economia.icaew.com/News/ICAEW-Budget

Tuesday 6 March 2012

Employment Law update

http://howespercival.cmail3.com/t/ViewEmail/y/348499B71CFDB423/C3E17A65C601885CD8E2A916412CAE5B

HMRC IT Project

50p tax rate harming economy, say 500 entrepreneurs

Published 1 March 2012
Released 1 March 2012
The 50p tax rate is damaging the economy and harming recovery from recession, over 500 business leaders have claimed.
In a letter to The Daily Telegraph, the heads of small and medium sized companies from across the UK say the tax has caused expansion plans to be shelved and recruitment drives to be frozen.
They accuse George Osborne of putting “populist politics before sound economics”. Calling for it to be scrapped, they add that the ongoing imposition of the 50p higher rate of tax has left “wealth creators” in a “very awkward position”.
According to the Scrap the Tax Campaign – who organised the campaign – the 50p tax rate affects nearly 320,000 taxpayers earning over £150,000, 1% of the total number of taxpayers.
Full details are available from The Daily Telegraph website.

Friday 2 March 2012

Audit exemption

From the ICAEW
The Department for Business, Innovation and Skills has carried out a formal consultation on extending audit exemption, proposing to remove some of the gold plating that previous governments had applied. Henry Irving takes a look at the proposals.
The Department for Business, Innovation and Skills (BIS) is taking on red tape and sees deregulation as a path to economic growth. In general, it is probably right. But its proposals to take more smaller businesses out of statutory audit – and the consequences – are open to question.

In a nutshell, the proposals are:

• To align the audit exemption criteria with the small company definition. Currently small companies have to meet both the turnover and balance sheet thresholds to be exempt from audit. Under the BIS plan, all qualifying small companies for accounting purposes will also qualify for audit exemption.
• To exempt subsidiary companies from statutory audit where they full conditions including a commitment from their parent companies to guarantee their debts.
• To make it easier for companies to change their accounts from IFRS to UK GAAP.

BIS expects that a further 36,000 companies will potentially be audit exempt. This is a reasonably large number. There are 1.6m active companies registered in the UK, 87% of which are already audit exempt. So the new proposals would take out around a further 2% of these companies from the statutory requirements.

More exemptions

The subsidiary company audit exemption is expected to have the potential to affect 83,000 more companies. In addition, dormant subsidiaries that meet some conditions (for example, they must not be in the banking and finance sector) will not only be exempt from audit, but also from preparing and filing accounts. BIS estimates that 67,000 subsidiary companies are dormant.

Again, large numbers. But we question how many groups will take up this exemption if they have to guarantee their subsidiaries’ debts. In any case, they may still need to have them audited for group reporting purposes.

Subsidiaries, under BIS’s preferred option, would still have to file accounts (unlike some countries, where a filing exemption is also granted with an audit exemption) and this may affect take-up. Some large companies, such as Thames Water and BAA, that are subsidiaries of foreign entities might become audit exempt under these proposals.

There’s an argument that this could even be in the public interest: sometimes a guarantee is better than an audit in protecting creditors and other stakeholders. But clearly that would have massive implications for the audit profession.

Standard shifts

Then there’s the accounting framework proposals. Most private UK companies prepare their financial statements under UK GAAP. However, any UK company (other than a charity) is permitted to adopt International Financial Reporting Standards (IFRS) and some do this to align with a parent using IFRS.
Companies choosing to list on the London Stock Exchange main market or on AIM are required to use IFRS in group accounts. But company law restricts any company from moving back to UK GAAP, outside of some particular qualifying circumstances. Oddly, this includes a company delisting from the main market, but not delisting from AIM. (In fact, creating a new holding company that applies UK GAAP is another option – although that seems a rather excessive step to have to make.) As a result, a few companies are now trapped on IFRS, regardless of its suitability.

One of the changes the Accounting Standards Board is mooting for UK GAAP is a framework for subsidiaries based on IFRS but with reduced disclosure requirements. Many private companies that have already opted to use IFRS might find this more suitable. A change to company law would let them switch.

Joining the debate

These proposals will affect many of our members – and some of you may have serious concerns about the UK government’s progressive deregulation of audit. The UK government is limited in what it can do in this area by EU legislation, of course. Current proposals to amend the fourth and seventh EU Directives confirm that audit deregulation will be limited to small companies, retaining audit for larger organisations.

So, how has ICAEW responded? Ultimately, we believe that good financial management is essential to any small business and that many will choose to continue to have an audit come what may. But audit exemption is a priority for CEO Michael Izza, and his blogs along with mine, together with member alerts and a webinar, will keep you informed of developments.

We want your views and have already held three regional forums – in Manchester, Exeter and London – to ensure we are incorporating members’ thinking into our line on the BIS proposals. And we convened a representative working group that has now submitted our response to the consultation. If accepted, the proposals are planned to come into effect from October 2012.

Impact on the firm

While the majority of the small practices we contacted expect an impact on their business, what that will be is less clear. Firms were divided on whether the BIS proposals would have a positive or negative impact.
Potential benefits include lower fees and less red tape for clients. “Audit regulations and requirements are becoming over-complicated and impose burdens on businesses that most would not require or want”, said one auditor. Another added, “There are much better ways the accounting profession can assist SMEs.”
And the negatives? They include less robust or reliable accounts, which may make lenders, in particular, wary. This might create a “lack of confidence in the eyes of the users of the accounts as figures can be manipulated”, said one respondent.

Impact on the UK Economy

Most members we contacted don’t anticipate these proposals would have any impact on the UK’s economic growth over the next two to three years. “There are insufficient companies in this range to have a significant overall effect”, said one. “Other areas of red tape – in terms of employment, health and safety, etc – are more of a hindrance”, added another. Some pointed out that a couple of thousand pounds in audit fees is unlikely to be a massive saving for the companies affected.

How the clients react?

There is a broad expectation that the majority of small company clients would take advantage of the proposed audit exemptions. The proportion of firms that expect clients in subsidiary companies to take advantage is lower, especially the larger subsidiaries. But there is a greater degree of uncertainty about how subsidiaries will react.

Find out more

ICAEW Working Party Chairman David Chopping’s webinar
Faculty’s response to the BIS proposals (ICAEW Rep 124/11)

Henry Irving is head of ICAEW’s Audit and Assurance Faculty
This article first appeared in Audit & Beyond, magazine of the ICAEW Audit and Assurance Faculty, in March 2012.

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