Tips on saving tax, the latest tax and business news, tax loopholes and useful links

Recently Swiss bank UBS issued a 43 page dress code to its staff.  Below are some thoughts on this, courtesy of Accountingweb.co.uk.

Suits only in dark grey, black and navy blue (conveying competence, sobriety, formalism) – no problem with that.

No trendy eye-glasses – yep, go along with that too. No need to try to look like an architect or graphic designer.

Requiring light make-up for women (foundation, discreet lipstick, mascara) to enhance one’s personality – hmm, a bit sexist, not sure they could say that in the UK.

“Properly cared for hair and a stylish haircut increase an individual’s popularity” – what???

No wearing short-sleeved shirts or cuff links (obviously not together) – definitely not for UK consumption then.

No allowing underwear to show – let’s call a spade a spade, I think they mean bra straps 

And though it can’t show, underwear should be of good quality and easily washable – no, I’m not joking, they actually say that.

No using tie knots that don’t match face and body shape – now this one has me completely baffled, I only know one way to knot a tie. I suppose bow ties are completely out too!

Wristwatches are encouraged because they suggest “reliability and great care for punctuality” – or in the case of my £4.99 Casio watch, that I’m a cheapskate!

Most worrying for the short-sighted like myself is the dictat that ’Glasses should always be kept clean. On the one hand this gives you optimal vision, and on the other hand dirty glasses create an appearance of negligence.’ Just avoid eye contact, I say!

Any organisation that dictates when jackets must be buttoned and unbuttoned is not one that I would care to work for. Sadly, I can’t find a leaked copy of the full dress code on the Internet, butI’m sure it’s only a matter of time!

But closer to home, should a small UK accounting practice have a dress code for its people? I have never worked for a firm that had one, or if it was unwritten I never transgressed, although I should admit that my father was a gents outfitter so maybe I inherited some of his style.

If I DID have a dress code it would outlaw such style disasters as those awful coloured or striped shirts with white collars – I thought they died out in the late 1970s, but I still see a few around. And what about the 3-piece versus 2-piece suit debate? Has the 3-piece had its day or does it still have a place in the dynamic young accountant’s wardrobe? Personally I think waistcoats belong on Status Quo guitarists, not in the modern office.

And that’s before we get on to the whole dressing down thing. I don’t suppose UBS AG lets its staff come to work in jeans and T-shirts on Fridays! Many accounting firms do, and in our experience it doesn’t seem to bother the clients. In fact, I have some clients who INSIST that I don’t wear a suit when visiting them.

I’m heading back to Google to see how many ways I can find to knot a tie!

Should HMRC launch an investigation into your tax affairs, they will know your inside leg measurement even before they knock on your door. 

They obviously know about all your employment jobs but they also know about your rental income if you go through an agency as they have to tell the Taxman this information by law.  They will also know when you bought the rental property (thanks to the Land Registry) and who lives there (Electoral roll). 

The banks tell him how much interest you’ve earned on your savings, he knows where and when you’ve travelled around London (courtesy of the nice chaps at Oyster card) and where you shop and how much you spend (loyalty cards).

Expect them to be familiar with your Facebook and Myspace pages so your photos of expensive cars and holidays will need some explaining if you are only declaring £10k pa earnings!

And remember….walls have ears!

Below are the major changes for 2011/12 affecting UK based contractors and small businesses as announced in the Budget on 23 March 2011:

Income tax

• Personal Allowance increased to £7,475.
• Basic rate limit reduced to £35,000 (equivalent of £31,500 for net dividends).

Companies

• Corporation tax reduced to 20% for small companies.
• Mileage allowance increased to 45p for the first 10,000 business miles driven in employees’ private cars.  Secondary rate of 25p for miles in excess of 10,000 remains.
• IR35 rules are to be clarified by HMRC to remove grey areas.

VAT

• Registration threshold increased to £73,000 pa.

National Insurance

• Rate increased for employers and employees to 12% and 13.8% respectively if weekly earnings exceed £136 and £139 respectively.
• Higher rate of NIC increased to 2%.

Pensions

• Annual allowance for tax relief on pension contributions reduced to £50,000.

Capital gains tax

• Annual exemption increased to £10,600.

Furnished holiday lets (FHL)

• Losses may only be offset against FHL profits.
• From April 2012 property must be available to let for at least 210 days per year and actually let for at least 105 days per year.

Capital expenditure

• Allowances reduced to 18% per annum for periods ending on or after 1 April 2012.
• Annual investment allowance is reduced to £25,000 pa.

Plumbers, gas fitters and heating engineers are the latest targets of HMRC, as part of a wider clampdown on tradespeople. The Plumbers Tax Safe Plan is HMRC’s latest tax amnesty and is open until 31 August 2011.  We would note however, that this amnesty is open to all taxpayers.

HMRC has obtained information from Gas Safe and Corgi in an attempt to discover taxpayers who have underdeclared their income.  Investigations will commence after 31 August 2011.

Under the plan, plumbers (and other taxpayers) are given the opportunity to fix any leaks in their tax affairs, by making a voluntary disclosure to HMRC. In return they will be offered lower penalties.

Why plumbers?

HMRC has decided to target plumbers because:

• Registered plumbers can be traced by HMRC via Corgi and Gas Safe registration.
• Plumbers have been singled out because they do a lot of cash work.
• A plumber in receipt of cash may have not have declared all his income, or registered for VAT.
• Many plumbers are self-employed and so have the potential to incorrectly claim expenses for working from home, for home to work travel and for subsistence.
• Training to become a plumber is costly, and some plumbers may have been tempted to incorrectly claim the cost of the training and course fees required to obtain their registration.

Under the new tax penalty system that applies for errors from accounting periods in or after 2008/09, a voluntary disclosure of an error caused by careless, but not deliberate behaviour will not attract a penalty, however, the penalty for disclosure of an error caused by deliberate behaviour will attract a minimum penalty of 20% to 30%.  Interest is also due on any overdue tax or NICs.

An unqualified accountant who used his client’s cash to line his own pockets has been ordered by a judge to pay back £1.4m.

A judge has now ruled that Warman has 12 months to pay up. His current 8 year jail term could be extended if he does not repay the cash.

He also stole £80,000 from three other Nottingham businesses – a farmer, a firm of solicitors and a transport company.

The moral of the story is be careful who you appoint as your accountant – ideally they should be personally recommended to you, but if not, ensure they are regulated by a professional institution and carry adequate professional indemnity insurance.

The recent case of Fanfield and Threxton v HMRC concluded (on appeal) that interest earned on a company’s bank account does not need to be taken into account when calculating the turnover (and hence the VAT liability) of the business. 

The VAT flat rate scheme is an optional scheme that small businesses can join to simplify their VAT affairs.  The VAT liability is calculated using a flat rate percentage of the turnover for the period.  This case confirms that bank interest received does not need to be included in these calculations as it is outside the scope of VAT.

HMRC managed to raise £8.5bn from investigating serious tax evasion cases in 2009-10, according to a new report by the National Audit Office.

In addition, The Managing Civil Investigations report reveals the following facts;

• HMRC collected £435bn in tax during 2009-10
• An estimated £42bn goes uncollected. Fraud and evasion account for an estimated £15bn with the remainder due to error, avoidance and non payment.
• Civil Investigation teams generated a yield of £8.5bn in 2009/10. Average yield for 900 settlements during past three years was £329k. 15% of investigations took more than 3 years.

HMRC are taking steps to recover the full £15bn estimated to be lost each year

The Taxman has been forced to warn taxpayers not to fall for a new round of phishing emails designed to harvest bank account details.

The scam emails inform the recipient that they are due a tax rebate, and provide a click-through link to a replica of the HMRC site

The recipient is asked to provide their credit card details. Fraudsters then try to take money from the account using the details provided,” said an HMRC statement.

“Victims risk having their bank accounts emptied and their personal details sold on to other organised criminal gangs.”

The department revealed that it has shut down 99 rogue sites responsible for sending out this type of scam email in the past three months.

“As a matter of policy, HMRC will only ever contact customers who are due a tax refund in writing by post,” said HMRC director of customer contact Chris Hopson.

“If anyone receives an email offering a tax rebate claiming to be from HMRC, we recommend they send it to phishing@hmrc.gsi.gov.uk before deleting it permanently.”

HMRC warned customers not to visit suspicious web sites, click on links in suspicious emails or open attachments.

HMRC has announced that in late in 2011 they will introduce a programme of Business Record Checks (BRCs) and in particular will be looking at dividends.

Therefore it is now time to consider how you vote dividends and to ensure that a correct procedure is in place so that HMRC cannot claim the dividend to be illegal, nor that inadequate records have been maintained.

Where regular amounts have been withdrawn as dividends the amounts will be deemed ‘illegal’ if at the date of each payment the interim accounts show that the profit cannot cover the distribution.

If a distribution can be made legally then the procedure to approve the dividend and the record of payment must be correctly maintained. 

The relevant date for an interim dividend is the actual date of payment because a resolution is not needed to confirm payment. An interim dividend can be varied or rescinded. It is important to note that HMRC consider the date of payment of interim dividends to be the date of entry in the company’s books.

Many accountants consider that backdating documents to confirm consideration of profit and payment of dividend is a paperwork tidying up exercise but technically it is fraud and again case law exists to support this position.

Failure to observe the correct procedure could lead to not only additional tax liabilities but interest and penalties as well.

The latest IR35 tax case has been won by the contractor.  The tax tribunal cleared the contractor, Mark Fitzpatrick, of using his limited company to avoid tax while working at Airbus.  The tribunal found in the contractor’s favour – noting a lack of ‘Mutuality of Obligation’ (MOO) as a significant factor in their decision.

Their decision apparently hinged on the fact that Airbus could cancel the contract without notice. Specifically, there had been occasions where due to computer failure contractors were sent home without pay whereas employees had to remain on-site.

Matt Boddington, of Accountax Consulting who represented Mark at the Tribunal, said: “This is a significant bloody nose for HMRC and highlights that if parties arrange their affairs correctly and if these arrangements are an accurate reflection of reality then the IR35 legislation simply will not bite.”