Plumbers coming clean

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.

Nottingham accountant ordered to repay £1.4m

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.

Exclude bank interest from flat rate VAT

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.

Taxman recovers £8.5bn from tax evasion

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

New tax refund scams

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.

Are your dividends legal?

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.

Lack of MOO wins IR35 case

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.”

Umbrella companies – new minimum wage rules

New Minimum Wage rules came into effect on 1 January 2011, making schemes where some travel expenses counted towards the National Minimum Wage (NMW) ineffective.

The practice popular with employment agencies and umbrella companies, often involves a worker sacrificing part of their contractual pay, in place of the payment of amounts for travel and subsistence to a temporary place of work. This arrangement would have meant the worker paying less tax and NIC.

The Cordant Group, a manpower agency which employs around 30,000 staff went to the High Court to challenge the new changes late last year, but was unsuccessful. 

HM Revenue & Customs (HMRC) says that it is aware that a number of travel schemes and umbrella business models are being marketed which claim to continue to provide savings for the employer and be compliant with the NMW from 1 January 2011. These include:

  • Paying subsistence expenses rather than travelling expenses;
  • Classifying workers as directors;
  • “Holiday Pay adjustments”; and
  • Under recording hours worked

HMRC says that none of these models, including those listed above, would comply with the requirements of NMW legislation for workers paid at, or close to, the NMW.

845 tax returns filed on Christmas day!

Maybe the Queen’s speech was particularly boring or the in-laws became out-laws.  Whatever the reason, the number of self assessment tax returns filed on 25 December 2010 rose from 620 in 2009 to 845 in 2010.  This increases to 2,408 returns filed on Boxing Day.  There must some dedicated (or sad) accountants out there!

A knock on the door – new Taxman powers

HMRC now have increased their powers which allow them to knock on your door and enter business premises for tax inspections.

Click on the link above to read about what rights you have regarding unannounced visits and pre-arranged visits.