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

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.”

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.

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!

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.

The Government today announced the new qualifying rules for FHLs which will take effect from April 2012.  These new rules affect both UK properties and those located in the European Economic Area (EEA).

• a property must be available for letting to the public for at least 210 days per year (increased from 140 days);
• a property must actually be let to the public for at least 105 days in a year (increased from 70 days);
• losses made in a qualifying UK or EEA furnished holiday lettings business may only be set against income from the same UK or EEA furnished holiday lettings business; and
• a “period of grace” will be introduced to allow businesses that don’t continue to meet the “actually let” requirement for one or two years to elect to continue to qualify throughout that period.

The average UK household will pay £283 of tax per family on their festive spending this year according to the Taxpayers’ Alliance.

“While Santa Claus is coming down the chimney, George Osborne is sneaking through the back door, like the Grinch stealing the presents,” said Mike Denham, a research fellow at the Taxpayers’ Alliance.

The Christmas tax principally comprises VAT which is charged at 17.5% on virtually all Christmas goods resulting in an average VAT bill of £224.   The remainder of the £283 of tax per household is made up of excise duties (on alcohol) and fuel tax (at £3.46 per gallon).

According to Deloitte’s long-running Christmas Retail Survey the total cost of Christmas this year will be £37bn. That works out at £1,460 per UK household (including £283 of tax as above), of which £365 will go on food and drink, £803 on gifts, and £292 on socialising.

Merry Christmas everyone (well, everyone except Mr Osborne)!