HM Revenue spend £1 billion on enforcement

HM Revenue & Customs have announced they will spend £1 billion on enforcement and compliance this year, in the hope that they will cut tax avoidance and evasion by £2.4 billion.see Times article

That is a huge quarter of its £4 billion budget to be spent on catching tax-dodgers. The clampdown comes after a  “litigation and settlement review” the Revenue promised to take more people to court to recover tax instead of cutting deals in out-of-court settlements. Beware the cost of   defending yourself or your company in court if the need arises can be frighteningly expensive. That is why we recommend all clients take up our professional fees insurance. This enables your fees to be paid in the event of HMRC enquiry.

Lesley Strathie, who took over as the HMRC’s chief executive and permanent secretary five months ago, said that the organisation would relentlessly pursue those who bent or broke the rules.

Last month on the ITV Tonight programme an HMRC employee claimed that HMRC staff routinely bin letters and ignore tax errors in order to meet performance targets.

He said “Staff have actually been told that when someone rings in with a tax enquiry and you spot a mistake on a person’s record, you have to ignore itunless they have actually asked you to look at the mistake. Its all about the Government target of answering so many calls a day. And if you write in, the post often goes missing. It just disappears, just gets binned, some letters simply aren’t seen by anyone.”

HMRC’s official comment was that anyone found to be binning correpondence would be subject to disciplinary action.

MP’s expenses – an accountants take

A client recently asked me why MP’s are able to claim for Widescreen TV’s, expensive rugs, leather setees etc etc and not have a tax liability. All these things wouldnt normally be allowed as expenses.

The reason is a piece of law that MPs have passed which applies only to their own expenses. It is S292 ITEPA 2003. This law gives exemption from tax to any expense paid in accordance with a resolution of the House of Commons.

So they are exempt from the usual test as applies to everyone else in terms of an expense being necessary for their duties as an employee. S292 states that allowance is given for expenses “expressed to be” in respect of additional expenses necessarily incurred by a Member…..in performing parliamentary duties.

The Green book explains for MP’s the code of conduct on expenses adopted in 1995. This states in respect of expenses for staying overnight away from their main home MP may claim for the following costs:

  • Rent or mortgage interest
  • Hotel expenses
  • Utilities and telecommunications chages
  • Furnishings
  • Maintenance, service agreements, cleaning and insurance
  • Subsistence

So providing an MP expresses an expense to be in performance of his or her duties and that expense is approved by the Fees Office then it is not subject to tax.

Isn’t it typical

  • Dream up a law that applies only to them….600 odd people out of a working population of millions
  • Make things complicated, so people can’t really see what is going on

Part of the problem of course is that the Fees Office have been approving expenses which the Inland Revenue would not dream of allowing. Duck islands, moat clearing, patio heaters, wisteria removal, tennis court repairs, dog food – the list is endless!

Why do we need such a complicated system?

Surely the solution is to adopt a simple transparent system?

If your constituency is outside London, then you need somewhere to stay in London. Some state owned accomodation could be made available, perhaps together with an alternative option to receive a fixed sum perhaps a maximum of say £100 per night. Transparent, simple but perhaps less lucrative for those involved!

Update 27th May 2009

The Daily Telegraph has reported that HMRC issued a statement yesterday (Tue 26th) to say that MPs were not exempt from tax laws and that tax must be paid on some expenses.

“It’s a general principle of tax law that accountancy fees incurred in connection with the completion of a personal tax return are not deductible.

“This is because the costs of complying with the law are not an allowable expense against tax. This rule applies across the board.”

So HMRC are clearly saying the Fees Office has been wrong in approving these expenses.

It seems to me MP’s are in the embarrassing position that these expenses are not taxable because of the law they have created just for themselves, even though HMRC is clearly saying they should be taxable.

Record keeping

Following changes to the law, H M Revenue & Customs now have much stronger powers to require that you provide evidence to back up entries on your tax returns. For business owners this means your accounting records and supporting documentation need to be of very good quality.

If HMRC can demonstrate that your records are less than effective you will face penalties.

The legislation requires you to:

“keep all such records as may be requisite for the purpose of enabling him (you) to make and deliver a correct and complete return for the year or period.”

In future you will need to keep a careful eye, not only on the results generated by your accounting software, but also on the completeness of the underlying records. It may well be the case that we offer you advice to improve the way you process and maintain records.

Records include supporting documentation such as, accounts, books, deeds, contracts, vouchers and receipts.

We are now delighted to offer all clients an easy to use online accounting system. We have held off from doing this for a long time, in an effort to ensure that the solution we offer is the best. That means easy to use, and useful information graphs, and reports at your fingertips.

If you would like us to review your accounting systems and record keeping prior to the tax year end please give us a call.

Revenue Powers and Penalties

Powers

From the 1 April 2009 HMRC will be aligning its powers across all taxes and duties. In a nutshell they will be able to exercise the following powers:

. a power to inspect records required under the record-keeping legislation – this restricts the existing VAT and PAYE inspections to statutory records and introduces a new power of inspection for direct tax;

. a power to require supplementary information which is relevant to establishing the correct tax position;

. a power to require third parties to provide information which is relevant to establishing a taxpayer’s correct tax position;

. a power to visit business premises and to inspect records, assets and premises;

. removal of VAT and PAYE powers to undertake inspections at private homes without taxpayer consent;

. appeal rights against any penalty, and against information notices which have not been pre-authorised by an appeal tribunal;

. penalties for failure to allow an inspection and failing to comply with an information notice, including a tax-geared penalty which can be imposed by the new upper tier tribunals; and

. an updated criminal offence of destroying or concealing records requested under a notice authorised by a tribunal.

An additional power that has recently been granted to HMRC is the right to intercept phone calls – “bugging” powers! The Customs branch have always had this right, and it is now rolled out to investigations that involve all taxes. The powers were granted in the Serious Crimes Act 2007; the relevant implementation date was 15 February 2008.

Penalties

The Budget March 2008 included provisions that will enable the Revenue to introduce a single penalty regime across all the taxes, levies and duties they administer.

The changes are likely to commence for all incorrect return periods commencing on or after 1 April 2009, where the return is due to be filed on or after 1 April 2010.

New penalties for failure to notify the commencement of a new taxable activity are expected to have effect for those that arise on or after 1 April 2009.

The penalty will be determined by the amount of:

. the tax understated,
. the nature of the behaviour giving rise to the understatement, and
. the extent of disclosure by the taxpayer.

The use of suspended penalties will be extended.

There will be no penalty where a taxpayer makes a mistake, but there will be a penalty of up to:

. 30 per cent of the tax understated for failure to take reasonable care;
. 70 per cent of the tax understated for a deliberate understatement; and
. 100 per cent of the tax understated for a deliberate understatement with concealment.

The measure will provide for each penalty to be substantially reduced where the taxpayer makes a disclosure (takes active steps to put right the problem), more so if this is unprompted.

. For an unprompted disclosure of a failure to take reasonable care the penalty could be reduced to nil.
. Where a taxpayer discloses fully when prompted by a challenge from HMRC each penalty could be reduced by up to a half.