"I am delighted to announce that Ian Sheekey FCA has merged his practice with us and joins me as Director and joint Owner of the Total Tax Group of companies.

Ian had previously been a principal of Hugh Davies & Co. in Salisbury. The Total Tax Group had provided tax advice for a number of their significant clients, and so Ian and I had worked on mutual projects together for a number of years. We recognised the benefits of our working relationship, and with Hugh Davies considering his retirement options it became a natural decision to combine our businesses.

We believe our combined Chartered Tax Adviser and Chartered Accountant experience provides an excellent opportunity for our enlarged client base to embrace the opportunities created by the changes facing both taxation and accountancy."

Message from Ian Sheekey:

"I am delighted to have merged my practice with the Total Tax Group, and I am enjoying working with the Team.

Catherine Packwood-Bluett and Liz Shering moved with me which provides additional consistency for my client and its lovely to be working with Karen Edwards FCA again, who worked at Hugh Davies & Co previously, as she also developed close relationships with my client base.

I echo Sophie's comments; accountancy and taxation are seeing significant changes, and together we are better placed than ever to embrace the opportunities this creates."

Implementing the national living wage – which requires employees aged 25 and over to be paid at least £7.20 an hour – will be particularly tough for employers in Sheffield, Nottingham and Birmingham, the Resolution Foundation has warned.

The “ambitious” policy is expected to present challenges for employers in places where low-paid staff are concentrated. In London the total wage bill is expected to rise by 0.3pc as a result of the national living wage, but in areas like Birmingham the increase will be 0.8pc.

The national living wage was unveiled by George Osborne, the Chancellor, in the summer Budget last year. The pay floor is set to hit £9 an hour by 2020, affecting 6m employees across the UK, or around 23pc of the workforce.

It is believed that of that number, 3.2m individuals will be directly affected as their pay rises as a result of the new measure. The remainder are already earning more than the national living wage floor, but will be in line for pay rises along with their colleagues as the new rules are rolled out.
The Office for Budget Responsibility, which produces official forecasts for the Government, has estimated that 60,000 fewer people will be in employment compared with if the national living wage was not introduced. However, the pain is unlikely to be spread evenly.

Adam Corlett, a Resolution Foundation economic analyst and author of the report, said politicians would need to “work closely with employers to ensure that the national living wage is a success, particularly in low-paying sectors”. The foundation said the roll-out would be a “key first test” of new devolved powers for local government.

Article first published 03/01/16 by the telegraph read in full

The 10 years between 2010 and 2020 are set to be the worst decade for pay growth in almost a century, and the third worst since the 1860s, according to new research.

Research from the House of Commons Library shows that real-terms wage growth is forecast by the Office for Budget Responsibility to average at just 6.2% in this decade, compared with 12.7% between 2000 and 2010.

The figures show that real-terms wage growth was lower only in the decades between 1920 and 1930 and between 1900 and 1910. Wage growth averaged at 1.5% in the 1920s and at 1.8% in the 1900s.

Owen Smith, shadow work and pensions secretary, who commissioned the research, said that a “Tory decade of low pay” would see “workers’ pay packets squeezed to breaking point”.

“Even with this year’s increase in the minimum wage, the Tories will have overseen the slowest pay growth in a century and the third slowest since the 1860s,” he said.

George Osborne has justified cuts to in-work benefits by arguing that the government is transitioning the UK from being “a low-wage, high-welfare economy to a high-wage, low-welfare economy”, a claim that Smith said was contradicted by wage-growth figures.

In the autumn statement, the chancellor abandoned plans to cut £4bn from working tax credits, under pressure from the opposition and many backbench Tory MPs.

However, Labour has pointed out there will be cuts to in-work benefit payments for new claimants put on the new universal credit system – championed by the work and pensions secretary, Iain Duncan Smith – which rolls at least six different benefits into one.

According to the IFS, the cuts to universal credit, which are due to take effect this year, will mean 2.6 million working families become an average of £1,600 a year worse off.

Read the article in full from the Guardian first published 03/01/16

From April 2016, a new Personal Savings Allowance will take 95% of taxpayers out of savings tax altogether.

From April 2016, a tax-free allowance of £1,000 (or £500 for higher rate taxpayers) will be introduced for the interest that you earn on your savings.

If you are a basic rate taxpayer (you have a total income of up to £43,000 in 2016-17), you will be eligible for a £1,000 tax-free savings allowance.

If you are a higher rate taxpayer (you have a total income in 2016-17 between £43,001 and £150,000), you will be eligible for a £500 tax-free savings allowance.

If you would like some assistance please do get in touch. 

As a business undoubtedly it's been tough to sustain let alone grow your business. You may feel this is a good time to think about increasing either your client fees or put up your product prices, at least to keep abreast of inflation.

Many companies have obviously forced their prices down and have cut costs in order to drive business as a necessary downside to a recession. Now though having pegged prices down for the last 2 or 3 years you are probably worried that your business can’t sustain this for ever, especially as other costs continue to go through the roof; from blatant things like fuel charges and rail prices through to more simple hidden ones such as toner cartridges. Add to this other less obvious business costs such as the new rules on Real Time Information (RTI) in 2013 and all these costs ultimately have to be picked up somewhere.

What is the best way to put up your prices though and how should you justify the increase? Obviously you do not want to upset your client/customer and risk losing accounts or market share however, can you afford not to?

Here are some ideas that you might like to incorporate. At the very least give them some thought and consider what you could consider implementing:

1. You may decide to have a one size fits all approach and to benchmark this with inflation for example or to treat each client/customer on a case by case basis. In some respects this comes down to whether you are selling widgets from a RRP price list, where you offer discounts based on order values, or whether you are selling a service where each client has varying client needs. Either way a blanket approach may not be the answer as losing 1 client/customer in 20 or 30 is likely to be false economy and may ultimately bring down your overall turnover and defeat the point of the exercise, so think this through carefully before you act.
2. Consider writing some appropriate words in your terms of engagement letters so that everyone knows what to expect. Doing nothing on an annual basis and then hiking up prices by a larger amount years down the line is likely to cause more dissent (a caveat though stating that if business changes significantly, or that prices will rise annually in accordance with inflation (if that is the vehicle you choose to follow) will mean that fees/prices can be re adjusted).
3. Consider your terms in line with the sort of client you are developing. For instance a growing business will have development needs which may mean you need to spend more time on their account than at first envisaged, so keep a track of your time and when you start spending more time on their business ensure that your terms can accommodate some justifiable increase.
4. If you are in the service sector consider offering fixed term contracts of up to 3 years duration which may give you valuable points when a client/customer price checks you against competitors and will hopefully also serve to guarantee you valuable work for the duration.
5. Set out clearly in quotations and during discussions, at the start of the agreement, exactly what you expect of your client and what you will do. Therefore, the moment their requirements start not going according to plan you can then address it, either by getting them to put it right or by charging them a bit more (or even less if they've done more than anticipated). Furthermore, if a client then comes up with something out of the ordinary they can then be billed separately for it.
6. Be prepared to say why you are increasing your product or service prices. Is it because you’ve had to take on more support staff, in other words is it wage inflation, or is it due to an increase in delivery charges or fuel costs? If you are able to state this then clients will have less recourse to be unhappy and will be more likely to appreciate your honesty.
7. Be aware of other inflationary measures such as the (CPI) consumer price index. Another measure is the retail price index (RPI). There is also pay data where you can see how inflation has been racing ahead of average earnings as people's wages fail to increase as fast as the cost of living.
8. Do consider price hikes against time. As your client/customer relationship develops your service to them may become more efficient; perhaps reporting between the two parties allows for efficiency savings, or as time progresses they begin to order more stock which as a result means they are becoming a more valuable client/customer, in which case it might be better to wait until a specific justification can be made, whereupon a letter stating the new arrangement may be more easily justified.
9. Consider cutting your product margins but increasing your market share, for example through the use of an Amazon Vendor account. However, do bear in mind that with increased sales comes increased costs, postage or distribution. Are you really conversant with your break even points and do you fully understand the cost implication to increased sales. By doing the research at the outset you will better understand how to gear up your operation and how it will transfer into overall profit.
10. Finally on a cautionary note, always check and recheck your competitors pricing. If you are not you can be sure of one thing, and that is that your customers/clients are checking yours.

Ultimately though do remember that it is your sales team that will have to defend your pricing and to do so they will have to justify this in a logical manner. Are you, and indeed your sales team totally familiar with the detailed costing of the products/services you are selling? If not we suggest you make sure that you are become fully informed about the cost to your company of materials, labour, transport, storage, overheads etc. If you are confident of these facts then your company’s pricing policy will be better understood and can be better clarified and therefore justified by everyone.

If you have misgivings though do not keep these concerns to yourself, discuss them with your accountant and your management team. Often a discussion will give you the additional information you might need one day to make a sale. To get further advice on this talk to us here at Total Tax where we can offer invaluable insight in to cost breakdown and help you establish an informative and fully justifiable pricing structure.

Email: Chris@totaltaxgroup.co.uk

This article is taken from Accounting Web published on 12th November and offers a quick overview of possible items that may be highlighted in the forthcoming Autumn Statement which will be on the 25th November.  We will keep you posted as more details become available. 

George Osborne had his sums all tied up; he would bring the country’s accounts back into surplus by 2019/20 by making £12bn worth of social security savings. This plan was flagged up before the election, but the detail was not revealed until the Summer Budget, when it became clear that £4.4bn of the social security savings would come from cutting tax credits paid to low income households.

The alteration in tax credits rates and thresholds would be made by an affirmative statutory instrument (SI). This is a form of legislation which is not normally subject to detailed debate in the House of Commons, and is often waived through. However, both Houses of Parliament must approve it, and this is where George’s plans came unstuck; as the House of Lords refused to approve the SI which contained the tax credits cuts.

If the changes to tax credits had been presented in a separate Financial Bill the House of Lords wouldn’t have had the power to block the legislation, due to the Commons Financial Privilege.

As a result of the Lords’ action George Osborne must now find an additional £4.4bn of expenditure cuts from other sources, or reign-in his target of a £10bn surplus in 2019/20 by borrowing more and perhaps phasing-in the tax credits cuts over five years. A third option is to raise taxes or duties, but the pesky tax lock (Finance Bill 2015-16 cl 1& 2) has limited his action in that direction.

So what can he do to raise funds? Three taxes which are not covered by the tax lock are CGT, IHT and SDLT, all of which are stuffed with reliefs and exemptions ripe for culling.

CGT

Entrepreneurs’ relief received some significantly body-blows in last year’s Autumn Statement on 3 December 2014, and in the Budget on 18 March 2015. I suspect the Chancellor has more attacks planned for this year, such as a removal of the relief when:

transferring shares to family members to trigger a material disposal; or incorporating a property letting businesses.

Another very generous CGT relief is the exemption for gains made on shares taken by employees in return for giving up a bunch of employment rights (employee shareholder shares). The first £2,000 worth of shares are free of tax and NI on acquisition, but up to £50,000 of shares (measured on acquisition value), are also free from CGT on disposal – whatever the size of the gain. That is a glorious relief for private equity investors, as explained in Jolyon Maugham’s blog, and is ripe for reform.

IHT

Business property relief (BPR) and agricultural property relief (APR) provide 100% exemption from IHT when passing on a business or farmland. There have been rumours for years that BPR may be cut from the current 100% rate, or restricted in scope.

The value of quality English farmland has doubled over the last five years, and the price of farmland in other parts of the UK is similarly buoyant, which encourages investors. To have such a valuable asset protected from IHT by 100% APR, and be subject to 10% CGT under ER (in many circumstances) may be too tempting for George. Expect some tweaking, if not a wholesale reduction of IHT and CGT reliefs in that area.

SDLT

Commercial property values have not increased in line with residential property, but the number of non-residential property transactions is steadily increasing, according to the latest quarterly HMRC report. When SDLT was reformed in December 2014 only residential properties were affected. Now there are two different methods of calculating SDLT for residential and non-residential property transactions, and two methods of calculating the commercial land tax charges north and south of the Scottish border. This confused picture is ripe for “simplification”, which may well subtly increase the yields.

Currently there is a relief from SDLT where a family partnership incorporates, and that too could be vulnerable to be closed as a “loop-hole”.

Tweaking IR35

The government appears determined to deter tax-incentivised incorporation. The dividend tax is one line of attack, another is the restriction of travel and subsistence expenses for contractors working through intermediaries. Both changes are due to take effect from 6 April 2016. On top of those there is a rumour of further tweaking of the IR35 rules to force contractors on to their engager’s payroll where the engagement lasts for a set period – possibly as little as 12 months.

The Autumn Statement promises to be exciting – but possibly not in a good way for small businesses.

CHANCELLOR GEORGE OSBORNE'S PLANS to bring forward proposed cuts to pensions tax relief could be in dire straits as advisers threaten a political storm if he upsets the current system.

George Osborne is exploring plans to scrap the current tax breaks and offer pensioners no relief while they are paying into their pension but then give tax-free access to savings upon retirement.

The current system sees savers receive tax relief based on their rate of income tax for cash set aside in their pension pot in order to encourage more long-term saving. The money is later taxed when it is withdrawn during retirement, a burden that has impeded the government's moves to make private sector pensions more flexible.

It had been expected the chancellor would hold fire on the changes until the next Budget, to be held in March next year.

But following the House of Lords' rebellion over proposed cuts to tax credits, there are now fears Osborne could bring forward the pensions cuts in a bid to plug the deficit.

As a result, advisers are warning savers could rush to make the most of their investments, with as much as an extra £6bn in reliefs being claimed ahead of this month's Spending Review and Autumn Statement.

"We're just enrolling millions of people in the workplace into their pension schemes and it would be a huge turn-off for them if they have to trust that, 30 or 40 years from now, some politician who's probably still in their nappies right now is going to allow them to take that money out free of tax. That's a big ask," Royal London chief executive Phil Loney told theTelegraph.

"If he really did choose to scrap tax relief on pensions and move to a different regime, I think he might find himself with the same kind of storm that he's got around tax credits. It's that big an issue," he warned.

Last week, the Confederation of British Industry called on the government to refrain from further changes to the tax regime pensions are subject to, with 79% of members saying pensions tax relief should not be on the agenda.

"Recent regulatory changes, coupled with auto-enrolment and state pension reform, mean UK business leaders now crave stability," said CBI director of employment and skills Neil Carberry.

Article courtesy of Accounting Age 02/11/15

On 17 September 2015, HMRC published its response to the consultation on the future direction of penalties. The paper garnered 92 responses with widely differing views but HMRC has drawn the following conclusions so far:

• There needs to be a distinction between those who have committed a one-off or minor compliance failure versus those who are habitually non-compliant. This requires penalties to be targeted and proportionate to the individual or business' compliance history.
• The new penalty model must be consistent across all taxes.
• They will focus first on late filing and payment penalties as these produce large volumes but are low in value and crucially for HMRC generate a lot of appeal traffic and customer contact that is expensive for them to resource. They plan to consider some, or all, of the following in the new penalty regime model:
• Stop issuing penalties for late filing if no tax is due as highlighted on the return
• Introduce a short period of grace after the filing deadline
• Introduce an unpenalised first default (as is already the case for RTI filing and payment penalties)
• Consider the taxpayer or business’ compliance history
• The ability to use mitigation to recognise why the default occurred
• Introduce warnings ahead of the issue of a penalty (again already part of the RTI model)
• ​Replace the current late payment default schedule with a penalty interest regime
• Recognising the difficulty in designing a penalty regime that is simple and takes in to account compliance history where the failure is one of inaccuracy is much harder so that will be a separate strand of work over a longer time period.

As well as financial penalties, HMRC will continue to investigate if non-financial sanctions could be just as effective in changing compliance behaviours. This could include reducing the the deadline for filing for those who have been non-compliant so there is an incentive to develop good compliance behaviour.

Article originally posted by Accounting Web 22/09/15 you can read the full account online

HMRC's powers to demand "accelerated payments" are being used to target contractors and freelancersas well as the wealthy business people and celebrities the rules were allegedly designed for, reports the Telegraph.

The paper talks to several freelancers who say they have been told to pay backdated taxes in full and within a three-month deadline, often relating to periods of employment from many years ago. HMRC's new powers mean refunds will be given only later if it finds its sums were wrong. HMRC's campaign concerns thousands of former freelancers who used "employment benefit trust" schemes, which saw employers pay a salary to an offshore intermediary, which takes a commission, before paying this money to the worker in the form of a tax-free loan. HMRC now says it regards contractor loan arrangements as being "particularly aggressive".

Source:  The Sunday Telegraph (20/09/2015)

Research, commissioned by Advanced Payment Solutions (APS) demonstrates that the complexities that UK SMEs face when attempting to open a business bank account means over half of them have yet to open an account with a high-street bank.

For those that have applied for a traditional business bank account, respondents report having to wait more than two weeks – 16 days – on average to gain approval. Over 15% of UK SMEs had to wait over 26 days before they were granted access to their business bank account, enabling them to make and receive payments. Just 6% were granted access on the day they applied.

With paperwork and extensive credit checks delaying, and in some cases eliminating, many UK small businesses from trading, it is perhaps unsurprising that a third of SMEs believe that ‘dealing with banking red tape makes operating a business a laborious task’. Meanwhile, over one third (39%) of small businesses in the UK describe interacting with their bank as a ‘necessary evil of operating a business’.

Unfortunately, for self-employed workers or small business owners looking to open a business bank account, it’s not just the time delay that proves to be a challenge. The survey found that fees and charges mean that small businesses are paying an average of £468 a year to hold a business bank account with a high street bank – the equivalent of £39 per month. Such charges lead 31% of small business owners to believe that their bank actively seeks ways to sneak in fines and fees that (they) do not understand. As a consequence of complex fines and fee structures, 16% of small business owners admit that they do not know how much they are being charged to run their business bank account each month. Scary stuff!

Survey conducted on www.onepoll.com in August 2015. Total number of respondents – 500 UK adults, either self-employed/sole traders or intermediate/higher managers in businesses with 1-250 employees.

One of the major announcements in the Summer Budget, affecting owner managed businesses was the proposed changes to dividend taxation, including the removal of the dividend tax credit for a new tax-free Dividend Allowance. Very little was announced on Budget day and a number of uncertainties existed over the new proposals. A factsheet containing some examples has now been published which addresses a number of uncertainties clarifying how the new allowance will operate when it comes into force on 6 April 2016.

To recap, the Finance Bill 2016, will abolish the current dividend tax credit regime, removing the need to gross up dividend payments. Dividends received up to £5,000 will be covered by the new Dividend Allowance and will be tax free, but dividends exceeding this amount will be taxed at the following rates:

• 7.5% on dividend income within the basic rate band;

• 32.5% on dividend income within the higher rate band;

• 38.1% on dividend income within the additional rate band.

Contrary to initial assumptions the Dividend Allowance is not an allowance reducing total income before applying the basic and higher rate bands. It is instead a zero rate that applies to dividend income only but is itself treated as part of the basic, higher and additional rate bands. It was initially thought that those who followed a policy of extracting dividends up to the basic rate band could benefit from taking an additional £5,000 tax free on top of the basic rate band, but this guidance confirms this is not the case.

The factsheet includes a number of examples one of which confirms that the Dividend Allowance applies whatever the individual’s marginal rate of tax. Dividends are taxed as the top slice of income, so if an individual has non-dividend income which takes them into the additional rate band the receipt of up to £5,000 of dividend income will still be tax free, effectively giving the individual tax relief at 38.1% on that slice of income.

In essence, those who will benefit from the changes will be those higher rate taxpayers who receive dividends of less than £5,000, who would at present be taxed on such income. There may also be scope to plan the payment of dividends to family members between those who may be taxed at 7.5% and those liable at 32.5% and 38.1%. However, those who receive dividends in excess of £5,000, which will include many owners of small and medium businesses, will find from 6 April 2016 that their tax bill will increase, as a result of these changes.

The headline is that for an individual with salary of £8k plus £40k net dividend, the tax increase in 16/17 is £1,387. 

For tax year 2016/17 under new rules the differential advantage between a sole trader’s tax burden and an OMB shareholder is a £955 saving on £40k profits, a £2,000 saving on £50k profits and then a £1500 saving on £75k profits. The advantage continues to decrease as profits rise, and on the face of it, new incorporations may well become less attractive. 

The tax increase for a typical OMB FROM 2015/16 TO 16/17 with profits of £40k is £1,300.

In absence of developments regarding income splitting, shares for spouses look worthwhile revisiting, and sole traders / company cars may well come back into fashion.

It is important therefore to plan for these changes in the current tax year. It may be worth paying additional dividends in 2015/16, assuming there are sufficient distributable reserves, even if this accelerates the payment of income tax for those liable at the higher or additional rate of tax. A copy of HMRC’s factsheet can be found here at Gov.uk.

If this concerns or confuses you do get in touch with Rose Duly at the office for a no obligation chat as it is important that you understand the implications. 

Internet companies may have to provide more information on people and businesses who sell goods and services online, in a crackdown on tax evasion.

HM Revenue & Customs wants to target businesses that have failed to register for tax, and individuals who fail to declare the money they make online.

It said this "hidden economy" could equate to £5.9bn a year in tax.

HMRC has launched a consultation on extending its powers to collect extra data from firms and individuals.

No specific firms have been named, but sellers on internet marketplaces such as online advert site Gumtree, holiday home rental site Airbnb and e-commerce giant eBay could be among those targeted.

Advice at the outset is crucial. 

If this concerns you because you are uncertain whether your hobby is taxable or not read our other blog item here -  When is your hobby taxable? 

The Chancellor, George Osborne, opened his Summer 2015 Budget on 8 July 2015 with “A bold budget…with big ambitions”, then followed with “we shouldn’t go faster, we should go slower”. So what are we to make of this bold but slow Budget?

Osborne set out Parliament’s intentions to tackle tax evasion and other tax non-compliance by extending HMRC’s resource; a total of £60m to pursue more criminal investigations into wealthy individuals, those with net wealth between £10m-20m with the aim of raising £600m in tax, a £300m fund for the non-compliance by small and mid-sized businesses, public bodies and affluent individuals with the aim of raising over £2bn in tax, and a further £36m to take on serious non-compliance by trusts, pension schemes and non-domiciled individuals.

The aim is for to be nowhere for the tax evader to hide, and the government will require accountants and tax advisers, along with “financial intermediaries”, to notify their clients about the penalties for tax evasion and the various options available for full disclosure of all tax irregularities to HMRC (the Common Reporting Standard).

The agenda on evasion was set a number of years ago – and now Osborne has put some financial muscle behind the strategy.

In addition to this backdrop of making sure we all pay the right amount of tax, there were changes in tax rules for business and individuals which could affect you, see below for more details.

Please call us on 01425 656 440 or 01202 516 688 if you’d like to talk through any of the Summer Budget announcements.

Individuals

Tax Lock -  There is to be a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and NICs rates, ensuring that they cannot rise above their current (2015-16) levels.

Personal allowance increase – An increase the income tax personal allowance from £10,600 in 2015-16 to £11,000 in 2016-17. It will increase to £11,200 from 2017-18.

Higher rate threshold increase – An increase in the higher rate threshold from £42,385 in 2015-16 to £43,000 in 2016-17 and to £43,600 in 2017-18.

Dividend taxation – The abolition of the Dividend Tax Credit from April 2016 and the introduction a new Dividend Tax Allowance of £5,000 a year.  The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Landlords

Reform of the Wear and Tear Allowance – From April 2016, the government will replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets. There will be a technical consultation before the summer.

Restricting finance cost relief for landlords – A restriction of the relief on finance costs for individual landlords of residential property to the basic rate of tax. The restriction will be phased in over 4 years, starting from April 2017.

Increasing the level of the Rent-a-Room relief – An increase in the level of Rent-a-Room relief from £4,250 to £7,500 from April 2016.

Business

Increasing the employer NIC Employment Allowance – An increase in the annual Employment Allowance from £2,000 to £3,000 from April 2016.

Corporation tax rates – A reduction in the corporation tax rate from 20% to 19% in 2017 and 18% in 2020.

Annual Investment Allowance (AIA) – An increase in the permanent level of the AIA from £25,000 to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.

Dividend taxation – The abolition of the Dividend Tax Credit from April 2016 and the introduction of a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Research and development (R&D) tax credits: universities and charities – The correction of an anomaly in the R&D tax credits legislation so that universities and charities are unable to claim the R&D Expenditure Credit (RDEC), in line with the original intention of the policy. This will apply to expenditure from 1 August 2015.

Restriction of corporation tax relief for business goodwill amortisation – The government will restrict the corporation tax relief a company may obtain for the cost of ‘goodwill’ (the reputation and customer relationships associated with a business). This will affect all acquisitions and disposals on or after 8 July 2015.

Pensions

Lifetime Allowance for pension contributions – A reduction in the Lifetime Allowance for pension contributions from £1.25 million to £1 million from 6 April 2016. Transitional protection for pension rights already over £1 million will be introduced alongside this reduction to ensure the change is not retrospective

Reduced Annual Allowance for top earners – A restriction in the benefits of pension’s tax relief for those with incomes, including pension contributions, above £150,000 by tapering away their Annual Allowance to a minimum of £10,000. This policy will come into effect from April 2016. And a consultation on whether and how to undertake a wider reform of pensions tax relief.

Non- domiciles

Eligibility of non-domicile status for UK born individuals – From April 2017, individuals who are born in the UK to parents who are domiciled here, will no longer be able to claim non-domicile status whilst they are resident in the UK.

IHT on UK residential property of non-domiciles, including non-domiciles who are not UK resident – New legislation to ensure that, from April 2017, IHT is payable on all UK residential property owned by non-domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure.

IHT and non-domiciles – The government will bring forward the point at which an individual who is classed as a non-domicile is deemed domiciled for inheritance tax purposes to 15 out of 20 years. It will also treat individuals who were born in the UK to parents who are domiciled here, as UK domiciled whilst they are in the UK. This aligns inheritance with the changes to the income tax and capital gains tax regime, taking effect from April 2017.

Inheritance tax and Trusts

IHTand the main residence nil-rate band – An introduction an additional nil-rate band when a residence is passed on death to direct descendants.  This will be £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21. It will then increase in line with CPI from 2021-22 onwards. Any unused nil-rate band will be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants. This element will be the subject of a technical consultation. There will also be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

IHT and the nil-rate band – The inheritance tax nil-rate band is currently frozen at £325,000 until April 2018. The government will continue to freeze the nil-rate band at £325,000 until April 2021.

Cash in bank accounts will only be protected up to £75,000 if a bank collapses, down from £85,000 currently

Cash in bank accounts will only be guaranteed by the government up to a limit of £75,000 from January 1, 2016, the Bank of England's Prudential Regulation Authority has said, down from the current limit of £85,000.

The guarantee is used by savers when a bank or building society collapses. The level of deposits covered by the scheme was increased in several stages through the financial crisis to reassure savers their money was safe, in a bid to avoid bank runs. This is the first time the level of protection has been cut since the credit crunch.

The Treasury-backed Financial Services Compensation Scheme refunds those who lose money, and the cash is later recouped from the rest of the banking industry. Savers called on the protection when Bradford & Bingley failed, and when the Icelandic banks crashed.

Britain's deposit guarantee is set in line with the €100,000 guarantee for depositors across the European Union, a limit set in 2010. But the government reviews this level every five years, and the strength of the pound against the euro means €100,000 translates more closely to £75,000.

The level of deposits covered by the scheme was increased in stages "HM Treasury has today put in place legislation to maintain the existing limit of £85,000 until 31 December 2015 for depositors who were previously protected by the FSCS and continue to be protected (including individuals and small companies)," the Bank of England said. "This transitional measure helps to ensure that depositors have suitable time to plan for and adjust to the change and will protect most depositors from experiencing a sudden change in the amount of compensation available in the event of the failure of a bank, building society or credit union."

Before 2007, only the first £2,000 was completely protected, as well as 90pc of the next £30,000. But as customers of Northern Rock panicked at the start of the financial crisis, the government introduced a complete guarantee on deposits of up to £35,000 to stem the run on the bank. The guarantee was then raised to £50,000 in 2008 and to £85,000 in 2010, along with the €100,000 guarantee across the European Union.

Temporary protection - Bank or building society customers who come into a large sum of money are also given an extra degree of temporary protection. "Depositors with temporary high balances will be covered up to £1m for six months from the date on which the money is transferred into their account, or the date on which the depositor becomes entitled to the amount, whichever is later," the Bank of England said. "This is to ensure that depositors are protected when they deposit funds over the limit as a result of specified events, including following a house sale or funds received from a ‘life event’ such as a divorce settlement or inheritance, for a period of time until they have had sufficient time to spread the risk between institutions to appropriately protect these funds."

Article from the Telegraph 03/07/15

HMRC has had to divert £45m of cash to fix its call centre systems after millions of calls went unanswered last year.

Figures reveal 10.5m calls went to an answering machine while 7.4m customers hung up in frustration at being left on hold. Paul Aplin, of the ICAEW, said: “Telephone response times have been getting steadily worse and have reached totally unacceptable levels. It took me 40 minutes to get through earlier this week. It's good that HMRC has acknowledged the scale of the problem and that it has allocated 3,000 extra people to the task. But it's essential that this resource remains in place long-term. Until we see things improve, customers should look to use the online services instead wherever possible.” Patrick Stevens, at the CIOT described the situation as alarming, adding: “We have previously voiced concern that the closure of the walk-in inquiry centres would increase the strain on HMRC's call centres.”

The Office of National Statistics has revealed some interesting statistics on the UK's share of tax and benefits for rich and poor.

Over half (51.5%) of British households received more in benefit from the State than they pay in taxes, according to the ONS, while the richest fifth of Britons pay 43.7% of the nation's tax.

The richest fifth of households had an average income of £80,800 in 2013/14 before taxes or benefit from welfare and public services while the poorest fifth had £5,500. But after tax and benefit is taken into account, the figures change to £60,000 and £15,500 respectively.

The poorest fifth of households paid 37.8% of their income in taxes last year, while the richest fifth paid 34.8%.

In the first year of the coalition the figures were 38.2% and 33.6% respectively.

The retail industry has warned that over 80,000 shops face closure by 2017 unless the Government drastically overhauls the business rates tax system.

The findings are the result of a comprehensive study of the tax by the British Retail Consortium, based on retailers not renewing their leases on the 60% of high street stores that will see their rental agreement expire by 2017.

Business rates are estimated to bring in £28bn for the Treasury this year, but there are growing concerns about the burden of the levy and that it disproportionately punishes retailers with shops across the country. The BRC is pressing the Chancellor to extend relief for small businesses, scrap the annual inflation-linked increase in the tax, and conduct valuations of property every three years instead of every five.

Source:   The Sunday Telegraph (14/06/2015)

Research by the law firm RPC shows payments made by HMRC to informants who raise the alarm on suspected tax dodgers have hit a record high.

It found the Revenue paid out £605,000 in rewards to whistleblowers in the year to the end of March, up from £402,000 in the previous year. Increasing public awareness of tax evasion is said to have prompted a surge in information, but Adam Craggs, tax partner at RPC, pointed out that HMRC does not widely publicise the payments it makes to informants. “If too many people know that they can get paid for information supplied to HMRC they may be less willing to provide it for free,” he stated.

A report by the director of Tax Research, Richard Murphy, for the PCS union found that tax evasion in UK was expected to reach £85bn in 2014-15, with another £40bn lost to non-payment or avoidance.

Source: Daily Mail (15/06/2015)

HMRC has relaxed its conditions for accepting appeals against late filing penalties for self-assessment tax returns.

This change in practice was first highlighted by The Telegraph who obtained a leaked memo from HMRC. The HMRC position was finally confirmed on 5 June 2015 after huge amount of press coverage on the issue.

The fact is HMRC doesn’t have the sufficient resources to check in detail every reasonable excuse offered for a late tax return, so from now on it will accept those excuses on face value if all of the following conditions are met:

• The penalty relates to the late filing of a 2013/14 SA tax return, not to returns for earlier tax years and not for returns relating to any other taxes
• The 2013/14 SA return must now have been received by HMRC
• The tax due for 2013/14 must have been paid
• This means that taxpayers who submitted their appeals on time, and included a reasonable excuse for lateness, should get their late filing penalty cancelled. Is that fair?

It may be fair in respect of the 2013/14 tax returns, but it is not consistent or fair in respect of late filing penalties for earlier tax returns.

Philip Fisher points out that HMRC have widened the scope of what they will accept as a ‘reasonable excuse’ from only the most extreme of circumstances such as death, fire or flood to this list that includes:

• Computer failure
• Service issues with HMRC online services
• Postal delays

Cases challenging late filing penalties for earlier years are still working their way through the courts. The recent case of Brian Higgins is a typical example of a taxpayer who had ‘service issues with HMRC online services’ as the required authorisation code for his tax agent didn’t arrive from HMRC in time. However, the Tribunal upheld Brain’s late filing penalty.

As HMRC now accept that a problem with its online service as a reasonable excuse for late filing (without further investigation), would it not be equitable to cancel any outstanding late filing penalties where that excuse has been given in the past?

HMRC say they won’t accept any further appeals against penalties for late filing of 2013/14 SA returns, as the 30 day period has now closed. However, the First-tier Tax Tribunal may accept a late appeal, although that would mean the taxpayer has to incur the cost and worry of taking his case to the Tribunal.

The change in HMRC practice over SA late filing penalties will be extended to RTI late filing penalties, with further details to be announced by HMRC later.

Posted by Accounting Web Monday, 08/06/2015

Guernsey's Chief Minister has called for the island to be removed from a new European tax blacklist. The European Commission list features 30 non-EU jurisdictions it has branded "non co-operative".

Each country on the list, including six British overseas territories, was nominated by 10 members of the European Union.Deputy Jonathan Le Tocq said he believed that the list used outdated and arbitrary criteria. Chief Executive Officer of the States of Guernsey, Paul Whitfield, said: "The fact is, it is technically inaccurate, it is not factually correct and we need to address it quickly.

"It is well known Guernsey meets every international standard on tax-transparency and co-operating including the European Commission's own standards."I think this is just a lack of understanding about our constitution."

The European Commission asked each member state to nominate non-compliant nations

Non-compliant countries

Andorra, Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Brunei, Cayman Islands, Cook Islands, Grenada, Guernsey, Hong Kong, Liberia, Liechtenstein, Maldives, Marshall Islands, Mauritius, Monaco, Montserrat, Nauru, Panama, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Seychelles, Turks and Caicos Islands, US Virgin Islands, Vanuatu

Guernsey is the only crown dependency to be included on the list. The United Kingdom and Ireland did not nominate any countries for inclusion on the list. The island was listed as non-compliant by Belgium, Bulgaria, Croatia, Estonia, Greece, Italy, Lithuania, Portugal and Spain. Poland listed Guernsey but only because of Sark.

Andrew Whittaker, a spokesman for the Guernsey International Business Association, said: "Blacklists are very difficult to talk to investors about and when you've been on one you have to make a song and dance about getting off it."

Vanessa Mock, European Commission spokesperson for Taxation and Customs said the list is based on data from European nations and will be updated annually.

We will watch these developments with interest. 

Article courtesy of BBC linked here.

Thousands of online sellers who use websites such as eBay, Etsy, Amazon and Gumtree are the focus of fresh attempts by HM Revenue & Customs to crack down on tax evasion, Telegraph Money has disclosed.

Such websites are being forced to hand over customer account details, including their selling activity, as part of the Revenue’s legal powers that were extended last year.
This type of information gathering has enabled the taxman to target 14,000 individuals it suspects of failing to declare profits on their self-assessment tax returns, the Revenue confirmed.

Using extensive new powers introduced last year, HMRC can download people’s account information and even force sellers to pay tax that is disputed or subject to an inquiry.

The Revenue raised more than £9m in tax as a result of the earlier campaign, with one eBayer who turned over an undeclared £1.4m in six years handed a two year prison sentence. John Woolfenden failed to pay almost £300,000 in tax on his DVD and games business, in a high-profile case designed to put off would-be evaders.

People who register their account as a “business seller” on websites such as eBay or Amazon are among the likely targets. The Revenue has sent 14,000 letters to traders suspected of running a business and failing to declare this on their tax returns. Of these, 1,000 letters are being sent to people where the taxman has already identified a shortfall on their self-assessment forms.

Some of those targeted make as little as £100 profit online, Telegraph Money has learnt. However small, any earnings above an individual’s tax-free personal allowance – £10,600 for the 2015‑16 tax year – are taxable if the money made is considered a business profit.
In one letter seen by Telegraph Money, received in April, an eBay user is told: “HMRC receives information about fees paid by you from the e‑marketplaces you use and is aware you were registered as a business seller. HMRC thinks you should have declared more on your tax returns than you did.”

There are several traits that mark you out as a business in the eyes of the taxman, known as the “badges of trade”, listed below. Just one of these could be enough to show that you are trading.

If you are concerned about your own circumstances, please get in touch. 

The nine ‘badges of trade’

1. Is your primary motive to earn a profit? If HMRC thinks you intended to make money, rather than selling items for fun, your selling activity is considered to be a business.
2. The number of transactions matter. If you repeat very similar transactions in a short period of time, this might be considered a badge of trade.
3. What type and quantity of goods are you selling? Are you buying so many that you profit from an economy of scale? Did they yield an income while they were in your possession? To demonstrate that your selling activity is a hobby, you may need to prove the goods gave you “pride of possession”, for example, a picture for personal enjoyment.
4. If your online transactions are similar to an existing type of business, such as a clothing retailer or specialist collectables seller, this may be used by HMRC as evidence that you are trading.
5. If you modify items before selling them, again this is a badge of trade. Ask yourself: do you repair, alter or improve items to make them more saleable and, therefore, achieve a greater profit?
6. How did you carry out the sale? If you sold an item in the same way as a shop or auction house – where customers agree to buy something at a fixed price – you could be classed as a business. This is known as an “undisputed trade”.
7. If you borrowed money to buy an item, especially if this loan could be repaid only by selling the items again, this is evidence of trade.
8. The period of time between when you bought the item and sold it again will be looked at by HMRC. Any assets that are the subject of trade will normally, but not always, be sold quickly. This suggests that you only bought an item with the intention of selling it. By contrast, an asset that you bought with the intention of owning it, but then decided to sell after a period of time is much less likely to be suspect.
9. How did you acquire the item? If you received something as a gift, or an inheritance, you’re far less likely to be seen to be running a business when you go on to sell.

As you may have read recently, Chancellor George Osborne has said that he will deliver a new Budget on 8th July.  He has claimed it will have “a laser-like focus” on raising productivity and living standards.

Expected or possible changes

There is much speculation online about the likely changes, with general agreement that we will see cuts in welfare spending, changes to tax relief on pensions, more on ‘tax avoidance’ and amendments to AIA.
 
After the budget in March, the Institute for Fiscal Studies (IFS) said that Mr Osborne needed to spell out exactly how he plans to cut £12bn from welfare spending.
 
Another area of anticipated changes is a reduction in tax relief on pensions.  Some advisors are urging clients to put as much into pensions as possible before the Budget. 
 
Tax avoidance – Mr Osborne has said “We’ll crack down hard on tax avoidance and aggressive tax planning by the rich – because everyone should pay their fair share.” So it’s possible we might receive clarification on plans for a new criminal offence for accountants and others who abet tax evasion.
 
Annual Investment Allowance (AIA) - In his Autumn Statement, the Chancellor indicated that rather than reducing to £25,000, this would go up.  At the time he didn’t say to what level, so this may also be confirmed on 8th July.
 
VAT – If the threads from other accountants on Accounting Web are anything to go by, there is a strong possibility that the VAT rate may go up.

if you use our app you will find that the amendments take place shortly after the changes take place.  If you've yet to download from the app store take a look at our app page on how to do so.

As always if you have any questions or queries please do not hesitate to get in touch.

Nestled in the heart of the local farming community this article from Farming UK may interest some.

As the country settles down following the turmoil of the general election, Andrew Vickery, head of rural services at accountant Old Mill, examines what the new Government will mean for the farming community.

Farmers might be breathing a sigh of relief that we now have a Conservative government: While not everyone will agree with all their policies, generally speaking the Tory leadership should be good for small businesses. On the whole, rates of tax were relatively benign under the Conservative-led coalition, and we’d hope that the next five years will be an extension of that.

It looks like there will be some tinkering with Income Tax rates, but no huge changes; and that stability should be beneficial for business. There is also consistency in agricultural policy: Liz Truss remains as Defra secretary and we should now see some pragmatic and decisive action over rolling out the badger cull to tackle TB.

Of course, there will be one major volatile event – the EU referendum, which is scheduled to take place before the end of 2017. In the run-up to the vote, there is bound to be considerable uncertainty, but for farming the impact, from a business-planning perspective, should be relatively small.

However, the implications of the UK exiting the EU are considerable. Agricultural subsidies are critical to farm incomes, and it seems likely that they would fall considerably should we leave the EU. Environmental stewardship agreements may also have to be revisited, although it’s likely that existing agreements will be honoured.

Extending farmers’ averaging to five years will help ease the volatility of farm incomes, but the devil is always in the detail when it comes to specific fiscal announcements. George Osborne has hinted that the Annual Investment Allowance won’t fall as far as the £25,000 default – but it may well be cut from the current level of £500,000.

It would be useful if that allowance were extended to cover buildings and other infrastructure items that currently receive no income tax relief. That would drive UK investment and create domestic jobs, rather than simply pouring farmers’ money into machinery, much of which is manufactured abroad.

Inheritance Tax is often a big issue for landowners, and the Conservatives have promised to increase the tax-free threshold to £1m for couples passing on their family home. There has been a considerable attack on the level of Agricultural Property Relief available to farmhouses in recent years, so this change could be extremely helpful.

However, it remains to be seen whether HMRC will ease up its assault on Agricultural and Business Property Relief: There is still a budget deficit to reduce after all, and as land and property values increase so does the value of the tax reliefs available. One would hope that HMRC will be more benign under a Tory government, and it would be useful to landowners if the new Inheritance Tax band were extended to capture let properties as well as the main family home. Only time will tell.

Article courtesy of Accounting Web. An interesting overview on the possible decline in company cars and a guide on options if this is something you are considering. 

Last year, we wrote about how company cars were being "taxed out of existence". Now, we delve deeper to find out if this really is the case, and to provide an update on the finance options companies can go for if and when considering a car.

Rachael Power asked Alastair Kendrick, employment tax director at MacIntyre Hudson, for his take on this.

Essential company car users

There are two types of company car users: Essential and perk. Employers have a responsibility to certain employees under duty of care legislation.

These would be employees racking up huge mileage, for example, travelling salespeople, Kendrick said.

Employers have a duty of care to employees doing heavy mileage to look after their driving and wellbeing as essentially, the car becomes an extension of the workplace to the driver.

"It goes without saying, it would be eminently essential for such a user to have a company car.

"If for example you have an accident or if there is some issue with the vehicle - if they are in their own car, it is difficult for the employer to gain the comfort that it is fit for service," he said.

What kind of car?

When providing a company car to an essential user, it needs to be fit for purpose. Therefore as one user on UK Business Forums has suggested, it's hard to believe a classic car is the best option.

Employers need to ensure the car they provide is of a comfortable size for the type of driving employees are doing and that it's comfortable, with a sensible engine size.

How to fund the car?

Funding the car is very much dependent on some basic factors, according to Kendrick:

Are they cash rich?
Could they buy the vehicle or would they rather lease?
If purchasing the car, could they bear the residual risk when the car is disposed of?
Contract hire

Looking at the UK, around 80% of employers who provide company cars do so under contract hire.

This method is simple, however it's not always the best, Kendrick warns, as it will be drawn over estimated mileage. If employees incur more than that, there’s a penalty on the excess. If they go under, the car has higher residual risk but employer doesn’t own the car so there is no share in the profit of that.

In some circumstances, contract hire works well if you have VAT recovery, as you will get 50% VAT relief, Kendrick advised. But if you’re in a business that doesn't get VAT relief then contract hire "isn’t really for you."

If you are considering opting for an expensive car, for example above £25,000, contract purchase is a better option.

In this case they will not get VAT recovery, but will get greater tax relief. If they outright purchase the car, it is on balance sheet and the employers bear risk when they sell the car.

Finance lease

With the finance lease, the employer bears the risk on balance sheet.

Be wary when talking to leasing companies, Kendrick urged, as they will sell what works for them not the customer. In addition, get proper independent advice on the funding method the company has modeled as they may not always be impartial.

He said: "Once you’re in a lease you are trapped for the duration, so once you have taken the decision how you fund you are trapped."

Perk car users

Usually, perk users are dealing with a more expensive car, upon which taxation is increasing. This coupled with employer surveys showing that these kinds of company cars may not be as appreciated by the employee as expected, are leading employers to ask whether they instead should provide a cash alternative.

Kendrick argued that this however can be costly and not just in terms of the money paid out. For example, if a company has a sizeable fleet and is potentially getting a discount from a manufacturer or vendor, then you may lose this if you cut back.

If employers do go for a cash option, employers need to ensure they get the figures right. This is because when you offer cash to employee, if the figures don’t tie later, employers can't backtrack and change it.

Hybrid/energy efficient cars

Kendrick said that hybrid/low emission cars are good for a company's green statement, but it isn't a cheap alternative.

Some leasing companies are costly when it comes to these cars, as they are nervous over what value the vehicle will have at the end of the lease period.

"This is because the area of alternative fuels is developing and there is uncertainty over whether where we are now is where we will be tomorrow," Kendrick added.

Some companies offer a low C02 diesel car as a "next best thing" alternative. However other companies that have a bit of cash to spare, with for example, a chairman who wants an electric car, tend to buy one to add to its fleet but don't make it generally available.

Why are they on the decline?

A survey carried out by the Revenue in 2004/5 showed that 1.2m company cars were on UK roads. This figure went down to 970,000 in 2009/10 but another survey hasn't been carried out since.

Factors that may have led to the decline in the number of cars on the road, he added, are advanced technology and greater connectivity meaning less salespeople, for example, have to travel. Another factor is a re-think of policy by some companies in providing a cash alternative. In addition, the tax take on company cars was 1.25bn in 2004/5, down to 1.16bn in 2009/10.

"It will be interesting to see where the next report brings it to," Kendrick said.

if you are interested in discussing your options further please do get in touch. 

The Chartered Institute of Taxation: Campaigners call for a return to fairness and proportionality over HMRC penalties – LITRG Press Release

The LITRG (Low Incomes Tax Reform Group) has encouraged HMRC to ensure that their penalties system better recognises the difference between occasional error and deliberate non-compliance.

The group has responded to an HMRC consultation which seeks to make the tax penalty system more reflective of taxpayer behaviour. Currently, there are some penalty regimes – the automated self-assessment penalty regime in particular – in which a taxpayer who makes a genuine mistake is penalised as heavily as one persistently delaying their return or paying what they owe.

LITRG’s nine recommendations include making better use of existing safeguards, as well as adjusting processes so that the likelihood of taxpayer error, and hence the need for penalties, is reduced.

Anthony Thomas, Chairman of LITRG, said: “HMRC’s stated wish in carrying out this consultation is to ‘better differentiate between deliberate and persistent non-compliers and those who might make an occasional error for whom alternative interventions are more appropriate’. We are in full agreement.

“The review of HMRC powers that took place between 2005 and 2009 drew the important distinction between failure to take reasonable care, which attracted a penalty, and innocent error despite taking reasonable care, which did not. It also made clear the different standards of ‘reasonable care’ expected from, say, a tax adviser or accountant than from an individual with no experience of the tax system and/or poor literacy or numeracy skills.

“Unfortunately the automated self-assessment penalty regime for late filing and late payment has lost sight of both of those principles. It is time to re-introduce a sense of fairness and proportionality into the system.”

HMRC also emphasised their commitment to use digital technology to improve the operation of the penalty system. Anthony Thomas commented: “We agree that improved digital services should make it possible for compliant taxpayers to get things right all, or nearly all, of the time – but nobody should experience an inferior service from HMRC if they lack access to, or are not competent in using, online services. It is also naive to assume that proportionality and fairness can be achieved solely by reliance on digital systems – in any behaviour-based system there will always be the necessity for the exercise of human judgment.”

The auction of spending promises is over, and the next government will now have to find ways of paying the bills.

With higher taxes a taboo for any campaigning party, a prominent theme for all of them has been the populist pledge to crack down on tax dodging. The Conservatives promised to raise a further £5billion, Labour £7.5bn, the LibDems £10bn, and the Greens a mind-boggling £30bn. But how can they do it?

James Browne, senior research economist at the IFS, has criticised all three main parties for using figures "plucked out of thin air....to make sure all their sums add up".

Since 2010, the tax system has become even more complex and open to gaming, while HM Revenue & Customs has been criticised for failing to use its powers.

An investigation by the Public Accounts Committee, chaired by Labour MP Margaret Hodge, concluded in March that a significant obstacle was the "too cosy"relationship between HMRC and the big accountancy firms which promoted tax avoidance schemes to wealthy clients and companies.

Those big firms, of course, lure many of HMRC's brightest brains to become gamekeepers turned poachers.

MPs said the taxman was not doing enough to pursue serious evasion, and criticised the"tax avoidance industry" of accountants, advisers and lawyers, "making lucrative business out of designing and selling ways for clients to avoid tax".

Mrs Hodge said: "HMRC needs to change the perception that it is far too tolerant of these companies and individuals - in contrast to its treatment of small businesses and the majority of the public who pay taxes through PAYE."

The Labour MP had previously highlighted how political parties get "inappropriate" support from the big accountancy firms including PwC, said in the report to be the biggest promoter of avoidance schemes, which has provided seconded advisers to both Tory and Labour shadow ministers.

But the committee also warned that only a simplifying of the UK's horrendously long and complex tax code would begin to root out evasion. Tax reliefs have increased during the past five years by over 100 to 1140.

The report concluded: "Tax reliefs add to the complexity of the system and may be exploited as a way of avoiding tax. HMRC does not effectively monitor changes in the cost of tax reliefs so is slow in identifying instances where a relief is being exploited for a purpose Parliament did not intend."

Mrs Hodge said: "HMRC could collect more of the tax that is due if it had more resources devoted to this work and it should be assertive about making this case to HM Treasury and Parliament."

Avaaz, an online campaign group, is this month threatening to ask for judicial review of HMRC's policy of offering amnesties to wealthy bank customers such as those known to have secreted assets in Swiss banks.

Despite being given a leaked database of 3600 HSBC customers in Geneva five years ago, the tax agency has brought only one prosecution.

Avaaz has asked HMRC to explain why it has deployed the Liechtenstein Disclosure Facility (LDF), which allows tax dodgers to pay the tax avoided plus a 10 per cent fine, and avoid prosecution, rather than use powers allowing fines of up to three times the sum due.

The LDF involves individuals moving their money to banks in Liechtenstein, which certify them and disclose them to HMRC, and also allows them to escape any pre-1999 assessment.

The group claims HMRC has foregone large sums in penalties and lost the opportunity to bring criminal prosecutions that would act as a deterrent, because in the HSBC case the evaders' identities were already known so an amnesty for unknown dodgers was unnecessary.

The public accounts committee also questioned whether deals such as the LDF were too generous to those whose wealth can be stashed away in tax havens.

Mrs Hodge, ironically, has admitted that she herself has benefited from the LDF, when shares were transferred to her in 2011 following the winding-up of an offshore family trust which held a £7.7m stake in the company run by her brother.

HMRC has said 1100 HSBC customers settled using the LDF, that its amnesties have been highly efficient in avoiding costly legal action, and that since 2010 its clampdowns have raised £100bn in extra revenue.

It says: "We have shut down marketed avoidance schemes, closed loopholes, secured tough new enforcement powers, and opened up international information exchanges so rich evaders will have no safe havens where they can hide their money."

Labour promised in its manifesto that both the Chancellor and the HMRC chief executive would in future present an annual report to Parliament, and give evidence to the Treasury select committee, on the government's progress in tackling tax avoidance and evasion.

But Paul Johnson, director of the IFS, said tax avoidance arose because "we charge tax at different rates on capital gains ... we have a national insurance system which provides a big incentive to take money other than in earned income and we tax corporate income in all sorts of different ways....that's why we are continually putting sticking plasters on."

Commentary comes courtesy of Simon Bain Herald Scotland

Business failures and personal insolvencies across England and Wales fell in the first quarter of the year, with a faltering GDP growth rate showing no sign of creating further economic casualties the Times reports (30/04/15).

Business failures are at their lowest level since just before the banking crisis at the end of 2007, while personal insolvencies have sunk to a level not seen for 14 years the Insolvency Service said.

Only 4,052 companies were declared insolvent in the 3 months till March 2015, down 1.3 per cent on the previous quarter and down 11 per cent on the same period in the previous year. 

With an impending Election we wait to see how the next quarter fares. 

An independent group of tax professionals should report annually to parliament on whether new legislation complies with the rule of law, the Law Society’s tax committee recommended this week.

Publishing a position paper on tax and the rule of law, committee chair Gary Richards said that ‘legislative hyperactivity has become a permanent feature of our government’.

Last month, the committee, responding to a government consultation on strengthening sanctions for tax avoidance, said proposals for tougher penalties against serial users of disallowed tax avoidance schemes were premature and could threaten fundamental rights such as that of appeal.

The committee suggested this week that a new tax charter would set out principles relating to the rule of law and should include taxpayers’ right to access the courts.

Retrospective taxation was a ‘clear example of the breach of the rule of law’ and any form of legislation that took effect on a date before parliamentary procedures had been completed should be avoided, the position paper says.

The committee recommends that a protocol on unscheduled announcements of changes in tax law should be amended to set out the ‘wholly exceptional’ circumstances in which legislation that takes effect before the date of its announcement could be acceptable.

Proposals to allow HM Revenue & Customs to recover tax debts directly from bank accounts and to introduce a strict liability criminal offence for failing to declare offshore income should become law only if the legislation itself contains safeguards.

While the government’s adoption of a tax consultation framework in 2011 was welcomed, the committee said the five-stage consultation process was not always followed and was sidestepped by labelling a new tax measure as anti-avoidance ‘when it is no such thing’.

The Finance Act 2014, for instance, introduced changes to the way in which ‘disguised employee’ members of limited liability partnerships were taxed.

The committee said: ‘When this proposal was first published, it was an anti-avoidance measure. Following initial consultation, the nature of the proposal changed markedly and became more widely applicable to professional partnerships. This was not anti-avoidance legislation but, nevertheless, there was no formal consultation of the kind envisaged by the [framework].’

The committee recommended the framework be placed on a more formal, perhaps statutory, footing. An independent panel of advisers should also be established to advise the Treasury select committee on any proposed legislation.

Read article directly from the Law Gazette

This article was taken from the Telegraph dated 08/04/15

Savers cashing in their pensions have been unable to establish the tax charges because the HM Revenue & Customs helpline is too busy.

These emails and those like them pop up from time to time, even in our own inboxes.  Please be aware HMRC well never contact you by email, only by post so please ignore these, they are often malicious phishing emails designed to access your personal information.  

Report suspicious emails to HMRC directly follow the link here www.gov.uk