HMRC Tax Investigations officials are entitled to investigate a tax return after the usual one-year limit has passed if their discovery assessment letter meets one of two tests, according to a recent Court of Appeal ruling that reaffirms a long-established power for the taxman.

Derek Hankinson v HM Revenue & Customs focused on whether HMRC used a section section 29 of the Taxes Management Act 1970 correctly when it investigated the taxpayer’s Self Assessment return for the 1998-99 tax year – six years after it was filed.

In 2005 HMRC assessed Hankinson’s tax return for 1998-99 and concluded he owed £30m in income tax and capital gains tax for the year because he was still a resident in the UK for tax purposes, despite having moved to the Netherlands.

Hankinson lost appeals against HMRC’s assessment of his tax liabilities in the first-tier and upper-tier tribunals.

In the Court of Appeal Hankinson challenged HMRC’s use of section 29 that was used to investigate his tax return for 1998-99.

HMRC usually has one year after a Self Assessment tax return is delivered to challenge and investigate it.

Under section 29 of the Taxes Management Act 1970 (at the time of the case), however, HMRC can investigate tax returns after the one-year window by sending a discovery assessment letter if one of two conditions apply. Firstly, the full and accurate facts were not available to HMRC officers due to incomplete disclosure, negligence or fraudulent behaviour by the taxpayer or agents; secondly the HMRC officer completing an enquiry could not have reasonably been expected to have been aware of the loss of tax.

In a judgment published in December last year Lord Justice Lewison concluded that HMRC’s use of section 29 was valid.

PAYE Tax Codes continue to be a problem. The upper limit for collecting tax debts via a taxpayer’s PAYE code has been increased from £2,000 to £3,000, by regulations that took effect from 20 July 2011. However, it appears that these regulations do not work in quite the fashion that HMRC thought they would, which is a worrying development.

The PAYE underpayments shown on forms P800 for 2010/11 will automatically be coded out in a taxpayer’s 2012/13 PAYE code, where the debt is less than £3,000. However, the new upper limit of £3,000 does not apply to balancing payments arising from a self-assessment for 2010/11. This is because the tax debt regulations were drafted too late to amend the programming for the 2010/11 self-assessment tax returns, brilliant isn’t it?

Tax underpayments arising from self-assessment returns for 2010/11 will only be automatically included in a PAYE code for 2012/13, where the amount owing is less than £2,000, and the return is submitted by 30 December 2011. However, HMRC is trying to be flexible on this point and will allow balancing payments of between £2,000 and £3,000 to be coded out if you request this treatment. To arrange this facility you need to contact HMRC before 30 December 2011

Note that if you have already made arrangements to pay the tax due by instalments under a payment plan, those arrangements cannot be overridden by a coding-out request – TAX DOES HAVE TO BE TAXING

Following a recent case in the First Tier Tribunal, a potential National Insurance Contribution (“NIC”) refund could be due to you as an employer and to your employees if you:

• pay a business mileage payment of less than 40p per mile

• pay a lump car sum allowance to your employees for the use of their own private vehicles

• have retained records to verify the business mileage

• there is no direct link between the lump sum car allowance and salary

Refunds can extend back six complete tax years and run into thousands of £’s – so what do you need to do now?

Contact us today on 0800 917 9176 to register your interest – no protective claims are necessary at this stage – it’s just a ruse by some organisations to make you panic but don’t be fooled, SIMPLY contact us on 0800 917 9176

Well we have a date for the emergency Budget and that is 22 June 2010, but what can we expect:

• Increases in employees national insurance contributions, but not employers NIC
• Increase in the rate of Capital Gains Tax to probably 40%
• VAT rate to increase from 17.5% to 20%
• Increase in the level of PAYE/NIC compliance checks
• Increase in the personal allowance level to nearer the £10,000 mark
• A crack down on tax evasion, albeit HMRC cannot seemingly tell the difference between this and tax avoidance – the latter being perfectly legal

The Government has indicated that most of the initial debt reduction will come from spending cuts rather than tax rises but we would recommend that you review all your employer compliance procedures with the help of an employment tax expert as they will be seeking extra revenue from basically whereever it can get it from – so call us today on 0800 917 9176 and see how we can save you money

There are still a number of individuals and companies out there that think the Inland Revenue won’t pursue them to the ends of the earth regarding tax debts – you need to wake up, seriously!

HMRC compliance visits and tax investigations take on real significance when you focus on HMRC’s mission to maximise tax take, as such its stated litigation settlement strategy (LSS) aims to push for a full settlement or court action if it believes it has a better than 50/50 chance of winning.

Now the issue is always the fact that HMRC have deep pockets when it comes to arguements, you only have to look at some of the employment status cases that have taken 3/5 years to conclude but the cost in terms of money, time and effort expended by HMRC (and delayed cash flow for the government’s coffers – this is most likely the issue) in pursuing these disputes is mounting.

Therefore some in HMRC are considering using a more “common sense” approach – can it be possible?

A new unit would split the dispute resolution unit from the anti avoidance division. The mission of the new unit would be to resolve the disputes more quickly; thus improving cash flow, even if the speedier resolution means a lower tax bill – I can’t see that being popular within HMRC, can you? So stick with the principle of getting things as correct as possible in the first place and if you’re not sure give us a call on 0800 917 9176 as a PAYE/NIC healthcheck could save your company, in more ways than one!

At last the results of the consultation exercise into false self employment in the construction industry have been published and we have summarised the more salient details below:

• Nothing is going to happen yet and nothing will happen until the industry picks itself up, certainly not before the Olympics in 2012

• The simplistic approach of the government having three tests has been widely criticised and they have conceded that further consultation will be required – no surprises there then

• There is also a lot of criticism that any simplistic approach away from case law is only being geared at the Construction Industry, what about other industry sectors?

• The government have indicated that they will look into organisations purporting to get round the rules such as umbrella companies, managed service companies and labour style agencies – this type of compliance is no bad thing as they are so blatantly flouting the rules and taunting HMRC (never a good idea for them or more importantly their clients)

• Interestingly, the Trade Unions aren’t happy as they could potentially see a lot of new members but the government proposals actually mean that although subcontractors would suffer PAYE/NIC they would not be regarded as “employees” but “deemed employees” which means that they would have no employment rights or benefits. This has been widely criticised because it would actually create “false employment” and the employment law side of this has not really been addressed

• There is a General Election due, probably around 6^th May, which could mean a different party in power. The Conservatives have not indicated that they will pursue what is effectively a witch hunt in the Construction Industry

So if you have self employed subcontractors and would benefit from an employment status review call us on 0800 917 9176

It’s obviously the season for HMRC penalty madness, whether it be in respect of the Construction Industry with CIS late filing penalties or self assessment penalties, half a rain forest is being wasted in incorrect paper penalties. However, HMRC have stated that it is no longer the computer that is at fault (I always mistakenly thought a human had to programme/operate a computer but no, they have a mind and life all of their own!), instead it is human error caused by a lack of following procedure. Now anywhere else and you would be questioning a) the training and b) the ability for a complete non review process before these penalties are sent out.

How bad can it be, well one poor sole in Cambridge obviously has an obsessive stalker in the form of HMRC as he received 52 envelopes from HMRC, each containing 4 letters demanding sums ranging from £100 to £3,000 (grand total £39,000).

The taxpayer is appealing the fines, which have been suspended pending a final decision.

HMRC told the Cambridge News:

“Incorrectly issued penalties are not the result of a system problem but failure to correctly follow procedure – this is being put right.“

HMRC almost on a daily basis have had to issue notes on their Tax Health Plan (strange term for what is a tax investigation programme into the medical profession, let’s have a spade is a spade). The latest is that dentists are to be included and they have been generous enough to say that other such professionals can come forward too – but not with the same protection regarding penalties etc – do they think people are stupid!

If you do have a problem then you need to take sound professional advice before you embark on a disclosure – you wouldn’t operate on a patient if you didn’t have the necessary training, so don’t dabble with this

One major concern that is shining through on this disclosure opportunity and the “incentives” being offered is why is it being restricted to the medical profession? You may think that this is HMRC’s project of choice at the moment so they are focusing on this – not so, fish and chip shops are right in the firing line but guess what no disclosure benefits for these people – something doesn’t quite sit comfortably with this – are we making moral judgements about who is honest and who isn’t by the profession they have chosen?

HMRC have made cutbacks and are still doing so, they have removed the personal contact with local offices to develop call centres (don’t we just love those, press 1 for yes – oh no it’s spreading) but HMRC have excelled themselves when it comes to the task of answering the phones.

Most companies have a policy of answering the phone within a certain amount of rings, not HMRC if latest stats are anything to go by – only 43% of calls were answered and if that wasn’t bad enough, in the child tax credit renewal period only a third of calls were answered. Now it’s easy to blame the staff but don’t – there aren’t enough of them, they are under pressure to limit call times (to the extent that they have been known to hang up if the call is “taking” too long – but think where that pressure is coming from), they are not trained well enough – client rings up on three separate occasions and get’s three different answers – you can’t rely on the advice from HMRC staff but perish the thought that you do and get it wrong. Tax enquiry, employer compliance review, tax investigation – you name it and it can and will happen

Quick question for you:

When is a Tax Health Plan, nothing to do with medical cover?

When it’s the name of a tax investigation programme against medical professionals. Yes HMRC are back looking at NHS Trusts and medical professionals in general but this time round what they have done is some pilot work to ascertain what monies they could make from such an exercise and then based on this rather then roll it out nationwide, as they have done in the past, they have instead gone for the THP route. Basically, it means that any individual who thinks they may not have declared all their income from sources such as referrals and commissions have a limited window to make a full disclosure to HMRC. HMRC have issued information notices to various private medical providers such as BUPA, Sun Life etc to obtain details of any payments made – so is this the way forward, small local pilot exercises followed by “disclosure” opportunities – perhaps but in the case of the medical profession, HMRC have a favourite target of theirs, whether it be employment status, home to work travel or expenses generally, very interesting when you consider the whole question of MPs expenses and HMRC’s apparent non interest!

Keep reading for further updates