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.

HMRC is to change its Pay As You Earn (PAYE) system to detect owed deductions on a monthly basis, rather than yearly, in a bid to make the system easier for employers.

Using Real Time Information (RTI), tax and deductions will be transmitted to HMRC each time an employee is paid, meaning employers will no long be required to provide information using forms P35 and P14 after the year end or to send p45/46 when employees start or leave employment.

The phased introduction of RTI will begin in April 2012 with an initial pilot. HMRC hope to increase the number of employers joining RTI during 2012-13 following the scheme’s success.

However some advisors and employers are being a tad nieve about the introduction of this, believing all they read. Please do not fall into this trap, the number of professional bodies that are urging HMRC to delay its introduction is huge but HMRC are beligerantly pushing ahead, which spells a recipe for disaster. Still not convinced, well don’t forget there are now in year business record checks and potential for in year penalties, to encourage you. If you need advice on this and more importantly a review of what you are doing to make sure you can handle this, call us today on 0800 917 9176

A new HMRC unit, the Offshore Co-ordination Unit (OCU), based in Birmingham, has written to tax advisers as part of its ongoing attack on offshore tax evasion. The unit recently sent out letters where HMRC believes that a tax adviser has clients who have, or have had, offshore bank accounts or investments. This is believed to be part of HMRC’s ongoing project into account-holders with HSBC in Geneva, following the receipt of stolen data containing details of UK taxpayers with accounts there. Further letters will be sent out in the coming weeks and months, as HMRC work their way through the information held.

The strongly-worded letters give tax advisers advance warning that HMRC will be contacting their clients (within a short time period). The letters indicate that the client will be given an opportunity to make a full disclosure in advance of HMRC starting an investigation into their tax affairs.

Advisers should treat any such letter seriously, and immediately contact their client. Those who have undisclosed liabilities need to act quickly, to prevent an intrusive HMRC investigation, or, potentially, criminal proceedings. Caution should be observed where the client claims to be compliant in relation to the offshore account to ensure that there are not any undeclared liabilities.

During a business records check (BRC) an HMRC officer will view the business records of the current accounting period and assess whether those records are ‘adequate’. In this context ‘adequate’ should mean the records are sufficient to compile accurate tax and VAT returns, but the BRC brief implies the HMRC officer will be looking for the following errors in the business records:

• Understated sales;
• Overstated expenses; and
• Private expenditure claimed as business costs.

If the HMRC officer concludes the business has failed to keep adequate records he can impose a penalty of up to £3,000.

HMRC tested their BRC programme between 4 April and 15 July 2011, during which up to 800 businesses were advised about their records, but no penalties were levied. However, since mid September HMRC has expanded the BRC programme and is increasing the number of HMRC officers involved from 30 to 120. HMRC plan to conduct approximately 12,000 BRC visits before 1 April 2012, and a further 20,000 BRC visits in 2012/13. On those numbers at least one of your clients is likely to be subject to a BRC in the next 18 months.

Business who were visited in the first stage of the BRC programme, and who were judged to have issues with their record keeping, are receiving follow-up letters from HMRC requesting a repeat visit; ‘to check that the appropriate improvements have been made.’ Remember the records under inspection are those raw documents that have not yet been sorted or vetted by someone who understands exactly which expenses can be claimed for tax purpose

In this second stage of the BRC programme HMRC is prepared to impose penalties for serious record keeping failures. However, certain professional bodies, including myself are not convinced of the legal basis for charging such penalties, before the tax return has been submitted.

Chancellor George Osborne will make his autumn statement to the House of Commons on 29 November.

In line with the Coalition government’s changes to the tax and economic calendar, the independent Office for Budget Responsibility (OBR) will publish its updated economic forecast on the same day.

The recent Supreme Court judgment in Autoclenz Ltd v Belcher and Others (UKSC 41) backed a group of self-employed car valets who worked for Autoclenz and argued that clauses in their contracts did not reflect their actual working arrangements. In spite of clauses on mutuality and substitution, the court ruled that they were obliged to provide the services personally. The legal dispute started in 2007.

The Supreme Court decision establishes a precedent that the conduct of the contractual parties could override the written terms.

In its ruling the Court said decided that the contracts did not reflect the true agreement between the parties and that in reality “four essential contractual terms were agreed: (1) that the valeters would perform the services defined in the contract for Autoclenz within a reasonable time and in a good and workmanlike manner; (2) that the valeters would be paid for that work; (3) that the valeters were obliged to carry out the work offered to them and Autoclenz undertook to offer work; and (4) that the valeters must personally do the work and could not provide a substitute to do so.”

This case highlights the importance for all parties to ensure that they have seen the contract of services and agree that it reflects the true working practices of everyone involved. The court stated that only one party needed to claim that a clause in the contract did not reflect their intentions in order for the clause to be considered a sham.

If you have any self employed people contact us today to ensure that your current arrangements reflect this new opinion, on 0800 917 9176

In December 2009,  HM Revenue & Customs (HMRC) stated that they had identified 800 Hospital Consultants it wished to launch a tax investigation into  and of its intention to initiate an amnesty. The Tax Health Plan (THP) was subsequently launched.

The THP raised over £10 million through over 1500 disclosures, with an individual payment of over £1 million by a doctor and over £300,000 by a dentist.

HMRC has now announced that it has begun 500 enquiries and 6 criminal investigations since the THP closed.

The dispute between HMRC and Hospital Consultants concerning what constitutes their business base for mileage purposes continues to run. A Tribunal case is due to be heard this summer, although it is understood that it involves a geriatrician, rather than the more representative Hospital Consultant undertaking a combination of NHS and private practice work at regular locations. So watch this space because it isn’t only these high profile cases that employers need to be aware of there is also the real danger that employees and Directors are claiming travel & subsistence costs incorrectly as they have not identified a persons permanent/temporary workplace. We are here to help you with this exercise so call us today on 0800 9179176 begin_of_the_skype_highlighting 0800 9179176 end_of_the_skype_highlighting

EICG are offering a menu of Construction Industry Scheme (CIS) reviews for your company at special rates until 30 June 2011

HMRC are being very proactive in this area, even for companies that have previously been under the radar. You could be caught out whether this be via an employer compliance review, an employment status review or an in year business records check. The costs of getting things wrong can be monumental, not just the penalties but also the time taken out of your business and the resulting stress that this can cause.

So why wait, choose your review option below and contact us today on0800 9179176 begin_of_the_skype_highlighting 0800 9179176 end_of_the_skype_highlighting

• Employment status review of your subcontractors and associated paperwork
• Review of all aspects of your Construction Industry compliance
• Business record checks
• Full Employer compliance review, as HMRC would conduct them

Make your company the one that HMRC walks away from rather than feasting on your hard earned profits.

Very quietly HMRC have announced that there is a new CIS penalty regime being brought in.

From October 2011, the penalties for late or non-filing of a contractor’s monthly return within the Construction Industry Scheme are changing.

The first return falling within the new penalty regime will be the return for the month ending 5 November 2011.

The following penalties will apply to that return and all subsequent months’ returns that are not filed or filed late:

• A fixed penalty of £100 immediately a return is late.
• A second, fixed penalty of £200, two months after the filing date if the return is still outstanding.
• If the return is still outstanding six months after the issue of the first penalty, a tax-geared penalty is charged which is the greater of £300 or 5% of the amount of deductions shown on the return.
• If the return is still outstanding twelve months after the issue of the first penalty, a further tax-geared penalty is charged which is the greater of £300 or 5% of the amount of deductions shown on the return. Higher levels of penalty apply where, as a result of the failure to file the return on time, information has been deliberately withheld.

Interest will be chargeable on any penalty paid late.

The legislation for the change is at schedule 55 Finance Act 2009.

Paragraph 13 of Schedule 55 to Finance Act 2009 introduces a penalty capping provision. The fixed penalties within the capping period will not exceed a maximum of £3,000. The capping period starts on the day of commencement (the date the contractor advises HMRC that they will first pay, or have first paid, a subcontractor) until the date they first file a CIS monthly return. Tax-geared penalties of 5% of the amount of deductions shown on the returns will also apply in the capping period where the return is submitted over 6 and 12 months late. There will be no fixed minimum charge of £300 when the capping period applies.

Mistakes can be expensive so contact EICG on 0800 917 9176 to find out about our Construction Industry Scheme (CIS) reviews