Issue 16

Issue 16

The winter Square Circular typically does the rounds at what is a particularly busy time of year for accountants with compliance filing deadlines at the end of January and fiscal year end tax planning following by the beginning of April. No surprise that this Square Circular warns about a tightening of compliance matters but with a reminder not to forget the importance of planning.

We also draw your attention to matters that can be relevant to non-resident status and to employment/independent contractor issues. If you want any further details about any of the tax or financial matters we’ve mentioned in this issue, or indeed, about any matters we haven’t mentioned please do contact us on 0161 832 4841.

WHAT’S NEW?

Not exactly centrefold stuff, we know ……. but Adrian and Stephen (Verber) did manage to get 1 inch square “mugshots” in the Manchester Evening News on 28 November 2006. The occasion was the launch of three divisions in our business services department: retail, property investors and professional practice. These are areas where we have a particular wealth of experience as well as the expertise.

We have also recently expanded our personal tax services by taking over from the Carrington based company HRS Taxation Services Ltd when that company ceased trading at the end of last September. A warm welcome to those newcomers under the Alexander & Co roof.

SEASON OF GOODWILL?

Perhaps that’s why HMRC issued a consultation document on 21 December – yes, 21 December – on the subject of penalties for incorrect returns. It’s a long document and will take a while to read but we have got until 13 March 2007 to respond.

In outline, the proposals do not appear to be unreasonable. A single penalty structure to be applied for incorrect returns for income tax, corporation tax, PAYE, NICs and VAT is suggested. The general trend appears to be to increase penalties from what they are now if there is deliberate understatement of tax liabilities and reduce them in cases of innocent error. Sounds reasonable enough in theory but, as always, the devil will be in the detail.

As regards straightforward compliance matters such as filing returns you may recall that the personal tax return filing deadline for 2008 has already been brought forward for returns not submitted online. From time to time there is talk of reducing corporation tax filing deadlines and increasing late filing penalties. Coupled with all this we think we have detected a recent hardening of HMRC’s attitude when it comes to collecting tax debts.

The message seems clear enough. If you’re prompt and honest with your returns and honourable in payment the system’s on your side. If you’re the kind of person who risks straying over the last minute deadline, and generally likes to “play against the system” the season of goodwill is well past.

PRE-BUDGET REPORT

The general consensus seems to be that not a great deal happened. We’re not talking just about the headline items in the Statement which are highlighted in the national press but also the full PBR “Red Book” which contains more detail. There are just a couple of points on which we’d like to focus.

First, we didn’t find out as much as we’d wanted about the new Planning Gain Supplement tax which now looks set not for 2008 but rather for 2009 – if ever. Secondly, there was a sentence in the Pre-Budget Report Book which read that “the Government remains concerned about the tax-motivated incorporation of the self-employed, which involves businesses taking advantage of structural differences in the tax and national insurance treatment that applies to companies”.

We wonder what future direction the Government’s “concern” will take.

BUDGET 2007

Obviously we’ve a way to go yet and we don’t want to guess what’s going to be in it but remember that the Pre-Budget Report is not necessarily a trailer for the next year’s Spring Budget. If you remember last year there were some far-reaching Inheritance Tax (Ih.T) changes proposed without prior warning or consultation.

For example, let’s just suppose that next March the Chancellor decides to apply National Insurance contributions to the payment of dividends or abolishes Ih.T Business Property Relief or potentially exempt transfers to mention just a few of the horrors periodically touted around.

Time for a spot of tax planning perhaps?

DEMIBOURNE

Don’t worry if the name’s not familiar. It’s a tax case.

Take the following scenario. An employer takes on a new employee but both agree that the new employee is “to be treated as self employed”. The new (let’s still call him) employee will be paid gross and will pay his own tax. Having regard to the contract between the employer and employee there may even be reasonable grounds for believing the relationship to be one for the supply of services rather than that of master and servant, to use a rather antiquated expression. The employer realises he is taking a risk and, one day, HMRC may ask him for a large lump of PAYE tax which he should have deducted from his employee. At least the employee has paid his own tax in the meantime under self assessment and you can offset this tax against the employer’s PAYE liability, can’t you?

Well, actually, no – not since Demibourne. Previously you could make an informal arrangement with HMRC to effect this set off. Demibourne put a stop to this. One answer would be for the employee to sign a mandate allowing HMRC to offset the tax repayment he is due against the PAYE which the employer has to pay. Fat lot of good that’ll do the employer if his employee has long since wandered off into the sunset.

We understand that HMRC are also not altogether happy with the situation. If you raise the stakes it makes employers less willing to compromise and settle cases and increases the likelihood that these “status” cases will be fought to the bitter end. HMRC say that they’re working towards a solution. In the meantime it shows how important it is to get the status analysis right in the first place with a contract which supports self employed status.

If you anticipate having or think you may already have potential problems as regards status please let us know. We’d be happy to review the position for you.

“WE ARE FORMER RESIDENTS OF BRITAIN
WE HAVE TAX RULES THAT ARE FAR FROM CERTAIN”

Sorry, just threw that in for the oldies who remember the Siamese cats in “The King and I”. Seriously, what’s it all about?

The Special Commissioners of Tax recently decided a case which has caused something of a stir in tax circles. They decided against a taxpayer’s claim that he was both domiciled and resident in the Seychelles rather than the UK. Space does not allow us to go into details about the facts, interesting as they are. What’s really got us in a spin is that in favouring HMRC the Commissioners seem to have ignored remarks in HMRC’s own booklet on residence, IR 20. In particular, it would appear that being non-resident is not simply a matter of counting days. Retaining a family home or not being absent for a settled purpose can also be significant. The accepted view that days of arrival in and departure from the UK don’t count as days of residence seems to have been given short shrift. We can see the logic. If you arrive on a Monday and depart on a Tuesday, does that mean that you haven’t been here at all?

Our advice in this area has consistently been as follows. There is little to rely on in terms of statutory definition. We are in an area of case law and HMRC practice. There is no reason why HMRC practice should not change in order to keep up with a more modern world where travel is easier and quicker. And, to be fair, there are dissenting voices which claim that the decision does not necessarily contradict HMRC’s own IR 20 booklet.

All in all this is an area where proper professional tax advice is essential.

MORE FOREIGN STUFF

We hear that…
HMRC set up a unit in Bradford a few months ago to make direct contact with individuals residing abroad in order to ascertain why tax returns or tax payments may be outstanding.

We hear that…
HMRC are considering a partial amnesty for a limited period in the form of reduced penalties for tax evaders who conceal money abroad in order to encourage them to disclose offshore accounts.

A WARNING FROM THE TAXMAN!

Just before Xmas HMRC issued a warning about an email tax scam which aims to obtain recipients’ bank account details. The email purports to be from HMRC and says that the recipient may be due a tax refund for which they need to fill in a form. The email actually has nothing to do with HMRC.

HMRC have confirmed that as a matter of policy they do not communicate “taxpayer specific” details by email. If you were notified of an unexpected refund we hope you’d check with us anyway that it’s correct. Now you’d have a double reason to check with us.

AND FINALLY…..

Be honest. This is the bit you read first isn’t it?

Apparently a letter from a taxpayer to a tax inspector read:

“Please send me a claim form as I have had a baby. I had one before, but it got dirty and I burnt it.”