The 2011/12 Employer's Annual Return Form P35 season is most definitely upon us - the deadline for filing is 19 May. (See Reminder - Only 1 Month Left to File Employers' Annual Returns).

As with previous years, the Form contains the question "Are you a Service Company?". As many readers will know, this is a deliberately loaded question, and the tax consequences are far-reaching if the answer is "Yes".  It will not apply to a significant proportion of companies (or employers generally) but the issue is highly contentious and many employers may feel that they have been unreasonably 'backed into a corner' by having to deal with the question as a simple "Yes/No" on the Form P35.

Enter Keith Gordon, who is a tax barrister at Atlas Chambers. For those who don't know, Keith has... ..."form" as far as poorly-crafted HMRC forms go - see, for instance Tax Barrister Appeals Against Service Company Question for an idea of for how long this has been running - but note that the story commenced with a similar question on the 2009 personal tax return. In summary, Keith refused to answer the question and adopted a similar position as regards the corresponding question on the Employers' Annual Return. HM Revenue & Customs (HMRC) grudgingly accepted that this non-committal stance was within the taxpayer's rights.

But this year, with almost all employers having to fill their form in online, Keith found that employers were unable to complete the form without answering the Service Company question - the online questionnaire wouldn't proceed without an answer. So, Keith duly wrote to HMRC and suggested that given that it was beyond HMRC's powers to include the question in the form, it was certainly beyond their powers to force an answer to the question. Or, to put it another way, employers could refuse to complete the return and penalties could not be applied as they would have a "reasonable excuse" for not filing their form.

So, HMRC have replied that employers may simply answer "No" to the Service Company Question. As Keith himself put it, 

"It is reassuring that HMRC accept that there is no statutory basis for Question 6 and have given employers a work-around if they choose not to answer it. I hope that the 2013 P35 will not contain the question at all. What is not clear, however, is whether HMRC deliberately sought to exceed their statutory powers by asking the question or whether it was just an embarrassing oversight."

Of course Question 6, as with the Employers' Annual Return Form P35 itself, will not be around for much longer in any event, given that the new Real Time Information system should make end of year forms redundant. One can only hope, for HMRC's sake, that they don't include 'Question 6' in their RTI package as well!

People trading on the Internet who haven’t paid all the tax they owe have just one month left to take part in an opportunity offered by HMRC to get their tax affairs in order on the best terms available.

Under the time-limited opportunity, known as the e-Markets Disclosure Facility, online marketplace traders who come forward at any time between now and 14 June and pay the tax, duties and interest they owe by 14 September, can benefit from lower penalties than those who wait for HMRC to catch up with them.

Once the e-Markets Disclosure Facility expires, HMRC will clamp down on those who have failed to declare earnings and paid the tax that they owe.

The campaign is aimed at people using online marketplaces to buy and sell goods as a trade or a business and who are not up to date with their taxes. Those who sell only a few items and who are not traders are unlikely to be liable to pay tax on what they sell and are not being targeted by this campaign.

Marian Wilson, head of HMRC Campaigns, said:

“Our aim is to make it easy for online marketplace traders to contact us and make a full disclosure of income, thereby putting their tax affairs in order.

I urge online sellers who think they owe tax on their income to get in touch and get their tax affairs in order, simply and on the best possible terms.

The information and intelligence we gather is from a wide range of sources and it allows us to target those who should come forward as part of the e-Markets Disclosure Facility.

If you owe tax and don't get in contact [with us], do not assume that HMRC will not catch up with you.”

HMRC is inviting online traders to a live Twitter question and answer session, with a tax expert who will answer questions about the campaign, on 16 May between 7pm and 8pm. Follow @HMRCgovuk (http://twitter.com/#!/hmrcgovuk) and tag questions #emqa in advance or on the day.

People who are unsure whether their e-marketplace activity could be seen as trading can visit the HMRC website for further information: How to Work Out if You are Trading. [ Or you can see TaxationWeb's own guide at TaxationWeb's Guide to HMRC Crackdown on eBay Trading - Ed]. They can also watch a YouTube video for advice: HMRC eMarketplaces Campaign - Trading or Not Trading

Once the 14 June deadline has passed, HMRC will investigate any online traders who have failed to respond to the opportunity, using information pulled together from a wide range of data sources. Penalties of up to 100 per cent of the tax owed, or even a criminal investigation could follow.

The benefit of the campaign is that those who make a full disclosure:

• will be offered a simple and straightforward way to put their tax affairs right
• may not be charged a penalty at all, with most receiving a penalty of no more than 10 per cent of the tax they owe.

To let HMRC know of the intention to make a voluntary disclosure, online sellers can:

• Use the forms on HMRC’s website at: How to Notify HMRC about Your Undisclosed Income
• Phone HMRC on 0845 601 2944 with details such as: name, address, National Insurance number, telephone number, date of birth and Unique Taxpayer Reference.

The terms being made available during this window are in line with those HMRC offers for any full and accurate unprompted voluntary disclosure of tax liabilities.