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HMRC Climbs Down over Business Records Checks Print E-mail
Business Tax
Written by Lee Sharpe   
Monday, 06 February 2012 00:00

HM Revenue & Customs (HMRC) announced last Friday that there would be "a fresh approach to Business Records Checks in 2012". 

Whilst continuing to affirm the perceived benefit of Business Records Checks (BRCs) to HMRC and to businesses, HMRC said that the BRC "should be amended to be a more tightly targeted compliance intervention, but set within a framework of additional education and leverage activity." This will include a suspension of BRC activity whilst HMRC improves the programme.

When BRCs were originally announced, HMRC said that they would visit 50,000 small businesses a year, and expected that the visits would yield a benefit of around £600 million up to 2014/15. It is interesting then that, despite their perceived success, they have confirmed that the programme will be significantly curtailed going forwards, with a target of only 20,000 visits annually, and an expected yield of £124 million. 

Agent Objections

HMRC's report appeared to accept that BRCs could not continue in their current form - even though this would be the most cost-effective option. Clearly this was as a result of the concerns expressed by the tax agent community: "The strength of feeling against BRC in the agent community cannot be over-stated."

Reasons for agents' objections included:

  • The consultation exercise of December 2010 was "too little too late" and by asking what was the best method for implementing BRCs and the corresponding penalty regime, overlooked the rather more fundamental question of whether or not BRCs were a good idea
  • Whether or not HMRC is in a position to advise on adequacy of record-keeping
  • The legitimacy of raising penalties in-year on records felt to be inadequate, even though the tax return on which they would be based has not yet been prepared or submitted - so how might one be sure if the records actually were inadequate?
  • That BRCs were simply a 'fishing exercise' designed to catch businesses out. HMRC does not explain to businesses why they have been selected for a BRC.

Penalties Still Remain...

Whilst many in the tax agent community will be pleased that HMRC has 'seen sense' over BRCs, there are still some areas where HMRC is sticking to its guns and particularly in the area of penalties:

  • HMRC believes it has the legal authority to raise 'in-year' penalties for poor record-keeping - it doesn't have to demonstrate the link between poor records and an inaccurate return based on those records, so it can penalise poor records even when the corresponding return hasn't yet been raised.
  • Penalties of up to £3,000 for failure to keep 'adequate' records will continue to be a part of the BRC programme: "the cost of one-to-one interventions and the potential impact on the benefits of the programme meant that this review concludes that maintaining BRC as a purely educational tool [i.e., no penalties] is not a viable option".
  • HMRC indicates that penalties will rarely be imposed but it clearly reserves the right to impose penalties on the initial visit - or when. after referral from a BRC, a 'full audit' (enquiry/investigation) finds deficiencies in the corresponding tax return.

...and "Leverage"

HMRC is also intending to include what it refers to as "leverage activity" which would include letters or telephone calls to businesses identified as belonging to 'at risk' categories - cash businesses, tradesmen and public houses are mentioned in HMRC's report. How targeted businesses respond (or not) to those letters or telephone calls, which may involve a questionnaire on how the business keeps its records, will help HMRC to identify those businesses which may require a BRC or further intervention. 

In previous 'leverage' activity, HMRC has often failed to adapt its approach where the taxpayer has an agent - which has often been perceived as circumventing the tax agent. Whilst HMRC states that it recognises that any new format should take into account the concerns raised by the representative bodies, it seems that HMRC may well be about to back out of one, partly-explored minefeld in favour of another.

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HMRC Says No Penalties for Filing Tax Returns or Paying Tax Late Up to 2nd February Print E-mail
Personal Taxes
Written by Lee Sharpe   
Thursday, 26 January 2012 00:00

HM Revenue & Customs has confirmed that it will waive penalties for any tax returns filed after 31 January provided they are submitted by midnight of 2 February. There is a similar grace period for paying any tax which would also fall due on 31 January.

When the Public and Commercial Services Union (PCS) confirmed that the proposed strike action in HMRC call centres was definitely going ahead on 31 January, TaxationWeb contacted HMRC to ask them to publicise how they were intending to deal with the difficulties this would inevitably cause the many thousands of taxpayers who would need help to fill in their tax returns.

31 January is the deadline for filing tax returns and, based on previous years, HMRC expects around 600,000 tax returns will be submitted on the day - but also that about 90,000 calls will be made by taxpayers needing assistance with completing the forms.

It was feared that only 20% of those who telephoned a call centre during the period of industrial action would be able to get through and obtain assistance. There are automatic penalties for failing to file a return by the deadline and this year, for the first time, those penalties will stand even if there is no additional tax to pay or a tax refund is due.

Whilst HMRC had clearly already recognised that many people stood to be affected, and had made it clear that they did not want taxpayers to be disadvantaged by the forthcoming industrial action, before today the official position was that if a taxpayer were unable to file because he or she had not been able to get advice on 31 January, then they would have to appeal any penalty under the 'reasonable excuse' provisions, which would be dealt with on a 'case by case basis'. In other words, penalties would still be charged, a taxpayer would have to appeal against any penalty received and depending on the circumstances, the penalty would be cancelled. (See 31 January Filing Deadline and Possible Strikes: HMRC Insists "No Special Treatment" for Those Caught Out by Strikes).

However, HMRC has since changed its position, saying earlier today:

"Strike action by HMRC staff will mean that many people who want to file their SA return on 31 January and try to phone us with questions they need answered to do that will not be able to get through.

Because of this nobody who files online on 1 or 2 February this year will get a late filing penalty. "

Bearing in mind that taxpayers will generally need to complete their returns before being able to work out if they owe any further tax, HMRC has also confirmed that corresponding payments may also be made as late as 2 February, without incurring interest.

David Gauke, Exchequer Secretary to the Treasury, is reported to have said:

 “This strike could have caused thousands of people to incur fines, so I am pleased that HMRC has taken this common sense approach. The Government does not want anyone trying to file their tax return on time to be unfairly penalised because they were unable to get through for help and advice on the 31st.”

That statement appears to suggest that the change in policy was within HMRC's gift rather than the Treasury's but this does not chime with TaxationWeb's discussions with HMRC representatives over the last few days. But whatever the means, the result is a boon to taxpayers and particularly welcome for those taxpayers who do not have agents to help them to complete their tax returns.

Whilst many taxpayers who are contending with Self Assessment and unable to get through to a call centre on 31 January may find the strike frustrating, it is perhaps worth asking what the PCS seeks to achieve by taking this industrial action. With that in mind, we have invited Mark Serwotka, general secretary of the Public and Commercial Services Union, to explain the PCS' position and hope to update readers in the next few days.

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31 January Filing Deadline and Possible Strikes: HMRC Insists "No Special Treatment" for Those Caught Out by Strikes Print E-mail
Personal Taxes
Written by Lee Sharpe   
Wednesday, 25 January 2012 00:00

Updated - see HMRC Says No Penalties for Filing Tax Returns or Paying Tax Late up to 2nd February

Whilst we understand that some news sources are suggesting that HM Revenue & Customs has agreed to waive penalties for taxpayers who are unable to get through to them because of strike action, our contacts at HMRC have insisted that it will instead be "business as usual" on 31 January.

On 31 January, the Public and Commercial Services Union is planning to hold a one-day strike action on account of its members who operate in HMRC's call centres, because of fears over possible privatisation by the Treasury.

This is of course the statutory filing deadline for Self Assessment tax returns, and is one of the busiest days of the year for call centres - there were apparently 90,000 calls from taxpayers on 31 January 2011, and similar numbers are expected for this year.

Whilst call centre strikes will not stop people from being able to access and use the online filing service as normal, there may be many taxpayers who will not be able to get the help they need in order to complete their online filing.

However, HMRC has not agreed to any special treatment for those taxpayers who are unable to resolve their queries because of strike action by HMRC staff but have suggested that the normal route of "Reasonable Excuse" will be available, to those affected by the strike action, to appeal against any penalties which are automatically issued afterwards. In other words, penalties will still be issued and it will be down to the taxpayer to appeal against the penalty, and to demonstrate that he or she had a 'reasonable excuse' throughout the penalty period until the return was filed.

For more information on "Reasonable Excuse", see What Counts as a Reasonable Excuse for Filing an Online Return Late?

Many readers will be aware that HMRC has suffered a bit of a bruising of late as regards how narrowly it defines "Reasonable Excuse" - see for instance Tax Penalties and Claiming the Cost of Appeals

Updated - see HMRC Says No Penalties for Filing Tax Returns or Paying Tax Late up to 2nd February

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Tax Free Income from Solar Panels: Government Loses in Court on Cuts to Tariff Print E-mail
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Business Tax
Written by Lee Sharpe   
Tuesday, 03 January 2012 00:00

The government has been told by the High Court that its proposed cuts to the tax-free income, which it had hitherto guaranteed to householders who installed solar energy systems, were illegal.

Friends of the Earth, together with two solar energy companies Solarcentury and HomeSun, challenged the cuts in a case heard by the High Court on 21 December, on the basis that the cuts' implementation was unlawful. It seems it didn't help the government's case that its decision to make the cuts was apparently announced 11 days before the formal consultation period was due to expire.

It should be noted that the Tariffs paid to those who install solar energy systems (along with other categories of renewable energy installation) are not paid out of government funds but by the energy companies, so are effectively subsidised by their 'ordinary' customers who suffer higher bills when paying for electricity and gas.

It seems unlikely that the cuts to the Feed In Tariffs will not go ahead in the end, although presumably later than planned. Perhaps the people at the Department for Energy and Climate Change might have time to speak to their colleagues at the former HM Customs and Excise first, before trying again - 3-year cap, anyone?

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PAC Lambasts HMRC's Cosy Relationship with Big Business Print E-mail
Government
Written by Lee Sharpe   
Wednesday, 21 December 2011 00:00

The Public Accounts Committee (PAC) recently issued a report which was scathing about HMRC's relationship with big business, its refusal to divulge information to the Committee, and lack of accountability.

Although there does appear ultimately to be some accountability: it can be no coincidence that Mr. Hartnett's retirement was announced just days beforehand. It seems that Mr. Hartnett's involvement with certain "large business settlements" will be subjected to even greater scrutiny, with the National Audit Office reportedly set to examine up to 10 such deals.

Whilst the main report can be found at Public Accounts Committee - 61st Report, the "highlights" are as follows:

  1. The Department's refusal to disclose taxpayer information prevents proper scrutiny of the process for reaching tax settlements with large companies.
  2. The evidence of the Department's senior officials fails to give us [the Committee] any confidence in the way large settlements are reached. 
  3. The Department chose to depart from normal governance procedures in several cases, which allowed Commissioners to sign off on settlements that they themselves negotiated.
  4. Governance procedures have lacked the independence and transparency needed to provide sufficient assurance to Parliament.
  5. The Department's failure to comply with its own processes resulted in a substantial amount of money being lost to the Exchequer.
  6. Those at the top of the Department have not taken personal responsibility for serious errors. 
  7. The Department has left itself open to suspicion that its relationships with large companies are too cosy.
  8. The Department is not being even handed in its treatment of taxpayers.

This no doubt makes extremely uncomfortable reading for HMRC but it has to be said that Mr. Hartnett made no secret of his approach to litigation and settlements with big business - see HMRC Offers Settlement Deal for EBTs - "Disguised Remuneration". The perception is that by improving the level of service to / channels of communication with large businesses, HMRC has made it easier for those businesses to pay their tax. (Or not to pay their tax, some might argue). And at a point where the UK needs to raise as much revenue as possible, it is also understandable that negotiating a settlement quickly could be seen in a positive light if the alternative is expensive and protracted litigation through the tax tribunals and/or courts - perhaps with some uncomfortable truths about inadequately-drafted law to be discovered in the end.

It has apparently been claimed on David Cameron's behalf that he supports HMRC and that he believes they have been fair to all. This may well prove to have been ill-judged by reference to the public mood. The government of the day undoubtedly recognises that it must try to make the UK a favourable destination for global businesses. But there must also be a recognition that, whilst a relative handful of its "customers" pay the lion's share of tax revenues, the vast majority of HMRC's "customers" are small businesses, small companies, and 'ordinary' taxpayers; and this is a democracy. 

However, unfortunately for HMRC and particularly for some of the parties involved, the headlines arguably suggest that HMRC may have thrown in their hand far too quickly and easily - even wrongly, it appears in one case, by giving up interest that was due.

It remains to be seen whether or not smaller businesses will benefit from the "friendlier" HMRC of big business - or perhaps big business will now 'enjoy' the same HMRC as everyone else. The "large business model" has hitherto been championed as a great success. But rather than rolling out the positives across the range of HMRC services - and to all its "customers" - the fear for all taxpayers and agents must now be that HMRC will decide it must not be seen to negotiate with any "customer" of whatever size. In other words, that HMRC might bounce from one extreme to the other. Anyone with experience of dealing with the tax authority in enquiries will be all too aware that negotiation is a fundamental aspect of that process. A demonstrably even hand across the board is what is really required - as mentioned in the above report. 

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