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Busy Practitioner by Mark McLaughlin ATII TEP

Mark McLaughlin outlines some forthcoming key deadlines and topical practice points for accountants and tax practitioners, including the introduction of new rules for the disclosure of avoidance schemes.The summer holiday period includes some important dates for Self-Assessment taxpayers and also for others, and these are outlined below.

31 July 2004

The 2003/04 second payment on account of income tax (and Class 4 National Insurance contributions, if appropriate) must reach the Collector of Taxes no later than 31 July 2004, if interest charges are to be avoided.

Most taxpayers who have not paid their remaining tax and National Insurance liabilities for 2002/03 by 31 July 2004 are liable to a further 5% surcharge, in addition to the 5% surcharge suffered on amounts outstanding at 28 February 2004. However, for taxpayers who requested their 2003 return from the Inland Revenue by 5 October 2003 and were issued with it after 31 October 2003, the tax payment date is extended to three months from the issue date. The second surcharge date in those circumstances is based on amounts unpaid six months after the extended payment date (TMA 1970, s 59B(3), 59C(3)).

1 August 2004

Taxpayers whose 2003 tax returns were due to be filed by 31 January 2004 but have not been filed before 1 August 2004 are liable to a further £100 fixed penalty, unless the Inland Revenue has already successfully applied to the General or Special Commissioners for an order imposing penalties of up to £60 per day (TMA 1970, s 93(4)). The fixed (but not daily) penalties cannot exceed the taxpayer’s actual liability, if lower (s 93(7)).

In the case of 2004 tax returns issued to the taxpayer on or after 1 August 2004, the normal filing deadline of 30 September for the Inland Revenue to calculate tax is extended to two months from the date on which the return was issued (TMA 1970, s 9(2)).

Disclosure of avoidance schemes

The new rules on the disclosure of tax avoidance schemes, as introduced by the Finance Act 2004 and underpinned by Regulations, take effect from 1 August 2004.

Much commentary has already been written on the scope and implications of the new rules. From a compliance perspective, practitioners acting as scheme ‘promoters’ (i.e. broadly those involved in providing tax services) are obliged to disclose notifiable proposals within five business days after the earlier of:

(a) The date on which the promoter makes the scheme available for implementation by another; or

(b) The date of becoming aware that any transaction forming part of proposed arrangements has been implemented.

The Inland Revenue has set up a new Avoidance Intelligence Unit to deal with disclosures. A notification form is available from the Inland Revenue website (www.inlandrevenue.gov.uk), together with guidance notes on the disclosure requirements. The maximum penalty for failing to comply is £5,000, plus up to £600 for each day on which the failure continues thereafter (TMA 1970, s 98C(1)), subject to a right of appeal.

Practitioners must notify all clients using the scheme when the Revenue allocates a reference number to it, which will be within 30 days following the disclosure.

The time limit for notifying clients is within 30 days of the practitioner first becoming aware that the client has taken the first step to implement the scheme, or within 30 days of the Revenue notifying the reference number, if later. The client will normally need to disclose the scheme reference number on the relevant tax return or PAYE end of year return, form P35, as appropriate, subject to a penalty of £100 for each initial failure. If the taxpayer fails to comply for a second time within the last three years, there is a further penalty of £500 for each failure, increasing to £1,000 for the third and each subsequent failure within the last three years (TMA 1970, s 98C(3)).

The new rules take effect from 1 August 2004, subject to transitional provisions broadly requiring practitioners to disclose schemes or arrangements involving financial products or employment products promoted or sold from 18 March 2004. Separate rules apply to offshore scheme promoters. In response to consultation with the professions and industry, the Revenue announced that an extended deadline of 30 September 2004 applies for making a disclosure of schemes where the relevant date falls on or after 1 August 2004.

2 August 2004

Employers must notify employee company car changes to the Inland Revenue on forms P46(Car) for the quarter ended 5 July 2004 by 2 August 2004, i.e. within 28 days following the end of the tax quarter (Income Tax (Pay As You Earn) Regulations, SI 2003/2682).

Mark McLaughlin ATII ATT TEP

July 2004