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Where Taxpayers and Advisers Meet
TW Ed IS Losing Sleep over HMRC and Tax
15/09/2014, by Lee Sharpe, Tax Articles - Income Tax
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Better late than never, (Mark will be pleased), something positive to say about HMRC this week.  Strictly, two things, albeit closely related. Firstly, we have the fact that HMRC is postponing RTI filing penalties for another few months until 6 March 2015 for ‘smaller’ employers. Of course I am not referring to the physical size of the employer but the number of employees engaged: fewer than 50. Those employers with 50 or more employees are set to fall into the penalty regime from 5 October – just a few weeks away.

This is a good thing for many small employers who are still struggling to get to grips with the new reporting regime. If we assume that HMRC means what it says about penalties – that they are there to encourage compliance, rather than to raise money – this must surely be reflected in a penalty regime which is invoked relatively rarely, or that is ‘light touch’ and doesn’t bite too deep.  To my eyes, the RTI penalty regime is neither ‘light touch’ nor a nibble between meals. If too many small employers have not got to grips with RTI by the time the new penalty regime comes around, it will make the furore around the old CIS penalty regime look like a picnic. (Which is not to say that the new regime is much better).

The problem for HMRC is that RTI is supposed to ‘feed’ Universal Credit. That regime has its own problems but the theory is supposed to be that employees’ entitlements are calculated in ...real time, and of course employers have to provide that information first.

My second ‘good’ point is perhaps a little more selfish: have agents noticed that, this year, HMRC has been far more forthcoming about clients’ pay and tax details than for the last several years? I don’t think this is a coincidence but a ‘fringe benefit’ for agents, under the new order. If I have understood HMRC officers correctly, they are able to see up to date pay and tax information almost immediately, so 2013/14 pay and tax details are a walk in the park. This is most welcome. Of course P60-type information is not dependent on RTI but I am prepared to give HMRC two gold stars this week.

But then, I am about to take away about half a dozen. (You didn’t really think I’d gone soft, did you?)

Last week, Tiger Aspect asked, “Are You Losing Sleep Over Tax?”, looking for advisers to comment on Accelerated Payment Notices, Working Tax Credit overpayments or IHT problems... a fairly broad range of issues. While Accelerated Payment Notices are likely to preoccupy a significant proportion of the clients/work of some of the larger accountancy firms, they are hardly “bread and butter” work for most practitioners. Likewise Working Tax Credits – given the income levels at which the Credits currently tail off, I think relatively few claimants – save perhaps for some self-employed – will be in a position to engage an accountant.

No, there are a few tax issues which keep me awake at night, but Accelerated Payments are not one of them.  The former are “thin end of the wedge” issues that rankle, to say the very least.

At this point, I should mention the “Power Too Far” campaign: we at TW roundly support it. But there is an important rider to this: I very much fear we are at risk of focusing too narrowly, and missing a larger – and frankly far more ominous – picture.

In a previous editorial (Just Three Things to Dislike about HMRC) I mentioned:

  1. Taking money out of people’s bank accounts without permission (A Power Too Far)
  2. “Strict liability” criminal offence for failing to declare offshore income – whether you were aware of the income or not, and
  3. HMRC plans to sell taxpayers’ data to commercial third parties – well, I say “plans” but if some sources are to be believed, it is more “admission” than “plan”.

The profession is focusing on the first under the banner of “A Power Too Far”. And I must emphasise, TaxationWeb wholeheartedly supports the movement. But what of #2 and #3?  I would say that they are similarly outrageous. Personally, I find #3 the most disturbing of the three, as I can see this going the same way as the supposedly confidential medical information which the government seems keen to provide to pretty much anyone who asks – see The Privacy of Our Medical Records is Being Sold Off in the Guardian for what is, in my opinion, a decent summary of the issues and “re-identification”.

Let’s put to one side the Orwellian, and instead focus briefly on a more recent, perhaps more pedestrian, but no less worthy candidate for #4, which is HMRC’s plans to give itself a month to tell taxpayers that it has changed their tax codes (PAYE Tax Codes: HMRC Proposes to Give Itself a Breather – at the Taxpayer's Expense). Bearing in mind that most employers are notified of code changes electronically, i.e., instantaneously, the difference between when an employee’s net pay will change and when he or she finds out why through 2nd Class mail, is quite likely to be more than a month. This is absolutely outrageous.

Why does HMRC think that the original legislation in the PAYE Regulations 2003 (SI 2003/2682 Reg 19 (3)) says, “The Inland Revenue MUST give notice of the amended code to the employee by the date on which the [equivalent] notice is issued to the employer”? Could it be because, back then, legislators realised that not to do so might irreparably damage a taxpayer’s finances, without good cause – and that this was a really, really BAD thing?

The tax profession has, quite rightly, developed a sense of indignation on behalf of taxpayers when it comes to raiding their bank accounts. That measure is supposedly aimed at a few thousand ‘hardcore’ taxpayers (or perhaps non-taxpayers) and we are assured that all manner of controls will be put in place to prevent mistakes. But this proposed PAYE coding measure could easily affect ten times as many taxpayers – and potentially without any substantive safeguards.

I don’t think it is unreasonable to predict that, if this legislation ever comes into force, then HMRC will be directly responsible for many taxpayers missing mortgage or rental payments, through no fault of their own. The scale could dwarf the more eye-catching issues discussed above. I think we need to re-name “A Power Too Far” to “None of the Above”.  

About The Author

Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.
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