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Month: March 2023

New points-based penalties for late VAT returns

Written by admin on . Posted in VAT. No Comments on New points-based penalties for late VAT returns

A new points-based penalty applies to late VAT returns for VAT periods beginning on or after 1 January 2023. The first monthly return to be affected was the one due by 7 March 2023, with the first affected quarterly return due 7 May 2023.

This new returns penalty regime joins the completely separate new penalties for late payments in replacing the old system of default surcharges.

The points-based penalty revolves around a points threshold and a compliance period. These vary according to the length of the VAT period:

VAT period Points threshold Compliance period
Monthly 5 6 months
Quarterly 4 12 months
Annually 2 24 months


Points threshold

All traders start on zero points, including those who are on a default surcharge. One penalty point is then charged for each late VAT return, even for returns with a nil liability or where a repayment is due.

  • A £200 penalty is charged once the points threshold is reached.
  • Subsequent late VAT returns after the threshold is reached also incur the £200 penalty.
  • No penalty point is charged where a first or final VAT return is late.


Compliance period

If the penalty threshold has not been reached, points will expire after two years. However, once the threshold is reached, a trader has to submit returns on time throughout the compliance period for their points total to be reset back to zero.

For example, if a trader has submitted four consecutive monthly VAT returns late, then the £200 penalty will be charged for any subsequent late returns (the points threshold being reached). To reset to zero points, the trader must submit six consecutive returns on time.

The new regime for late returns does not penalise those who occasionally file late, but consistently late filers may find their points tally difficult to significantly reduce without clear-sighted guidance and planning.

HMRC guidance on the new penalty points system can be found here.

Photo by Tingey Injury Law Firm on Unsplash

Pay attention to tax codes

Written by admin on . Posted in benefit-in-Kind, Benefits, Budget, Employment Tax, Income Tax, self-assessment. No Comments on Pay attention to tax codes

Most directors and employees will already have been issued a tax code for the 2023/24 tax year, and it is important to check the figures as a very large proportion of codes will be incorrect. If you’ve been subject to an error, this could mean a future corrective tax bill.

Common errors

A tax code will typically take into account allowances, allowable expenses, taxable benefits (those not payrolled) and untaxed income, so there is plenty of scope for error.

  • Allowances: The code can often assume the incorrect level of income when it comes to the amount of available personal allowance.
  • Allowable expenses: Deductions for subscriptions and professional fees will be based on what was claimed previously, yet these will invariably increase annually.
  • Taxable benefits: For most benefits, HMRC will be unaware of any changes from the previous year.
  • Untaxed income: Figures for bank and building society interest can be too high where, for example, an account has been closed.


Emergency codes

A particular problem can be the use of an emergency code. These can be applied if there is a change in circumstances, such as:

  • A new job;
  • Taking on an additional part-time job; or
  • Starting employment after being self-employed.

The emergency code is used because HMRC will often not receive the employee’s income details in time after the change. Although use of the code is temporary, it can cause a cashflow problem for the employee.

Those starting a new job should give the new employer their P45 as soon as possible. Those moving from self-employment should complete the starter checklist.

Checking and correcting codes

The easiest way a person can check and correct a tax code is by logging onto their personal tax account using their Government Gateway user ID and password. HMRC can be notified of any changes that affect the tax code, and employer details can be updated.

The starting point for checking or correcting a 2023/24 tax code can be found here.

Photo by Alexandre Debiève on Unsplash+

HMRC sets its sights on hidden electronic sales

Written by admin on . Posted in Budget, Income Tax, Tax. No Comments on HMRC sets its sights on hidden electronic sales

It wasn’t that long ago that HMRC was paying particular attention to businesses understating large cash sales. Now, the decline of cash, especially since Covid-19, has led to a proliferation of software used to suppress electronic sales records.

An electronic sales suppression (ESS) tool manipulates electronic sales records to hide individual transactions, whilst producing a credible audit trail. For example, only one out of every four sales might be recorded, resulting in lower reported turnover.

Penalties, taxes and interest

A penalty can be charged for simply being in possession of an ESS tool, regardless of whether it is actually used to suppress sales. Possession doesn’t just mean owning an ESS tool, as it also includes having access to, or even trying to access, an ESS tool.

For possession of an ESS tool, the initial penalty can be up to £1,000. A penalty of up to £75 a day will then be charged if possession or access to the ESS tool continues. The daily penalty is subject to a £50,000 maximum.

  • HMRC takes a much harsher approach if a similar penalty has already been charged.
  • The initial penalty will not be charged if – within 30 days of receiving the penalty notice ­– a taxpayer can satisfy HMRC that they are no longer in possession of the ESS tool.
  • Similarly, the daily penalty ceases once HMRC is satisfied the taxpayer is no longer in possession of the ESS tool.

And of course, any VAT, income tax or corporation tax avoided will be payable, along with the appropriate interest and penalties.

Typically, card payments for missing sales are routed through an offshore bank account, so it will be difficult to argue such sales suppression is not deliberate and concealed.

Clearly any software designed to facilitate the under reporting of sales is essentially a tax evasion tool as well and should always be avoided.

HMRC guidance on ESS can be found here.

Photo by Alexandre Debiève on Unsplash

Annual inflation in 2022 was 10.5%, but not all components rose by double digits.

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Annual inflation, as measured by the Consumer Prices Index (CPI), was 10.5% in 2022 against 5.4% in 2021. The official CPI calculator, the Office for National Statistics (ONS), says that the last time inflation was as high was in 1981. But what drove the inflation indices to four-decade highs last year? As is often the case, a simple economic question does not lead to a straightforward answer.

The hierarchy graph above offers a visual response:

  • The ONS CPI inflation ‘basket’ contains 12 categories, each with different weights (see figures in brackets) based on typical household expenditure. In 2022, the second largest category of spending, Housing, water, electricity, gas and other fuels, recorded an increase of 26.6%. Unsurprisingly, the star performer was gas prices, which rose 128.9% across 2022. That alone was worth a 1.8% rise in the CPI. Electricity prices jumped by 65.4%, adding another 1.3% to the CPI.
  • The next largest contributor to inflation, with a slightly smaller weighting in the basket, was Food and non-alcoholic beverages, which rose by 16.8% over the year. The ONS says this category’s annual inflation has increased for 17 consecutive months (from -0.6% in July 2021) and is now at 1977 levels. It accounted for 1.95% of CPI inflation.
  • In 2022, the category with the largest weighting in the CPI basket, Transport, played a less significant role in terms of overall inflation (0.9% on the CPI) than it did last year. Over the year, the category’s inflation was 6.5%. In June, annual transport inflation was nearly 15%, driven by the rise in petrol and diesel prices. As these fell back, so too did the transport inflation rate.
  • The category with the lowest inflation (2.0%) was also the one with the second lowest basket weighting – Communications – so did little to counter the sharp rises elsewhere.

The two main causes of 2022 inflation – food and gas prices – help to explain why inflation is expected to drop sharply in 2023. Both rose in response to the war in Ukraine and as that is now a year ago, prices should start to stabilise – indeed wholesale gas prices have fallen from their peaks.

The consensus is for the annual CPI number to end the year around 5%, less than half of 2022’s level but still enough to mean any long-term financial plans need to build in the value-eroding effects of inflation.

Source: ONS.

21st century Revenue – HMRC’s app and new texting service

Written by admin on . Posted in Income Tax, Making Tax Digital, self-assessment. No Comments on 21st century Revenue – HMRC’s app and new texting service

HMRC’s app was launched a year ago and is gaining in popularity as it is being used to pay self-assessment tax bills. A more recent HMRC innovation is a new service for texting replies to taxpayers who make contact by mobile phone.

Using the app

The HMRC app can be downloaded from either the App Store (Apple devices) or the Google Play Store (Android devices). It is then just a matter of:

  • Following the instructions to complete the app settings; and
  • Signing in using your Government Gateway (only required for first-time use).

In addition to paying self-assessment tax bills, the HMRC app can be used to claim a refund if too much tax has been paid. Other uses include:

  • Tax credits: Changes can be reported, and the annual renewal completed. The app shows the amount of tax credit payments and when they will be made.
  • References: You can check your tax code and easily find your national insurance (NI) number and unique taxpayer reference (UTR).
  • Update: You can let HMRC know if you change address.
  • Tax details: You can get an estimate of tax payable and use HMRC’s tax calculator to work out take-home pay after income tax and national insurance contributions.

Despite some negative reviews, the HMRC app currently has a 4.5 rating on the App Store, and a 4.7 rating on the Google Play Store.

New texting service

Only launched 19 January, HMRC is trialling the sending of text messages to taxpayers who call their helplines about a routine matter that could be better resolved using HMRC’s digital services.

Although some callers will be given the choice of holding for an adviser, other calls will be automatically disconnected after a message explaining a text message has been sent. The message might point towards information on the gov.uk website, which can help with the enquiry, or to the webchat service.

The HMRC app can be found here for Apple users and here for Android users.

Photo by Neil Soni on Unsplash