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Month: July 2023

Tax gap at all-time low

Written by admin on . Posted in Making Tax Digital, MTD, Tax. No Comments on Tax gap at all-time low

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. For 2021/22, the gap was at an all-time low of 4.8% (or £35.8 billion), although in monetary terms the gap increased by some £7 billion from 2020/21.

Small businesses

Recently published figures from HMRC show that small businesses now account for the largest share of the tax gap, at 56% of the total or just over £20 billion. This percentage has grown steadily from 40% in 2017/18. By comparison, the share for mid-sized and large businesses has fallen from 18% to 11% over the same period.

There isn’t sufficient information to understand what is happening here, but there are a couple of possibilities:

  • Having endured the challenges of the Covid-19 pandemic and now facing an equally tough economic climate, small businesses may be under-declaring income or, more likely given most sales are now done electronically, overclaiming on expense deductions.
  • At the same time, HMRC now lacks the resources to carry out extensive tax investigations.

And, of course, having an extremely complex tax system doesn’t help.

The whole concept of the tax gap has been subject to criticism, especially as HMRC does not explain how figures are calculated.

Making Tax Digital (MTD)

HMRC has been accused of using the tax gap to push their own agenda, in particular, making a case for MTD.

MTD for the self-employed and landlords is now not set to start until April 2026. MTD for VAT has been introduced in stages since April 2019, with virtually all VAT-registered business now included. The tax gap for VAT, although showing some improvement since 2018/19, doesn’t exactly support the need for MTD – the VAT gap fell from 6.4% in 2018/19 to 5.4% in 2021/22.

HMRC’s press release on the latest tax gap figures, along with more detailed information, can be found here.

Photo by Alex Radelich on Unsplash

Businesses failing to pay minimum wage

Written by admin on . Posted in HMRC Investigations, National Living Wage, National Minimum Wage. No Comments on Businesses failing to pay minimum wage

Just over 200 businesses – including some of the country’s best-known retailers ­– have failed to pay the minimum wage and will have to repay workers and face penalties of up to £7 million.

The minimum wage rules can be complex, and the fact that some major retailers have been caught out shows just how difficult compliance can be.

Uniforms

One particular area where businesses were not compliant was in regard to uniforms. The rules differ depending on whether uniforms are required as a condition or employment or if they are optional.

  • If employees are required to wear specific uniforms, any deduction by the employer to cover the cost reduces pay for minimum wage purposes. Similarly, if an employee has to reimburse their employer or has to purchase the uniform themself.
  • If uniforms are optional, pay is only reduced where the employer makes a deduction from the employee’s pay.


Working time

The other major problem area was paying correctly for time worked. This is not anywhere as simple as might first appear as illustrated by these examples:

  • Being on standby near the workplace counts as working time, but not if the worker is on standby at home nearby.
  • Travelling between assignments counts, but from home to the first assignment, and then from the last assignment back home does not – unless the first and last trips are by train and the employee is working on their laptop.


Penalties

A penalty of up to 200% of the unpaid wages can be charged, subject to a maximum penalty of £20,000 for each employee. However, the penalty will be cut in half if the unpaid wages and penalty are paid within 14 days.

Non-compliant employers will also be named and shamed, even where minimum wage underpayment is not intentional.

It is worth taking advice if an employer has any uncertainty over their wage position. A business can check if it is paying the correct amounts of National Living Wage and National Minimum Wage using HMRC’s calculator here.

Photo by Emily Morter on Unsplash

HMRC offers options on undeclared wealth

Written by admin on . Posted in Income Tax, Litigation & Dispute Resolution, Wealth. No Comments on HMRC offers options on undeclared wealth

HMRC is offering taxpayers named in the leaked Pandora Papers a chance to correct their tax affairs. The October 2021 leak involved almost 12 million documents revealing hidden wealth and tax avoidance.

The papers revealed that many taxpayers had used shell companies to hold luxury items such as property and yachts.

HMRC has reviewed the papers and found UK residents who they believe have untaxed offshore assets. They are now warning those taxpayers that they might face penalties of up to 200% on the tax due, and there is also the possibility of prosecution.

Disclosure

There are two alternatives for taxpayers who wish to disclose tax due on undeclared overseas income or gains:

  • The Worldwide Disclosure Facility: This can be used by anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue. With this alternative, there is no protection from prosecution if, for example, there has been tax evasion.
  • The Contractual Disclosure Facility: This can only be used to admit to tax fraud, and not other types of disclosure. HMRC will agree not to criminally investigate, so this is the best option where there is dishonesty or fraud.

Voluntary disclosure may help mitigate penalties due, and also provide some measure of control over the process.

Receipt of a letter

Anyone who receives a letter from HMRC should review their tax position, and, if disclosure is required, take immediate steps to correct the situation. Given the complexity of overseas tax matters, professional advice is recommended.

The Pandora Papers is the third major leak of financial information, and with HMRC having 12 years to investigate offshore non-compliance, it should serve as a timely reminder to taxpayers who fail to declare and pay tax on overseas income and gains and think that HMRC will never find out.

HMRC’s press release on giving offshore taxpayers a chance to come clean, along with links to disclosure options, can be found here.

Photo by Noel Nichols on Unsplash

Let’s talk about the National insurance gap extension

Written by admin on . Posted in Pensioners, Pensions, Wealth. No Comments on Let’s talk about the National insurance gap extension

The normal time limit for a person to fill gaps in their national insurance (NI) record is six years, but transitional arrangements allow gaps to be filled back to 2006/07. The deadline for making such contributions was recently extended to 31 July 2023, but has now been extended to 5 April 2025.

The deadline has been delayed because people have been finding it difficult to get through on pension helplines once the July deadline received a publicity boost. The transitional arrangement will now apply for the years 2006/07 to 2017/18.

Voluntary NI contributions for the years 2006/07 to 2017/18 paid by 5 April 2025 will be at the 2022/23 rate of £15.85 a week, even though the rate is currently £17.45.

Contribution record

The first step is for a person to check their state pension forecast and NI record. This can easily be done online.

  • Voluntary contributions will not always increase the amount of state pension. The decision can be especially complex if contracted out of the state pension prior to 2016.
  • A person in very poor health or with a short life expectancy will probably not benefit from voluntary contributions.

Personalised advice can be obtained by contacting the Future Pension Centre (if not yet at state pension age) or the Pension Service (if already receiving the state pension).

The benefit

A person needs 35 qualifying years on their NI record to qualify for the full state pension, which is currently £10,600 a year. To add a full year the cost is £824, but this will boost annual pension entitlement by some £303 – a very respectable return for someone who then enjoys at least five years of retirement.

The return will be even better if partially complete years can be filled since these might only require a few missing weeks – at £15.85 per week – to be paid.

A state pension forecast can be obtained here.

Photo by Diana Parkhouse on Unsplash

Action to counter increase in UK wide fraudulent activity

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The government has announced a new initiative to counter fraudulent activity, particularly in the financial sector.

You might not be surprised to learn that fraud is now the most common crime in England and Wales, although you may not be aware that it accounts for more than 40% of all crime. The growth in fraud has so far not been accompanied by a corresponding increase in prevention measures. At present, less than 1% of police resource is directed towards dealing with fraud.

In May, the Home Secretary announced a new fraud strategy ­– Stopping Scams and Protecting the Public. The Home Office’s plans include:

Stopping abuse of the telecom networks: Many scams start with unsolicited calls and text messages. The government says it will be “making it harder” for criminals to spoof phone numbers, which make their calls appear to be coming from your bank or another trusted source. Under the same heading, the government has launched a consultation on banning SIM farms, devices that can send thousands of fraudulent texts in a matter of seconds.

A ban on cold calling on investment products: Currently, there is a ban on cold calls from personal injury firms and pension providers (unless the consumer has explicitly agreed to be contacted). The government plans to extend this ban to all investment products, with an initial consultation on the mechanics “by summer”. The logic behind this move is that the ban will mean that anyone receiving such a call will know it is unauthorised – assuming they are aware of the law.

More protection for fraud victims: If you are a victim of unauthorised fraud (such as bank card theft), you are entitled by law to be reimbursed by your bank within 48 hours. However, if you fall foul of authorised fraud – for example, by being tricked into transferring money – you are currently not eligible for the same level of protection. The Financial Services and Markets Bill, currently on its way through parliament, will remove this distinction.

These and the many other proposals will inevitably take time to reach the statute book and, as now, will encounter the problem of offshore and ever more creative fraudsters. In the meantime, there is one sound piece of advice – if you receive an unsolicited call from your bank, the police or anyone else, tell them you will call them back on the number you have (e.g. on your bank card). A scammer will do everything to prevent that happening, but a genuine caller will have no such issue.

Find out more about the latest fraud strategy here.

Photo by Jon Tyson on Unsplash

Tax and your home solar panel system

Written by admin on . Posted in Income Tax, self-assessment, Tax. No Comments on Tax and your home solar panel system

With continuing high electricity prices, now could be a very good time to install solar panels at your property. Unless a solar battery is part of the system, it makes sense to sell excess electricity back to the national grid. Normally such sales are free from tax, but there is an exception you should be aware of.

Exemption rules

The sale of excess electricity – from what is known as microgeneration system – is exempt provided the intention is to match the individual’s own home consumption needs.

  • The system must be installed at or near an individual’s home, e.g. rooftop solar panels; and
  • The amount of electricity generated by the system should not significantly exceed domestic needs – HMRC allow a 20% margin here, so the system can generate 120% of domestic needs before sales to the grid become taxable.

Even if electricity sales to the grid are taxable, they might still be covered by the £1,000 trading allowance. If income exceeds the allowance, a £1,000 deduction can be claimed.

Unless a solar battery is used, around half of the electricity generated may end up being sold back to the grid. Install too large a system and these sales will be taxable. This will extend the typical eight-to-ten-year payback period for solar panels, especially if higher rates of tax are involved.

Smart export guarantee

Larger energy suppliers have to pay for excess electricity that is exported to the national grid under the smart export guarantee (SEG) scheme. Any energy company can be chosen, but care should be taken as rates vary significantly – from 1p/per kWh up to a potential 15p/per kWh. Even higher rates might be available if a variable tariff is chosen.

The best SEG rates are normally only available when the same energy supplier is used to supply electricity.

Details of the best SEG available rates can be found here .

Photo by Giorgio Trovato on Unsplash