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Month: July 2024

Sales suppression one-to-many letter

Written by admin on . Posted in HMRC Investigations, Litigation & Dispute Resolution, VAT. No Comments on Sales suppression one-to-many letter

HMRC has launched a campaign of one-to-many letters given its increasing concern surrounding the electronic suppression of sales (ESS). The campaign targets businesses that might have unpaid taxes due to misuse of their till systems.

ESS allows a till system to hide or alter the value of individual transactions, while producing a credible audit trail. For example, only one out of every four sales might be recorded, resulting in lower reported turnover. Lower reported turnover means income tax or corporation tax is underreported, along with VAT.

One-to-many letter

The letter provides an opportunity for a business to get its tax affairs in order by making a voluntary disclosure of underreported sales:

  • The different penalties that can be charged are explained. These can be reduced if full disclosure is made.
  • The letter also explains what further action HMRC might take if a business avoids paying any tax it owes.

HMRC’s campaign is expected to run for at least a year. Even if your sales have been correctly reported, you still need to confirm this within 30 days of receiving a one-to-many letter.

Penalties

A new penalty has been introduced, along with the usual penalties for inaccuracies, for being in possession of an ESS tool:

This is defined as software or hardware which allows a business to hide or reduce the value of individual transactions on its electronic sales records. It includes using a till – or modifying a till – to suppress sales.

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

A penalty can be charged for simply being in possession of an ESS tool, regardless of whether the tool is actually used to suppress sales. Possession also includes access to, or even trying to access, an ESS tool.

HMRC’s guidance on ESS can be found here.

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Small businesses top tax gap defaulters

Written by admin on . Posted in HMRC Investigations, Income Tax, Insolvency, PAYE. No Comments on Small businesses top tax gap defaulters

The tax gap increased in 2022/2023, to a record £39.8 billion, with small businesses being blamed for around 60% of uncollected taxes.

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and, , what is actually paid. Despite the record high receipts in monetary terms, the overall tax gap has fallen in percentage terms. It is now estimated that 4.8% of taxes are unpaid compared with 7.4% back in 2005/06.

Small companies

The worst offenders are small limited companies, with the amount of unpaid corporation tax now standing at £10.9 billion, nearly triple the £3.7 billion of five years ago. This means:

  • In percentage terms, the tax gap for small companies is a somewhat alarming 32.2%.
  • Some 45% of small businesses have submitted an incorrect corporation tax return containing an under-declared tax liability.

By comparison, the tax gap for mid-sized companies is 6.7%, and for large companies is 2.9%.

High tax take

Recently released figures also give a stark illustration of how much the tax take has increased:

  • The theoretical amount of tax liabilities has been growing at around 15% a year, increasing from £640.1 billion for 2020/21 to £823.8 billion in 2022/23.
  • The theoretical amount has nearly doubled since 2005/06.

Tax receipts as a proportion of GDP over the past 20 years have previously been steady at around 28% but now stand at just over 30%.

Behaviour

The two types of behaviour contributing most to the tax gap are:

  • failure to take reasonable care; and
  • criminal actions.

Failure to take reasonable care means not spending the time and effort to make sure reported figures are correct. Directors of limited companies are generally expected to exercise a higher level of reasonable care compared to small sole traders.

If you need help with your tax liabilities, please get in touch.

HMRC’s summary of the latest tax gap figures can be found here.

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Class 4 NIC reductions benefit the self-employed

Written by admin on . Posted in Income Tax, National Insurance Contributions, self-assessment, Self-Employed. No Comments on Class 4 NIC reductions benefit the self-employed

Self-employed workers will see a substantial reduction in their Class 4 national in announced in the 202surance contributions (NICs) for the current tax year after two percentage cuts were 3 Autumn Statement and 2024 March Budget.

Maximum saving

Class 4 NICs are earnings-related with the main rate paid on profits between £12,570 and £50,270. For 2023/24, the main rate was 9%, but for 2024/25, it is reduced to 6% – representing a maximum saving of £1,131. Add to that:

  • Self-employed people with profits of £6,725 or more no longer pay £179 of Class 2 NICs with potential savings of £1,310 compared to last year.
  • A husband-and-wife partnership could benefit to the tune of £2,620.

The additional rate of Class 4 NICs on profits in excess of £50,270 is 2% and this rate is unchanged from 2023/24.

However, there can be less tax saving for business investment for 2024/25. Buying a new laptop for £1,500, for example, would have saved a basic rate taxpayer £435 last year, but the tax saving is now £390.

Lower profits

Those who are self-employed with profits of less than £50,270 will see the following reductions to their total NIC liability:

Profit 2024/25 NICs Reduction
£15,000    £146 £232
£25,000    £746 £552
£35,000 £1,346 £852
£45,000 £1,946 £1,152

Tax thresholds

NICs cannot, of course, be considered in isolation. The personal allowance and basic rate income tax thresholds remain frozen at 2021 levels with the NIC reductions insufficient to offset fiscal drag.

However, for Class 4 NIC purposes, it has been beneficial to have the main rate threshold frozen at £50,270. If it had been increased to, for example, £60,000, the self-employed would be paying 6% – rather than the 2% additional rate – on a further £9,730 of profits.

A House of Commons explainer on fiscal drag gives a summary of the points here.

The 2024 Budget factsheet explaining the changes can be found here.

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HMRC and Provisional Liquidations via S.234 Insolvency Act 1986

Written by admin on . Posted in HMRC Investigations, Insolvency, PAYE. No Comments on HMRC and Provisional Liquidations via S.234 Insolvency Act 1986

We are seeing a marked increase in HMRC’s use of provisional liquidations particularly where umbrella companies are concerned. Some readers may have an opinion on umbrella companies and may argue that HMRC are on the right track, personally, and in the immortal words of the fictional Francis Urquart: “You might very well think that. I couldn’t possibly comment“. That said, anyone who has been directly involved in working these cases will know how draconian the granting of a provisional liquidation order can be on the directors and by extension, their families.

Such orders include the appointment of a liquidator who quite naturally is charged with preserving the assets of the company, investigating the conduct of the directors and retrieving company assets where there have been dispositions contrary to both company and insolvency law. Clients have had their offices and homes searched; business accounts frozen and limitations imposed on their ability to draw funds from these and in some instances, their personal bank accounts.

There are reasons why the insolvency act provides for a provisional liquidation and no doubt HMRC have genuine reasons for seeking the court’s consent to the grant of such an order. Trust me when I say that judges in these (ex-parte) cases are no walk overs and put up quite strenuous counter arguments to submissions made by HMRC and their counsel but there is no denying that there is usually a public interest argument for the consideration of the taking of the decision to intervene in the company in this manner.

If you’ve read this far then you won’t be surprised to learn that there is a reason for today’s blog on this subject. We have received yet another request from a client in dire need for assistance with their case and as I thrive off unusual and/or complicated cases, I’m more than likely going to say yes to taking their instructions. The thing is; despite the onboarding of colleagues to my team, I am nearing capacity, and besides this, I really could do with the input of a tax lawyer/investigator/specialist with experience in this area and thought I’d reach out to my LinkedIn contacts to see who might be interested in working with me on one of these cases – needless to say this would be on a consultancy basis.

So, sticking with my tv/film references, as Gabrielle Union once said, if you got it: “Bring It” (please!?!). Might be best to call, DM or email me for an initial chat.

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From victory to Budget? Labour’s first 100 days

Written by admin on . Posted in Budget. No Comments on From victory to Budget? Labour’s first 100 days

With a majority of over 200 and a weight of expectations, what happens next for Sir Kier Starmer’s new Labour government?

The importance of the first 100 days of a new government cannot be understated. Within that period the new incumbent has the greatest political capital to take bold actions, as well as the greatest opportunity to lay the blame for ‘inherited’ problems on its predecessor.

Given the timing of the election, Labour’s first 100 days are a little complicated and will look something like this:

17 July This date has been set for the State Opening of Parliament and the King’s Speech. Before then parliament will have gone through the process of electing a Commons Speaker and swearing in the fresh intake of MPs.

The King’s Speech will provide an insight into the new government’s immediate priorities and could reveal the first surprises.

Early August? The House of Commons was due to start its summer recess on 23 July before the election was called, but that would not leave enough time for the debate of the King’s Speech. Unless the summer recess is delayed, the new government won’t have time to get to work on those commitments.

13 September Presuming one of Chancellor Rachel Reeves’s first acts was to give notice to the Office for Budget Responsibility on 5 July to start preparing its Economic and Fiscal Outlook, then – perhaps ominously – Friday 13 September would be the earliest date she could give her Budget. However, speculation is growing that there will be no Budget before October. One reason is 22 September…

22 September The Labour Party conference in Liverpool runs from 22–25 September 2024. Previously parliament has had a three-to-four-week recess to cover the conference season. The new government may reduce the length of this recess, although it is unlikely that Labour MPs will be at Westminster rather than at what is set to be a victory conference.

12 October Counting from 5 July, 12 October will mark the end of Labour’s first 100 days. As suggested, we could still be waiting for Rachel Reeves’ first Budget. At her first speech and press conference at the Treasury on 8 July, she confirmed she will present an interim report to Parliament on the state of the government’s finances, or Labour’s “spending inheritance”, before the recess, with the Budget to come later. She may combine her fiscal premiere with the announcement of the Spending Review as the two are closely related.

There. That’s my musing over and done with. Thoughts?

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HMRC warning on a new wave of scam messages

Written by admin on . Posted in Uncategorized. No Comments on HMRC warning on a new wave of scam messages

HMRC is warning iPhone users about a new wave of scam text messages claiming to be about tax refunds. Unlike most spam texts, these reportedly cannot be blocked by iPhones or reported to the usual Ofcom anti-spam number.

The scam messages are targeted solely at the owners of Apple devices and claim that the recipient is entitled to a tax refund. Scam messages can also be sent through an email, other messaging services or social media. QR codes are also used. Unwary users will end up being directed to a fake link.

HMRC has said that 79,000 fake tax refund scams were reported in the year to January 2024, which is nearly 40% up on the preceding year. Real figures are almost certainly much higher.

Spotting a scam message

What is the advice to worried iPhone users who do not want to be scammed? HMRC point out that they will never contact taxpayers by text message or email in relation to a tax refund. Instead, the taxpayer would receive an official letter. Nor will HMRC ask for personal details or payment information to be disclosed in a text or email.

While scammers may be able to find out your name – for example, if your email address is PeterSmith@gmail.com – they should not have access to your unique tax reference (UTR) or NI number. Warning bells should be ringing if a text or email includes these details.

Tax refund scams

Although the prime time for tax refund scams – February – has passed, taxpayers still need to be on alert the year round:

  • A scam message will typically link to a fake HMRC website. These fake websites will have been copied from the genuine HMRC website, so can be quite convincing.
  • The taxpayer will then be asked to enter debit or credit card details.

Tax refund scams are designed to access a taxpayer’s bank account, or to obtain personal details which can then be sold on the web.

HMRC’s guidance on identifying tax scam phone calls, emails and text messages can be found here.

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Welcoming Simon Newsham to the Nexa Law Tax Team

Written by admin on . Posted in Employment Tax, Law, Litigation & Dispute Resolution, Tax, VAT. No Comments on Welcoming Simon Newsham to the Nexa Law Tax Team

As some of you will recall, a few months ago, following an increase in the number of insolvency-related inquiries, I reached out to my LinkedIn contacts for help in finding professionals to join my team at Nexa Law. I am pleased to report that the search exceeded expectations and I now have three excellent practitioners in my team and one in training!

The significant expansion in the number of insolvency instructions has meant that my tax practice has taken a hit as I have been too busy to take on new instructions and have been turning clients and Nexa colleagues away or outside the firm.

Not anymore though:

It gives me great pleasure to announce the arrival of Simon Newsham to Nexa Law.

Simon is both a Solicitor and CTA (Chartered Tax Adviser). He brings a wealth of experience and expertise to our firm and will work closely with our colleagues and clients, to provide them with a combination of legal and taxation skills to provide the optimum solution for complex situations where tax knowledge is crucial to avoiding future problems and maintaining business value.

Simon’s arrival will allow me to concentrate on growing Nexa Law’s insolvency capacity as we continue to see an influx of requests for adjournments/injunctions following the issuing of winding up petitions – predominantly focussing on those issued by HMRC who are being quite active in this space, and a ten-fold increase in applications for validation orders for clients with frozen bank accounts as a result of same.

Welcome aboard, Simon Newsham! Here’s to a successful journey ahead at Nexa Law!

New carer’s leave in effect

Written by admin on . Posted in Employment Law. No Comments on New carer’s leave in effect

Employers need to be aware that since 6 April 2024, employees are entitled to take a week’s unpaid leave each year if they need to fulfil caring responsibilities for a dependant. An important consideration is when an employer is entitled to postpone a request for carer’s leave.

The basics:

Employees are entitled to carer’s leave from their first day of employment. The provision means:

  • A dependant can be anyone who relies on the employee for care, not just family members. Dependency could be because of old age, a disability, illness or injury.
  • One week of unpaid leave can be taken every 12 months, with a week being the length of time normally worked over seven days.
  • An employee can take a whole week or take the leave in individual days or half days.
  • The minimum notice period to be given to the employer depends on the number of days leave to be taken.

Apart from more obvious examples, carer’s leave could be used to care for an elderly neighbour when their main carer is unavailable, or to accompany a housebound relative on a day trip.

As an alternative to carer’s leave, an employee might be able to instead take time off for dependants, parental leave or holiday entitlement.

Postponement

A request for carer’s leave cannot be refused, but an employer can ask for it to be taken at a different time if the employee’s absence would cause serious disruption. The request can be postponed for up to one month. Options to consider include:

  • Could an employee from another team or branch be temporarily reallocated to cover for the employee taking carer’s leave?
  • Is the employee open to taking a shorter period of carer’s leave, such as a half day rather than a full day, if this overcomes the serious disruption issue?

The Acas guide to carer’s leave can be found here.

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Child benefit charge changes confirmed

Written by admin on . Posted in High Income Child Benefit Charge, self-assessment. No Comments on Child benefit charge changes confirmed

Taxpayers will benefit from the changes made to the high income child benefit charge thanks to all tax measures from the March 2024 Budget being enacted before parliament was prorogued.

Changes to benefit charge

For 2024/25, the high income child benefit charge (HICBC) does not apply until income exceeds £60,000, a £10,000 increase from the previous threshold of £50,000. This means:

  • A parent earning £60,000, who would previously have lost all of their child benefit claim, now keeps the entire amount.
  • The rate of withdrawal is halved, so child benefit is not fully withdrawn until an individual’s income reaches £80,000 (previously £60,000). The charge now removes 2% of child benefit for every £100 of income over £60,000.
  • Once income reaches £80,000, the charge is 100%. Therefore, the child benefit claim is effectively reduced to nil.

Despite the changes, the HICBC can still mean a high effective marginal rate of tax.

Calculating income

A recently lost appeal to HMRC shows the importance of correctly calculating income for threshold purposes.

The taxpayer’s basic salary did not exceed the former HICBC income threshold of £50,000, but for the seven years under investigation he had overlooked the taxable benefit from having a company car. This was sufficient to take income over £50,000, so the charge was payable.

Taxpayers therefore need to be particularly careful when calculating income:

  • Savings income is likely to be much higher than previously given increased interest rates. The gross amount is included, ignoring the £500 savings allowance.
  • Dividend income, including reinvested dividends, has to be included ignoring the £500 dividend allowance.
  • Income from a lodger within the £7,500 exemption is ignored, as is any income within an individual savings account.

The gross amount of pension contributions and gift aid donations reduce the income figure, providing a useful tax planning opportunity where income is between £60,000 and £80,000.

Don’t forget to extend child benefit claims for 16- to 19-year-olds who continue in approved education or training. This can be done online or using the HMRC app.

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