Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
HMRC’s In-house IT Provider
Did you know that HMRC had its own IT company? Well, it will not any longer. HMRC is to shut down its in-house IT provider Revenue and Customs Digital Technology Services (RCDTS).
RCDTS was created in 2015 as a government-owned non-profit company with HMRC as its only customer.
It is part of their strategy to move away from major IT contracts and developing a new technology supply chain model. HMRC has stated that it intends to ‘create an IT organisation and partnership that will enable HMRC to make the most of new technology to improve services for customers.
What does that all mean? Looks like they will buy in what they need rather than trying to develop it themselves.
There are no planned redundancies because of the closure as RCDTS employees are either being transferred into the tax department or to commercial providers with HMRC contracts. So, probably no cost savings.
In HMRC’s 2021 annual report, the total headcount for the company was 786 which was 27 more than the previous year.
In the tax authority’s latest annual accounts, it spent £80.9m on the services delivered by RCDTS which is £9m more than it spent the previous year. The increase in spending was due to its Covid-19 response and Brexit.
In the Autumn Budget, HMRC received £277m to support its work over the next three years on transforming IT procurement. The spending review also gave £468m to help HMRC ‘reduce the risk of system failures, enhance the department’s ability to defend against cyberattacks, and support the continued digitisation and modernisation of the tax system’. This sum followed the £268m that was given to HMRC in 2020 to help it urgently address issues with legacy IT.
The Uber Decision
Self-employed taxi drivers typically trade below the UK VAT registration threshold of £85,000 and, as such, are not required to charge VAT on the taxi fare paid by the consumer.
Taxi operators like Uber took the view that they are acting as a booking agent and therefore only need to account for VAT on the commission received.
HMRC on the other hand considers that taxi operators are acting as principal and are therefore required to account for VAT on the full taxi fare.
The Uber case was not directly about VAT but the High Court held that in order to comply with the provisions of the Private Hire Vehicles (London) Act 1998, Uber and Free Now would have to accept a contractual obligation to the passenger as a principal. This them impacts on the treatment of VAT.
All taxi operators will need to consider the implications of the decision, both from a historic and prospective position.
Going forward, the decision also means consumers will likely face a 20% price increase on some taxi rides as taxi operators have to charge VAT on the full price of the journey.
The case applies to ride-hailing apps and the specific legal regime under which they operate. Other taxi operators may well be unaffected by this decision.
Automatic Exchange of Information Regulations
New rules are being introduced from 1 January 2023 in respect of the Automatic Exchange of Information (AEOI) regulations for certain digital platforms. This will require them to collect, report and maintain additional information from sellers using their services.
While these rules are predominately aimed at businesses in the sharing and gig economy, they may have wider application beyond the sector.
HMRC’s Debt Collectors
In a Public Accounts Committee (PAC) meeting recently, HMRC’s chief executive Jim Harra stated that the increased use of private sector debt collectors has made it ‘easier’ for him to plug the staff shortfall at the tax office and will be an important tool in reducing the UK’s current tax debt.
HMRC does not have a statute of limitations to tax debts and would not write them off after a specific time frame.
Harra explained to MPs on the committee that HMRC has a process for tax debts which are split into two categories with debts that are ‘not realistically collectible as it is uneconomic, and those which are ‘worthwhile in pursuing’.
After reintroducing its enforcement activities after the impact of the pandemic, HMRC quickly managed to drive down the tax debt from September to November 2021. However, the Omicron variant and the introduction of Plan B slowed down the collection which will result in it missing its target for March 2022.
The Committee highlighted that HMRC’s current staffing levels could be seen as a ‘significant hindrance’ in its tax collection work ‘considering the size of the job at hand’, citing the NAO report which stated that HMRC would see a shortfall of around 300 full time staff with 1,000 expected to leave the department over the next three years.
The committee highlighted that rate of return from using private sector debt collectors. A National Audit Office report states that in 2019-21 private sector debt collection agencies had collected £466.8m in tax which is around an £18 return for every £1 spent. HMRC says it is a ‘like for like comparison with HRMC collecting around £20 for every £1 spent’.
It appears that outsourcing debt collection is ‘more flexible with bursts of activity at different times, that they specialise in specific areas of debt collection which helps recover more, and that by outsourcing HMRC can use it to compare its own services to market performance’.
Hiring and training all of the people that it would need is a massive strain on HMRC while using private sector companies allows the strain to be taken off of HMRC as it is easier and quicker to pay companies with the skills, data and know how to do the job there and then.
31 January self-assessment deadline
HMRC have introduced a one-month penalty waiver. However there are still implications of missing the 31 January deadline.
The 31 January deadline for self-assessment filing and payment is unchanged.
- interest applies to payments not made by 31 January, and
- the period for HMRC to enquire into returns is extended
Other issues to be taken into account include:
- Tax Credits – 31 January 2022 is also the deadline for providing final income figures for 2020/21, if the tax credit renewal was made by 31 July 2021, using estimated figures.
- Class 2 national insurance contributions (NIC) paid late could affect certain claims for contributory benefits.
- Partnership returns – HMRC has confirmed that individual partners will not be charged a late filing penalty in respect of a 2020/21 partnership return provided that the partnership return is filed online on or before 28 February.
- SEISS notification – Taxpayers who have not yet told HMRC about overpaid Self-Employment Income Support Scheme (SEISS) grants must declare those received from 6 April 2020 to 5 April 2021 on their 2020/21 tax return. If a taxpayer submits their return by 28 February 2022, instead of 31 January 2022, HMRC has said that taxpayers will not be charged a penalty unless there is a deliberate failure to tell HMRC about a SEISS grant overpayment.
Horizon Compensation Scheme
This is the 20-year scandal surrounding the Post Office Horizon computer system that resulted in several hundred wrongful convictions and financial ruin for thousands more.
The Post Office CEO told MPs that the organisation needed government support for the restitution effort as it “does not have the financial resources to compensate a miscarriage of justice of this scale”.
In total, 950 postmasters were prosecuted and 736 had unsafe convictions relating to Horizon.
A group of 555 post office operators challenged their convictions in a group action led by Alan Bates, who won a £57.75m settlement payment in the High Court in 2019. After allowing for legal costs, however, the claimants shared around £10m – less than £20,000 each.
In December, Bates appeared before a parliamentary inquiry to complain that he and his fellow litigants had been excluded from the latest round of compensation discussions. Around 2,500 former postmasters and mistresses who did not challenge the allegations and paid out the shortfalls have so far applied for a historical shortfall scheme that has been paying out interim settlements of up to £100,000.
The scale of compensation and the amounts the Post Office spent in resisting claims and the group litigation also came under the spotlight. According to Post Office, more than £300m has been paid out in compensation so far, not to mention associated legal fees alleged to be in the region of £100m.
The saga continues.
Apps such as Uber and Bolt are responsible for vast changes in the taxi and private hire vehicle (PHV) trade.
When lockdown commenced in March 2020, there was more need for drivers resulting in some switching from driving people to delivering goods or groceries and many others joining the industry for the first time.
The driver trade is now suffering from a labour shortage. The latest government figures put the number of licenced taxi and PHV drivers at 343,800, a figure that has dropped by more than 5% since hitting a record high in 2020.
Tax conditionality is part of HMRC’s push into what it calls the ‘hidden economy’. This not only targets taxi/PHV drivers and operators but also scrap metal businesses.
From 4 April 2022, conditionality is new legislation that will require all self-employed taxi and PHV drivers to pass a ‘tax check’ to renew their operational licence. HMRC has asked each separate local licencing authority to collect a tax check number separate from a taxpayer’s UTR. If this isn’t done, the licensing body will be unable to consider the application and the applicant will no longer be licenced to operate.
To acquire the 10-digit tax check number, drivers will have to go online to a gov.uk site and answer a series of questions. Although details are yet to be finalised, it’s believed questions will include things like how long the driver has held a licence.
Agents cannot do this.
The clampdown risks exacerbating the current shortage of drivers in the industry, as those who currently drive people could switch to delivering goods or food, or leave the trade completely, to avoid having to answer potentially difficult questions.
On top of this is the introduction of MTD for income tax and all the record keeping and filing obligations, which many drivers will not want to do, or pay for someone else to do.
Questions? If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or