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 the 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.
A homeless unemployed unsophisticated taxpayer tried to comply with his obligation to file a tax return fell victim to a fraud.
He only earned £2,500, which he wanted to report to HMRC. He appointed an agent he met in a pub. A return was filed showing a much higher income but including a fraudulent claim to seed enterprise investment scheme relief. The taxpayer never saw or authorised the return. The agent pocketed the tax refund generated by the EIS claim.
HMRC raised a discovery assessment which the taxpayer appealed Not only had he never seen the return but he received no correspondence from HMRC as he had no permanent address.
The First-tier Tribunal found the agent who filed the return was not the one he tried to appoint. As the filing agent had not been appointed by the taxpayer, the return was invalid and the appeal was allowed.
Bounce Back Loan Fraud Leads to Jail Term
A fraudulently claimed £20,000 bounce back loan has led to 2 years in jail.
Abdulrazag Zagroba, 54, from Manchester, appeared at Manchester Crown Court in June 2022 where he was sentenced to 24 months.
This was the first successful criminal prosecution of a bounce bank loan fraudster for the Insolvency Service.
The court heard that Zagroba was sole director of Amigo Pizza (Manchester) Ltd, incorporated in January 2020. The company operated a pizza takeaway business in Manchester until it was dissolved in October the same year.
Zagroba’s application to dissolve the company was originally signed on 17 June 2020 but less than two weeks later, he applied for a bounce back loan of £20,000.
He did not disclose to the bank that the company was already in the process of being dissolved and he signed the loan declaration stating the company would be able to make repayments. By the time the loan was due to be repaid in June 2021, the company had already been dissolved.
The terms of the bounce back loan were clear that funds could only be used for business purposes and not personal use. Zagroba admitted to having no intention of using the bounce back loan for the business.
He pleaded guilty to charges of fraudulently claiming Covid-19 financial support to which he was not entitled.
Scams – Paying Impersonators
Impersonation scams, also known as Authorised Push Payments (APP) involving fraudsters posing as the police or banks, to persuade people to transfer funds in increasing.
In addition, the level of CEO fraud more than doubled to £12.7m, up 165% on the previous year.
CEO fraud, also known as business email compromise (BEC), is a type of fraud that is enabled via social engineering. Social engineering is the manipulation of situations and people that results in the targeted individuals divulging conﬁdential information. Fraudsters pretend to be a senior manager – often the CEO – in order to persuade a staff member to make a payment. The instance of this is rising sharply and latest reports indicate it has reached £12.7m
To commit the fraud, the criminal will either access the company’s email system or use spoofing software to email a member of the finance team with what appears to be a genuine email from the CEO. The message commonly requests a change to payment details or for a payment to be made urgently to a new account.
A total of £1.3bn was stolen through fraud and scams in 2021 with nearly half down to authorised push payment (APP) fraud at £583.2m, while instances of CEO fraud soared
Here are some tips on how to protect your company from CEO fraud:
- always check unusual payment requests directly, ideally in person or by telephone, to confirm the instruction is genuine. Do not use contact details from an email or letter;
- establish documented internal processes for requesting and authorising all payments and be suspicious of any request to make a payment outside of the company’s standard process;
- be cautious about any unexpected emails or letters which request urgent bank transfers, even if the message appears to have originated from someone from your own organisation; and
- contact your bank straight away if you think you may have fallen for a CEO fraud.
EIS and SEIS
EIS and SEIS provide tax incentives to invest in small high-risk companies.
Enterprise investment relief
An individual must not be connected to the company at any time from the two years before the share issue until three years after the later of the share issue or commencement of the trade.
Connection includes being an employee or director but there are exceptions for directors if, broadly:
- they receive no payments during the above period, subject to some exclusions such as reimbursed expenses,
- where the first subscription of EIS or SEIS shares in the company was made before they became a remunerated director, and they subsequently only receive reasonable remuneration for directorship duties.
An individual who is entitled to acquire more than 30% of the company’s ordinary share capital, issued share capital or voting power or rights on a winding up is also treated as connected.
If you are already a remunerated director, or otherwise connected to the company, you will not be eligible for EIS relief. SEIS relief should be considered in these circumstances.
Seed enterprise investment relief
Providing that a company has only started to trade within the last two years, and has commenced a ‘new’ trade, it may be eligible for SEIS relief by subscribing for qualifying SEIS shares.
No SEIS qualifying shares can be issued subsequent to an EIS hare issue.
Like EIS an employee cannot claim, t but directors can.
There are similar connection tests to EIS including the 30% rule.
To be eligible for SEIS the company must be carrying on a new qualifying trade which will usually be a start-up, not an existing business acquired from another person.
Scotland’s Tax System
A recent report has stated that the Scottish tax system needs a major overhaul, rather than simply tinkering with the rates of current taxes, including a potential land tax to replace stamp duty. It says this is needed in order to attain higher tax revenues in the long term and that a demographic crisis is looming.
By 2045, Scotland’s population will be 1.5% lower and over 76s will be up by over two-thirds, whilst the population of those in their 30s, 40s and 50s will be static, and the population of under 30s will fall by 16%. This will have significant implications for tax raising as well as for government spending.’
Based on studies of similarly sized countries across the world, from New Zealand to Scandinavia, the report says that it is clear that the current structure of Scotland’s tax system is not fit for the future.
It proposes two options to raise the tax base in Scotland:
- align tax rates across labour and capital income for higher income earners, including the corporation tax rate to eliminates distortions and removes the incentive for high income earners to use company structures to ‘shelter’ income in order to pay lower rates of tax’.
- Apply a ‘dual income’ system. Labour income, including salaries and pensions, is taxed at higher progressive rates while capital income (e.g., interest, capital gains) is taxed at a low and usually ‘flat’ rate, along with the corporation tax rate. This second approach would ‘eliminate distortions and the scope for activities that exploit differences in tax rates.
However, this can lead to levels of tax avoidance with income shifting from labour to capital much as we have at present.
It also calls for a comprehensive review of the pros and cons of introducing a land tax based on asset values.
The report says that Scotland needs to start again and that it needs a new and fairer tax system, focused more on immobile tax bases such as wealth and less on mobile ones such as employment income.
While the report throws up some interesting questions, it does not really provide answers. This is maybe a reflection of just how difficult tax reform can be when there is a political agenda to accommodate.
Complaints to HMRC
HMRC received a total of 1,029 complaints from customers, equating to a 19% drop on the previous year. However, while the number of new cases for investigation in 2021–22 is 1,205, a drop from 1,358 in 2020–21, it is still more than pre-pandemic levels of 931 new cases in 2019–20.
The report also noted that, of all complaints received during 2021–22, 32% were upheld, highlighting a return to pre-pandemic levels.
The higher figure reflected a high number of Covid complaints, an area where HMRC has limited remit.
First Permanent Secretary and Chief Executive Jim Harra has acknowledged that the ramifications of the pandemic have continued to cause issues for the department.
“During the pandemic, our focus was on supporting our customers through the various Covid-19 support schemes. As a result, we made choices on the work we prioritised to protect our essential services and the livelihoods of our customers,” Harra wrote.
“This meant that some of our customer service levels weren’t where we would normally expect them to be. As HMRC works to restore normal service standards, we recognise that some customers may experience delays as we work through our backlog.”
Naming Rights and Gift Aid
A benefit received by a donor or connected person can sometimes render a donation ineligible for gift aid.
HMRC has recently updated the guidance to clarify when naming rights do not count as benefits. Sometimes charities may want to name a building or part of a building after an individual donor who has provided a substantial donation to the charity. As long as the naming does not act as an advertisement or sponsorship for a business, then the naming of the building or part of the building after the individual donor would not be considered a benefit. If separate advertisement or sponsorship agreements are entered into, these transactions would be outside the scope of the Gift Aid scheme.
The naming should therefore have been unsolicited and not at the request of the donor.
From this, it would seem that it will be easier to get relief if the name is that of an individual rather than a company or a business.
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 email me at email@example.com.