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.
GDPR Tax Credit Con
The Information Commissioners Office (ICO) is responsible for enforcing penalties under the Data Protection Act 2018, which enacted the GDPR, and the penalties can be severe.
Small and medium sized companies, particularly in the IT sector, are being approached by various firms offering a service that checks their risk of a GDPR fine and offers a way to pay for this service while receiving a substantial corporation tax refund.
What the promoters are offering is a fake tax scheme that can’t work and is positively dangerous to any company that uses it.
This is the sting:
- The promotors produce a report detailing what level of financial penalties the company could face for GDPR non-compliance.
- This figure is used as a provision for the estimated GDPR penalty costs in the company’s accounts.
- The company adjusts its accounts for an earlier year (or three!) to include this provision that reduces taxable profits.
- The tax return for the earlier period is amended to reflect the lower taxable profits, which triggers a tax repayment.
- The promoter of the fake tax scheme takes a fee of 30% of the tax repayment, plus VAT.
But this deduction is not allowable on normal tax and accounting principles.
If you do make such a provision in your accounts for an unquantifiable GDPR fine and claim a tax repayment, HMRC will probably pay the claim automatically. That’s just what they do.
But once HMRC realise that you have used the fake GDPR tax credit scheme it will open an enquiry into the company. With the tax repayment at the centre of the scheme repaid in full, with no deduction for the fee paid to the scheme promoter, plus interest at 7.5%.
HMRC will also charge a penalty for a deliberate inaccuracy in a corporation tax return which could be up to 70% of the over-claimed tax.
HMRC Chasing PSCs.
The tax office is writing to persons with significant control registered at Companies House who declared income of less than £100,000 on their last tax return, or who haven’t submitted a tax return.
A PSC is broadly a person who:
- holds (directly or indirectly) more than 25% of the shares or voting rights in a company; or
- has the right to appoint or remove most of the directors of a company; or
- has significant influence or control over the company.
HMRC Wealthy Team is sending a total of 1,790 nudge letters targeted to the following groups of PSCs:
- Those who declared income under £100,000 in their most recent return.
- Those who haven’t submitted a self-assessment tax return.
As far as HMRC is concerned it has targeted the letters to taxpayers who have reported a “lower than expected level of income on their tax return compared to most people in a similar position”.
This nudge letter asks you to check your 2021/22 tax return for any benefits or gains which should have been declared, such as:
- Use of business assets
- Transfer of business assets to or from the company
- Loans from the company
- Share options
- Disposal of shares in the company
If a correction to the tax return is required, HMRC has asked that this be done by 18 August 2023, although the taxpayer technically has until 31 January 2024 to amend their 2021/22 tax return.
The other people HMRC are targeting are those who have not submitted a tax return. For many years, HMRC’s practice had been to ask all company directors to submit SA tax returns, even if the individual received only a modest salary and a small level of dividends. The new version of the online checking tool for tax returns doesn’t trigger the individual to submit a return just because they are a director of their company. But the taxpayer is asked to complete a return if their dividend income is more than £10,000.
A new nudge letter being sent out asks you to register for self-assessment and submit a tax return for 2021/22 by 18 August 2023, or to email firstname.lastname@example.org or call: 03000 520 503, if you don’t think you need to submit a return. But don’t panic unless you get the nudge letter.
More “Named and Shamed” over NMW Breaches.
WH Smith, Marks and Spencer and Argos are some of the 200 employers named and shamed for failing to pay their employees the national minimum wage.
The 202 employers named this time around have paid back what they owe to employees and faced government penalties. These cases were resolved between 2017 and 2019.
Of the 202 employers on the list, 79 made deductions or payments that took the payments made below minimum wage. The deductions include:
- Parking permits and/or travel costs
- Cost of, or lost, work equipment and/or Personal Protective Equipment
- Stock or till shortages
- Training costs
- Christmas savings schemes (when administered incorrectly)
- Childcare costs
- Salary sacrifice schemes egg cycle to work, pension and employer benefit schemes
- Worker purchase of clothes to meet dress code
Something as simple as requiring trousers to be a specific colour can make the cost to the employee be factored into NMW calculations. Therefore, if an employee is being paid the NMW rate, and is required to buy black trousers, there is likely to be a breach.
The second most common error was for unpaid working time, with 78 of the 202 companies falling foul. Some of the top areas to be mindful of includes:
- Additional work before and after a worker’s shift
- Rounding clock-in time to the nearest hour
- Unpaid travel time
- Issues with final pay where employment has come to an end
- Pay is delayed/underpaid due to cashflow/cessation in trading/or ad hoc payments
- Paid for ‘regular’ hours or day rate, but a worker has worked for more time than this
- A salaried hours worker has worked in excess of basic hours
- Time for undertaking mandatory training
- Time worked during a sleep-in shift
- Trial shifts
So, if an employer requires a security check or bag search after a shift, this must be counted as working time.
The third largest error recorded was failure to pay the correct rates to apprentices.
HICBC and Disability Payments
The High Income Child Benefit Charge (HICBC) applies when ‘adjusted net income’ exceeds £50,000 in a tax year.
For simplicity, ‘adjusted net income’ is the same as ‘net taxable pay’, i.e., the pay on which the income tax calculation must be performed.
Income comprised of any sum made ‘on account of injury to, or disability of, an employee’ should be disregarded.
- There must be an identifiable medical condition, supported by medical evidence, that prevents the individual performing work under the contract of employment, and
- The payment made to the employee must be on account of the medically-supported disability and of nothing else
Where a payment is wholly made on account of disability but there are other factors to consider perhaps in a termination payment, “an apportionment may be necessary”.
Glasgow and North East Investment Zones
Both areas, made up of several different local authorities, will each benefit from an overall funding envelope of £80m over a five-year period, which will be spent on targeted investments, tax reliefs and other incentives.
The investment zones are focused on research institutions such as universities and focus on driving growth in priority sectors including technology, the creative industries, life sciences, advanced manufacturing and the green sector.
They will have enhanced rates for capital allowances and structures and buildings allowance as well as being exempt from stamp duty land tax, business rates and national insurance contributions.
Tax Credit Deadline
The deadline to update and manage tax credit claims is 31 July 2023 and HMRC is reminding people to not leave it until the last minute and to complete the renewal as soon as possible.
Just over 300,000 customers who received a renewal pack with a red line across the first page still need to confirm their circumstances for the current tax year.
These include changes to living arrangements, childcare, working hours or a change in income, the tax authority said.
HMRC issued two types of renewal packs to 1.5 million claimants between 2 May and 15 June 2023. These included ‘reply now’ packs, which had a red line across the first page, asking for confirmation for claimants to renew their tax credits.
The other type, titled ‘check now’, displayed a black line across the page, meaning that claimants do not need to make any changes – with the credits being automatically renewed.
Complex Scams on the Rise
In the last financial year, the Financial Ombudsman Service received 21,918 fraud and scam complaints.
Half were about APP scams.
In an APP scam, a criminal will trick their victim into sending money directly from their account to an account which the criminal controls.
Losses due to APP scams were £583.2m in 2021, according to a report by UK Finance. This was split between personal (£505.8m) and non-personal or business (£77.4m).
Over a third of the APP scam complaints were about investment scams, most of which including an element of cryptocurrency.
Often the scams are simply classic investment scams, whereby victims are attracted by the promise of large returns. These are usually on online platforms which purport to have generated huge profits for the investor, and when the victims ask to withdraw the profits made, they are then faced with an advance fee fraud, namely the need to pay some kind of fee, for example for tax, before the funds can be released.
In reality, no profits have been generated at all, and the original investment has simply been stolen, as will the advance fee if paid.
HMRC Targets Online Influencers
The first point to note is that there are no special tax rules for influencers, who are treated in the same way as other self-employed individuals. Even if income earned from influencing is not a main source of income, it still needs to be declared to HMRC.
Whatever their background, influencers seek to generate revenue by creating valued content and interacting with followers to promote themselves and other brands and to increase the size of their following on online platforms.
Having identified individuals with potential earnings from online activity, HMRC are running targeted campaigns aimed at them, and using compliance techniques to encourage tax compliant behaviour, such as sending ‘nudge letters’ to influencers who may have failed to report or declare earnings in a tax return.
Anyone living in the UK and making a profit from online content needs to be aware of their tax obligations. It is likely that the profit will be taxable and must be reported to HMRC through a tax return.
As well as earning monetary income, gifts are also usually classed as income, meaning that influencers who are ‘gifted’ products or experiences in exchange for a feature can have an obligation to include the monetary value of these in calculating income for tax purposes.
An influencer who sells physical goods or who supplies intangible services may have a liability to register for VAT in the UK. A potential VAT liability also exists when supplying digital services to overseas consumers.
Failure to act, particularly following receipt of a nudge letter, can lead to higher penalties and an escalation in action from HMRC.
10% Working in Hidden Economy
HMRC has estimated that 8.8% of the UK adult population – equivalent to 5,925,000 people – were identified as participating in the hidden economy.
Only 1.1% are estimated to have earned more than £5,000 of undeclared income.
HMRC Appeals Gary Lineker IR35 Case
The First Tier Tribunal ruled in favour of Lineker in March this year, after he appealed a tax demand from HMRC for unpaid tax of £4.9m related to earnings between 2013 and 2018 for TV presenter work for the BBC and BT Sport.
The Upper Tribunal will have to review the case on a point of law, not on the basis of the entire case.
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.