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 – SIC Codes
Many R&D claims are now being challenged by HMRC. This is quite a change from the way it used to be. These investigations can be time consuming and challenging.
At the end of the day HMRC staff look for a genuine technological advancement sought through work that was technically uncertain to resolve for a competent professional in the field.
The factors leading HMRC to instigate a compliance check can include:
- A lack of supporting documentation.
- Where costs claimed are inconsistent with the accounts.
- First-time high value claims.
- Significant increases in R&D expenses compared to previous claims.
- Companies with specific SIC codes.
It appears that HMRC are using the SIC codes at least in part to target their compliance activity because it enables them to focus on certain trade sectors that they consider to be high risk.
It has been found that claims from the following sectors are rarely successful:
- Care homes.
- Childcare providers.
- Personal trainers.
- Wholesalers and retailers.
- Real estate agents.
- Textile industries.
- The construction industry.
- Educational institutions.
- Consultancy firms.
Claims from these sectors are therefore more likely to be challenged, partly because HMRC cannot see that there can be any significant scope for R&D expenditure, or at least expenditure that properly attracts the tax advantages.
It is therefore important that you ensure that your company has the correct SIC code recorded, so that you don’t inadvertently find yourself targeted in error.
Is your SIC code accurate and actually reflects the type and nature of your industry and business y in the current year.
Many companies select a SIC code at the point of incorporation and choose one that closely relates to their intended activity at the outset of their business journey. The chosen code is then often forgotten about as the business grows and evolves. The original code is usually just rolled forward and included in the company’s annual accounts and Confirmation Statement.
It looks, therefore, that the often neglected SIC, is now becoming more crucial and should be regularly reviewed to ensure all potential R&D claimants are eligible for the credit.
Is HMRC a Wounded Beast?
HMRC is underfunded, under-resourced and its few remaining staff collectively suffer from ever-decreasing morale, or so we are led to believe. The culprits here are those controlling the purse strings at the Treasury.
The self-assessment tax system means self-service with minimal customer support and pitiful levels of scrutiny.
This is an environment in which noncompliance and fraud will be difficult to uncover and where you get a general view that no-one is getting caught, more and more will try their hand at avoiding a bit of tax.
As a result, the theoretical tax gap must almost certainly be increasing, with the blame being levelled at HMRC.
There are therefore going to be various reasons for errors in tax returns.
- Ignorance through lack of support. Note here the difficulty of getting through to HMRC on the phone.
- Where professional advisers perceive that there is a degree of uncertainty about interpretation, they may take the take the interpretation that best suits their client, given the low risk of enquiry.
- Wilful fraud because the chance of getting away with it is sufficiently high.
The answer would seem to be HMRC increasing staff numbers, and properly training and rewarding those involved in investigative work, and carrying out far more visits to discourage those who might be inclined to indulge in avoidance activities.
Bernie Ecclestone Tax Fraud
Bernie Ecclestone admitted the single charge of fraud following lengthy negotiations, and was sentenced to 17 months in prison, which was suspended for two years. He also paid HMRC more than £650m to cover the cost of the tax, interest and penalties.
Working with Singapore authorities, HMRC’s fraud investigation service uncovered that Ecclestone was the beneficiary of undisclosed rusts, including one that held £416m.
Ecclestone’s guilty plea shines the spotlight on HMRC investment in its offshore, corporate and wealthy unit (OCW). Set up off the back of the Panama Paper leaks, the OCW has around 500 staff and targets deliberate, high-value tax evasion, fraud and money laundering.
Non-payers of High Income Child Benefit Charge
It is reported that tax agents and accountants are about to receive letters from HMRC warning them that their clients have wrongly reported liability for the high income child benefit charge.
The HMRC letter highlights potential self-assessment errors in 2021-22 tax returns relating to the high income child benefit charge (HICBC) as well as P11D expenses claims and P14 end of year employee reports submitted by employers.
This follows a cross-referencing exercise to check instances where taxpayers are claiming child benefit but not paying the annual charge.
The letters state that a penalty will not be charged if a voluntary amendment is made by 31 January 2024, but that if one is not made HMRC will review the position and consider issuing a discovery assessment and charging a penalty.
Home Charging of Company Cars
The costs of charging are now treated as a tax-free benefit, whereas in the past HMRC said that where an employer reimburses their employee for the cost of charging a company-owned, wholly electric car that is available for private use, the reimbursement was taxable as earnings.
HMRC has now changed this position and regarding home charging of electric company cars.
This means that no separate charge to tax under the benefits code will arise where an employer reimburses the employee for the cost of electricity to charge their company car or van at home.
The exemption will however only apply providing it can be demonstrated that the electricity was used to charge the company car or van.
Employers will need to make sure that any reimbursement made towards the cost of electricity relates solely to the charging of their company car or van.
Corporation Tax and Associated Companies
The main rules defining associate companies apply when two companies are:
- under common control; or
- one company has control of the other company.
A company can be excluded as an associated company if it is not carrying on a trade at any time in the accounting period.
Control also includes associates who might include:
– spouses and civil partners;
– blood relatives; and
– trustees or settlors of trust beneficiaries.
The associates companies can be excluded if you can show that they are not substantially interdependent financially, economically and organisationally. If financial assistance has been provided to an associates company, this my therefore be a problem.
Self-assessment Returns Filed Early
Almost 250,000 people filed a self-assessment tax return in the first week of the tax year, up by 100,000 since 2018
HMRC said the data, which examined the number of taxpayers who filed between 6 and 12 April, also revealed the most popular day to file a tax return during that week was 6 April, the first day of the tax year, with Sunday being the least popular day to file. The highest figure was recorded during the pandemic when 270,000 taxpayers filed in the first week of the tax year.
Benefits of filing a tax return early:
- You can set up a budget payment plan
This lets you set up regular weekly or monthly payments, so you don’t have to face the bill in one horrible lump sum.
- You can plan ahead for the payment
You have a few extra months to put cash aside to cover a shortfall.
- If it turns out you don’t actually need to file, you can withdraw
If your circumstances have changed and you don’t need to file a tax return, you need to act now and let HMRC know, so they can have time to issue a withdrawal notice before the end of January. If you leave it to the deadline, you’ll need to do a tax return anyway in order to avoid a fine.
- You may get a speedy tax refund
Payments don’t have to be in until January, but if HMRC owes you money, your refund will be processed straight away. And because HMRC isn’t as busy at this time of year, it should be fairly speedy.
- You can do some tax planning before you file
Most of what you do now will only affect your tax bill for the current tax year, but there are a handful of ‘carry back’ opportunities to cut your bill for the year you’re filing a return for eg giving money to charity.
- You have longer to correct mistakes on previous tax returns
If completing your tax return makes you realise you have made a mistake on the previous year’s return, then you have until 31 January to submit an amendment.
VAT registration – The end of Paper
In future, all VAT registrations will have to be submitted online unless the you have a particular exemption.
From mid-November, you will have to register for VAT through the online VAT Registration Service using your Government Gateway account.
The following businesses cannot use this service:
- businesses applying for a ‘registration exception’;
- businesses joining the agricultural flat rate scheme;
- overseas partnerships; and
- entities (other than UK partnerships or non-established taxable persons) without a unique tax reference (UTR) number.
The move is part of HMRC’s plan to move all tax transactions online to cut costs and reduce reliance on call centre advisers.
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.