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.

 

£105bn Ers National Insurance

A major boost to the government’s coffers has been the rise in Ers NIC, up by 8bn in just one year to £105bn.

It has been rising steeply in the last few years. It is just tax after all. Many people see National Insurance as a tax on employment. The recent rise in minimum wage will further boost the NIC take.

If NIC is just a tax, what should be done with it.

National insurance (NI) conceived in 1911. That’s because national insurance was created as two twin schemes to provide workers with:

• health and pension benefits (run by unions and social organisations)
• unemployment benefits (run by the government).

These two schemes were merged into one in 1948 to support the welfare state and the NHS.

In the early days paying national insurance contributions (NIC) gave the payer entitlement to specific social security benefits. But now there is little connection between the amount of NICs paid and the level of benefits received, except for entitlement to the state pension and a few other contributory benefits.

At first, workers would buy stamps at a flat rate per week to attach to their NI card, although employers have always made a separate contribution per worker. In 1975 the flat rates of NIC for employees were replaced with a percentage of earnings collected via PAYE alongside income tax.

The combination of easy incorporation and cost savings encouraged employers to push skilled workers off their payrolls into PSCs, although many of those individual workers were happy to take control of their own businesses and pay their own tax.

To counter the massive loss of employer’s NIC, the government introduced the IR35 rules in April 2000, which as originally designed would have placed the NIC burden back on to the employers.

The problem of off-payroll working could be solved overnight if the total amount of tax and NIC paid by individuals and engagers of workers was the same or very similar across all sources of income, and these charges didn’t vary between those who are categorised as employees and the self-employed.

If a full merger of income tax and NIC was achieved, so that all income tax rates were increased by the NI payable on the same income, employees would see little difference in their take-home pay.

However, other taxpayers would be subject to comparatively lower rates of income tax on pensions, rents, dividends and interest. The fairness of having different income tax rates for different types of income would need to be addressed, as well as the primary NIC exemption that currently applies above state pension age.

If a merger is too difficult perhaps closer alignment between income tax and NIC would help. Why not merge NIC and income tax for all individuals, so everyone pays the same rate of combined tax on all types of income, while retaining the contributory element for the state pension?

 

Drama in VAT

Theatre tickets are exempt from VAT. But what about screenings of live theatre performances broadcast in a cinema.

Derby Quad is a venue that provides a visual arts and media centre, art exhibition and workshops, cinema, café bar, corporate room hire and training. It screened various plays performed by the National Theatre and The Royal Shakespeare Company. Some of these shows were live, screened as the show was being performed. Some were repeat screenings of previously recorded live events, known as Encore performances.

Derby Quad argued that the broadcast of live events is an extension of theatre through digital innovation and new technology. Just because technology has changed since the law was written, does not mean this type of admission should not fall within the exemption.

HMRC believes that there is a temporal and geographic requirement in order for there to be a “performance”. While the live shows include the temporal link, the geographic element is missing. It is not sufficient that this admission fills the same social purpose as admission to a theatre show.

In considering the live events, the VAT Tribunal did not conclude that a live event was the same as a cinema screening, but, nevertheless, did not consider that it fully met the natural and ordinary meaning of the words of a “theatrical performance”.

A key point was that the actors cannot hear the audience, and there was no audience and performer interaction. The tribunal saw this as a crucial distinction and considered these interactions, which require the performer and audience to be in the same place, critical to a theatrical performance.

The conclusion was, therefore, that both live screenings, and recordings, were excluded from the exemption and so standard rated.

 

Not Many Covid Criminals

Covid fraud losses now seem to be running at £7.2bn but in September HMRC disbanded its dedicated covid fraud investigations unit and re-allocated staff to the tax authority’s regular tax compliance investigations team.

HMRC chief executive Jim Harra told the Treasury Committee that covid fraud would continue to be investigated by the regular compliance team. The Chancellor has told MPs action on covid fraud is continuing with 80 individuals arrested over charges related to fraud during the pandemic.

 

Rethink Making Tax Digital Extension

In a letter to the newly appointed financial secretary to the Treasury, Nigel Huddleston, the Chartered Institute of Taxation (CIOT) and Association of Taxation Technicians (ATT) said the government needed to commit to a ‘full review of MTD so that all of those affected can work together to form a less burdensome (for taxpayers, agents and HMRC), less disruptive and more realistic plan for realising the many benefits of digitalisation’.

Under the current much delayed timetable, new MTD reporting will require the submission of five returns a year with quarterly statements and a fifth year end round up of earnings from April 2026. This will affect all landlords and self-employed individuals with income over £50,000.

HMRC has long argued that digitisation of the tax system will reduce the level of errors and reduce the tax gap but the current proposals will increase the administrative burden for reporters and accountants due to the volume of reporting.

 

£311m Public Sector Thefts Stopped

The Public Sector Fraud Authority’s crackdown on fraud across the public sector has been more productive than expected, with £311m saved. The original target was £180m exceeded..

A a variety of projects led by the Public Sector Fraud Authority helped public sector organisations prevent, identify, and recover public money lost to fraud.

Since its launch in August 2022, the team has used advanced artificial intelligence and data analytics through partnerships with private sector businesses. It also worked with more than 1,000 public bodies to compare sets of data against other records to identify discrepancies that were indicative of fraud; and shared intelligence with lenders to help them recover stolen money.

 

Whistleblowers Paid £509k

In the last year, 157,270 whistleblowers contacted HMRC about tax and covid-related frauds and scams, and were paid £509,000 for information which could lead to investigations.

HMRC does not publish figures about how much tax is recovered as a result of investigations instigated after tips from whistleblowers.

In 2021-2022, more than two thirds of whistleblower reports were related to tax fraud, with 106,920 individuals contacting HMRC. The remainder were about covid fraud, particularly abuse of the coronavirus job retention scheme, Eat Out to Help Out and government loans during the pandemic.

Reports of tax fraud will come from a diverse range of sources, such as disgruntled and former employees, former partners/spouses, customers and competitors.’

 

Sole Traders Unaware of Tax Thresholds

It has been reported that 75% of the self-employed admit they do not know the level of the higher rate tax threshold. Hardly surprising considering the complexity of its calculation even before you take into effect the variation depending upon where you live.

Only one in 10 were aware of the HMRC penalty scheme for late filing of tax returns and non-payment of tax and one in 50 thought there would be no consequences at all.

More than half (58%) of sole traders surveyed recently did not know the amount of their next tax bill, and had no money saved to pay for it. Over a quarter said they would wait until their tax  return is completed before they find the money to pay the bill.

Having control of finances, including paying tax and budgeting, are essential parts to a  self-employed life . But these can detract from the necessary day to day business of getting work, and getting paid for it. Something that most politicians cannot and do not understand.

 

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 email me at alan.long@thelongpartnership.co.uk.