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 Targets Hot Food Traders
It is not unusual for HMRC to send out letters encouraging taxpayers in particular sectors or in “at risk” categories to check that their records are accurate and complete. A last chance to come clean!
This campaign and the corresponding letters have been sent to the agent, not the taxpayer. HMRC has identified 4,000 traders who it believes are underreporting their sales and is writing to 500 agents whom it has on record as representing those 4,000 traders.
The letter being sent to agents states: “We need your help to remind your clients in the hot food retail business sector to include all sales in their returns and that we regularly receive data from card payment providers and online intermediaries who deal with food order and delivery services. We use this data to help make sure the tax returns we receive are accurate.”
It appears that HMRC has analysed data from Uber Eats, Just Eat, Deliveroo etc and has identified discrepancies between that data and filed VAT and self-assessment tax returns.
If there has indeed been an understatement of sales or VAT, then there is likely also to be an understatement for corporation or income tax purposes. This is not just a VAT-specific matter.
If you find yourself in this particular headlight, it requires serious consideration.
Issues that may arise include:
- Accurate uploading of menus to the delivery firm websites and identifying which items are standard or zero-rated.
- The sales data may not always match the payment received if commissions have been deducted.
- The trader may have a bank account just for the delivery sales and there is a risk this could be overlooked when preparing VAT returns or end-of-year accounts.
- Deliberate under-reporting.
HMRC and Takeaways
Over 20 takeaways and restaurants in Edinburgh, London, St Helens and Stoke have been raided
HMRC officers were in action over the last four weeks, with 24 hot food takeaways and restaurants targeted as part of a crackdown on tax evasion using electronic till fraud.
The visits coincided with the launch of criminal investigations by HMRC’s Fraud Investigation Service, which is conducting three interviews under caution this month with individuals from Stoke and St Helens.
HMRC uses third-party information, including bank account and transactional data from online food ordering platforms, to check against what has been declared.
An amnesty period for till fraudsters closed in April this year after a three-month campaign to root out businesses using the scam.
Deferring the Christmas bonus
Following the 2% cut in National Insurance contributions in the Autumn Statement, some employers may find employees requesting to defer any discretionary bonus payments to take advantage of the reduced NICs rate from 6 January.
After the announcements in the Autumn Statement, MPs rushed a Bill through the House of Commons on 30 November. This will see an estimated 27.3 million employees benefit in 2024/25 from reduced NICs as of 6 January 2024.
Even without deferring bonuses, there is potentially a lot of work involved to ensure payroll payments are properly processed from 6 January onwards.
The main rate of employee NICs (class 1 primary) will be reduced to 10% (currently 12% on earnings between £12,570 and £50,270).
No changes have been made to the rates of employer NICs.
In addition, for directors, who are assessed to NICs on an annual basis, the class 1 NIC rate reduction results in a blended rate of 11.5% applying to the annual earnings period for the 2023-24 tax year.
This all means that payroll software will need to be updated very quickly, putting pressure on the administration.
It will be essential for all employers to check that their payroll software has been reconfigured correctly. If employers are unable to update their payroll software before 6 January, HMRC will require them to rerun their payroll retrospectively for past periods where higher NIC rates have been incorrectly applied.
All this means employers are likely to have an increase in employee queries in January and February.
Bonus complications on top of this, are not likely to be welcomed.
HMRC Repayment Letters
HMRC has announced that from 7 December they will stop sending Bacs self-assessment repayment letters.
Instead of a letter, HMRC will send out a digital confirmation although this will not start immediately as the IT system has to be updated to handle the change.
HMRC have found these letters arrive after the repayment has been made leading to confusion and increased contact from customers. It appears that they have judged that the volume of calls about repayment issues is too high and see this as an area where it can reduce costs. The end of letter communications should reduce pressure on limited resources in call centres, while also saving on the cost of producing letters and postage.
Repayment transactions will still be visible through HMRC online services.
At the same time, HMRC announced the curtailment of telephone support lines in the run-up to the tax return season. This will see HMRC call handlers only dealing with the most complex enquiries, while all callers will be met with a message stating that many queries can be handled online on HMRC’s website. They will also be sent a text message, if they have called on a mobile, advising them where to find the information requested.
String of Fake Companies
David Farrah-Tunnicliffe of Brighton was sentenced to seven years and six months at Hove Crown Court after pleading guilty to money laundering, four counts of fraud and use of criminal property.
Two other members of the gang, David Harper and John Robertson, who were also involved in setting up fake companies for use in the scam, were given two-year suspended sentences.
The money laundering total amounted to £2,149,385.99.
Farrah-Tunnicliffe was caught after he lost a bag of mobile phones, a wallet and a passport which was handed into Brighton police station. A few days later he left his wallet in a bank branch and it was found to contain several bank cards in different names.
The investigation found that Farrah-Tunnicliffe was setting up companies in alias names and working with two other people, David Harper and John Robertson, who also registered companies to launder the proceeds of multiple frauds.
Harper and Robertson were given 12-month suspended sentences.
A Proceeds of Crime Act investigation is ongoing.
HMRC has published guidelines to illustrate what it considers to be good practice.
The guidance is aimed at end clients, recruitment agencies, and contractors respectively. The guidance contains examples of good systems and processes that will help to reduce the risk of error when determining a worker’s status for tax. It also covers different scenarios and organisational structures that may be caught by the off-payroll working rules.
HMRC has also updated its guidance for umbrella company workers where it explains how and what a worker is paid and how a worker can check their pay when employed as a temporary worker by an umbrella company. It also now includes checks that workers can do to identify and avoid fraudulent umbrella companies.
How an Umbrella Company Works
An umbrella company is a business often used by recruitment agencies to pay temporary workers.
In most cases, the umbrella company employs you and pays your wages through PAYE. It does not find temporary work for you, as this is done by the recruitment agency.
Although the umbrella company is your employer and will pay you, the work you carry out will be for one of the recruitment agency’s clients. This work is often on a short-term basis.
The client is a business that needs temporary workers. It sets up a contract with a recruitment agency to find and engage temporary workers.
The recruitment agency finds a suitable candidate from its contacts or advertises the role, stating the pay rate (weekly, daily, or hourly). You may not get paid this rate, because it usually includes the umbrella company’s operating costs.
If the client decides that off-payroll working rules would apply to the role, the job advert may describe it as being ‘inside IR35’. This may mean you are deemed to be an employee, or the client (or recruitment agency) may ask you to be employed through an umbrella company.
Before the recruitment agency can offer you a temporary role (assignment) they may ask you to be employed by one of their preferred umbrella companies. You may be able to choose your own.
The recruitment agency sets up a contract with the umbrella company. This outlines that the umbrella company is responsible for:
- employing you and paying your wages in line with the Key Information Document.
- invoicing the agency for the time you’ve worked.
As an employee of an umbrella company, you have the same employment rights as any other employee including the right to a written employment contract, the right to be paid at least the National Minimum Wage, on time and in full at the agreed intervals and you will also be governed by the Autoenrollment rules (workplace pensions), and are entitled to paid holidays.
When you send your timesheet to the recruitment agency, it charges the client. The recruitment agency then pays the umbrella company the agreed rate and the umbrella company is responsible for paying you as an employee.
Some umbrella companies may choose to pay the National Minimum Wage rate for all hours worked and then top this up later. You must still pay tax and NIC on this additional payment and your payslip must show this and all the hours you’ve worked.
From HMRC’s perspective, your umbrella company could be involving you in a tax avoidance scheme if you get:
- a separate payment which you are told is not taxable, such as a loan
- more money paid into your bank account than is shown on your payslip
- a payment from someone other than your umbrella company, which has not been taxed
- asked to sign another agreement in addition to your employment contract
HMRC recommend that you:
- Make sure you have access to your payslips, review them when you receive them and keep copies for reference.
- Look for signs that your umbrella company might be operating fraudulently as this can have an impact on you.
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 firstname.lastname@example.org.