HMRC at Not-So-New Low

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 at Not-So-New Low.

A report from the National Audit Office accuses HMRC of failing spectacularly, on its dual responsibilities of maximising tax receipts and of satisfying the needs of its customers (or victims, depends on your point of view).

A recent article on the subject of the Tax Gap drew an analogy with shoplifting. In this context, HMRC (the security guards) have several security cameras but most point in the wrong direction and there are only security staff available on a part-time basis so that for most of the time customers can take what they want whenever it suits them with little risk of getting caught.

That same article posed the proposition that most accountants would not be surprised to discover that many potential taxpayers are slipping through the net, while others see little risk in not reporting income, particularly when the tax rules are confusing and HMRC difficult to impossible to contact for advice.

Apparently, HMRC spends £881m on customer service. This sounds like a lot of money but given that even the most modest estimate of the tax gap is 40-50 times this amount, perhaps it is inadequate.

HMRC are encouraging you and me to interact with their digital services, but I don’t know about you but I would rather speak to a real person. That of course assumes that you can get through and don’t hang on for 45 minutes before getting a pre-recorded message along the lines of “There is no one available at the moment, goodbye”. It’s hardly surprising most people are reluctant to even try phoning.

There were 91,217 complaints in 2022-23 which is up 39% on the figure three years before.

The digital services are generally perceived as unfriendly and unhelpful and difficult to navigate.

HMRC itself estimates that 72% of calls resulted from HMRC’s process failures and delays.

There is a 14% planned reduction in HMRC’s front-line customer service workforce next year. When you don’t have the resources to fulfil your existing obligations, how can that be a solution to anything except cutting costs by some schoolboy economics.

Apparently, the NAO offers a series of helpful recommendations but these will in all probability be ignored.

So, where does the blame lie? Presumably with those higher up in HMRC and the government who control the budget for HMRC. If the problem was not so bad, would taxes have had to rise quite so much?



Late Tax Payment Penalties – A Consultation

HMRC has launched a consultation to get feedback from various parties on some draft legislation relating to Penalties for Failure to Pay Tax with a view to updating the current legislation.

The reformed penalty system for VAT came into force from 1 January 2023. The new penalties regime is proposed to coincide with the roll-out of MTD IT (currently planned for April 2026).

Under this reformed late-payment penalty regime, a customer can receive two late-payment penalties. The second penalty, which is the focus of this consultation, is charged daily at a rate of 4% per annum from day 30 until the tax is paid in full.

However, as it currently stands HMRC must first assess the penalty within 2 years but they can only do this only once the tax has been paid, so you could avoid a penalty altogether by not paying until after the 2 years was up.

Seems like another bit of ill-thought-out legislation.

The consultation sets out to remedy this situation.

The draft legislation will enable HMRC to levy a second penalty seven days before the end of the two-year period if the tax has not been paid in full and there is no time to pay the arrangement in effect. This will mean taxpayers will not be able to intentionally avoid a second late-payment penalty by not paying their outstanding tax before the end of the two-year time limit.

However, what the draft update does not appear to fix is that no further penalties are due after the 2 year period so if the interest on the unpaid tax is less than that on your overdraft, why pay the tax?



Reclaim Child Benefits for 16 Year Olds

Letters will be sent out between 24 May and 17 July to parents to get them to extend their child benefit claims if their children intend to stay on in full-time education past the age of 16.

If the letter has not been received by 17 July, the service will be open online or in the HMRC app for all eligible taxpayers.

The benefit is worth up to £1,331 a year for the eldest child, then £881 a year for younger children until 19 if they continue their education.

It is important to note that payments will stop automatically after 31 August payments unless parents inform HMRC their child will be remaining in education.



Scam Letters Impersonating Companies House

Scammers are using a letter asking for a £48 payment to access enhanced web filing on the Companies House register

Companies House does not charge a fee to set up web filing and the accounts provide multi factor authentication and the ability to digitally authorise people to file for companies.

The letter looks genuine with the Companies House logo and Cardiff address at the top and includes an eight-digit payment code number.

The scammers inform the business director that they ‘wish to alert you to a time sensitive matter regarding your web filing access’.

They then go on to ask for an immediate payment of £48 to be transferred to HMRC via a short URL web address or QR code.

Basically, they are charging £48 for what you can normally get for free.



Finance Workers Suspect Fraud

It is reported that 65% of financial professionals in the UK say they have suspected internal fraud at work.

Reasons stated for keeping quiet included fear of getting a negative reaction or they have heard previous whistleblowers experience abuse, either directly or indirectly.

Whistleblowing is often seen as causing trouble for the employer, or as a self-serving action to get a financial reward.



Rishi Sunak – 4 July Election

The announcement followed a Cabinet meeting this afternoon. It is reported that there appeared to be a certain level of surprise from ministers. The Conservatives are trailing Labour by 21 points in the polls.

The next step will be for the parties to set out manifestos with detailed policy pledges, including tax and fiscal policy.

Over 78 Conservative MPs are planning to stand down at this election.

There are several pieces of legislation that must be passed before parliament ceases. The Finance Bill is one of them. Other legislation will have to wait until the new session, and some may fail if there is a change of government.



Tax Take up £9bn in April

Income tax was up £6bn in a month and National Insurance was up £2bn despite the 4% cut in NIC.

The new tax year started with the government taking £75.4bn in total taxes in April 2024 up £4.2bn more than April 2023 and up £9bn in March.

Even with the two National Insurance contribution (NIC) cuts, HMRC has taken £700m more NI than the previous April, and over £2bn more than in March.

With income tax allowances and thresholds remaining frozen until 2028, this figure is only likely to continue to rise throughout this tax year and beyond.



Overpayment of Student Loans

Hundreds of graduates have overpaid loans as they did not realise they had been paid off in full. In future, the Student Loans Company will have to keep HMRC informed about any changes to the status of loans.

It is essential to complete the student or postgraduate loan repayment section of the self-assessment tax return if the Student Loans Company (SLC) has said repayments were due to start on or before 6 April of the year you’re completing your return for.

HMRC systems will use the information supplied by the Student Loan Company to work out the correct repayment amounts due.



Benefit Claimant’s Money in the Bank

In the last three years, the DWP has lost over £8bn consistently due to fraud and is setting its sights on sharing data between banks and financial institutions, which it is currently not allowed to do, to crack down on fraud levels.

The preferred option for DWP is for the government to introduce primary legislation requiring third parties, such as banks, to share information with DWP on data related to potential benefit fraud.

DWP has already run a trial with two unnamed banks for three-month periods in 2017 and 2022.

In the most recent trial, one of the banks accessed non-personal information to see how many accounts matched DWP’s criteria for cash in the bank, and the number of people accessing their accounts from abroad.

Between July and September, the bank identified a total of 713,000 account holders who received welfare benefits.

60,000 people were breaching the capital rule, which states that benefit claimants can only have £16,000 in savings, as they had an average amount of £50,000 sitting in their bank accounts.

3,000 claimants were living abroad, judged by the number of times their accounts were accessed from overseas in a four-week period.

The DWP said that the results of the small-scale tests with two banks and building societies indicate a strong potential for the use of banking data to identify possible capital and abroad fraud and error across a range of means-tested benefits.



Football Clubs and Winding Up Petitions

In recent years HMRC has issued Coventry City, Southend United, Taunton Town, Wigan Athletic and Chorley Football Clubs with winding up petitions, with Reading Football Club receiving two.

Many clubs built up large debts during the pandemic as a result of non-existent ticket sales during endless lockdowns. Some clubs have been unable to repay their creditors or meet their tax obligations with HMRC.




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