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’s Wage Bill

HMRC has reduced its staff numbers but the employment costs keep rising.

The problem is that while they cut staff numbers, they are now reliant upon overtime being worked by the remaining staff to compensate.

A recent report highlights that HMRC has reduced its full-time equivalent positions by 3.8% in the past year, with the number of jobs falling from 67,469 to 64,875.

In the same period, HMRC’s wage bill has increased by 2%, to £285m driven by a 45.2% rise in overtime costs.

The average monthly overtime bill for 2023/24 was £3.66m, which was an increase of 1.45% on 2022/23’s of £3.6m.

Does not sound like any way to run either a business or a government department.

This comes after news of the worst levels of customer service in the history of HMRC, with taxpayers spending almost 800 years on hold through 2023.

Additionally, HMRC has plans to reduce the headcount of customer service staff by a further 14% in the 2024/25 tax year, which could mean overtime costs increasing further and costing the taxpayer more.

HMRC will attempt to counteract the spending on overtime by increasing the use of chatbots and AI assistants, prompting taxpayers to a self-service-style system.

Would not be surprising to learn that once again they have failed to close the tax gap. There’s nobody to do it!

 

 

95,000 Non-Taxpayers Hit With £100 Penalties

Originally, only taxpayers who had an actual tax liability were charged late filing penalties. However, this changed in 2011 so now everyone is liable to late filing penalties whether they owe tax or not.

A recent report shows that c.155,000 late filing penalties were initially issued to people earning under £12,570.

For the 2021/22 tax year, around 95,000 individuals with income below £12,570 and no tax liability suffered a £100 penalty for the late filing of their self-assessment tax return.

At this level of earnings, it is all covered by personal allowances, so no tax is due.

155,000 late filing penalties were initially issued to these individuals but that that .60,000 £100 late filing penalties were cancelled.

There are various reasons why a £100 late filing penalty might be cancelled, and taxpayers can appeal to HMRC within 30 days of being issued with a penalty notice. HMRC will accept a reasonable excuse but ignorance of a requirement to submit a return is unlikely to be successful.

In total 8% of individuals with income under £12,570 were issued with a £100 late filing penalty for the 2021/22 tax year. That percentage reduces to 5% when cancelled penalties are excluded.

For those with higher incomes, the percentage is around 3% when cancelled penalties are excluded.

HMRC therefore raised £9.5m in penalties from those who can afford it the least and where there was no loss to the Treasury.

A relatively simple change to the legislation could make a significant difference to those hit by a fine that might feel disproportionately penal.

 

 

Yet More Higher Rate Taxpayers

The continued freezing of tax thresholds means that the number of top-rate taxpayers will exceed one million for the first time.

Compared to 2021 when the tax thresholds were frozen a huge £63.2bn in income tax is predicted to be raked in by HMRC this year, a total of £272.6bn.

1.77m over the state pension age now pay income tax compared to 2021. 4.4 million more people will have been dragged into paying income tax in the current tax year earnings exceed the frozen personal allowance of £12,570.’

1.9m more people are now paying 40+% since the freezes, with yet more predicted to be pulled in this year.

It is estimated that for the first time, more than 1 million people will pay additional rate tax this year earning more than £125,140.

From 2010 there is predicted to have been up to 6.1m more taxpayers, with 3.3m more higher rate taxpayers and 900,000 additional rate taxpayers.

Unless you have shielded your savings from tax using an ISA, a higher rate taxpayer with a savings account paying 5.25% would only need a balance of £9,525 to see their savings interest hit £500, eating up all of their Personal Savings Allowance. They would have to pay the taxman 40% of any further interest they received.’

However, a basic rate taxpayer will pay 20% on anything over £19,050 in their savings.

The antidote to paying tax on savings is the cash ISA.

 

 

CGT, One-off Transactions and Suspended Penalties

There seems to be a realistic expectation of changes to the Capital Gains Tax regime following the election. It is not one of the taxes that is not being increased.

We expect to see more sales in the current tax year while people try to cash in on the old, possibly more generous regime.

Such transactions can often be a one-off, like the sale of a business or a second home.

In a recent case, the taxpayers claimed that Entrepreneurs’ Relief (now Business Asset Disposal Relief) applied to the sale of shares, but following an enquiry, they conceded that this was incorrect. HMRC charged penalties of 15% and the taxpayer appealed.

While accepting that the reliefs had been claimed in error, they contended there were grounds for the penalties to be suspended by HMRC.

It is possible, in certain circumstances, for all or part of a penalty charged by HMRC in respect of a careless inaccuracy to be suspended. Precisely what constitutes a careless inaccuracy is assessed on a case-by-case basis and is also a discretionary matter for HMRC.

One such criterion for suspension is that a penalty may only be suspended if compliance with the conditions imposed would help influence the taxpayer’s behaviour in terms of meeting their future tax obligations. This means that HMRC may suspend a penalty if it believes that imposing one or more conditions will prevent the taxpayer from being charged penalties in respect of similar inaccuracies in the future. If they do not consider that this may be the case, then a penalty will not be suspended.

This turned out to be one such event. HMRC declined to suspend the penalty and the Tribunal agreed.

The lesson here is to be careful with CGT reporting anyway but if it is a one-off, make sure you have your facts straight and check the validity of any claims for relief. The taxpayer was very unlikely ever to undertake a similar transaction again, so there was no ongoing behaviour to influence, and therefore no suspension was offered.

 

 

Pensioners Under Paid Pensions

An error has occurred that resulted in around 200,000 pensioners being underpaid state pension.

The error affects people who were claiming child benefits between 1978 and 2000. National Insurance (NI) credits which go towards building your state pension entitlement when you are not working were not being transferred correctly, leaving thousands of people in their 60s and 70s being owed thousands of pounds.

These credits were known as Home Responsibilities Protection (HRP) credits until 2010 when it was changed to NI credits. When applying for these many left their NI number off of the form to claim the credits, leading to underpayments later down the line when becoming eligible for a state pension.

Out of the possible 210,000 people affected by this, 60,000 have now passed away, leaving it to their family members to claim anything that is owed.

‘The correction process started with HMRC dispatching letters in late 2023. Cases subsequently notified by HMRC started being processed in DWP in early 2024.

 

 

Invoice Fraud Affects 1 in 3

It has been reported that, over the last 12 months, nearly a third of businesses have been targeted by invoice fraudsters, with just 39% managing to stop the transactions

Fraudsters will typically use low-value invoices that look genuine to direct payments into bogus bank accounts. Many of these fake invoices are waved through by employees because they look convincing, and the amounts are often below payment thresholds for further authorisation.

Such threats can originate both externally and internally. Insider fraud can sometimes be senior employees flipping supplier bank details within payment runs to pocket the cash themselves.

And then you wonder why accountants place so much emphasis on internal control systems.

 

 

Mandatory Payrolling of Benefits in Kind

HMRC has announced that employers must payroll benefits in kind from April 2026.

Providing benefits in kind is an integral part of most employers’ reward strategy, affecting many diverse Having to report benefits in kind on form P11D has been a staple of the employer’s compliance cycle for decades, but it may become a relic past under HMRC’s proposals to require employers to report benefits in kind in real-time through the payroll.

This change will require a major transformation for many organisations.

What we know so far::

• the intention is for payrolling of benefits to be mandatory for all employers and all benefits (including benefits such as loans and accommodation that are currently excluded under the voluntary regime);
• income tax and class 1A NIC will need to be reported and remitted by employers through real-time information (RTI) reporting, removing the need to file forms P11D and P11D(b); and
• forms P11D/P11D(b) will still need to be produced for tax years up to and including 2025/26 (filing deadline: 6 July 2026).

For employees, the transition to payrolling benefits will not change the total amount of income tax paid on benefits. However, the method and timing for collecting income tax may change.

For employers, this will mean:

• benefits will have to be reported via payroll software rather than on form P11D;
• there will be no requirement to file forms P11D/P11D(b) for tax years 2026/27 onwards;
• class 1A NIC will still be payable, but in real-time via the payroll (and not via the P11D(b) process); and
• an annual statement of benefits received must still be provided to each employee (e.g., the year-to-date benefit value on a final payslip).

• While HMRC has hailed the announcement of mandatory payrolling as a simplification that will remove the need to file forms P11D, processing benefits through the payroll brings many challenges and pitfalls.

 

 

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.