HMRC Targets Electricians in New Disclosure

On 14 February 2012 HMRC launched a tax amnesty aimed at electricians called the Electricians’ Tax Safe Plan (ETSP). Initially around 50,000 individuals will be sent letters inviting them to report previously undisclosed earnings.

Individuals who disclose using the ESTP will only have to report undeclared income from the last six tax years and will suffer a reduced penalty of between 10% and 20% of the tax due.

To disclose using the ETSP, the individual must notify HMRC of their intention by 15 May 2012, with the deadline for finalising the disclosure and payment being 14 August 2012.

HMRC have warned that electricians who have undisclosed income and do not come forward may face criminal investigation and prosecution.

If you would like assistance in making a disclosure, Eaves and Co would be happy to assist.  Please call our Leeds office on 0113 2443502.

Business Property Relief (BPR) on Holiday Rental Property

The taxpayers, challenged an HMRC decision to deny business property relief (BPR) on their late mother’s share of a property. The property was let fully furnished as a holiday home.

The case (N V Pawson (deceased) (TC1748)) was heard by the First-tier Tribunal, who accepted the property had been run as a business for the requisite two years before the taxpayer’s death.   It had been profitable for two of the three years before the mother died and the tribunal was therefore satisfied that the business was being run with a view to gain.

It was then necessary for the tribunal to decide whether the business was one that consisted wholly or mainly of the holding of an investment, with the judge concluding that, “an intelligent businessman would not regard the ownership of a holiday letting property as an investment as such and would regard it as involving far too active an operation for it to come under that heading”.

The property was a business asset being used to provide a service and was not equivalent to holding an investment; the taxpayer’s appeal was therefore allowed.

The case will be of interest to taxpayers operating holiday rentals where the activities can be shown to constitute a business.

Late Payment Surcharges

The tribunal case of Sarah Cornes and HMRC considered whether there was reasonable excuse for late payment of income tax.

The appellant’s business was struggling and her husband had suffered through 3 employment terminations and ensuing personal problems.

The tax payer made a request for “time to pay” on 23 February 2011.  Because of difficulties in managing paperwork etc a time to pay arrangement was finally agreed on 2 June 2011.

The tribunal found that the taxpayer had been diligent and prudent, in attempting to agree a time to pay arrangement prior to the surcharge trigger date (28 February 2011). Therefore she had reasonable excuse and the surcharge was not to be applied.

HMRC Launch Contractual Disclosure Facility

HM Revenue and Customs have launched a new amnesty for taxpayers suspected of committing serious tax fraud.

Under the Contractual Disclosure Facility (CDF), HM Revenue and Customs will write to taxpayers that are suspected of committing tax fraud to offer the opportunity to make a disclosure of unpaid tax liabilities within 60 days.  In return HM Revenue and Customs will agree not to pursue criminal prosecution against the taxpayer.

Taxpayers that have not yet been contacted by HM Revenue and Customs may voluntarily request to be considered for the CDF.  Alternatively those with offshore assets could consider registering under the Liechtenstein Disclosure facility (LDF).

For more information and advice regarding the disclosure of tax to HM Revenue and Customs please contact Paul Davison at Eaves & Co on 0113 2443502.

No reasonable excuse for late filing (Peck & amp; Wilson & amp; HM Revenue & amp; Customs [2011] TC01693)

The taxpayers appealed a fixed penalty of £200 for the late filing of their 2009/10 partnership income tax return.

They appealed on the grounds that the HM Revenue & Customs online submission software was unavailable, and that the return had been submitted before 31 January 2011. They also argued that they had been successful in an appeal under similar circumstances for 2007/08.

HM Revenue & Customs explained that they had accepted their 2007/08 appeal for a late return, as it was the first year that paper returns had required to be submitted by 31 October.  However, their 2010/11 paper return was received on 24 January 2011, nearly three months after the deadline.

The key in this case was that the tribunal stated that as there is no obligation to file online, the lack of software to do so is not a reasonable excuse to why the return was late, as it is clearly stated on the return that external software is required, therefore the penalties were upheld.

A Payment Cannot be Both Dividend and Employment Income

PA Holdings Limited constructed a complex arrangement in order to try and ensure employee bonuses were taxed as dividends rather than employment income.  The company paid a capital contribution into employee benefit trusts, out of which bonuses were paid to select employees in the form of dividends.

The First and Upper-tier tribunals decided that the payments were employment income under Schedule E and dividend income under Schedule F. The effect of this being that they were not chargeable to tax as employment income, only as dividends; but they were earnings for the purposes of NI contributions.

Both parties appealed to the Court of Appeal.  The Court of Appeal overturned the Upper Tier Tribunal ruling that income can be in both schedules E & F. The judge stated that if income falls within Schedule E, it is precluded from falling within Schedule F.

The Court found that the income fell within Schedule E as the amount of payment received by the employee was dictated by the employer.  Therefore the payments were remuneration for employment and subject to Income tax and NICs accordingly.

HMRC Release Tax Appeal Success Details

HMRC have recently published figures detailing the success rate of their internal review process compared with taking cases to tribunal.  Taxpayers can ask HMRC for an internal review if they are not satisfied with a decision of the Inspector, prior to taking it to the tax tribunal.

 There were some interesting figures revealed:

 On internal review – 44% of non-penalty cases were overturned, whilst 75% of VAT penalty cases and 35% of non-VAT penalty cases resulted in a cancelled or reduced penalty.

 This compares to a success rate at the tribunal for taxpayers of only 21% (according to HMRC).

 HMRC also state that only a ‘small minority’ of their decisions are challenged, meaning many incorrect decisions could remain in place.

These figures show that requesting an internal review can be a cost-effective step for taxpayers before the need to resort to the tribunal, and should be considered more often.

Penalties – Reasonable Excuse

There have been a number of recent cases in the taxpayers favour regarding the meaning of ’reasonable excuse’ in the context of penalties. 

The case of Candlestick Company (TC1573), involved the late submission of a partnership return. Key point to this case was that the taxpayers had tried to correct the situation and had sought advice regarding their tax affairs from an accountant.

The case of Dudman Group Ltd (TC1608) involved penalties in respect of the late payment of PAYE by the employer company.

The taxpayer argued that they had suffered financially as a result of 9 of the company’s debtors going into administration and cash flow problems due to their bank changing its credit terms.

HM Revenue and Customs argued that inability to pay is not a reasonable excuse. However the Tribunal found in the taxpayers favour and noted the recent economic climate has put a lot of pressure on UK businesses.

These cases show the importance of considering making an appeal against penalties imposed by HM Revenue and Customs where there are mitigating factors in play.

Statutory Residence Test Delayed

It was announced in the Autumn budget report that the statutory residence test, due to come into effect in April 2012, has been delayed until April 2013.

When it is implemented the test will provide taxpayers with a greater degree of certainty regarding their tax residence status.

However even though it has not yet been implemented it is still worth bearing in mind. Particularly as the number of days an individual is present in the UK in prior years will determine the relevant criteria under the statutory residence test.

If you are going to be working abroad call our Leeds office on 0113 2443502 to understand your UK residence status, before you leave

HMRC v Football League in High Court Fixture

HMRC have taken the Football League to the High Court in an attempt to revoke the football industry debt rule. The Premier League are not challenged but are interested in proceedings.

Under these rules, which are implemented by the Football League and Premier League, clubs which become insolvent will pay off their debts to football related creditors in priority to other creditors – including HMRC.

HMRC are to argue that such a rule was invented by the Football League and therefore has no sound basis in law and that the rules as they stand have led to losses to the taxpayer.

The Football League will argue that the rule is in the best interests of the sport and that failure to pay transfers fees would jeopardise the integrity of the sport.  In addition they claim that the rules prevent disruption to fixtures which could otherwise arise as a result of insolvency.