01227 811745

The end of amnesty

The amnesty for on line traders ends today.
Why should this affect you?
If you sell items regularly, particularly on Ebay or Amazon, and do not declare your profits, you should be aware that HMRC have written to both companies asking for details of all registered traders. Undoubtedly these details will be supplied.
If you haven't yet received a letter from HMRC (and 30,000 letters have already been issued), then you can probably expect one soon.
As the amnesty has now closed, any undeclared earnings will result in substantial penalties being charged by HMRC. However, if you are affected, you should still take the opportunity to rectify your tax affairs as soon as possible to avoid an increasing bill for interest and even higher penalties. It is important to ensure you get the correct advice, both on calculating your trading profits and dealing with HMRC.
If you have any doubts about your situation, contact us for a no obligation meeting.  

On-line traders: Amnesty reminder

Following on from our last post, we remind you that the HMRC amnesty to online traders is still open but closes next month.

Under "The e-Markets Disclosure Facility", online marketplace traders can pay the tax they owe and benefit from lower penalties available to those who come forward rather than wait for HMRC to catch up with them.

On announcing the scheme, Marian Wilson, head of HMRC Campaigns, said "This campaign is part of a wider HMRC initiative to provide support and guidance to the public on tax evasion and is aimed at people using online marketplaces to buy and sell goods as a trade or business and who fail to pay the tax owed. Those who only sell a few items and who are not traders are unlikely to be liable to pay tax on what they sell and will not be targeted by this campaign. Our aim is to make it easy for online traders to contact us and make a full disclosure of income, thereby putting their affairs in order".

Under the opportunity, online marketplace traders can come forward at any time between 14 March and 14 June to tell HMRC they want to take part. They then have until 14 September to give details of the tax owed and arrange for full payment, including any interest and penalty due. If they make a full disclosure of what they owe before 14 September, some will receive no penalty at all, with most receiving a penalty of no more than 10 per cent of the tax owed.

If you deal in goods online, a key issue is whether you are trading or not. If you are selling items that are part of your home and chattels, you will not be regarded as trading. Any profit you generate from this activity will not be taxable. However, if you are buying goods to sell on, whether in the same condition or altered in any way (for example refurbished or separated into smaller units), you are likely to be regarded as having a trading activity and the profits will be potentially taxable. In such circumstances, the key issue is to consider whether your profits, when added to all of your other income, exceeds the personal tax allowance, which currently stands at £8,105.

If you are in any doubt about your status and you have an online presence, be aware that HMRC are monitoring activity. You should seek professional advice as soon as possible.

Another plumber convicted by HMRC

Another successful prosecution for HMRC has seen a plumber from Hampshire handed a suspended 4 month jail sentence for failing to declare tax for over 14 years of over £90,000. This follows the conviction of a plumber from the Midlands in early March of evading around £100,000.

Both plumbers in question had evaded tax over a relatively long period of time and whilst the amount of tax evaded was comparatively small, the aggressive nature of these prosecutions confirms HMRC’s declared new approach of focussing on tackling behaviour, rather than simply looking at high value tax cases.

For some time, HMRC have been using amnesties as a means of encouraging individuals and businesses to get their tax affairs in order. The standard approach is to offer the amnesty to a specific trade or profession for a period of time, allowing low (or no) penalties for rectification. At the end of the amnesty, HMRC will concentrate specialist investigation teams on the industry concerned, with the objective of identifying any remaining defaulters.

Mike Wells, HMRC, director of risk and intelligence services said: "We want people targeted by any HMRC campaign to come forward and use the opportunity to put the record straight and pay any tax due on the best possible terms. It really is better for people who owe tax to come to HMRC, before we come and find you."

Given that HMRC have recovered over £500m in undeclared tax through the use of amnesty schemes, we expect this tactic to continue and to be expanded to other areas. Sectors which have seen, or are currently seeing, an amnesty include the medical profession, plumbers, electricians, coaches & tutors, and on-line traders.

If you are not correctly declaring income, you should consider getting your house in order now. If you are in one of the sectors mentioned above, we recommend taking immediate action to notify HMRC under the terms of the amnesty without delay.

HMRC crackdown on mileage records

HMRC has recently announced that between now and 2015 they intend to carry out 60,000 "Business Record Checks". The stated aim of these checks is to ensure that companies are keeping proper records. However, this is not simply a case of HMRC helping small businesses. Where records are inadequate, HMRC can levy penalties, even where there is no unpaid tax! These penalties can be up to £3,000.

Why is this important?

Owing to the tax cost of company cars, it has been the case for a number of years that many companies prefer to structure car provision by a combination of car allowances and reimbursement of the cost of business mileage. Although the tax free rates permitted by HMRC do not necessarily reflect increases in fuel prices (45p up to 10,000 miles and 25p thereafter, this option is usually still more effective than the traditional company car in most circumstances.

The mileage reimbursement approach is also used by many small company owners to recover the cost of their own business mileage.

HMRC are also likely to argue that mileage claims not supported by proper records should not be allowed as bona fide expenses. This will, in many cases, lead to additional tax liabilities for business (sometimes covering up to 6 years) with interest and further penalties to be added.

HMRC forecast additional tax collections of £13m next year, rising to £62m in 2014/15. Make sure you aren’t caught!

The key message to all businesses is to ensure :
  • That you restrict claims to genuine business mileage;
  • That you keep records of all journeys, including date, distance, start and finish points and purpose of trip;
  • If VAT registered, ensure you have sufficient receipts to cover the cost of all mileage reimbursed.
Finally, it should be part of all employment contracts that employees must provide these details in order to validate an expenses claim and enable it to be paid.

Surge in fake HMRC emails

This week has seen a resurgence of fake emails purporting to be sent by HM Revenue & Customs. Many of these phishing emails alert the recipient to a possible tax refund, often over £1,000, and ask for confirmation of bank details "to enable us to pay the refund to you immediately".

Whatever you do, do not reply to these emails. Ideally, you should report the incident to the HMRC fraud hotline but, at the very least, delete the email without opening any attachments or links.

HMRC do not request information from tax payers by email, so you can safely assume that any communication of this kind is likely to be fraudulent.

The end to easy company closure?

From 1 March 2012, it will no longer be so straightforward to close a company and have the proceeds treated as a capital gain.

Before 1 March, using a special concession called ESC C16, a company could apply to HMRC for permission to treat distributions made on an informal winding up as capital. This would enable such distributions to be subjected to capital gains tax in the hands of the shareholders. Without this permission, the distribution of its reserves would be treated as dividends and taxed as income.

This distinction is important because many business owners are able to claim Entrepreneurs’ Relief. Using ESC C16, the applicable tax rate would reduce to 10% on distributions up to £5m, compared a tax rate if up to 50%, if ESC C16 is not used.

Historically, this has been an important part of tax planning over the life of an owner managed business. It has been common for business owners to set their annual remuneration at a level which minimises higher rate tax, leaving surplus profits to accumulate in the company, with the intention of withdrawing the accumulated reserves at an effective tax rate of 10% on company closure. The rules in ESC C16 also meant that the business owner could essentially manage the winding up of the business and could minimise external involvement.

This strategy is now no longer possible. However, some opportunities for sensible planning still remain.

The new rules will allow directors to treat distributions up to £25,000 as a capital gain. Whilst this will not be of use to many entrepreneurs, it will help the very smallest companies.

If a liquidator is appointed, then the distributions made by the liquidator to the shareholders will still be subject to capital gains tax in the hands of the shareholders with no upper limit. This situation has not changed. On the face of it, this suggests that in future it will be more beneficial to company shareholders to have a formal members’ voluntary liquidation, rather than to try and close the company informally, even though this would incur professional fees to do so.

A further possibility is to extract assets by arranging a company purchase of own shares. This route is likely to be more problematic, not least because HMRC clearance is invariably required for such transactions.

In summary, the withdrawal of ESC C16 will significantly affect the way in which business owner close their companies and is likely to increase the popularity of voluntary liquidation. However, options still remain and, as always, advisers will look for opportunities to maximise net returns to their clients and to protect their clients’ interests.