Crystal Umbrella

We reported last week on the government’s crackdown on a minority of umbrella companies operating Employment Benefit Trust Schemes (EBTS), which it has instructed HMRC to classify as disguised remuneration and prosecute accordingly. However, the clampdown has attracted criticism from the Chartered Institute of Taxation (CIOT), which has dubbed the Government’s approach to the issue as a “blunt instrument.”

Urging further reflection before final legislation is introduced, CIOT’s Colin Ben-Nathan, who chairs the organisation’s Employment Taxes Sub-Committee, expressed his disappointment that the coalition had so far not heeded calls to reconsider its approach. Criticising the current plans for taxing the form (i.e., the involvement of a third party) rather than the substance of the arrangement (the specific kind of loan or reward connected with employment), he said that presently, the proposals were “a very blunt instrument” which would hit employers and employees in unintended ways.

As things stand, the legislation will require meticulous reading by contractors, HMRC and employers alike to determine whether new PAYE/NIC triggers will be activated. This will prove costly and time consuming, affecting smaller owner-managed firms or family businesses especially badly, Mr Ben-Nathan added. Many businesses, he predicted, would need to approach HMRC “to determine whether or not their current arrangements are affected.”

CIOT is concerned that the proposed legislation leaves too much discretion to HMRC to decide which arrangements fall on the right side of the line. This will inevitably lead to uncertainty, Mr Ben-Nathan argues, with the position changing according to shifts in HMRC’s view.

The HM Revenue and Customs (HMRC) permanent tax secretary Dave Hartnett has revealed that those wishing to hold £25,000 or more in an offshore account will have to make a tax notification. Speaking to the Chartered Institute of Taxation (CIoT) regarding the New Disclosure Opportunity, Mr Hartnett explained “People are going to have to make a notification going forward of an offshore account which hits £25,000 balance or is newly opened with that sort of money. Now people who don’t do that and whose tax returns are wrong will face a penalty of up to 100 per cent of the tax for not notifying us plus up to 100 per cent of the tax for an incorrect return. That’s a big penalty.”

Later adding that increasing cooperation between tax administrations and an ever decreasing world in regards to communications and data sharing he said “Be afraid, be very afraid, if you want to keep hiding your money offshore.”

Whilst holding an offshore account is not illegal, residents of the UK are obliged to disclose all of their income, including that made, or saved abroad. Following the interview with Mr Hartnett, CIoT said that he had given a clear message on the HMRC’s view on offshore banking. Meanwhile, Brookson managing director Martin Hesketh explained “Now more than ever it’s important for individuals to seek professional advice if they are uncertain of their tax position. This move takes a firm hand against tax evasion and gives us further evidence of HMRC’s recent clampdown on compliance. This is clearly an issue they are taking very seriously.”

Later adding that increasing cooperation between tax administrations and an ever decreasing world in regards to communications and data sharing he said “Be afraid, be very afraid, if you want to keep hiding your money offshore.”

Whilst holding an offshore account is not illegal, residents of the UK are obliged to disclose all of their income, including that made, or saved abroad. Following the interview with Mr Hartnett, CIoT said that he had given a clear message on the HMRC’s view on offshore banking. Meanwhile, Brookson managing director Martin Hesketh explained “Now more than ever it’s important for individuals to seek professional advice if they are uncertain of their tax position. This move takes a firm hand against tax evasion and gives us further evidence of HMRC’s recent clampdown on compliance. This is clearly an issue they are taking very seriously.”

The Chartered Institute of Taxation (CIOT) believes that the ‘Taxpayers’ Charter’ implemented by HMRC is extremely important with regards to the relationship between taxpayers and the taxman. The Charter was drawn up following this year’s Finance Act and it has now been officially launched. As a result, taxpayers can now expect to be treated fairly and with respect. There is also a responsibility on HMRC to explain decisions and rules and to ensure that any errors are rectified quickly. They also must make sure taxpayers are aware of their rights at all time.

The Charter was launched by the Rt. Hon. Stephen Timms MP who is the Financial Secretary to the Treasury. CIOT Tax Policy Director, John Whiting, spoke at the launch. He said: The Charter is an important step forward in relations between taxpayers and the taxman and will help people in their dealings with HMRC. It is a key signpost and safeguard for taxpayers, particularly for those who do not have an adviser.”

He continued: “The Chartered Institute of Taxation has been very active in calling for a Taxpayers’ Charter and we are delighted that the final Charter reflects many of our proposals for what it should include. The first draft of the Charter was deeply disappointing and wholly inadequate but HMRC deserve credit for listening to representations from ourselves and other tax professionals and producing a much improved final text.”

In conclusion, Whiting stated: “Implementation of the Charter is crucial. I am delighted that the Financial Secretary has shown his own commitment to the Charter by personally launching it. It is important that it is properly publicised throughout HMRC, among tax advisers and among taxpayers generally. The CIOT are committed to playing our part in this.”

HMRC is set to review its debt collector pilot scheme after concerns were raised that many of the agents and revenue staff are following up on tax demands that were issued by mistake. On following up this ‘spurious’ tax debt, it usually transpires that the penalty notices for non filing of tax returns have been issued to companies that are no longer trading or who do not employ any staff.

A source who spoke to the Mail on Sunday suggested that these ‘false’ debts could account for up to 10% of the £21.5 billion of taxes that are currently being chased by HMRC.

President of the Chartered Institute of Taxation, Andrew Hubbard was present at a recent meeting of tax advisors to the government who were advising that improved record keeping was a priority to reduce the level of spurious debts. However, Hubbard declared that he was worried that withdrawing particular repayment allowances would lead to their increase.

He said, “It is clearly necessary that people should pay the tax they owe but given the high levels of uncertainty about the true level of debt and the system problems, these are obvious concerns.”

He continued, “To be fair, the Revenue is aware of the problems and is working to remedy them, but the systems ought to be sorted out before there is any outsourcing of debt collection.”

Minutes from the Administrative Burden Advisory Board states that the HMRC is “aware of the issues with private debt collectors”.

On 10^th July, 310 banking and debt management staff from HMRC participated in a half day walkout as a protest against de-skilling and downgrading of their work.

The Government’s proposal to publish the names of deliberate tax defaulters has met with concern from professional tax bodies, as the defamation of individuals by the HMRC could potentially harm the innocent if used inappropriately.

The proposition (BN63 in the Budget) entails the ‘naming and shaming’ of individuals who purposely avoid paying their taxes, and was part of a number of schemes outlined by the Chancellor in an effort to prevent tax evasion in the UK. The method has been used before, notably in Ireland, and is, on face value, morally difficult to oppose. However, The Chartered Institute of Taxation (CIOT) has warned that the proposition must be applied with caution and only in appropriate circumstances.

John Whiting, Chairman of the CIOT’s Management of Taxes Sub-Committee, stated: “A question for HMRC is what controls will there be over ensuring that someone who is affected by an HMRC mistake does not get into this sanction? And if HMRC do make a ‘naming’ mistake, would proper compensation be paid?”

The CIOT proposes several methods of ensuring that only the deserving parties are ultimately named and shamed, including instating a proper system of judgment which determines what offences would warrant a sanction; the limitation of the method to include only tax evaders who deliberately default and conceal; ensuring that HMRC will not use this power as a threat towards settling unrelated tax disputes; and the ability for the tax payer to appeal against publication.