Archive for July, 2013

HMRCs accounts – report by Committee of Public Accounts

Tuesday, July 9th, 2013

The following statement was published on the UK Parliaments website 2 July 2013.

Please note that the tax gap referred to in Margaret Hodge’s remarks is the difference between tax due and tax collected.

A statement from The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts:

These accounts give us a mixed picture. One of the most startling figures is the tax gap for VAT, which HMRC estimates at £9.6 billion. That is a huge amount of money – 10% of the VAT that should be collected and a third of the overall tax gap. Yet despite some progress, HMRC still does not comprehensively check all VAT returns and its response to the emerging threat from online trading has been far too slow.

I welcome the progress HMRC is making in tackling fraud and error in the tax credit system, but with £2 billion in overpayments last year it still has a long way to go.  And the personal tax credit debt balance is going up, not down. It now stands at £4.8bn, over £1bn greater than the target HMRC hopes to meet by the end of March 2015.

HMRC met its target to operate a normal PAYE service by March 2013, following previous problems. But it had to forego £953.3 million of tax in the process and there remain questions about its capacity to handle in year changes to taxpayer records. I also have concerns about HMRC’s real time information system (RTI), which has been rolled out before being fully tested. HMRC has chosen not to add in contingency for significant extra costs or measures to deal with major technical failure. This is worrying as the current cost of RTI is already expected to be £115.5m more than originally planned. HMRC is leaving itself exposed, which could be a real concern for DWP as Universal Credit relies on RTI.

HMRC is responsible for collecting all the tax due. It must do more to crack down on tax avoidance. And it needs to put taxpayers – the customer – at the heart of its services.


David Cameron announces �1m prize for innovation challenge

Wednesday, July 3rd, 2013

 British cosmologist and astrophysicist Martin Rees has been charged with identifying a modern day Longitude Prize – this was set by the British Government in 1714 and promised £20,000 to the person who mastered the challenge of calculating longitude at sea. At the recent G8 conference Cameron is quoted as saying:

“What the world needs most of all right now is growth, and that growth in my view is going to come from small businesses and start-up businesses, more than from the big existing traditional businesses, so the whole agenda of innovation and entrepreneurship is absolutely vital,”

He added:

“There are so many problems in our world that need that amazing solutions – whether it is a cure for dementia, solving the problem of diabetes, having a flight from Britain to New York that's carbon-free… Let's challenge the public and challenge the scientist for which is the great problem we want to crack. I think it's an exciting idea and another example of Britain leading in innovation.”

The competition is open to everyone from individual citizens to academics and businesses. Any ideas?


Bank of England’s new boss starts this week.

Wednesday, July 3rd, 2013

The appointment of Mark Carney as the new governor of the Bank of England has received guarded approval from the financial press this week who hope that he will take a more active role in stimulating the UK economy.

The Bank of England interest rate setting committee is meeting Thursday this week and is expected to reject any further boost to quantitative easing beyond its current level of £375bn.

The BoE's figures show that RBS and Lloyds have reduced the amount of money they lend to households and businesses, while Barclays has threatened to cut back following demands from the main City regulator that it must bolster its reserves. The Co-op, which recently abandoned its planned take-over of 600 Lloyds-TSB branches, is in trouble after discovering a large shortfall in its capital reserves.

The funding for lending scheme designed to cut the cost of borrowing has pushed down the cost of mortgages since it was launched last year, but unfortunately has made little difference to the level business lending.

A leading think-tank has called on Mark Carney to bypass the main banks with a direct intervention into the housing industry to support the building of 60,000 homes. The New Economics Foundation has said that instead of using quantitative easing to buy government bonds, the BoE should buy assets that will directly support the economy, which would mean purchasing bonds to support home building and energy efficiency, infrastructure projects and small business lending.

It will be interesting to see if the new broom sweeps clean and wakes up the Old Lady of Threadneedle Street, or, continues to brush these innovative ideas under the carpet!


National Minimum Wage from 1 October 2013

Monday, July 1st, 2013

Employers please note that the National Minimum Wage rates are increasing from 1 October 2013. They will be:

  • Apprentice rates: £2.68 per hour. * But see note below.
  • Under 18s: £3.72 per hour.
  • 18 to 20 years: £5.03 per hour.
  • Age 21 years and over: £6.31 per hour.

*This is the rate for apprentices under 19 years old or in their first year. Those 19 years or over and past the first year of apprenticeship should be paid at the rate applicable to their age.


Use of LLPs and partnerships is under HMRC microscope.

Monday, July 1st, 2013

The Budget 2013 included a stated intention that HMRC would be enabled to take a fresh look at the possible manipulation of profit and loss allocations from partnerships to secure a tax advantage. HMRC has since published a formal consultation on anti-avoidance legislation for LLPs. The effective date for proposed legislative changes is April 2014.

HMRC are particularly concerned that partners in LLPs may be receiving fixed profit share arrangements that are, in all other respects, salaries. This so-called “disguised remuneration” allows the recipients and the partnership to avoid certain Class 1 National Insurance contributions as well as producing some income tax advantages.

HMRC will also be taking a closer look at partnerships that have corporate members which will be paying Corporation Tax at the lower company rates.

The proposals in the consultation document are widely drawn and we will not know the final rules for some while yet. However, there are some core principles which are likely to make it to the final legislation. We would encourage all our readers who may be affected to make an appointment to discuss any potential implications for their tax position.


Using vehicles for business and private purposes

Monday, July 1st, 2013

There are a number of circumstances where care needs to be taken in the way in which claims are made for the business use of a vehicle, usually a car, which has duality of use – business and personal. We have listed below a few issues that businesses and private car owners should be aware of.

  1. If you are self-employed and your business assets include a car you should be reducing your claim for capital allowances, loan and HP interest and running costs based on your private use of the vehicle. The percentage added back should be based on a record of your private and total mileage.
  2. Alternatively, if your business turnover does not exceed the VAT registration threshold (currently £79,000) you can use the fixed mileage rates referred to below. These do not cover loan interest and this can also be claimed subject to restriction for private use based on private and total mileage for the period claimed.
  3. If you are employed and your employer requires that you use your own vehicle for business trips there are two aspects to consider: the rate per mile you are paid (HMRC allow you to receive up to 45p per mile for the first 10,000 business miles each tax year and 25p per mile thereafter); and, the number of miles you claim. The 45p/25p rate HMRC allow is a maximum as regards being non-taxable. Employers are free to pay up to this limit without triggering benefit-in-kind issues. Again journeys should be logged and recorded to evidence the number of miles claimed.
  4. If you have the use of a company car and your employer pays for your private petrol you will be liable to a hefty benefit-in-kind charge. You can eliminate this charge if you reimburse your employer for the cost of private petrol provided. Usually, the cost of any such reimbursement will be lower than the tax charge created by the benefit-in-kind assessment. The reimbursement can be calculated using the ‘advisory fuel rates’ on HMRC’s website and you will need to log your private mileage.

You will need to provide evidence should HMRC visit and select mileage claims for audit. Generally speaking you should:

  • Record the postcode at the beginning and end of the journey so an accurate check can be made of mileage claimed. London to Birmingham would be too vague.
  • The business miles claimed should not be rounded.
  • Home to work mileage should be excluded.


International tax and transparency

Monday, July 1st, 2013

Readers may be interested to take a look at the conclusions reached by the recent G8 meeting at Lough Erne, Northern Ireland. Their full declaration is set out below: the aim is to improve tax transparency and to bring the international tax system into the modern age.

The G8 Lough Erne Declaration – issued 18 June 2013

Private enterprise drives growth, reduces poverty, and creates jobs and prosperity for people around the world. Governments have a special responsibility to make proper rules and promote good governance. Fair taxes, increased transparency and open trade are vital drivers of this. We will make a real difference by doing the following:

  1. Tax authorities across the world should automatically share information to fight the scourge of tax evasion.
  2. Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where.
  3. Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.
  4. Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them.
  5. Extractive companies should report payments to all governments – and governments should publish income from such companies.
  6. Minerals should be sourced legitimately, not plundered from conflict zones.
  7. Land transactions should be transparent, respecting the property rights of local communities.
  8. Governments should roll back protectionism and agree new trade deals that boost jobs and growth worldwide.
  9. Governments should cut wasteful bureaucracy at borders and make it easier and quicker to move goods between developing countries.
  10. Governments should publish information on laws, budgets, spending, national statistics, elections and government contracts in a way that is easy to read and re-use, so that citizens can hold them to account.

No doubt parties that have been campaigning for multinationals to change how they calculate taxable profits in the UK will watch progress on the implementation of these lofty words with interest.