Newsletter August 2013

This month’s newsletter includes the following articles: a recent offer from HMRC to help you to file any outstanding tax returns, changes to the rules regarding loan deductions for IHT, details of a new HMRC taskforce targeting holiday businesses and an interesting summary of HMRC’s accounts for 2012-13.

Our next newsletter will be published Thursday 5 September 2013.

HMRC’s “My Tax Return Catch Up” campaign

If you have been sent a tax return for any tax year up to 5 April 2012, and it has not been submitted, you may want to consider taking part in this campaign.

In a nut-shell HMRC are offering to look kindly on any penalties chargeable, as a result of late filing or late payment of any taxes due, as long as you submit all outstanding returns and pay any taxes shown to be payable.

To take part in this offer is fairly straight forward:

  1. Firstly, you need to advise HMRC that you want to take part in the campaign – we can do this for you.
  2. Secondly, you will need to complete and submit all the outstanding returns – again we can help.
  3. And last, but not least, you will need to pay any taxes due.

There is a deadline you need to consider; you must complete all of the three stages set out above by 15 October 2013.

HMRC have offered to consider extended payment plans if your individual circumstances warrant this requirement.

Of course it may be that you are due tax refunds for certain years, and this will be determined when your returns are completed, in which case HMRC will make appropriate refunds to you. However, any refunds of tax for 2008-09 and earlier are time barred and cannot be repaid unless you have received an estimated determination of taxes due within the last twelve months, and this is greater than the tax found to be due.

Deductions for loans against Inheritance Tax (IHT)

Generally speaking, debts of a person’s estate are deductible for IHT purposes – though there are some circumstances where specific debts cannot be deducted such as where the deceased had previously made a gift to the person who made the loan. Following this year’s Finance Act, which became law on 17 July, there are several changes affecting deaths on or after that date.

The changes will affect deductions for debt in the following ways:

  1. Generally, a deduction will be denied unless the debt is repaid on or after death out of the estate. However, a deduction may still be permitted where the debt has been retained for sound commercial reasons, and gaining a tax advantage was not one of the main purposes for keeping it.
  2. Debts will not be taken into account as deductions for IHT purposes if they were taken out to purchase, maintain or enhance property excluded from IHT. If, however, the amount of the debt exceeds the value of the excluded property, and is not perceived to have a tax avoidance motive, then the balance may be allowed as a deduction. This will affect relatively few people.
  3. Debts taken out to acquire property which benefits from business property relief or agricultural property relief must first be deducted from the value of that property with only the balance being deductible from the chargeable estate. Previously, debts were deductible from the value of the property on which they were secured (which was usually chargeable) rather than from the property they were used to acquire, so this change means that such debts may no longer obtain the IHT savings they previously did. However, following a change to the original Finance Bill, this particular rule only applies to debts incurred on or after 6 April 2013 – so arrangements existing at that date remain effective. Even so, this change will affect many who are farmers or run their own businesses (whether as sole traders, partnerships or companies) and take out new finance or possibly reorganise existing finance.

These changes could have a significant impact on estate planning. We recommend that any individual who is relying on a debt reduction to minimise future IHT payments should seek advice.

HMRC sets up a further task force

Holiday businesses in Devon, Cornwall, North Wales, the Lake District and Blackpool area beware: the taxman has set up a further task force to seek out and bring to account business owners who are not declaring the correct information on their tax returns.

The taskforces are trained to focus on particular business sectors and may have some flexibility regarding the level of penalties they levy – this is likely to depend on how co-operative the defaulting tax payer is during their investigation.

It would be sensible for holiday businesses to get their house in order.

HMRC will be interested in a range of compliance activity and taxes. For example:

  1. Payroll and PAYE compliance – particularly adherence to the new Real Time Reporting system. For businesses affected they will no doubt be asking questions about tips and gratuities and how these are treated for tax purposes.
  2. VAT
  3. Record keeping – this will include evidence of income and how this reconciles with booking diaries and systems. Do the numbers add up?

If your business operates in one of the targeted areas you would be well advised to review your systems, be prepared. Don’t wait until the brown envelope drops through your letter box.

Committee of Public Accounts comments on HMRC 2012-13 numbers

We thought readers might be interested to see how well HMRC have done in the last year, collecting our taxes and tackling fraud.

The following statement is reproduced from Parliament’s website and was made by The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, on 2 July 2013.

“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.”

Tax Diary August/September 2013

1 August 2013 - Due date for Corporation Tax due for the year ended 31 October 2012./p>

19 August 2013 - PAYE and NIC deductions due for month ended 5 August 2013. (If you pay your tax electronically the due date is 22 August 2013.)

19 August 2013 - Filing deadline for the CIS300 monthly return for the month ended 5 August 2013.

19 August 2013 - CIS tax deducted for the month ended 5 August 2013 is payable by today.

1 September 2013 - Due date for corporation tax due for the year ended 30 November 2012.

19 September 2013 - PAYE and NIC deductions due for month ended 5 September 2013. (If you pay your tax electronically the due date is 22 September 2013)

19 September 2013 - CFiling deadline for the CIS300 monthly return for the month ended 5 September 2013.

19 September 2013 - CIS tax deducted for the month ended 5 September 2013 is payable by today.

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