Tuesday, September 22, 2009
I recall asking how such a plan would work. It became evident that despite the headline grabbing idea they had not a clue about how to make it a reality. They were unable to say whether we would all have to file a second (local) income tax return or whether our normal tax returns would suffice. No thought had been given to the unwaged, employees and pensioners who were not required to file tax returns and there was no apparent understanding of the time lag before the self employed pay income tax on the money they earned. And it was also clear that the plans to establish and critically to operate a system of local income tax had not been costed - even vaguely. In short the policy was little more than an idea that had yet to be fully thought through.
I was reminded of this exchange yesterday when I heard about the (outline) Liberal Democrat plans for what was promptly dubbed a 'mansion tax'. Like many commentators my first thought was for the practicalities. Who would value these properties? How often would they be revalued and how would people with low incomes in large properties be expected to pay the supplemental council tax? Who would pay the tax on mansions owned by offshore trusts and how much would this new system cost to put in place and keep uptodate as compared with the tax it might raise?
It has since become apparent that there is little in the way of practical answers, and attempts to deflect such questions reveal a similar lack of understanding of the related issues as was apparent in the context of a local income tax.
This is a shame as, in an ideal world, we should be able to debate the pros and cons of tax policy without having to worry about HOW changes would be implemented. We should be able to discuss ideas and agree as to what would be fairer policies. Then, once there is a consensus we could work to find ways to make them a reality.
In the real world however we do not have such luxuries and have to start from where we are. If new ideas are not costed and practical they will be dismissed ab initio. That is, unless they are put forward by the Government of the day....
(How many such illogical, uncosted and impractical such plans can you think of from recent years? Please add your comments below)
Monday, September 21, 2009
"Today I am highlighting recent action, domestically and internationally, that changes the game for those who bend the rules on tax, and for those who break them...."
".... I want it to become increasingly clear to taxpayers and tax agents that for tax cheats, the game is up."Surely though, "tax cheats" are only those who break the law? Maybe not.
I'm no fan of those who deliberately exploit the law in an effort to reduce or avoid tax liabilities even if they just about manage to avoid(!) breaking the law. To me, and evidently to Mr Timms too, such people are seeking to cheat the system, cheat HMRC and cheat fellow taxpayers. Yes, we can call them all 'tax cheats'.
In concluding his speech Mr Timms added:
"We are today in a different world for tax....."
"We will continue to help the vast majority who want to live up to their responsibilities. But those who try and cheat will find themselves increasingly isolated: by their peers; by Governments; by the international community – as the G20, and, in Britain, our pre-budget report, will show"
"The changed strategic context should be clear. Tax cheats need to think again."
For completeness I have extended below the final observation from my post Bending vs breaking tax rules:
Some people take great delight in deliberately bending the rules whilst seeking to avoid a total fracture. Observers may consider the bending to be so severe that a fracture seems almost inevitable. In such cases it seems only reasonable to me that HMRC should be expected to challenge what has been done, how much force was applied and to apply x-rays to determine the possible damage. Only then will they know if the law was broken or not. And of course sometimes the rules are bent so far that it takes the Courts' further and deeper x-ray to determine whether or not the rule has been fractured and in effect broken.The debate is moving to consider whether those who do the deliberate and severe bending are just as much 'tax cheats' as those who consciously evade taxes and break the rules. In this connection I gather that there will be some surprises in the Pre-Budget Report along these lines.
Wednesday, September 9, 2009
As reported in the press, Warman has now been jailed for eight years for his part in a £2.5 million buy-to-let tax fraud. His co-accused was a client, Simon Fields, a key figure in Nottingham’s property rental industry.
On sentencing Warman, Judge Hamilton said: “You were not a very good accountant, but a very good fraudster, manipulating people and finances to fund a very comfortable lifestyle for yourself. You used your clients to feather your own nest. People trusted you and you breached that trust."I mention this here as it comes as a surprise to lots of people to learn that anyone can call themselves an accountant. Unlike 'solicitor' and 'dentist' the term is not reserved to qualified professional advisers. John Warman was unqualified and a crook. I wonder how many of his clients were aware he had no professional qualifications?
For the record there have been attempts to prevent unqualified practitioners, like John Warman, from describing themselves as accountants. Last year Vince Cable tabled an Early Day Motion to secure protection for the term. The Government formally rejected the idea. I think this was a good result. My view is derived from many discussions with members of the public in connection with the Tax Advice Network which provides a support service for accountants. I quickly realised that that there was a degree of confusion as most non-accountants assume that all accountants are tax advisers - ie: the words are thought to be synonymous.
In a post on the Ambitious Accountants blog last year I explained my view that the campaign to protect the term 'accountant' could backfire. Simply stated, most people are more interested in saving tax than in getting a set of accounts. If unqualified people could no longer call themselves accountants they would simply call themselves tax advisers. This is another unregulated term and would quickly become better recognised by the public than is currently the case. And tax advisers would then become more popular professionals to approach re tax matters than accountants. Qualified accountants wouldn't like that scenario I'm sure.
The bottom line is that there are good and bad unqualified accountants. There are good and bad qualified accountants and there are good and bad tax advisers. With the advent of a ratings system and public testimonials it should be clear that we only retain good tax advisers in the Tax Advice Network ;-)
Monday, September 7, 2009
A similar point was also noted recently by the ICAEW, which monitors the size of Finance Acts since 1979. In it's fifth annual report of the Big Ben Statutory Tax Burden the ICAEW noted that Finance Act 2009 is one of the longest on record.
In the last 12 years, during which Gordon Brown was either Chancellor or PM, the annual Finance Acts have added over 5,300 pages of tax legislation to the statute books. This is more than a 25% increase over the previous 18 years (during which 'only' 4,000 pages were added). The average size of each Finance Act is now more than double what it was during that earlier period.
Average size of Finance Acts 1997-2009 = 382 pagesIn 1982, when I first qualified as an accountant and started to specialise in the provision of tax advice it was normal to hope that one would eventually be able to advise across all areas of tax. My, how times have changed. These days few accountants and tax advisers are able to do this and even fewer would ever hope to able to do so. The wealth of new tax material each year is astonishing. And it's not just the annual Finance Acts one has to be monitor there are also:
Average size of Finance Acts 1979-1998 = 190 pages
- Statutory Instruments
- Case law
- Tribunal decisions
- HMRC publications and guidance
- Tax law rewrites
- and so on
No one should expect their accountant or tax adviser to be fully conversant with all aspects of our tax laws. I continue to sit on the ICAEW Tax Technical Committee, alongside some of the top tax accountants in the country. Not one of them would pretend to have a full handle on all our tax laws - even in their specialist areas.
This is just one of the reasons for the existence of the Tax Advice Network - because even the best accountants sometimes need specialist tax support. If you have a serious tax problem, worry or challenge and want to consult a specialist simply use the drop down 'specialisms' menu above and choose from our members' profiles.
Sunday, September 6, 2009
VAT vs other taxes
At the moment the only tax figure shown on receipts is the VAT that is ADDED to the charges levied by the business owner. VAT is easy to calculate as it's simply 15% (soon to be back to 17.5%) of the charges. It's a tax on the value of the goods and services provided. And it's collected on behalf of HMRC (the taxman) .
I'm sorry but the suggestion that any of the other taxes paid by the shop could be shown on the receipt is quite fanciful. Although if it were to happen I could see plenty of work for accountants to help with the necessary calculations.
Could it be done?
The report, titled, "Shopping receipts to expose stealth taxes", suggests that more than one business is doing this. Er, I don't think so. And even if they wanted to do so they would be making up the numbers.
Too many assumptions would be required to make this 'plan' happen on a widespread basis. It's just not possible to identify how much of the taxes paid by a business relate to each sale they make - at least not until after the end of the year when you know how many sales have been made and how many expenses and taxes have been paid. Then you could work backwards and show how much of each bill represented raw materials, staff costs, overheads, tax and profit.
Despite my reservations I do like the idea that businesses might want to do this.
Before totally dismissing the concept let me highlight one positive consequence that such an approach might deliver. That is to encourage businesses to focus on their gross margin and their overheads. Not all businesses are aware of these key metrics when setting their prices. As a result they make smaller profits than they had hoped for - or even end up with losses and possibly a failed business.
It's not that easy
After suggesting that Avanta and British Gas are considering introducing such a system the report does then concede:
"However, while Vat is a uniform 15%, critics point out that the amount paid by companies in other levies, such as corporation tax, depends on their profits, making accurate calculations on receipts difficult".In my view, it wouldn't just be 'difficult' it would be close to Impossible - unless you include so many assumptions as to make the receipts little more than a PR stunt. And that's what this report is based on - and a successful one too I'd suggest. So well done to Michael Van Clarke, who claims to be leading the 'protest'. Just so long as no one seriously expects to see these detailed receipts appearing in shops any time soon.
Wednesday, September 2, 2009
In the US, even the Wall Street Journal is reporting that:
"Tax deadbeats are finding someone actually reads their MySpace and Facebook postings: the taxman".It is only a mater of time before tax evaders in the UK are caught in exactly the same way. I'm not sure how easy it would be to start with entries on a 'social' network and track back to see if the person concerned is fully declaring their business profits or is claiming excess tax credits.
On the other hand it could be relatively easy to source all sorts of data and evidence from the internet when someone is being investigated for alleged tax or benefits fraud. Remember that Google is a history book because "Google never forgets" (as noted in this 2005 article). At some stage in the future HMRC may well look back and identify incriminating blogs, tweets and comments you have posted online. These may evidence:
- an earlier start date of your business than you had previously disclosed;
- more extensive activities (and profits?) than previously disclosed;
- the personal nature of trips claimed to be for business purposes;
The following are simply examples of trails that we leave and which could help identify possible tax evaders:
- Adsense account with Google
- Business page on facebook
- Business promotion on BT Tradespace or other online business forums
- Promotion of your own services through twitter or other blogging platforms
- Business focused online profile on Ecademy, LinkedIn or any of the hundreds of other online forums and 'social' networks
- Affiliate links and adverts on your website or online profiles - eg: for Amazon
- Blog boasting re business and promotional activities
Please add your thoughts and other suggestions below - if you dare! Remember the taxman could be watching....
Tuesday, September 1, 2009
The new unit was created to be responsible for a small number of the wealthiest taxpayers with complex tax affairs. We're talking here about assets of approx £20million or more but there is some flexibility especially if someone's assets are growing fast and also if members of a family have interconnected tax affairs. And accountants may be able to nominate clients they would like to be transferred to the new unit.
According to the Telegraph the welcome letter is couched in the friendliest possible terms and sets out what each person can expect from the Revenue's new approach:
It says the unit will: "Build relationships and develop our commercial awareness to help us better understand our customers and make it easier for you to get things right; provide a better service for you through proactive engagement and by providing a single point of contact for all your tax affairs; and encourage open communication to achieve swift resolutions to any contact you have with us."
Most of the taxpayers whose affairs have been transferred would previously have been dealt with in the 'Complex Personal Returns' (CPR) unit. That unit seems to have been a victim of its own success. Stories abound of accountants asking for their client's affairs to be transferred TO the CPR as the staff there seemed more switched on than in certain other offices. Nevertheless the rump of taxpayers previously dealt with by CPR teams have been transferred to the main Customer Operations unit in Stockton-on-Tees.
It seems likely that HMRC will conduct more real time interventions into the tax affairs of the 'super-rich' and probe deeper into their financial affairs using a wider array of information sources, including data from overseas authorities. HMRC will be as interested in determining the origins of an individual's or family's wealth as in ensuring that all tax due on income and gains is paid on time.
Do any readers of this blog have any experience of the new unit or views as to this development?
1 – You have nothing to worry about if you've been honest
As long as you have fully disclosed on your tax returns all of your taxable income and gains you have nothing to worry about. However, the NDO is especially relevant for anyone who has omitted to disclose any of the following:
- rent due on overseas properties;
- interest on offshore accounts;
- investment income on overseas investments:
- capital gains arising in the UK or overseas;
- trading income and profits that were deposited or invested overseas.
Anyone who has chosen not to declare taxable income or gains can take this 'final' opportunity to come clean with the taxman. HMRC are adamant that the NDO will not be repeated. HMRC are in the process of obtaining chapter and verse about offshore bank accounts held by or on behalf of UK residents. And HMRC also make clear that this is not an amnesty as all taxes will have to be paid. Interest will also be charged on the late payments of tax.
In normal circumstances HMRC would also charge penalties if someone had failed to declare taxable income or gains on time. Such penalties could be as high as 100% of the late paid tax.
Under the NDO however the penalty will be limited to just 10% of the late paid tax. And if the tax you owe is less than £1,000 the penalties will be waived.
3 - You could be in trouble if you missed out in 2007
In 2007 HMRC offered similar beneficial terms to anyone disclosing tax liabilities related to offshore bank accounts. HMRC didn't publicise this very widely and their focus in 2007 was only on the five main high-street banks in the UK with offshore subsidiaries.
The NDO is now targeting UK residents who have offshore accounts operated by over 300 banks and other financial institutions which also have an onshore presence in the UK. As indicated above the penalty this time round is being set at 10%. However if you ignored HMRC's invitation to 'come clean' in 2007 the penalty this time round will be 20%.
4 – There is nothing wrong in having an offshore bank account or investment
UK taxpayers can hold money in bank accounts wherever in the world they choose. It is not illegal, immoral or wrong to have offshore assets. Equally you can own property anywhere you like. The problem arises if the funds used to acquire the property or deposited in the offshore account were liable to tax and you failed to tell the taxman about them. And a further problem arises if you don't tell the taxman about the interest or rent you earn offshore.
5 - You may benefit from taking professional advice
HMRC's website contains plenty of guidance to assist you in complying with the NDO.
If you think there could be lots of tax at stake you may benefit from taking professional advice beforehand. There are seven reasons for this:
- You need to ensure that you make a full disclosure so that further penalties are not charged at a later date - at which point a criminal prosecution could be in prospect;
- You will want to avoid paying more tax, interest and penalties than is strictly necessary - an objective review can help here;
- If your affairs are complex you will want to limit the prospect of HMRC prying any further into them - experienced professional tax advice can help here;
- You have previously been investigated by HMRC and kept this income hidden at the time;
- You inherited the account(s) or you are only one of the joint holders of the account(s);
- The account is in the name of your company or business and it would be disruptive if HMRC investigated further into the company/business affairs;
- You are non UK domiciled and you have any doubt as to whether the interest could be taxable here.