The old fine of £100 is to be replaced because, the tax authority says, the previous penalty rate was not enough of a deterrent.

The new penalty regime for late filing and late payment of self assessment income tax comes into effect on 6th April 2011 and applies to the tax year 2010/11.

Taxpayers who fill in self assessment tax returns will shortly receive their 2010/11 notices and paper returns. These will include information on the new penalty framework and how it will significantly increase penalties for those who file and pay late. A tax return filed six months late could attract a penalty of at least £1,300.

HMRC’s Stephen Banyard said: “The vast majority of people don’t have to pay penalties because they send in their return and pay on time; but there are always a small number of people who have avoided filing or paying on time. HMRC spends a lot of time pursuing late returns and getting involved in unnecessary appeals work.

“We want to focus our resources on more productive work such as catching criminals and collecting tax. The old £100 penalty was not much of a deterrent and these new penalties, which increase over time, will get people to submit returns as soon as possible. Basically the greater the delay, the greater the penalty.”

Currently, self assessment tax returns must be filed on paper by 31 October or online by 31 January, with any payments due made by the end of January.

The new penalties for filing self assessment tax returns late are:

One day late will mean an initial penalty of £100, even if there is no tax to pay or all the tax owed has been paid.

Three months late will mean an automatic daily penalty of £10 per day, up to a maximum of £900.
Six months late will mean further penalties, which are the greater of 5 per cent of tax due or £300.
Twelve months late will mean yet more penalties, which are the greatest of 5 per cent of tax due or £300. In serious cases, there could be a higher penalty of up to 100 per cent of the tax due.

Penalties for late payment of tax are:

Thirty days late will involve an initial penalty of 5 per cent of the tax unpaid at that date.
Six months late will involve a further penalty of 5 per cent of the tax that is still unpaid.
Twelve months late will involve a further penalty of 5 per cent of the tax that is still unpaid.
These penalties are on top of the interest that HMRC will charge on all outstanding amounts, including unpaid penalties, until the payment is received.

In a major boost for pioneering small businesses, the Financial Secretary to the Treasury, David Gauke, recently launched a new plan outlining how government will make it easier for small businesses investing in research and development to claim tax relief.

The two-year plan, which is a response to an HMRC consultation, aims to increase take-up of research and development (R&D) tax relief through raising awareness of the relief amongst small businesses and making it easier for them to apply.

The tax relief, which encourages companies to invest in costly new product development, helps companies reduce the amount of corporation tax they pay on profits by offsetting them against any investment in research and development. Latest statistics for 2013-14 show more than 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but the government wants to go further.

Financial Secretary to the Treasury David Gauke said:

R&D is crucial for the long-term growth of the UK economy. Over 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but we need to go further to support pioneering small businesses.

That’s why we’ve published a document setting out our plans to increase awareness and make it easier for people to apply.

The plan, ‘Making R&D Easier: HMRC’s plan for small business R&D tax relief’, was published 28 October 2015 and sets out that:

• From November, small companies – with a turnover under £2 million and fewer than 50 employees – will be able to seek advance assurance on R&D tax relief. This will give them greater certainty and enable them to plan their finances effectively.
• HMRC will explore ways to improve its communication around R&D tax relief, including looking at ways to use data and work with other government agencies to identify companies that have carried out R&D but have not claimed relief.
• Interactive guidance will be developed with stakeholder involvement

HMRC evaluation shows that each £1 of tax foregone by R&D tax relief stimulates between £1.53 and £2.35 of additional R&D investment. SME R&D relief works by way of super deduction, allowing companies to reduce profits liable to corporation tax by 230 per cent of their qualifying R&D expenditure. In 2013-14, businesses received £1.75 billion in R&D tax relief, an increase of almost £750 million since 2009-10.

Although the UK tax year runs from 6 April to the following 5 April, there is another which ends 31 January each year – it’s the online filing deadline for self assessment purposes.

The 31 January 2014 is also the date on which any outstanding self assessment tax unpaid for the tax year 2012-13 falls due for payment, together with any payment on account due for 2013-14.

The lead up to the filing deadline is a busy period for tax practitioners, who work hard to complete and file outstanding returns. If by chance you, the reader, have not yet submitted your paperwork to your advisor, now would be a good time to get things together.

There are automatic penalties if you fail to file on time, even if you manage to pay any outstanding tax before the 31 January.

The following penalties applies to self assessment returns that are filed late:

• From day one: taxpayers will be charged a £100 penalty even if they have no tax to pay or have paid any tax due on time.
• From 3 months late: taxpayers will be charged an automatic daily penalty of £10 per day up to a £900 maximum.
• From 6 months late: taxpayers will be charged additional penalties which are the greater of 5% of tax due or £300.
• Over 12 months late: there are additional penalties based on greater of 5% of tax due or £300. In serious cases this penalty may be increased up to 100% of tax due.

Cast your mind back when Members of Parliament were accused of “flipping” properties to avoid Capital Gains Tax on the sale of a second property?

Theoretically, it should be possible to buy a second home, live in it for a short period, and as long as certain procedures are followed, have the last three years of ownership ignored for CGT purposes. By implication, if you buy and sell the property within a three year period you will pay no tax on the sale. This process is described in some circles as “flipping”.

Recent court cases seem to be challenging this type of arrangement and making it more difficult for property owners to avail themselves of the CGT, Principal Private Residence Relief (PPR). The decisions may also have an effect where there is only one home which is occupied on a temporary basis.

 It a nut shell the Courts are using the issue of “permanence” to deny relief.

 P Moore v HMRC

In this case Mr Moore decided he wanted to live apart from his wife of many years and he moved into a house that he had previously rented out. He lived in this house from November 2006 to July 2007. Although he was careful to have his Council Tax bills sent to his new house, all of his other bills were forwarded to his lady friend, who he subsequently married.

The Court decided that Mr Moore had never intended that his residence in the second home be more than a temporary arrangement, and that his true intention was to purchase a larger property with his future wife that would accommodate her children.

 The arrangement lacked permanence.

 Dr Eghbal-Omidi v HMRC

In this case a doctor agreed to purchase a house in December 2006 and the sale was completed in March 2007. In May 2007 the doctor sold the house making a profit of £550,000.

 Again the doctor contended that he had occupied the house and therefore no tax should be payable.

 The Court disagreed. His occupation lacked any permanence and relief was denied.

Decided cases on this issue now conflict as earlier judgements did not place such significance on the matter of permanence. Readers who find themselves in a similar situation should take stock. Until the Courts provide a definitive ruling, or HMRC clear guidelines, we are placed in an awkward position when deciding on an appropriate approach to tax planning.

Planning to sell your business is not a process for the faint hearted. You have likely spent many years building your business and the last thing you want to face is losing a large proportion of the sales proceeds to tax or worse, being unable to enforce payment of what is due to you because of contractual difficulties.

 This is a complex subject. There are many ways to structure a sale and this article outlines a few of the issues you will need to deal with:

• Are you selling all your business or just part of it?
• Are you selling the shares in the company or the underlying business?
• Are you retaining ownership of property that forms part of the business assets?
• Is your company considered to be a “trading” company for tax purposes?
• Should key staff benefit from the sale?

 The forth item on this list is particularly important if shareholders want to benefit from Entrepreneurs’ Relief for Capital Gains Tax (CGT) purposes. A successful claim would limit any CGT to 10% of the taxable gain up to a lifetime allowance of £10m.

 To be considered a trading concern, a company needs to comply with HMRC’s 80:20 rule. This looks at three criteria:

1. Are at least 80% of the assets used for the purposes of a trade?
2. Is more than 80% of turnover derived from trading activities?
3. Do officers and employees of the company spend 80% or more of their time on trading activities?

Assets can include cash reserves so it may be prudent to extract surplus cash from the company at least a year before a sale is anticipated. However, HMRC tend to take a more relaxed view if the cash arises from accumulated trading profits and it is not actively managed.

 Another issue you should consider at an early date is due diligence. Your purchaser will no doubt send in their advisors to check over certain aspects of the business tax affairs prior to the completion of the sale. You should conduct your own review into PAYE, VAT and Corporation Tax compliance matters before any due diligence takes place to ensure there are no skeletons in the cupboard.

Also, it is important to consider shareholdings etc, and whether the shareholders themselves meet the requirements for Entrepreneurs’ Relief.

The key to maximising the value locked up in your business is to take planning seriously, and start the process at least a year before you intend to sell.

UK residents, whose Swiss banking arrangements have been disclosed to HMRC under the UK/Swiss tax agreement, have started to receive follow up letters from HMRC.

 Earlier this year account holders were given a choice:

• To pay over a fixed percentage of their account balance to compensate for tax previously unpaid.
• Or, to authorise their Swiss Bank to disclose their account details to HMRC. This did not apply to non-UK domiciled individuals.

HMRC have been writing to this second group. Recipients of these letters were required to act quickly. HMRC set a deadline of 1 November 2013 to complete and return one of three certificates. If you have received such a letter, and have not responded, you should take advice quickly. The certificate you should have submitted is one of the following three options:

1. Certificate A: a declaration that they have no outstanding UK tax liabilities (either in relation to the Swiss accounts or other sources).
2. Certificate B: a declaration that they will be disclosing any outstanding liabilities using the Liechtenstein Disclosure Facility (LDF), or
3. Certificate C: a declaration that they will be disclosing their outstanding liabilities outside the LDF.

Failure to respond to the HMRC letter may result in a formal investigation being mounted by HMRC and the risk that criminal proceeding may be taken. Account holders should consider their options carefully and respond without further delay. Completing Certificate B would avail you of certain concessions regarding penalties chargeable, and in particular, immunity from prosecution.

 Readers affected would be wise to take professional advice before responding to HMRC.

A new tax campaign was launched by HMRC on 7 October 2013. The campaign targets: physiotherapists, occupational therapists, chiropractors, osteopaths, chiropodists and podiatrists; homeopaths, dieticians, nutritional therapists, reflexologists, acupuncturists, psychologists, speech, language and art therapists, and other health professionals are also covered.

Health professionals have until 31 December 2013 to advise HMRC that they would like to take part in the campaign, and until 6 April 2014 to disclose and pay any tax owed.

As usual with these campaigns HMRC offer favourable settlement terms. Health professionals affected who do not meet the 31 December deadline run the risk that their affairs may be subject to an investigation.

 1 November 2013 – Due date for Corporation Tax due for the year ended 31 January 2013.

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

 19 November 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2013.

 19 November 2013 – CIS tax deducted for the month ended 5 November 2013 is payable by today.

 1 December 2013 – Due date for Corporation Tax due for the year ended 28 February 2013.

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

 19 December 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2013.

 19 December 2013 – CIS tax deducted for the month ended 5 December 2013 is payable by today.

 30 December 2013 – Deadline for filing 2012-13 Self Assessment online to include a claim for under payments (under £3,000) be collected via tax code in 2014-15.

Wednesday 4th December 2013: Autumn Statement

It has been announced that George Osborne will be presenting his Autumn Statement to Parliament at 12.30pm, Wednesday 4th December. The Statement usually sets the tone of future changes to our tax legislation, particularly, those to be included in the Finance Bill 2014.

 Tuesday 10^th December 2013: Draft clauses published

Six days later the Treasury have committed to publishing draft clauses to be included in the Finance Bill 2014. This “putting meat on the bones” approach will give tax professionals an opportunity to comment on proposed changes to the tax code.

The draft clauses will be augmented by the addition of the following information:

• Responses to policy consultations
• Explanatory notes, and
• Tax information and impact notes

This process, of publishing draft clauses, is to be welcomed as it provides a useful window of opportunity for meaningful consultation prior to the publication of the more formal Finance Bill next year.

Consultations on the draft legislation will remain open until 4th February 2014.
 

Dare we hope?

In the third quarter of 2013 the UK’s Gross Domestic Product (GDP) grew by 0.8%. Don’t be dismayed by the small percentage. The key is it’s a positive number and the best growth indicator published since 2010.

Hidden within this increase are some pleasant surprises:

• A 2.5% surge in construction activity, bolstered in part by the Governments Help to Buy initiative.
• Production grew by 0.5%
• Manufacturing by 0.9%
• The UK’s manufacturing activity was the highest in the G7 group in September

Overall, in the last year Britain’s economy has grown by 1.9%.

Politicians will no doubt interpret these results in different ways. The Government will likely consider these results a vindication of their economic policy. A Treasury spokesperson said has already commented:

“Today’s GDP figures show that Britain’s hard work is paying off and the country is on the path to prosperity.

Many risks remain, but thanks to our economic plan the recovery now has real momentum.

All parts of the economy are growing, the deficit is falling and jobs are being created – and that’s the only sustainable way to raise living standards for hardworking families.”

No doubt the opposition parties would stress that whilst “All parts of the economy [may be] growing” wealth and living standards are rising fastest in London and the South-East.

Never-the-less the news has to be welcome. It is time to talk-up economic activity and start to see that we may indeed be over the worst.

Dare we hope? Yes, why not…