Taxpayers’ bills delayed by payment on account errors

The Association of Taxation Technicians (ATT) has revealed that problems with HMRC’s IT systems earlier this year, relating to calculations for payment on account, mean that some taxpayers will not receive tax demands this month.

The glitches in the tax authority’s systems during the self-assessment tax return season also mean that calculations for payment on account on some returns may not be adjusted correctly.

It was apparently made clear at the time that HMRC’s systems had not processed payments on account for 2018/19 correctly. Unless affected taxpayers contacted HMRC to correct the position, they will not have received a demand in June or July for the second payment on account due by 31 July 2019.

Instead, those affected by this HMRC failure will need to pay their total 2018/19 self-assessment tax bill by the end of January 2020 and the ATT is advising them to set additional money aside to make sure their bill is covered.

Jon Stride, Co-Chair of the ATT’s technical steering group, said: “If a taxpayer does not make any payments on account during 2019, then their tax bill in January 2020 could be significantly larger than they are expecting and could come as quite a shock.

“Individuals who do not receive expected demands should either set aside the funds needed ready for next year or, if they wish, they can make a voluntary payment on account to HMRC of their July payment – and their January payment if that was also missed.”

The ATT has been told by HMRC that if no 2018/19 payments on account have been demanded, then the taxpayer will receive a demand from HMRC for the full amount of tax in January 2020.

Self-assessment taxpayers with annual tax demands of £1,000 or less do not have to make payments on account, while those in the regime who have 80 per cent or more of their total annual tax collected at source, such as by PAYE, do not have to make payments on account either.

Link: Missing 2018-19 payments on account – what to do

Remember to pay the annual data protection charge

Businesses across the UK are being reminded that, if they process personal data, they are subject to a legal requirement to pay the Information Commissioner’s Office (ICO) an annual data protection charge, unless they have a relevant exemption.

Any businesses that fail to pay the correct charge are at risk of a fine of up to £4,350. A list of businesses that have paid the charge is published on the ICO’s register of data controllers.

The amounts that businesses must pay are determined by their size, with micro organisations and sole traders paying £40 a year, SMEs and equivalent organisations paying £60 and large organisations paying £2,900.

Where an organisation pays the charge by direct debit, they will receive a £5 deduction.

There is a tool available on the ICO website here so that organisations can determine whether they are subject to the charge.

Link: Employer bulletin June 2019

Revenue tests new trigger to increase the accuracy of PAYE codes

HM Revenue & Customs (HMRC) is trialling a new trigger, which is intended to improve the accuracy of employees’ PAYE tax codes.

According to HMRC, as many as half a million tax codes being used by employers across the UK could be incorrect, leading to employees either overpaying or underpaying tax.

To address the problem, HMRC is making changes to dynamic coding, which began its rollout in July 2017.

Dynamic coding is designed to make use of the additional information HMRC is now receiving from employees and employers to recalculate pay estimates during the course of the tax year.

Now, HMRC is adding mismatches between its records and those of employers to the list of events that can trigger a recalculation.

As part of the initiative, HMRC is also placing a renewed emphasis on ensuring that employers complete new starter checklists properly and will be visiting the 100 worst offending employers when it comes to failing to complete the new starter process.

Link: HMRC trails new PAYE code trigger

New code launched to help protect victims of sophisticated banking fraud

A new code has been launched by 17 UK banks to protect customers who fall victim to a sophisticated form of fraud known as Authorised Push Payment (APP) scams.

APP scams involve tricking people into making payments to fraudsters, who are masquerading as legitimate payees.

Victims of these scams who notify the banks signed up to the new code will now be informed within 15 working days whether they will be reimbursed for their losses. Where a person is not satisfied with their bank’s response, they can refer their complaint to the Financial Ombudsman Service.

Chris Hemsley, Co-Managing Director at the Payment Schemes Regulator (PSR), said: “APP scams can have a devastating impact on the people who fall victim to them. The code is a major step-up in protections and it reflects our strong belief that if somebody has done everything they can reasonably do to protect themselves, they should be reimbursed. I welcome the commitment that these banks have made to their customers.

“There has been a significant amount of work by consumer groups and the industry to develop and deliver this code and we are really pleased that these new protections are now available.”

Link: PSR welcomes new industry code that protects people from APP scams

EIS and SEIS tax relief funding passes £2.1 billion

A rise over the course of the 2017-18 tax year saw funding for the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) tax reliefs pass the £2.1 billion mark.

The EIS scheme saw the larger increase in approved funding, with an increase in funds raised of £28 million. In comparison, SEIS approved funding rose by approximately £2 million over the year, despite a fall in the number of companies receiving investment.

The EIS scheme allows investors to claim relief on Income Tax of 30 per cent on investments of £1 million or below in high-risk start-ups. Meanwhile, they can also invest as much as £2 million in “knowledge-intensive companies”.

The figures follow a crackdown on some lower-risk investments, which most recently saw a “risk-to-capital” test introduced in the Finance Act 2018.

Link: Tax-efficient EIS companies take in £2 billion despite clampdown

Significant lack of awareness around gifting rules for IHT

A new report published by the National Centre for Social Research (NatCen) and the Institute for Fiscal Studies (IFS) has revealed a worrying lack of awareness about the Inheritance Tax (IHT) benefits of making a gift.

Its study found that only 25 per cent of those who had made a gift had a ‘working knowledge’ of the IHT rules and fewer than half reported being aware of IHT rules or exemptions when they had given their largest gift.

Considering the lack of awareness around the rules it is not surprising that only eight per cent of all respondents actively considered the tax rules before making a financial gift.

Of those who did have awareness of the rules, around 54 per cent said that it influenced how much they gave. Extrapolating the data further reveals that the majority of those with an awareness of the rules came from wealthier households with assets of more than £500,000.

Below this level of wealth, there was significantly less knowledge of either the seven-year rule or the annual £3,000 limit on gifts.

A remarkably low number of estates are affected by IHT (around 4.2 per cent of all deaths annually). Nonetheless, IHT receipts still totalled £5.2 billion in 2017-18, an increase of eight per cent on the previous year’s figure.

The report also shows that around 12 per cent of people have made gifts, with those aged 60 or over giving a median total of around £4,000, while those under the age of 60 give on average £3,500.

Incredibly, 12 per cent of those aged 70 or over who were surveyed had given away £20,000 or more in the last two years. Over 80 per cent of gifts were made to individuals, but one in 10 respondents had also made donations to charity.

Link: Lifetime Gifting: Reliefs, Exemptions, and Behaviours

MTD for VAT – relaxation on posting supplier statements

HM Revenue & Customs (HMRC) has updated its VAT notice regarding Making Tax Digital (MTD) for VAT to relax several of the digital recordkeeping requirements.

One of the changes, secured with the help of the Chartered Institute of Taxation (CIoT), relates to purchase invoices from suppliers.

It has become apparent in sectors that receive a high number of purchase invoices from the same company, that they are having to file multiple almost identical records, which is becoming very onerous.

MTD for VAT requires each individual supply or invoice to be entered as a new digital record.

However, a relaxation to the rules has been agreed, which will enable businesses to capture their digital records information from supplier statements, rather than from each individual invoice, as long as “all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown”. This change will only apply to purchases and not sales.

HMRC has also agreed to review the requirement for petty cash. Currently, the strict requirement is to record each individual supply, or at least each individual invoice/receipt, within a company’s digital records.

Instead, the updated VAT notice says that petty cash transactions can now be added up and summary totals entered as an alternative digital record.

The notice states: “This applies to individual purchases with a VAT-inclusive value below £50 and the total value of petty cash transactions recorded in this way cannot exceed a VAT-inclusive value of £500 per entry.”

The third and final relaxation of the rules relates to charity fundraising events run by volunteers. Under the new guidance the total values of supplies made can be entered as a single transaction, and similarly for supplies received.

HMRC has told the CIoT that it will not currently be seeking to apply record-keeping penalties where a business is clearly trying to comply with the requirements of MTD. This is in line with their previous promise of providing a ‘soft landing’ period in the first year of the new digital tax regime.

Link: VAT Notice 700/22: Making Tax Digital for VAT

Government confirms that HMRC will get a higher priority when firms go bust

From April next year, HM Revenue & Customs (HMRC) will rank third just after secured creditors, such as banks, and insolvency practitioners in order to recover additional outstanding tax from failing businesses.

Currently, HMRC is ranked alongside unsecured creditors, such as suppliers, trade creditors, contractors and customers, who on average rarely recover more than four per cent of debts owed.

However, the change will mean that they are now likely to recover a higher percentage of tax, which will contribute around £185 million extra a year to the public coffers, according to the Government.

The taxman’s new ‘third place’ position in respect to employment taxes and national insurance contributions means that its claims will jump ahead of floating charges from secured creditors, such as debt provided by financial institutions.

The VAT paid by customers on goods will also jump up the queue, although claims relating to other charges, such as corporation tax, still rank alongside other unsecured creditors.

This latest decision is a reverse of the previous crown preference arrangements that were removed in 2003. These were abolished after a record number of smaller corporate entities began winding up in the late 1990s following concerns that HMRC was inadvertently pushing them into liquidation through its tax recovery activities.

Link: Protecting your taxes in insolvency

Registering for Making Tax Digital for VAT takes seven days, warns HM Revenue & Customs

HM Revenue & Customs (HMRC) has warned businesses across the UK that the registration process for Making Tax Digital (MTD) for VAT takes seven working days.

This means that VAT-registered businesses turning over £85,000 or more need to register more than seven days before submitting a return if they want to pay their tax bill by direct debit.

Last month saw the introduction of the requirement for such businesses to keep digital records and make quarterly digital VAT returns using HMRC-compatible software packages. In practice, this means that they need to use cloud accounting packages.

The quarterly nature of MTD for VAT returns means that the first quarterly submissions will not actually become due for most until at least July 2019.

Registering involves setting up a Government Gateway user ID and ensuring compatible software is in place.

Link: Making Tax Digital for VAT registration takes seven working days