Accountancy Blog

The risks of a tax investigation

Will HMRC come knocking on your door?

It’s a fact – humans are bad at assessing risk. We’re terrified of things that rarely happen (plane crashes, power station meltdowns) but relatively blasé about things that are statistically more likely to harm us, such as unwashed lettuce.

The likelihood of HMRC swooping to investigate your business’s tax affairs seems to be a particularly difficult risk to quantify.

Why take the chance?

In 2017, the Government published a report called ‘Understanding evasion by small and mid-sized businesses’. The authors interviewed 45 people known to have engaged in deliberate tax evasion in an attempt to get to the bottom of what made them risk it.

It found that tax evaders cited a range of reasons for withholding tax.

Some judged the risk of detection to be low, and assumed evasion would be hard to prove even when suspected, or thought that any fine they did incur would be outweighed by the financial benefits of bending the rules.

Others were emboldened by a belief that, to paraphrase, “everybody does it, and nobody cares”.

Meanwhile, those who fancied themselves as having the gift of the gab simply assumed they would be able to talk their way out of prosecution.

The report concludes that it is a problem for HMRC if people think the chances of being investigated, prosecuted and fined are low, and recommends raising the perceived threat level to deter would-be evaders. More…

Changes to probate in 2019

Controversial fee increase set to take place from April.

From April 2019, some estates in England and Wales could be required to pay almost £6,000 for a service that currently costs less than 4% of that amount.

This is because of a proposed change to the fees families must pay to administer the estate of someone who has died.

This process, more generally referred to as probate, involves gathering the assets of the deceased, valuing the estate, paying any tax and bills, and distributing the estate according to the will.

Subtle procedural differences exist in Scotland, where you need to obtain confirmation before inheritance tax can be deducted and what’s left of the estate is distributed to beneficiaries.

The proposed changes to probate fees will not take effect in Scotland from April 2019.

At the time of writing, obtaining the document needed to carry out these tasks – called a grant of probate in England and Wales – costs £215, or £155 if you apply through a solicitor, but there’s no fee if the estate is under £5,000.

However, the Government has announced plans to restructure the way the fees work, which would see some estates paying significantly more than they do now. More…

Think tank proposes tax changes to save £7bn

A think tank suggests that tightening up some existing wealth taxes and subsidies could help the Government save almost £7 billion a year by 2022/23.

Scrapping the lifetime and help-to-buy ISAs, reforming or replacing council tax, and clamping down on inheritance tax loopholes are among the suggestions made by the Resolution Foundation.

Other recommendations include making pensions tax relief more progressive and limiting entrepreneurs’ relief.

It suggests abolishing the two ISAs would save up to £900 million a year, while increasing the top council tax bands in England would generate around £1.4bn a year.

On top of that, it argues that capping the tax-free pensions allowance at £40,000 a year would raise around £2bn, and £1.6bn a year would be fetched by returning the lifetime entrepreneurs’ relief limit to £1m. More…

Partners hit by avoidable ISA tax charge

An unnecessary tax charge on inherited ISAs could be resulting in thousands of bereaved partners missing out on a tax break, according to research.

Introduced in 2015, the additional permitted subscription is available to the spouse or civil partner of an ISA holder who has died.

The subscription provides an extra ISA allowance to the surviving spouse or civil partner, the value of which depends on when the death occurred.

For deaths before 5 April 2018, the value of the subscription is equal to the value of the deceased’s ISA at death.

For deaths after that date, the deceased’s ISA becomes known as a ‘continuing ISA’ and different rules apply to the value of the subscription. More…

Dual-registration service passes 200,000 milestone

More than 200,000 startup owners have benefitted from a collaborative service that enables businesses to register for tax at the same time as registering their company.

The streamlined company registration service, which was announced by HMRC and Companies House in 2015, was launched to reduce the burden on business owners and their agents.

When a company is registered, Companies House notifies the Revenue so it can dispatch a unique taxpayer reference to the company’s registered office.

Most accountants take care of this task as part of a comprehensive business service, which involves setting up a company, liaising with HMRC on its behalf, and dealing with trading periods. More…

Auto-enrolment fines rise 146%

Fines issued to employers that fail to comply with their auto-enrolment responsibilities have more than doubled over the last two years, a report from the Pensions Regulator shows.

In 2017/18, there were 36,137 fines issued to employers for not complying with the requirements of auto-enrolment – up from 14,707 such penalties in 2016/17.

The Pensions Regulator said this rise has been in line with an increased number of employers with auto-enrolment responsibilities, and does not indicate a widespread issue of non-compliance.

Employers are legally obliged to automatically enrol workers into a workplace pension scheme if they are aged between 22 and state pension age, and earning more than £10,000 a year. More…

Outsourcing payroll – is this a good idea?

Does it make sense for your business?

Around 1.4 million businesses in the UK employed members of staff in 2018, and all of them shared one thing in common: the legal requirement to run payroll.

This task consumes a large amount of time each month, with multiple processes to complete in order to comply with legislation and pay workers on time.

Most of the 35,000 medium-sized firms and 7,500 large businesses in the UK have their own in-house teams to handle payroll.

Apart from anything else, failing to pay staff on time can have a catastrophic effect on morale, and have knock-on effects in employees’ lives.

But for almost 97% of the other businesses with employees in the UK, classed as small firms with 49 or fewer workers, the burden of payroll is patently clear – both in terms of time and the resources it takes up. More…

National Insurance – where are we headed?

National insurance contributions (NICs) are set aside to pay the state pension and other benefits, but due to the UK’s ageing population the National Insurance Fund is under increasing strain, with the state pension taking up more than 90% of its annual outlay in 2018.

A review by the Government Actuary’s Department (GAD) predicted the fund would be empty by around 2032.

There is no pot of money set aside to pay future state pensions, which are funded on a pay-as-you-go basis, which means that future pensioners are reliant on the NICs of future workers to pay their pensions.

On its website, the GAD said: “If the system is to continue to cover the current form of state pension and other benefits, then either the fund’s income has to rise or expenditure has to be controlled”. More…

Delay Making Tax Digital says tax bodies and House of Lords

Leading tax bodies have joined the House of Lords in calls to delay the introduction of Making Tax Digital (MTD) for all taxes, less than three months before it’s due to come into force for VAT.

MTD is finally due to commence on 1 April 2019 for VAT-registered businesses with an annual taxable turnover of more than £85,000 in 2019/20.

However, a House of Lords executive committee released a report in November 2018 calling on HMRC to push back the rollout of MTD for VAT by one year – to 1 April 2020.

It also recommended the start date of MTD for other taxes, such as income tax and corporation tax, should be postponed until at least April 2022.

The peers’ report warns that many small businesses in the UK are not ready for the MTD, a view that is shared by the Chartered Institute of Taxation (CIOT) and the Association of Tax Technicians (ATT). More…

Digital system for IHT – good or bad?

The Office for Tax Simplification (OTS) has urged the Government to implement a digital system for inheritance tax, following complaints the current form-filling system is too complex.

On average, there are around 570,000 deaths in the UK every year, although inheritance tax is due on less than 5% of estates.

Although the majority of estates are not liable to pay the tax, executors had to fill out inheritance tax returns for almost half of all deaths in 2015/16.

For more than a third (38%) of those, administering a loved one’s estate took more than 50 hours to complete, with some spending more than 100 hours.

Estate administration is the process of handling a person’s tax and legal affairs after they have died, while tax is deducted on the value of the estate before being distributed to beneficiaries.

Administrator’s duties include obtaining formal documents, calculating the value of their estate, working out and paying taxes, and obtaining a grant of probate. More…