The Fear - Recommendations To Simplify The Tax System for SME's

The Office for Tax Simplification (OTS) yesterday published Recommendations to simplify UK’s tax system for small businesses

The OTS review covered three key areas:

- HMRC’s administration;
- disincorporation; and
- simplified taxation for the very smallest businesses (those with turnover under £30,000).

The key recommendations for each area are:

• Tax Administration - the OTS has found clear scope for changes to be made in the way the tax system is run that will make a genuine difference. There is much that is working well, and HMRC already have a range of initiatives in hand that the OTS endorses, but the OTS has developed a range of practical changes. These will help in areas of raising awareness of the help that is available, improving communication, improving the relationships between HMRC and the small business community and ways to gives businesses more certainty about their tax affairs. Recommendations include the use of two-way email communication, better VAT rulings and information and a dedicated helpline for small businesses.

• Simplified taxation for the smallest businesses – the OTS established that for the very smallest business – often “one man bands” – cash accounts are widely used, whilst claiming for businesses expenses are disproportionately burdensome given the limited amounts often involved. The OTS therefore recommends that receipts and payments accounting is accepted, instead of full ‘GAAP’ accounts. The OTS also recommends a wider range of flat rate expense allowances be available. These methods should be the default option for qualifying businesses, with an “opt-out” allowing those to select the system that is most beneficial to them. Furthermore, the OTS recommends a full study is undertaken of a turnover tax as a possible alternative for the smallest businesses.

• Disincorporation – the OTS identified that a number of the smallest companies would like to ‘disincorporate’ and move to an unincorprated status. The current tax system mitigates against this, so the OTS has proposed the introduction of a tax relief so that companies can disincorporate without incurring significant tax cost. This would parallel the existing incorporation relief. This would have the dual benefit of reducing admin burdens whist facilitating business reorganisations allowing businesses to trade in their correct form.

John Whiting, Tax Director for the Office of Tax Simplification said:

“We have spent a lot of time gathering the views of businesses and their advisers about the tax system from the sharp end. That has led us to recommend a range of practical changes to the way the system runs that will help businesses with their everyday tax affairs – and will help HMRC as well.

We have also looked for ways of changing the tax system and that has led us to recommend introducing a disincorporation relief and a wider range of flat rate allowances. 

There’s a strong case for a form of cash accounting and indeed we think that going further into a radically different way of calculating tax for the smallest businesses needs study. 

Overall, we think that the recommendations put forward today represent a common sense approach that would help to ease the burdens of thousands of the smallest businesses throughout the UK.”

The report report is broken down into three papers. The first paper brings the above strands together, and also covers the detailed recommendations on tax administration.

Key elements of the first report "Small business tax review: Final report, HMRC administration February 2012" are highlighted below:

It notes that there is a clear need for simplification:

"given the large number of businesses and the disproportionate cost of tax administration, simplification measures for very small businesses have the potential to deliver significant benefits to the economy."

Unsurprisingly the OTS found that SME's were fearful of HMRC and of making mistakes:

"fear is much harder to quantify than time or cost and tends to be less prominent in the policy debate."

Communications with HMRC (as loyal readers are well aware) is a matter that features within the report:

"there are clear examples in tax administration where the system makes it surprisingly difficult to make the correct “choice”. Examples raised in this paper include the processes for paying HMRC and the reliance on postal communication when email would be the preferred method of communication.

The preference is a facility to email named individuals within HMRC; we accept this may not be possible but businesses would, we think, be happy if there was a generic “smallbusiness@HMRC” email address to use."

Communications from HMRC are also regarded as being somewhat "unfathomable":

"Generic guidance from HMRC that is overwhelming and written in inaccessible language can be counterproductive as it pushes people toward less accurate and less reliable sources of advice."

Sadly, despite the fact that HMRC staff on the front line do try to do their best to answer questions put to them, the level of complexity of the tax system and the poor quality of training with HMRC result in confusing answers:

"Some 23% of businesses surveyed by TFC experienced difficulty obtaining a definitive answer from HMRC, with 30% having difficulty making sense of the answer and only 45% having confidence in the answer received. 

There is also evidence of different answers being received to the same question."

Here is an extract of the summary:


"Communication with HMRC and improving the relationship with taxpayers

Difficulties communicating with HMRC can increase costs, create delays and cause confusion. The OTS recommends introducing two-way email communication, with response times within a set timeframe. A further popular improvement requested by businesses would be the introduction of a dedicated small business telephone helpline. HMRC should also continue with its ongoing programme of work on the tone and content of its communication with small businesses to ensure that such communication is meeting the needs of the business. Better tracking of correspondence and other communications would also be a welcome improvement.

Providing certainty

Businesses are entitled to expect clear answers on which they may rely in order to meet their tax obligations. Published information and HMRC staff training should ensure that this need is met. The OTS recommends that where a complex issue is raised, ownership be given to a particular HMRC officer until resolved. The prospect of a penalty for an innocent error leads to unnecessary fear among some small businesses so HMRC should make greater use of suspended penalties.

Making it easier for taxpayers to fulfil their existing obligations

This report makes a number of specific recommendations on improving processes to make tax obligations simpler and easier for those small businesses affected.

The overriding message here is that many small businesses look to HMRC for guidance in tax matters. It is perhaps valid to question whether businesses should look to external tax advisers for the necessary assistance instead. HMRC arguably does not have the resources to do as much as taxpayers and agents would like and its resources are likely to continue to be reduced. It is clear from our research, however, that many small businesses want to be more in control of their tax affairs and they look to HMRC to help them. These businesses want the freedom to decide when to involve external tax advisers.

We think this stance is entirely valid and we have accordingly reflected the needs of those small businesses in many of our recommendations. It will be deduced that the OTS thinks that, as the tax authority, HMRC has an obligation to help taxpayers comply with the tax system: self assessment only goes so far. We are encouraged that many in HMRC recognise these obligations and want to help businesses appropriately. It will clearly be challenging for HMRC to deliver the programme we have outlined but we think that what we have suggested is not all “one way”: there will be payback to HMRC through better compliance and more efficient use of their limited resources.

We have outlined a suggested timetable for delivering our recommendations, taking account of the deliverability by HMRC and the links with ongoing initiatives. We acknowledge that HMRC already has a number of initiatives under way that will address various aspects of our recommendations and the report highlights where these need greater focus or advertising. The recommendations in this report are summarised in Chapter 8, and are further divided between those that the OTS believes could be introduced in the short term for the immediate benefit of business, those which will need to await the introduction of the single Government domain later in 2012 and those which would be longer term initiatives.

One point to highlight is that those who come to this report expecting to find a single “blockbuster” change that will solve all small businesses’ problems with the tax system will be disappointed. The OTS has found much that is working well with the current tax system but, at the same time, there is scope for changes that will make a genuine difference. Many of the points made in Chapters 4, 5 and 6 are relatively minor, but taken together they will make a material difference. Also, the ten areas listed within Chapter 7 are a significant agenda for change.

It is the view of the OTS that tax administration for small business must be kept under review with any changes evaluated and, where appropriate, improved on. The OTS experience suggests that taxpayers are more willing to offer challenging and candid views when speaking to a third party. 

There is a clear ongoing role for groups such as the Administrative Burdens Advisory Board to continue to challenge HMRC on administrative issues, and there should also be a mechanism in place to feed back ideas to HMRC for systematic improvements. Finally, it is important to stress that the role of the OTS is to advise Government and it cannot make policy decisions itself. We have presented these recommendations to the Chancellor of the Exchequer and anticipate a formal response as part of Budget 2012."

Tax does have to be taxing.

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Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

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Conundrum

Here's a wee conundrum for you, to start your day:

Q: When is a tax scheme (voluntarily disclosed to HMRC) legal?

A: When the government has to introduce retrospective legislation to make it illegal!

Aha!

Tax does have to be taxing.

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What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

HMRC Grants Appeals Extension

Earlier this month I noted the following:

"HMRC have slightly softened their earlier stance on fining people £100 for failure to send in a self assessment on time (even if they owe no tax). HMRC now states that outstanding returns and associated penalties, where taxpayers call HMRC and explain that they do not need to be in the self assessment (SA) system, may be cancelled.

HMRC will be sending a flyer with the penalty notice, inviting taxpayers to phone the general SA helpline number if they think they don’t need to be in SA."

A few loyal readers quipped at the time that that phoning HMRC may prove to be problematic.

Well, HMRC agree and have told the ICAEW that the deadline for appealing against the penalty notice (normally 30 days after the date of the notice) has been extended to March 31.

This will apply to people telephoning to explain why they shouldn’t be in SA, as well as to people submitting formal written appeals in the usual way.

HMRC have relaxed the deadline because they know that their phone lines are a "tad" busy.

Good!

Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
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Quote ID code "ABC" when contacting a QROPS specialist.

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What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Homer Speaks - HMRC The Three Pillared Triangle

My thanks to a loyal reader who sent me the transcript of Lin Homer's (CEO of HMRC) recent introductory video chat with Stephen Hardwick (HMRC Communications Director).

Homer is pushing the point that she wants managers to listen, and for staff to tell her "how it is":

"..lots of staff also come to 100 Parliament street, and along with EXCOM colleagues, I’m on the forth floor, I’m there. And I think unless people are prepared to tell me what they think is stopping us from advancing then I don’t think we can make the best plans as senior leadership. 

What I do need them to be prepared to do is to give me ideas about solutions, as well as problems, so any time, they can get me on the email as well, share your thoughts and share your ideas."

The proof of the pudding is in the eating, take her at her word and tell her how it is; then let me know how you get on and whether management really do become more accessible.

Oh, and by the way, could someone please tell me what a three pillared triangle is?

"Transcript for Lin Homer introduction video with Stephen Hardwick

Stephen Hardwick

Hello I’m Stephen Hardwick, Communications Director, and I’m in St Mary’s House, Preston today to interview Lin Homer our new Chief Executive. Lin you’ve been in HMRC for about 3 weeks now, so how’s it going?

Well I’m really enjoying it. You’re going to have to ask everyone else what they think. But it’s given me a fantastic opportunity to get involved in the forward planning of the corporate plan but also to look at what we’ve achieved over the last year and to plan for the future. I’ve had a great chance to learn about what we do. 

I knew quite a lot about that anyway. I’d been involved in the capability review 2 years ago. 

In UKBA I’d been involved in taking some of the customs work on as responsibilities and of course I knew that we had 67,000 staff, but the scale of the organisation is still something really astonishing. 

Collecting in 1.2 billion of tax every day, paying out 109 million of benefits and credits, this is a complex and significant organisation and one of the things I’d like to do is not only to learn about it but to get people to talk more about this important job they do.

Stephen Hardwick

From your first impressions, what do you think we’re doing well and what do you think we could do better?

Well I think there are loads of things that are done really well, I think we have set ourselves very clear targets. With the introduction of pacesetter we’ve learnt to focus on performance delivery, but also to involve everyone in the organisation in that. And we’ve increasingly narrowed the gap on the tax yield, reduced our errors, so that less money is paid out that then has to be clawed back. So it’s just significant areas where I think we’re leading the way and where others have much to learn from us. 

But any good organisation wants to be better and I think what our front line would say is they want to deliver the very best for the public. So what I think we’ve got to do is really focus on how we can continue producing good customer service, how we can continue improving the tax that we get in, which after all is what all public services are based on, and how we can continue ensuring that we can be as cost effective and as efficient as possible. And those three pillars of our triangle are really important.

Stephen Hardwick

HMRC doesn’t currently get a very good press, do you think that’s deserved?

Well I think it’s almost inevitable that the department that collects taxes isn’t going to be universally loved all of the time. But I have to say I think we get a lot more of the negative and probably less of the positive than we should. And as I say I think one of the answers there is that we’ve got to be more prepared to talk about what we do well, hold out our improvements well, whilst being non defensive about the areas we still want to be better in. 

And I think that requires all of us as senior managers to get out there and talk about the business, including rebutting things that need rebutting. But I really think it also needs every member of staff to be a little bit less modest, a little bit prepared to talk about the things that they do well and for all of us to remind people that public services are founded on us getting the tax in.

Stephen Hardwick

HMRC has been going through a period of upheaval since we were formed and re structuring and we’ve got the lowest staff engagement scores in the civil service, so what are your internal priorities Lin?

Well I think we’ve got a big responsibility to continue driving improvements forwards. Obviously for me very sad to arrive just as Lesley died but I’m determined that we’re going to build on the improvements that she started and follow those through. That’s what she would want, that’s what lots of staff have said to me and we’ve got a great base of operational efficiency already promised, begun to deliver, that ministers have great confidence in us so we’re going to take that forward. If we can get that cost base right then what that means is that we can deliver more for the country in these difficult times. 

In addition I think we’ve got to keep pushing up the tax yield. Every public service needs us to do that and we are doing extremely well in a number of areas but the more we can ensure that the tax comes in at the right level and at the right time, then all public services are safer. And not withstanding those pressures of course we’ve got to continue to build on the customer service work we’re doing. Fantastic that the call centres are answering twice as many calls as they did two or three years ago but I know that the call centre people want to go further, they want to answer more calls and they want to answer them more quickly so those are good examples of where we can give ourselves some aspirations to do better on customer service.

I think all of us want to come to work with a bounce in our step, we want to work for an organisation that’s valued and we want to feel valued as part of that organisation. Again I think there’s been some fantastic work since I last looked at the organisation two years ago, and although we started from a low base our engagement scores are going up so I want us to build on that. That really requires us as senior managers to listen to what people are saying to us and it requires staff to have confidence in us that we want to be better and to work with us on that journey. 

I’d like people to be thinking about their answers to the survey last year, and the answers that we got from that survey as well as the information we’ve got from our self assessment on the capability review, will give us an agenda for improvement as we go forwards. And bit by bit, year by year, we’re going to turn this into the organisation that the public want from us but that we want to work in.

Stephen Hardwick

While you’ve been out and about, you’ve asked people to come up and talk to you and tell you what they think about HMRC. Do you really want people to tell you how it is?

Yes I do. 

There’s no point me sitting in an ivory tower, and I’m going to be trying to get out regularly. At the moment I’m out on a visit once a week but lots of staff also come to 100 Parliament street, and along with EXCOM colleagues, I’m on the fourth floor, I’m there. And I think unless people are prepared to tell me what they think is stopping us from advancing then I don’t think we can make the best plans as senior leadership. 

What I do need them to be prepared to do is to give me ideas about solutions, as well as problems, so any time, they can get me on the email as well, share your thoughts and share your ideas. And again today in Preston Paul’s already given me a number or real, recent examples of front line staff coming up with things that have made the business here better and that’s what we need more of, and that’s what we as senior managers need to encourage.

Stephen Hardwick

You seem to have a really approachable and personable style, is that the sort of style you’d like for HMRC as an organisation?

Yes but I think it’s important that we’re professional and credible as well and I think what we’ve got to do is show people that they are right to place their trust in us. And I think what we’ve got to show our staff is that we mean to continue investing in them so of course we should be personable and accessible but we should be highly professional and highly trustworthy as well. If we get that right we can all hold our heads up high.

Stephen Hardwick

Being chief executive of HMRC is a really demanding job so how do you relax Lin?

I find work enjoyable most of the time I mean I’ve been lucky enough to do some great jobs, in demanding organisations, but you know doing things that matter to the public is quite a lot of reward in its own right and I do enjoy my work, so first of all I don’t go home heavily stressed. My family would say I’m a bit of a workaholic so don’t ask them for any advice, but I love family time, I’ve got three grown up daughters I still see a lot of, but then the boring lovely things of gardening and reading, they’re also great pleasures for me.

Stephen Hardwick

Lin, thank you very much."

Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
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What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Rewarding Failure - Lin Homer

I am gemused to read that MPs have finally woken up to the fact that Lin Homer (recently appointed £180K per annum CEO of HMRC) has a track record of failure in her previous roles.

Keith Vaz is quoted in the Telegraph:

"Successive Home Affairs Select Committee reports criticised the operations at the UKBA whilst it was under the leadership of Lin Homer.

The Vine report endorses the Select Committee’s view that this has been a dysfunctional organisation for a number of years.

It is important to know if the selection panel for Ms Homer was aware of these concerns. We should never be seen to be rewarding failure.”

I am also rather gemused to see that, despite the fact that I warned about Homer's track record in December 2011, The Telegraph and The Mail are only now (3 months later) reporting her promotion and highlighting her failures.

Wake up lads!

Anyhoo, here is the Telegraph's article:
 
"Ms Homer, 54, who led the UKBA through a string of scandals, will be paid £180,000 a year in the new post, prompting MPs to warn against “rewarding failure”. 

During her time as chief executive of the UKBA from 2008 to 2011, Ms Homer received nearly £1 million in salary and bonuses, while the department was dealt a series of highly critical reports by MPs. 

Her tenure saw hundreds of foreign prisoners and more than 100,000 asylum seekers told they could stay in Britain – a figure MPs said amounted to an “amnesty”. 

A report this week by John Vine, Chief Inspector of the UKBA, heavily criticised the department over failures which allowed hundreds of thousands of people into Britain without proper checks.

Labour MP Keith Vaz, the chairman of the Home Affairs Select Committee, told the Daily Mail 

“Successive Home Affairs Select Committee reports criticised the operations at the UKBA whilst it was under the leadership of Lin Homer.

“The Vine report endorses the Select Committee’s view that this has been a dysfunctional organisation for a number of years.” 

Referring to her HMRC promotion, he added: “It is important to know if the selection panel for Ms Homer was aware of these concerns. We should never be seen to be rewarding failure.” 

Ms Homer has occupied a series of powerful roles in a civil service career spanning three decades.

Following her first major town hall job as chief executive of Suffolk Council, she was parachuted in to run Birmingham City Council in 2002 on a £174,000 salary. 

The city was embroiled in a major postal votes scandal that ended up before the courts during her time there. 

Election judge Richard Mawrey said fraud in the city “would have disgraced a banana republic".

In 2005, she was picked by the Home Office to run the Immigration and Nationality Directorate on a £200,000-a-year wage. 

Former Home Secretary Charles Clarke was forced to resign during her watch when in 2006 it emerged that 1,000 foreign criminals had been mistakenly released. 

Ms Homer was instrumental in shaping the new UKBA was made its chief executive in 2008, becoming one of Britain’s highest paid civil servants. 

In both 2009-10 and 2008-9 Ms Homer was paid, including bonus, between £225,000 and £230,000.

HMRC defended Ms Homer’s appointment, saying she had a “strong track record”. 

Chancellor George Osborne also voiced his support, saying: “As was made clear by the Home Secretary’s decision, the problems at UKBA were structural. 

“Lin Homer is a very able public servant who is already bringing positive change to HMRC, building on the good work already going on in the department.”

Anyone care to take a guess as to how long she will remain in her role?

Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
HMRC QROPS provider. Unlock your UK pension and access a 25% lump sum today.

Quote ID code "ABC" when contacting a QROPS specialist.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

The Face of HMRC

My compliments to Moira Stuart (the face of HMRC) for taking steps to ensure that her tax bill is minimised.

Ms Stuart has set up a company that entitles her to pay corporation tax at 21% on some of her earnings, rather than income tax at up to 50%.

HMRC have taken action against people who use these arrangements if they deem them to be "disguised employees".

However, the Telegraph quotes a spokesman for HMRC:

"Moira Stewart works on specific advertising campaigns for HMRC. She is not employed directly by us so there is no question of disguised employment."

Ms Stuart replaced Adam Hart-Davis as the face of HMRC. Adam Hart-Davis, was booted out by HMRC in 2008, as I wrote at the time:

"It seems that the recent comments by Mr Hart-Davis about wishing that the tax system was simpler, and describing VAT as "absurdly complicated", has not gone down well with HMRC.

Mr Hart-Davis, for good measure, then called for a flat rate tax and said that the merger of the Inland Revenue and Customs & Excise in 2005 was a mistake. His rationale being that the two departments were too large to "slam together"."


Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
HMRC QROPS provider. Unlock your UK pension and access a 25% lump sum today.

Quote ID code "ABC" when contacting a QROPS specialist.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

An Inspector Calls - An Investigation Into Border Security Checks

Yesterday John Vine CBE QPM, Independent Chief Inspector of the UK Border Agency, issued his report into the ongoing fiasco of our border security checks "An Investigation Into Border Security Checks".

A litany of failings were noted in the report, eg at times immigration staff acted potentially illegally by relaxing the supervision of travellers entering this country at least 15,000 times in the last five years.

More than 500,000 people were allowed into Britain unchecked due to the repeated suspension of vital checks, opening up an “unacceptable” breach in the country’s defences against terrorists and criminals.

Mr Vine last night said that ministers, senior officials and border staff must all share the blame for potential security breaches.

All very interesting, but what has this got to do with HMRC?

Well the recently appointed head of HMRC (Lin Homer) was head of the UK Border Agency until summer 2011, in fact she was the UKBA's first CEO.

Good job Lin!

By the way, it is now likely that the UKBA will now be split up in order to improve its performance.

Could the same fate be awaiting HMRC?

I reproduce an extract of Mr Vine's summary below:

"There is an urgent need to establish a new framework of border security checks. This should unambiguously specify the checks that must be carried out at all times and those where there is discretion to suspend checks based on risk or health and safety. There must be a shared understanding of any such discretion by Ministers, senior managers and front-line staff across all ports so any suspensions of checks are applied consistently and only when necessary. There must be greater clarity on the levels of authorisation required to suspend checks and when decisions require the explicit agreement of Ministers. Language and terminology must be precise in all policy proposals, responses from Ministers and operational guidance to prevent any misunderstanding by front-line staff. 

Records must be kept which accurately set out the number of times checks are suspended and the reasons why. Ministers should be told of the suspension of checks so they are aware of what is happening at the border. If 100% checking at all times is the model that Ministers and the Agency decide upon, it requires a detailed analysis of staff deployment at the border, how technology is used and how passenger queuing times can be managed without compromising security. 

Overall, I found poor communication, poor managerial oversight and a lack of clarity about roles and responsibilities. There was no single framework setting out all potential border security checks, which of these could be suspended, in what circumstances and the level of authority required at Agency or Ministerial level to do so. 

There is a fundamental question of how free the Agency should be to decide its own operational priorities. These are important issues that need to be considered in order to define and agree the boundaries between the Home Office and the Agency. 

There had been no attempt to incorporate the verification of fingerprints using Secure ID within the existing Home Office Warnings Index (WI) Policy. The purpose of the Secure ID check is to identify any passengers trying to enter the UK using a false identity and considerable public money had been spent on its introduction. Despite this, its implementation was hampered by the absence of an operating policy and associated guidance for staff. This led to different assumptions being made about whether, and, if so, in what circumstances, the check could be suspended. When it was introduced, there was no evidence to indicate whether decisions on its use or suspension should be made by the Agency or by Ministers. This lack of clarity continued until May 2011, when the Home Secretary stated that she did not want Secure ID to be suspended as part of a move to risk-based border checks. At that point there was no evidence that the Agency informed Ministers that Secure ID had been suspended in the past or secured approval for any subsequent suspensions. 

Communications between the Agency and Ministers and between senior managers and operational staff was poor. There was a lack of clarity in the language used with consequent ambiguity when decisions were converted to operational practice. This was compounded by instructions to staff that did not always accurately reflect what Ministers had agreed. The number of suspensions, the precise reasons they occur, the level of authorisation necessary and the specific impact on both border security and on passenger clearance times must be absolutely clear. 

The number of occasions when WI and Secure ID checks were suspended and risk-based measures invoked was affected by a number of factors including the volume of passengers arriving, the level of risk presented by them, the numbers of staff deployed and the infrastructure of ports affected. This was most apparent at Heathrow and Calais and resulted in more frequent suspension of checks at these ports. Any framework of border security checks must take account of these factors and there needs to be a clear understanding of how these policies will operate in practice. Importantly, there was no clear understanding of when „health and safety‟ was a ground for suspension, resulting in different assumptions as to the number of times checks might be suspended. 

While there was a consistent understanding that suspensions may be necessary for health and safety reasons, these occurred more frequently than the Agency‟s senior management and Ministers had assumed. In addition, there was no consistent understanding at senior management and Ministerial level of when and why the length of passenger queues might constitute a health and safety issue. Records showing the number of times border security checks were suspended and the reasons for these were maintained at all ports. However, the level of detail recorded differed, and there were significant discrepancies between the records maintained at individual ports and records maintained centrally by the Agency. Record-keeping showing the suspension of Secure ID checks was particularly poor. 

There was limited staff understanding at ports as to why accurate and detailed records needed to be maintained and how and whether the information would be used by the Agency to maintain management oversight, develop policy or change operational practice. Despite regular visits by senior managers, there were insufficient enquiries undertaken to find out precisely what was happening at ports. No process was put in place to analyse the number of occasions and reasons why checks were suspended. 

There is nothing I have discovered which could not have been identified and addressed by senior managers exercising proper oversight. I was particularly concerned to find one example of a local initiative operating at Heathrow under which border controls were relaxed and which had not undergone any scrutiny by more senior managers or Ministers. I found this to be potentially unlawful and it reinforces the need to clarify what local managers can and cannot authorise. The risk to the border when checks were suspended needs to be kept in perspective. I found that the WI check which indicates whether a passenger has previously committed a terrorist, criminal or immigration offence or is of interest to law enforcement agencies was generally carried out consistently. This check occurred even where other measures were relaxed and provided assurance that those who had previously come to the attention of the authorities would be identified and, where appropriate, refused entry. However, I believe that the number of occasions when this check was suspended – over 350 and notably at the juxtaposed controls - was too high. Although these were generally for health and safety reasons, the volume indicates an urgent need to assess how the particular health and safety issues at those locations can be addressed. 

Furthermore, it was unacceptable that the WI check had not been carried out for British and EEA nationals on a limited number of Eurostar services. This amounted to a considerable number of passengers over a period of four years. On the basis of what I have seen since 4 November 2011, it is apparent to me that the Agency does now have a much firmer grip in respect of border security checks than was previously the case. A significant test will be whether this can be maintained during periods of greater passenger volume and for the Olympic and Paralympic Games. 

Security of the border is paramount. Overall, I found significant room for improvement in this important area of work. Based on the evidence provided in this report, there is much to do in order to provide the assurance that the public and Parliament expect."

Tax does have to be taxing.

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HMRC Issues Tax Return Penalties

As per the HMRC site:

"850,000 penalties for late tax returns will be issued over the next fortnight, 550,000 fewer than the same time last year, HM Revenue & Customs (HMRC) announced today.

Letters containing the £100 late-filing penalties are being sent to people who failed to send their 2010/11 Self Assessment returns to HMRC on time. 

Anyone who still hasn’t sent their return to HMRC should do so now or risk further penalties. For example, anyone whose return is more than three months late will be charged an additional £10 penalty for each day it remains outstanding, up to a maximum of 90 days.

Although the deadline for receiving online returns was 31 January, this year HMRC is not issuing penalties to people who sent their 2010/11 return online on 1 or 2 February, following strike action at HMRC’s call centres on 31 January.

People who get a late-filing penalty can appeal against it if they think they have a reasonable excuse for not sending back their tax return in time, or they think a penalty should not have been issued for any other reason. Appeals should be made in writing by 31 March.

Examples of a reasonable excuse could include a family illness or bereavement, or a delay in HMRC sending out an online activation code. More information is available at www.hmrc.gov.uk/online/excuse-missed-deadline.htm

Under a new initiative to help its customers, HMRC has confirmed that anyone who receives a penalty, but who believes they don’t need to be in Self Assessment, can call the department on 0845 900 0444. If HMRC agrees, the return and the penalty will be cancelled. Full details are contained in a leaflet that will accompany the penalty notice. Alternatively, visit www.hmrc.gov.uk/latetaxreturn for further information.

HMRC’s Stephen Banyard said:

“We want the returns, not the penalties. So anyone who still hasn’t sent theirs should do so as soon as possible.

“People who receive a penalty notice should act now to avoid further penalties. They should send in their return, appeal if they think they have a reasonable excuse, or contact us if they think they shouldn’t have been in Self Assessment.”

Notes for editors
1. The new penalties for late Self Assessment returns are:

• an initial £100 fixed penalty, which will now apply even if there is no tax to pay, or if the tax due is paid on time;
• after 3 months, additional daily penalties of £10 per day, up to a maximum of £900;
• after 6 months, a further penalty of 5% of the tax due or £300, whichever is greater; and
• after 12 months, another 5% or £300 charge, whichever is greater.

2. There are also additional new penalties for paying late of 5% of the tax unpaid at: 30 days; 6 months; and 12 months.

3. Further information on the new penalties is available from the HMRC website at www.hmrc.gov.uk/sa/deadlines-penalties.htm

4. Late appeals received after 31 March will be considered, if you can show that you had a reasonable excuse for missing this deadline.

5. Follow HMRC on Twitter at: @HMRCgovuk"

Tax does have to be taxing.

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To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

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Aspire Renegotiated

In July 2011 I wrote the following:

"The Guardian reports that the government is paying up to 10 times more for IT projects than the standard commercial rate.

The public administration select committee (PASC) found ministers were "overly reliant" on a few large suppliers, resulting in the waste of an "obscene amount of public money".

Is HMRC being ripped off?

Well, judge for yourselves:

"The Aspire contract between HMRC and Capgemini covers a 13 year period and was originally valued at £2.8 billion.[49] This contract is a case study of what is wrong with the present procurement culture. Such a large contract is too complex to manage. The assessment of costs and benefits is opaque and it commits too much power and money to a single supplier."

Source Government and IT- "A Recipe For Rip-Offs": Time For A New Approach"

HMRC last month renegotiated Aspire (now worth around £8.5BN) with Capgemini, in line with the government's revised IT sourcing strategy.

My thanks to a loyal reader who pointed me to an article in Information Age, which notes that HMRC has agreed "operational efficiency and cost savings" with Capgemini. Additionally, work that is currently subcontracted to over 240 suppliers by Capgemini may (note that is only "may", not "will") be transferred to direct contracts with HMRC.

The last renegotiation of Aspire in 2009 aimed to save £110M per annum, by scrapping the legacy systems taken on board by the merger of the Revenue and Customs and Excise, and by shutting down a number of data centres.

Unfortunately, the renegotiated contract details are confidential.

Tax does have to be taxing.

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To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

The Tax Avoidance Iceberg

The tip of the government (both Labour and Tory) approved tax avoidance iceberg is gradually being uncovered. The FT reports that Treasury officials believe that as many as 100 civil servants have been paid as private companies, rather than as individuals.

HMRC have confirmed that it has allocated more staff to investigate “IR35” breaches in both the public and private sectors.

Quote:

"All sorts of people work through service companies for all sorts of reasons. 

But where the arrangement is really only a way of avoiding PAYE tax and national insurance, then the law says the service company must pay the PAYE and national insurance to us on behalf of the individual at the end of the year."

However, it seems that the FT's figure of 100 may be a tad out of date. The Guardian reports that the figure may in fact be 4000.

Tax avoidance is not illegal. However, the current anti avoidance "morality" message being pumped out by the government and HMRC has been shown to be hypocritical.

Unfortunately, instead of the ire being quite rightly focussed at the hypocrisy of the government, the investigations are now in danger of being turned by the government (in order to deflect criticism) into a witch hunt against those who have been employed under these schemes.

Tax does have to be taxing.

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To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

More Ed Lesters - More Avoidance Hypocrisy

As I noted a couple of weeks ago, there will be more Ed Lesters coming out of the woodwork.

In today's Guardian there is an article that highlights more "Ed Lesters", which are but the tip of a very large iceberg.

Despite what HMRC and the government may try to have people believe, tax avoidance (perfectly legal) is fully supported by the state (and almost encouraged, when it keeps the salary bill down).

Here is the Guardian article in full:

"The Department of Health has apologised after documents sent to the Guardian showed that contrary to assurances given to parliament, more than 25 senior staff employed by the department are paid salaries direct to limited companies, with the likely effect of reducing their tax bills.

In some cases, the documents show the named individuals are being paid more than £250,000 a year, as well as additional expenses. The payments amount to almost £4.2m in one year.

The department claimed the 25 were not civil servants, or technically even staff, although a large number have been employed by the department for many years and hold very senior positions. It said the arrangements will be subject to review by the Treasury.

One Whitehall source said: "We cannot defend these arrangements, but it may be it is very common in Whitehall and this is just the tip of an iceberg."

Danny Alexander, the chief secretary to the Treasury, set up a cross-Whitehall review this month into the extent of the pay arrangements after it was revealed the Department for Business, Innovation and Skills had sanctioned a similar salary deal for Ed Lester, the chief executive of the Student Loans Company.

At the time it was presented as a rare practice.

The single largest payment was £273,375. Nineteen of the staff are paid more than £100,000.
In the majority of payments at the DH, the fees were paid to companies with the same address as the home address of the staff.

The majority of companies provided to the department are registered as business and management consultancies, yet the internal DH payroll information also details the health department offices in which they work, job title and email address. In most cases the companies' names emerge to be little more than an adaptation of the individual's surname. The Guardian holds details of the payments to 25 individuals, month by month, for the tax year ending April 2011, the identity of their limited company and their work in the DH.

The staff work in a variety of areas such as the policy, strategy and finance directorate, medical directorate, the office of the chief scientific officer, and commercial contracting.

The emails handed to the Guardian also show senior civil servants at the department discussing the possible reputational damage to the department and seeking to avoid ways of revealing the nature of the payments sought in a written question last December by Gareth Thomas, the shadow Cabinet Office minister.

Asked by Thomas if any health department staff were paid by means of payments to limited companies in lieu of salary, the health minister Simon Burns said in a written parliamentary answer that no payments were being made to civil servants in this way.

He also stated: "It is not the department's policy to permit payments to civil servants by ways of limited companies."

In a fresh statement on Wednesday the department said: "The definition of staff in this context refers to civil servants, and we can confirm that no civil servant who is an employee of the Department of Health is paid in this way. To this extent it was certainly not our intention to mislead anyone involved.

"We would be happy to clarify the situation in greater detail with anyone who asks and apologise for any misunderstanding involved. We are currently carrying out a full audit of such arrangements in line with the recently announced Treasury review of tax arrangements of public sector appointments."

Health department sources said it allowed staff to define themselves for payroll purposes neither as civil servants nor payroll staff.

In the emails, Jason Skill, in the procurement centre for expertise, discusses the motivation of the written question by Thomas, saying: "There is probably an employment and taxation angle to this question though it might not be in the mind of Mr Thomas.

"Salary is paid to employee. It may be that some or all of the non-payroll workers are in reality employees and the payments made to their limited companies would be in lieu of salary, but we would not want to suggest that all payments to limited companies are in lieu of salary."

The email also goes on to discuss Revenue and Customs (HMRC) rules, including tests "to differentiate between a contractor who HMRC deem to need to pay tax like an employee and a contractor who does not".

It continued: "The department would probably want to avoid anything that implies its NPWs [non-payroll workers] are disguised employees reputationally, to avoid unnecessary employers' national insurance and because HMRC may use this to take forward IR35 cases with those NPWs."
The emails also discuss whether it would be possible to reply that an answer cannot be provided due to disproportionate cost.

Thomas said he was writing to the health secretary, Andrew Lansley, to seek clarification. "The question was clear enough and I am therefore very surprised that the Department of Health was unable to provide a complete and accurate answer.

"Given the importance of parliament being given accurate answers from government ministers I will be writing to Andrew Lansley for a full explanation. I will also be asking other departments to check whether their answers were complete and accurate, and whether they have similar numbers of staff asking for their salaries paid to companies to reduce their tax bill."

In the wake of the students loans episode, Alexander said Lester's tax and national insurance will in future be deducted at source. He urged Whitehall departments to unwind similar schemes as quickly as possible, adding: 

 "When we all have to pull in the same direction to tackle the country's financial problems it is essential we all pay our full and fair share."

Tax does have to be taxing.

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To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

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HMRC RIP

Commiserations to Dave Stacey of Torquay who, despite still being very much alive, was recently pronounced dead by HMRC.

This Is South Devon reports that Mr Stacey received a letter from HMRC asking him to fill out a form about the estate of the late David L Stacey (ie himself). ​

A spokesman for HMRC said:

"We are very sorry to hear of the problems your reader has had. We apologise to both him and his family for any distress caused by the letter we issued to him in error."

At least HMRC have readily acknowledged the error. In June 2010 Tonie Francis had considerable problems convincing HMRC that she was still alive:

"Tonie Francis whose family were sent a letter by HMRC's tax credit office in Preston informing them that she was dead. The letter requested details of Miss Francis's next of kin, and a copy of her will.

However, there was a small fly in HMRC's oinkment, Ms Francis is still very much alive!

She therefore called HMRC to correct the error.

Can you guess what happened next?

Yes, that's right, HMRC refused to talk to her because she was dead; needless to say her tax credits and child benefit were stopped as well."

Re Mr Stacey, there might be an upside, being pronounced dead before you are actually dead does at least mean you won't receive any more letters from HMRC!

Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
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What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Here Come The Penalties

HMRC, as from 17 February, will begin sending out penalty notices to all taxpayers who failed to file their 2010/11 returns by the 31 January deadline.

However, HMRC have slightly softened their earlier stance on fining people £100 for failure to send in a self assessment on time (even if they owe no tax). HMRC now states that outstanding returns and associated penalties, where taxpayers call HMRC and explain that they do not need to be in the self assessment (SA) system, may be cancelled.

HMRC will be sending a flyer with the penalty notice, inviting taxpayers to phone the general SA helpline number if they think they don’t need to be in SA.

The change of stance by HMRC was communicated to the ICAEW:

"For information - from 17 February, all customers who failed to file their 2010/11 return online by the deadline will receive a flyer with their penalty notice inviting them to phone us on the general SA helpline number if they think they don’t need to be in SA. A copy of the flyer is attached.

Our contact centre staff will ask them some questions and if we decide we don’t need the return back we will advise the customer that we will cancel the return and remove the penalty.

This additional step has been introduced to mitigate the impact of the new penalty regime, such as by ensuring customers who have to pay penalties are people we need to be in SA whilst others are taken out.

Obviously we hope that customers dealt with in Personal Tax International will call our dedicated helpline number. We will also 'cancel' their return and penalty if it becomes clear that they should no longer be within the SA system.

If any of our PT International customers do contact the 0845 Helpline we will receive notification and make a decision as to whether they should complete the SA return or not. We will write to these customers."

Tax does have to be taxing.

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What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

HMRC Hypocrisy - Business Records

I recently wrote that HMRC have placed on hold their plans to carry out business records checks on  SMEs. Additionally they have also decided to exclude practices from any future checks, as and when the scheme is relaunched.

However, it seems that their own records may be a tad disorganised. Accountancy Age reports that Abbey Tax submitted a Freedom of Information request (FoI):

"How many accountancy firms have been subject to a business record check?"

HMRC were unwilling/unable to provide an answer.

The reason, if HMRC is to be believed, is that it would cost more than £600 to go through the data.

Does this mean that HMRC do not have decent records that are easy to analyse and access?

This being the case, should HMRC not get its own house in order first before subjecting SME's to business records checks?

Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
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TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

HMRC and Tax Avoidance

HMRC has rewritten its guidance to the disclosure of tax avoidance schemes (DOTAS) regime.
 
Although the number of schemes reported has reduced over the years, the government (ironically) is concerned that some avoidance schemes seem to be slipping the net (avoidance is of course perfectly legal).

Taxjournal reports that Graham Aaronson’s report on the merits of a general anti-avoidance rule (GAAR) concluded that "purposive interpretation [of tax legislation], specific anti-avoidance rules and DOTAS are not capable of dealing with some of the most egregious tax avoidance schemes".

Why does HMRC want to know tax arrangements, who has used such arrangements and how they work?

HMRC answer the question thus:

"On its own the disclosure of a tax arrangement has no effect on the tax position of any person who uses it. 

However, a disclosed tax arrangement may be rendered ineffective by Parliament, possibly with retrospective effect."

Retrospective legislation is a step on the road to dictatorship, and the government would be advised to steer clear from that particular course of action.

Moreover it is more than a little surprising that HMRC and the government are still pushing the anti avoidance message, given that both HMRC and the government support tax avoidance eg:

- Ed Lester

- Deepak Singh

- Vodafone/Goldman Sachs 

- Vodafone (again!)

Hypocrisy from the government and HMRC?

Surely not?

Tax does have to be taxing.

UK EXPATS: Reduce tax on UK Pensions
HMRC QROPS provider. Unlock your UK pension and access a 25% lump sum today.

Quote ID code "ABC" when contacting a QROPS specialist.

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What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"