HMRC Is Shite: March 2012

Friday, 30 March 2012

HMRC Tax Degree

HMRC has been feeling the heat recently wrt negative publicity over their handling of a number of issues (eg tax deals with Vodafone, Goldman Sachs and losing the Harry Redknapp trial.

Therefore HMRC has decided to sharpen up its act and, in a joint venture with Manchester Metropolitan University, send some of its staff to university (or rather training centres across the UK) to study for a degree.

The part time course for a degree in tax is expected to yield £2M to £3M in extra tax revenues per graduate over four years.

How on earth do they come up with that figure?

Anyhoo, the staff studying for the degree (expected to total around 400-500) will not have to pay for it (unlike other university students).

Students will also be able to study tax courses up to the equivalent of A-level or a Higher National Certificate, accredited by the Association of Accounting Technicians.

Dave Hartnett, HMRC Permanent Secretary for Tax, said:

“We know we have great people doing great work that deserves to be recognised. We want to be seen as a leader in tax, both in the UK and internationally, and the launch of the Tax Academy is a really important step towards that goal.”

Does anyone know how the figures of £2M-£3M have been derived/calculated, or what grades of staff will be allowed to study for the degree?

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"

Thursday, 29 March 2012

Size Matters!

Congratulations to George Osborne for outdoing himself this year, with the size of the Finance Bill 2012.

It weighs in at a stonking 686 pages (across three volumes, 227 sections and 38 schedules.), the largest in history.

How the fuck are HMRC and other tax professionals meant to work their way through that and understand it?

Was it not the policy of this government to simplify taxes?

Tax does have to be taxing.

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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

Wednesday, 28 March 2012

Lin Homer's Banquo's Ghost - The UKBA

My sympathies to Lin Homer (recently appointed CEO of HMRC) who must have thought that she had left the muck and mire of her previous role as CEO of the UK Border Agency (UKBA) behind her.

Unfortunately, for her, the Banquo's ghost of the UKBA is not so easily banished.

The National Audit Office (NAO) has estimated that around one in six of student visas granted (approximately 50,000) went to workers whose intention was to take jobs.

The NAO has also criticised the UK Border Agency for failing to remove from the UK an estimated 160,000 migrants whose visas have expired.

These fresh blows to the "reputation" of the UKBA (and by inference those who ran it - take a bow Lin) come on top of previous revelations about the incompetence of the UKBA (eg the 500,000 passengers who were allowed into Britain on Eurostar trains without checks against the database of known terrorists and criminals).

Margaret Hodge (Chairman of the Public Accounts Committee) is less than impressed, and has stated that she is "shocked" by the report.

This doesn't bode well for Lin Homer, as it is expected that she will be called upon to appear before PAC to explain her role in the UKBA shambles. Given that Ms Hodge already has form wrt HMRC, it is likely that Homer will face quite a grilling.

Can someone please remind me why Homer was appointed to head HMRC?

Tax does have to be taxing.

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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

Tuesday, 27 March 2012

Online Filing Problems

On the subject of online filing, this just in from UKBusinessForums:

"Just to let any payroll agents and bureau services who are currently trying to file by internet with HMRC know. HMRC has just sent this message to all payroll software developers:

Quote:

Originally Posted by HMRC

Dear Developer

A number of bureaux and filing agents have reported receiving 1046 authentication errors when filing clients' PAYE submissions via the Government Gateway. This is currently under investigation and customers affected are asked to try again later.

Our experience is that filing is currently working for some users and not for others. So probably one of HMRC's servers isn't authenticating correctly, and it depends which one you get perhaps. Either that or they've accidently de-authenticated a whole bunch of their logins."

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

HMG Commitment

I am pleased to see that tucked away on page 42 of the Budget, is this commitment from HMG:

"..committing that from 2014 new online services will only go live if the responsible minister can demonstrate that they themselves can use the service successfully."

I take it that this also applies to all forms of online tax filing?

Maybe HMG could also extend that commitment to paper returns and other HMRC forms as well?

Tax does have to be taxing.

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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

Monday, 26 March 2012

Bread

"Ironically" despite claims by the government that it wishes to "simplify" taxes, George Osborne's recent budget has rather muddied the waters and left HMRC and taxpayers scratching their heads over a number of matters eg 20% VAT on hot takeaway foods ("above the ambient air temperature at the time they are provided to the customer").

This has caused some confusion over what to do with bread, normally considered a basic food (and not subject to VAT), when it is served warm.

Therefore HMRC have launched a public consultation "VAT Addressing Borderline Anomalies", that seeks to discover a.o. the exact definition of bread.

- What is bread?

- Is a croissant bread?

The consultation document states:

"For a number of years, the borderline between hot takeaway food (standard-rated) and cold takeaway food (zero-rated) has been the subject of litigation, with some retailers arguing that the purpose of heating their food products is to improve their appearance or to comply with health and safety regulations, rather than to enable them to be consumed hot.

So, although many retailers and takeaway outlets charge VAT on the sale of hot chicken products, hot pies and toasted sandwiches, some retailers and bakery chains sell similar products zero-rated."

Greggs has already threatened to take legal action if HMRC tries to label its food as 'hot' and subject to VAT.

So much for simplification!

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

Friday, 23 March 2012

Jackpot!

My thanks to a loyal reader who penned me an email the other day, advising me of a wee problem on the horizon for HMRC partly caused by the Treasury.

The Treasury has come up with a "terrific new wheeze" (well "new" is an exaggeration, this was actually formulated in the tailend of 2010 and is set to be implemented 1st Feb 2013) relating to the taxation of fruit machines etc, known as Machine Games Duty (MGD).

MGD replaced Amusement Machine Licence Duty (AMLD) in order that HMRC avoids a conflict with the EU 6th directive about not taxing gambling. AMLD taxed the machine, profits from the machine were subject to VAT (the VAT could then be recovered from the purchase and operations of the machines).

However, MGD stops the trader from recovering the VAT paid.

So far so good!.

However, as with all the best laid plans of mice, men and Treasury officials there hides a fly in the oinkment.

The problem lies in the implementation of this new tax.

The resources for the implementation of the tax (ie staff and computer systems) is, so I am advised, woefully inadequate. Currently the UK has approximately 1000 Bookmakers, 300 Bingo companies, 4 or 5 Pool Betting operators and about the same number of casino operators - plus the national lottery. AMLD licenses, whilst large in number, are usually issued to traders on an annual basis as there is an advantage built in to getting 12 month licenses, and it is fairly cut and dried if the tax is being paid.

Under the new system there will be another 42,000 quarterly returns, thus massively increasing the workload of HMRC's accounting centre.

How many extra staff will HMRC allocate for this increased workload?

Approximately 12-15 extra staff (about double the current number), they will help to input the forms. Unfortunately, despite Phil Pavitt's alleged superhuman abilities, the new computer system is not yet available for them to train on. I am also advised that the budget for development of the computer system is already "more than spent", with nothing to show for it.

Now I can hear some wise heads tutting, and asking why input is not done online (as HMRC prefers for so many other taxes etc). Well it seems that the Treasury insisted that traders be allowed to put in paper returns.

The origins of MGD can be found in the systems from Australia and New Zealand tax authorities, except that in Australia and New Zealand there are enforced computer audit functions and bank accounts from which the tax authority can take the appropriate tax amount.

Additionally, the UK legislation does not force traders to keep individual machine records. This means that the tax is almost impossible to audit, and it will make it difficult to work out what the traders' normal tax liabilities are from the start.

Oh, and one more thing, there is no machine registration within the new HMRC system.

Problem?

Yes, the tax covers two categories of machines which therefore need to be known and identified.

Did HMRC warn HMT that this new tax won't work?

I am advised that they did, bit that the warnings have been ignored!

Sadly another accident waiting to happen, which will be blamed on HMRC (even though in this instance it appears not to be HMRC's fault).

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

Thursday, 22 March 2012

Phil Pavitt - HMRC's Human Shield

Well you could have knocked me down with a feather, when I read in the Guardian the other day yet another article about how Phil Pavitt (HMRC's CIO extraordinaire) is single handedly turning HMRC into a fit and lean (no pun intended) technologically sophisticated organisation.

Are their no limits to this man's talents and skills?

I am wondering if the recent media deluge of stories about the ubiquitous Mr Pavitt is more to do with a diversionary media strategy being employed by HMRC (to deflect attention away from..what's her name..oh yes, Lin Homer), rather than anything specific relating to Pavitt's skills and abilities (with which he seems to be remarkably "well endowed").

Anyhoo, here is the article in full (please feel free to comment and highlight the reality from the coalface):

"The Real Time Information (RTI) programme may be HM Revenue and Customs' most high-profile IT project of the moment, but the department has a whole swathe of significant technology projects under way.

"RTI is definitely the single biggest programme and the most high profile because of its intercept with universal credits, but it can't be the only thing we do in the next two to three years," says its CIO (chief information officer) Phil Pavitt. "We have 40-odd projects that are IT related. They're nowhere near as huge as RTI in terms of expenditure and what they will deliver, but some of them will have an enormous impact.

"For example, one of the programmes we have is about closing the tax gap, which is one of the big spending review targets for us, and will probably bring in £1bn to £2bn of income. We have to balance the resources, but RTI is not overbearing against all the others."

The roots of much of the work are in the department's Change Plan for 2011-15 which has set the stage for a planned reduction in headcount from about 70,000 to 56,000, and an effort to increase the proportion of staff working on compliance and enforcement to more than 50%.

"The mix of what the 56,000 do is that a lot did back office jobs that we are automating, and maybe 7,000 or 8,000 will change their role, the bulk of them working on enforcement and compliance," he says. "It's a big cultural transition and an effort to make us more efficient."

While there is no one big IT programme that will facilitate the transition, around half of the 85 projects that will contribute to the change have a significant IT element.

"Some of the projects are very IT related," he says. "For example, extending our caseload system that enables us to move cases in our enforcement and compliance area rather than shifting big lumps of paper in cases; that's a significant investment for us.

"We have a Connect system to take on all the data we get from government departments, and are able to build pictures of people so we can see where there may be fraud. These are large IT investments.

"Then there are others just to speed up the system and give us more capacity - we've just invested in 25,000 new desktops under the Aurora programme. Just having desktops that work better gives us more uptime: for example, the call centres are now handling twice the number of calls they handled two years ago, with very little downtime."

Sunset for Aurora

Under Aurora, HMRC also retired 66 of its core applications to bring the number below 750. It's a move that Pavitt believes will probably see Aurora's exceed its targeted savings of £160m a year, and one that has involved something of a culture shift in its attitude to IT.
"We've moved from a very risk averse position in retaining all of our applications, even if we never use them, to taking away from the estate all the areas that are overly complex or that we no longer need," he says.

Aurora however is in its closing stages, and will be replaced by Pavitt's 13 Machines strategy. Under 13 Machines, HMRC is aiming to reduce the number of business critical applications still further, to 200 running on 13 platforms by 2015-16.

13 Machines is not expected to produce savings on the scale of Aurora, as the earlier programme has taken the low hanging fruit, and its business case is currently being kept confidential. It is, however, expected to make a big difference, according to Pavitt..

"Some systems are of an age or complexity, or we struggle to find the right level of support, so that they require immediate attention. Some are used in an area where the policy has changed, and it has such a dramatic impact that as we adapt to the policy we might as well change the core systems. In some cases we may have 20 similar platforms that we can take down to one.

"We have a complex calculation to help us do all this, but we've agreed with the business a roll out schedule to do those in some sort of order.

"RTI is a classic case that will retire and replace some of the classic applications."

HMRC is also working to improve the quality of its data. Pavitt describes it as a "data monster", processing more than any other government department, dealing with 35 million people and up to 12 million businesses, and managing more than 400 tax regimes. Consequently, preserving the quality of the data takes a massive effort.

"Data has been a real challenge for us, and we're piloting within RTI a data cleansing mechanism," Pavitt says. "Everybody can run a data cleansing project, and within a minute the data begins to degenerate because old behaviours come along.

"We've begun to standardise the data inputs to us as an organisation. We don't have the ability to mandate what you have to give, but we do have the ability to show what it could be, and if you provide data like this how much easier it could be on you as the employer and on us as the processor."

RTI is being used to introduce data frameworks, and the master and slave data concept, a metadata concept that involves a set of core data, such as someone's address, and more variable data that cannot override the core.

"If that works well in the personal tax area we'll take all of those principles and begin to slowly move them across HMRC," Pavitt says."

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.

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

Wednesday, 21 March 2012

The Budget 2012

Here is a link to the details of today's Budget as per HMT:

Budget

Whilst here are the headlines of today's budget (source):

Tax changes

The personal allowance will rise to £9,205 in April 2013

The top rate of Income Tax will reduce from 50 per cent to 45 per cent in April 2013.
The Income Tax personal allowance (the amount you can earn before you pay tax) will increase to £9,205 in April 2013.
Age related allowances will be frozen from April 2013, moving towards a simpler, single personal allowance for everyone regardless of age.
From 2014-15, taxpayers will receive a new Personal Tax Statement, telling them how much Income Tax and National Insurance they have paid and what their money is being spent on.
Income Tax reliefs that aren't already capped will be capped at £50,000 or 25 per cent of income, whichever is higher.
The main rate of Corporation Tax will reduce by an additional 1 per cent from April 2012.

The new Income Tax rates for the 2012-13 tax year were published in December 2011 and will start on 6 April 2012.

Budget 2012 - New Income Tax rates 2012-13

Benefits

Child Benefit will be withdrawn for households where someone has an income of more than £50,000

Child Benefit will be withdrawn when someone in a household has an income of more than £50,000. The benefit will be withdrawn gradually; 1 per cent of Child Benefit for every extra £100 earned over £50,000. Only those with an income of more than £60,000 will lose all their Child Benefit.
Servicemen and women serving in operations overseas will receive 100 per cent relief on an average Council Tax bill.

The new rates for the State Pension and benefits for 2012-13 were published in December. These rates start in April 2012.

Budget 2012 - new pension and benefit rates

Alcohol and tobacco

Duty rates for alcohol will rise on 26 March 2012 at the same rate as last year - two per cent above inflation. The government will shortly be publishing an Alcohol Strategy to address alcohol abuse.
Duty on tobacco will rise by five per cent above inflation - a rise of 37p on a pack of cigarettes. This will come into force at 6.00 pm on 21 March 2012.

Motoring and travel

Vehicle Excise Duty (car tax) will increase by inflation only.
The government will take forward many of the recommendations from Alan Cook’s independent review of the road network, including developing a national roads strategy.
The government will also consider new ownership and financing models for the national road network.

Housing

A new Stamp Duty Land Tax rate of 7 per cent will be introduced for residential properties over £2 million from 22 March 2012.
The Stamp Duty Land Tax charge applied to residential properties over £2 million bought into a corporate envelope will be increased to 15 per cent from 21 March 2012. There will be a consultation on the introduction of an annual charge on £2 million residential properties which are already contained in corporate envelopes.
A New Buy Scheme was introduced last week to help those who cannot afford the larger deposits that some mortgage companies demand.
The government will fund an extra £100 million of improvements in the accommodation of the armed forces and their families.

Pensions

The current system, where pensioners can receive an additional State Pension as well as their basic pension, will be simplified. This means that future pensioners will receive only one single-tier pension, based on contributions. This is currently estimated at around £140.
There will be an automatic review of the State Pension age to ensure it keeps pace with increases in life expectancy. Details of how this will work will be published this summer.
There will be no changes to pension relief.

Employment

The National Minimum Wage will increase by less than inflation, as recommended by the Low Pay Commission, to support employers and help protect jobs.
Sunday trading laws will be relaxed during the Olympics and Paralympics.
National Minimum Wage rates to rise in October

Digital economy

The government has committed to providing 90 per cent of the population with access to superfast broadband.
There will be improved mobile phone coverage for rural areas and along key roads.
Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle are to become broadband super-connected cities, as part of the £100 million investment announced at the 2011 Autumn Statement.
£50 million will be used to fund a second wave of smaller cities.

The economy

The UK economy is predicted to grow by 0.8 per cent this year, and 2 per cent in 2013

The independent Office for Budget Responsibility’s (OBR) forecasts for UK growth and inflation are broadly unchanged from its November forecasts.
Growth: its growth forecast for the UK this year is 0.8 per cent; they forecast growth of 2 per cent in 2013, 2.7 per cent in 2014, and 3 per cent in 2015 and 2016.
Inflation: expected to fall from 2.8 per cent this year to 1.9 per cent next year, and then 2 per cent by 2016
The OBR’s forecast for the unemployment rate is unchanged from last Autumn - the rate is expected to peak this year at 8.7 per cent and fall to 6.3 per cent by 2016.
Borrowing: public sector net borrowing (PSNB) is expected to total £126 billion this year, falling to £120 billion next year. It is then forecast to to fall to £98 billion in 2013-14, reaching £21 billion by 2016-17.

Wee Davie's Hypocrisy

Today, in case you were unaware, is Budget Day.

It is likely to be a damp squib, as most (if not all) of the headline measures/changes etc have already been leaked. This is without doubt the most leaked budget in history. When I was a lad people would have been flogged for leaking budget details, how times change!

Anyhoo, moving on, I see that Treasury minister David Gauke (who has featured on this site on more than one occasion) has caused a wee bit of a controversy over his desire to hire a young person to work for him at zero pay.

Gauke, the nearest thing we have to a minister with responsibility for HMRC, has advertised for someone to fill a six-month unpaid internship.

Duties include "administration, basic correspondence, diary management, fundraising, campaigning and related tasks", as well as "the opportunity to work one day a week in the Westminster office".

I personally have no issues with internships. However, some of Gauke's fellow ministers (eg Nick Clegg, who also has form wrt interns and hypocrisy) and HMRC do have issues with it.

In fact HMRC in November 2011 threatened the fashion industry with prosecution if it failed to pay interns the minimum wage. HMRC wrote to fashion houses involved in London fashion week, warning them they must pay the minimum wage to anyone aged aged 21 and over.

Michelle Wyer, from HMRC, said at the time those not complying could face a penalty and prosecution, adding:

"Non-payment of the national minimum wage is not an option."

As I wrote in November:

"Internal documents from Her Majesty's Revenue and Customs show it believes interns across the employment spectrum to be at "high risk" of abuse under national minimum wage laws, and that HMRC has convened a 12-person taskforce to make unannounced inspections of businesses where interns are being used as workers rather than just shadowing staff.

The special "dynamic response" unit will have powers to question managers and sift through accounts until it is satisfied that no abuse is taking place.

It is the first time intern abuse has been targeted by the HMRC, which is responsible for the enforcement of the minimum wage."

Gauke is attempting to weasel his way round charges of hypocrisy by claiming that it is an advert for "volunteers".

To me it is really very simple, either the government/HMRC allow unpaid internships (in which case Gauke has no problem) or the government/HMRC don't allow unpaid internships (in which case Gauke does have a problem).

Which is it?

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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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

Tuesday, 20 March 2012

Joint Statement on P35 Fines

Last December I wrote about the problems that some employers were having with HMRC fining them for late submissions of P35s; in fact a court case at the time highlighted the fact that HMRC were holding back their communications with employers, so that the level of fines imposed would be increased.

A loyal reader wrote the following:

"In September this year I was issued with a penalty notice for failure to file my employers end-of-year return on time.

In my appeal I queried why I had not been informed earlier, when the amount of the penalty would have been less.

Enough about my own troubles - except that this matter prompted me to do a little research.

I found that in recent tax tribunal findings, scurrilous behaviour on the part of HMRC has been revealed.

In HOK Ltd and Commissioners HMRC, 22nd June 2011 it was stated in the findings:

'...Thus, HMRC deliberately waits until four months have gone by and does not issue the first interim penalty notice until, as in this case, September of the year of default.

By that time a penalty of £400, being four times £100 per month is said to be due.....

..In our judgement there is nothing fair or reasonable about in setting a computer system so that it does not generate a penalty notice until four months have gone by..

...It is no function of the State to use the penalty system as a cash generating scheme’.

In this case the tribunal reduced the penalty from £500 to £100.

In HMD Response International and Commissioners HMRC, 7th July 2011 the tribunal found that:

‘Even if there had been no reasonable excuse [for late filing] the penalty would have been reduced from £500 to £100 given that HMRC deliberately desisted from sending out a penalty notice until September 2010, by which time it could demand a penalty of £500....'

This appeal was allowed in full and the penalty dismissed.

Clearly somebody within HMRC is culpable and one wonders at what level the order to ‘set the computer system...’ was given."

The article prompted some lively debate, and one person noted that HMRC had in fact suspended the collection of PAYE penalties.

Several months later and Taxation reports that HMRC have "pledged" to end the controversy, and provide employers with information that is "timely and more efficient".

In fact HMRC, the professional bodies and charities have issued a joint statement on the matter:

"The joint initiative between HM Revenue & Customs (HMRC), the professional bodies and tax charities*, launched in late 2011, set a number of service objectives for delivery during 2012.

One of these was to work together to address concerns about the delay in informing employers that their PAYE end-of-year returns are late, and therefore subject to penalties.

The background to this issue is that where employers do not file their annual P35 return by 19 May, they incur penalties of £100 per 50 (or fewer) employees for every month (or part month) that their return is late.

In some cases, employers were unaware their returns were late until they received a first penalty letter in September covering four months’ worth of accrued penalties.

We can now announce a number of agreed measures to deal with this problem.

To help employers comply with their obligations, HMRC will:

• Change the date when we issue the “Notification to complete form P35 Employer Annual Return 2011/12” from mid-February to mid-March 2012, so that employers will receive it much nearer to the end of the tax year.

• From 28 April 2012, where we believe a 2011/12 P35 remains outstanding, we will issue an “Employer Annual Return Reminder”.

• From 31 May 2012, we will introduce a “P35 Interim Penalty Letter” which will be issued over a five-day period, so that it reaches employers within a month of the filing deadline. The letter will state that the employer has incurred a late return penalty and explain what to do to avoid it increasing. We have worked together with the professional bodies on the content of this letter and it has been tested on employers and payroll agents to make it clear and employer -focussed.

• Improve the online guidance for submitting P35s online, including specific advice about the test-in-live service to reduce the number of employers who believe their test submission is the live submission. The on-screen messages within the HMRC online product will also make it much clearer that even when a successful test transmission has been made, a live transmission is still required. We would encourage those using commercial payroll software (where the text of test/ live messages may vary) to sign up for HMRC’s email alert facility to help them avoid this problem.

• Instruct Employer Helpline staff to tell employers about filing dates when setting up new employer schemes, to help them avoid a penalty.

• For next year, improve the information on the P35 and the reminders to include a warning that the first penalty notice will cover 4 months.

Taken together, these measures should help employers to avoid incurring unnecessary penalties and significantly reduce the number of cases where penalties in excess of £100 are charged."

The professional bodies et al are all heartily congratulating themselves about this. As ever, I welcome views, comments and opinions from the coalface (ie HMRC staff and employers).

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

Monday, 19 March 2012

Spreading The Load

Loyal readers will be aware that Phil Pavitt (CIO of HMRC) has been somewhat blowing his own/HMRC's trumpet recently about how HMRC has reduced its IT spend.

Some of you (for shame!) have been a tad cynical about the veracity of his boasts. Well it seems that, whilst costs to HMRC may (or may not) have been reduced, the costs to HMRC's "customers" of implementing HMRC's flagship (akin to the Mary Rose) IT development Real Time Information (RTI) have gone up.

HMRC has revised its figures for the financial burden that Real Time Information (RTI) will have on employers. Payroll World reports that there are a number of costs being imposed on employers from having to use the new system:

- There will be a one-off transitional compliance cost (at least £120M) for firms as they begin to submit RTI.

- Offsetting HMRC's estimates of employers' savings (£330M per annum from 2014) from using the new system, will be the costs of the new administrative burdens being placed on employers by HMRC (ie realtime data collection/submissions each time employees are paid). HMRC believe that this will cost £30M per annum.

- Unknown costs of software development (needed to use the new system) which will be passed on to the employers.

This is know as spreading the load, so that HMRC's costs are kept down.

Needless to say, all of the above is based on the assumption that RTI actually works and comes in on time and on budget.

Tax does have to be taxing.

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Friday, 16 March 2012

Everything Is Wunderbar!

My compliments to Phil Pavitt (Chief Information Officer of HMRC), who is now rather ubiquitous in the media and is currently outshining Lin Homer in the "column inches" devoted to his achievements.

Recently I noted that Pavitt was proudly claiming that he/HMRC had halved HMRC's spending on IT from £1.4BN to £700M in two years. I was "shocked and appalled" by the reactions from some of the cynics within my loyal readership, who suggested that Pavitt may be telling porkies:

"Those of us who have followed the, erm, spotty career of Phil "Employment Agency " Pavitt will understand that his relationship with the truth has always been somewhat difficult..........."

"One suspects most of the 'gains' have come from consolidating software onto fewer physical boxes and using more 'virtualisation' as this is the flavour of the month in IT at the moment. However, the fact you are running a virtualised Windows server on a machine that is also running a virtualised Unix Server etc does not mean you have any less operating systems or software to support just less hardware.

So Pavitt's claim to have only one platform is almost certainly being extremely economical with the truth Since much of the cost is taken up by the former not the latter I doubt that these 'savings' are going to be around for long as overtime software license increases will eat into the savings.

Virtualisation can create its one issues as shared resources such as disk, memory and cpu capacity may have to upgraded over time if one of the systems using the resource has been poorly specified and is subsequently found to need much more grunt. For example, general upgrade of CPUs on shared machine can feed directly into the bottom line as licensing costs of software are often based on CPU Mips. Thus if you enhance the CPUs on a box because one system or application needs more processing speed then all the other systems software licenses may also be hiked regardless of whether they need the extra power or not.

This is the ticking time bombs Pavitt is leaving for his successors."

Such cynicism has not deflected Pavitt from telling the world about another saving (I assume that this is on top of the £700M IT saving that he was talking about the other day?) that HMRC has made. Apparently, HMRC will save more than £200M by 2017 after renegotiating its Aspire outsourcing contract with Capgemini.

Aspire covers IT services including desktops, laptops and a number of tax and credit systems such as online VAT filing. The contract, which is led by Capgemini and includes some 360 other suppliers, was renegotiated in January.

It most certainly needed some renegotiation, for as I wrote in February 2012:

""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."

Anyhoo, as well as lowering the cost per unit of IT services, the renegotiations will give HMRC greater control over the volume of work going through Aspire, according to the Cabinet Office. HMRC will also be able to control the Aspire subcontractors directly, which was previously the responsibility of Capgemini.

Pavitt is quoted by the Guardian:

"No longer do we have a unique SI relationship with Aspire and Capgemini.

We have introduced competition at all levels. There's no longer exclusivity between us and our partners."

HMRC is currently introducing 25,000 new PCs to its offices, and Pavitt claims that its IT service levels were at 99.93% "our best ever".

Pavitt said:

"We have cut our IT costs, transformed IT and made it sustainable, stabilised our services and reorganised our business processes. We have some way to go still, but we are delivering sustainable change."

So there you have it, everything is wunderbar!

There is no stopping this man!

However, I am always interested to hear from those of you who have to use the systems and have insight into the reality behind the claims made by Pavitt. Let us trust that he does not seek to emulate Icarus and fly to close to the sun.

Tax does have to be taxing.

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Thursday, 15 March 2012

War Is Declared II - Hodge Speaks Out

As I noted on Tuesday, today is the day when Margaret Hodge (Chairman of the Public Accounts Committee) is going to make a speech at Policy Exchange (a think tank) in which she fans the flames of the war between the mandarins in Whitehall and PAC.

I understand that she will call for the Freedom of Information Act to be extended to companies and other organisations that deliver government services.

Now this would be very useful for those of us with an interest in HMRC, given that a large number of crucial functions (eg IT, printing etc) have been outsourced to the private sector. It would be very interesting for example to learn if contracts with these companies have penalty clauses for when projects are delayed, fall apart or when services fail (eg printing errors etc).

Anyhoo, by way of a taster for today's speech the BBC have provided some extracts:

"Lately, it seems that the Public Accounts Committee has been rattling the cage too much for some.

There are those who say that shows we're doing our job properly, but there is a real challenge from the civil service on how we are approaching our work on behalf of Parliament and the taxpayer.

Some have upped the ante, even asserting that the PAC's activism affronts some constitutional principle - of which the civil servants consider themselves custodians. Anonymous briefings suggest that some would even like to dismantle the committee itself...

But it's our job to blow the whistle and shout loudly when the evidence before us is that the executive is not doing a good enough job. That is going to be uncomfortable for both ministers and the civil service."

Regarding GOD, now Lord O'Donnell, she will say that in a letter he wrote to her shortly before retiring he:

"..berated me for the way in which the Public Accounts Committee was seeking to hold the executive to account.

He was particularly exercised about the hearings we had held during the autumn involving HM Revenue & Customs investigating how it had tackled tax disputes with large corporations and specifically the settlement it had made with Goldman Sachs.

It was as if he had taken on the role of shop steward for aggrieved permanent secretaries.

...old doctrine of accountability isn't fit for the 21st Century.

It's our job to blow the whistle and shout loudly when the evidence before us is that the executive is not doing a good enough job. That is going to be uncomfortable for both ministers and the civil service.

Rather than responding defensively, the civil service should embrace the opportunity. It is in all our interests for this to happen. It will help all of us to deliver better public services with better value."

Regarding the exchange of letters between Ms Hodge and GOD, Exaro have a copy of Hodge's response:

"Dear Gus,

Thank you for your letter of December 20, which I now understand has been widely circulated across the civil service.

I was rather surprised by your criticisms about the way the public accounts committee conducted our inquiry into HMRC’s handling of tax disputes with large corporations. As you are aware, £25 billion is outstanding in unresolved tax bills and the role of HMRC governance is critical in explaining why this substantial sum remains unresolved.

As a direct result of the committee’s inquiry, major systematic failures in the governance of HMRC and the way it handles tax disputes with large companies were uncovered. In several of the largest settlements examined by the National Audit Office, the department did not comply with its own procedures, and the same senior officials were involved both in negotiating and in approving deals, which is simply inappropriate.

In the case we looked at, Goldman Sachs, there were extremely serious questions about the role played by the permanent secretary for tax [Dave Hartnett], whether appropriate legal advice was sought and acted upon, and the veracity of the evidence he gave to the Treasury select committee.

The committee was very disappointed by the failure of senior officials to assist us actively and answer our questions in a spirit of openness and transparency. Some of the evidence given to, and seen by, the committee was, at best, inconsistent and, at worst, misleading.

First, there was a clear discrepancy between Dave Hartnett’s statement to the Treasury select committee on September 12, 2011 that “I know nothing of Goldman’s tax affairs… I do not deal with Goldman’s tax affairs,” and the internal minute of the meeting that took place in Anthony Inglese’s office on December 8, 2010, which referred to “a deal on which DH had ‘shaken hands’ with GS” to settle an outstanding tax dispute.
Second, at our hearing on October 17, 2011 Mr Hartnett told us that he had informed Mr Inglese, as HMRC’s most senior lawyer, that there had been a mistake with the Goldman’s settlement on Monday November 22, 2010 – the day the mistake was identified – or “very soon after”. At our subsequent hearing on November 7, 2011, Mr Inglese told us that Mr Hartnett had not informed him of the mistake until December 7, 2010, more than two weeks after the deal had been done on November 19, 2010.
Third, at our hearing on October 12, 2011, Mr Hartnett said that no disciplinary action had been taken against anybody as a result of the mistake. However, at our hearing of November 7, 2011, he said that “the error was taken into account in someone’s annual appraisal… It affected their non-consolidated pay, because there was no pay rise that year.”

These are serious concerns that should be addressed by the cabinet secretary. However, in this case, you told us your powers were limited because HMRC is a non-ministerial department. I would be grateful if you would set out how, in these circumstances, senior officials are held to account in carrying out their duties with “honesty and integrity”.

Your letter also makes various points about constitutional matters. Over recent times, Parliament’s role in holding the executive to account has strengthened. The public’s expectations in relation to transparency and accountability are greater, and this is reflected in the way select committees approach their work.

As a result, there have been useful developments in conventional practice that have improved accountability and public understanding. For example, on a number of occasions in recent years (such as with Sir John Gieve on the disclaimer of the Home Office accounts, Catherine Bell on government support for MG Rover and, very recently, Dame Helen Ghosh on the Rural Payments Agency) the committee’s inquiries have been materially assisted by the attendance as a witness of the department’s former accounting officer who had held responsibility and knowledge at the time of the matters under discussion. While such occasions are infrequent, I have no doubt that they have enriched the committee’s understanding and helped us to serve the public better.

If we accepted all conventional past practices we could not respond to expectations of the present. The civil service will merely be seen as having things to hide if it follows the outdated and defensive path of action you propose. Furthermore, past conventions would not help us in holding properly to account departments that do not have ministerial oversight. I hope you would agree that the lack of ministerial oversight makes parliamentary oversight even more important.

I have worked in many government departments and have the highest regard for the civil service. I have seen at first hand the commitment of civil servants, and, if you read all the PAC reports, you will see that we warmly acknowledge success and good practice. However, I believe it is the duty of the committee to pursue fearlessly the public and taxpayers’ interest whenever and wherever we deem it necessary.

You also raise concerns about our questioning of Mr Inglese. In taking evidence from Mr Inglese, our aim was simply to get to the bottom of a settlement that he himself is on record as suggesting may be “unconscionable”. His advice was at the heart of understanding the truth to a particularly tangled and unacceptable story. Requiring a witness to swear an oath should indeed be a rare step, taken only in exceptional circumstances. I am surprised that you are not more concerned about the circumstances that made it necessary on this occasion.

Finally, in your successful time as cabinet secretary and head of the civil service you have dedicated a considerable part of your tenure in trying to deepen its capacity – an enterprise in which the PAC has been an ally. Now you have moved on and I wish you well. I look forward to my committee working constructively with all those who succeed you and all those called to give evidence in the future.

Yours sincerely
Rt Hon Margaret Hodge MP
Chair of the Committee"

A well written and scathing response to GOD (BTW, Goldman Sachs rather hit the headlines yesterday courtesy of Greg Smith).

The key to the problem of oversight and accountability, is that HMRC is non ministerial department. However, the risk of placing it in the hands of a minister is that it becomes more politicised than it is already; when in fact it should be (at its "simplest") a non partisan bureaucracy that collects taxes in the most cost effective and efficient manner possible.

Tax does have to be taxing.

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Wednesday, 14 March 2012

Death and Taxes - HMRC To Improve Service To Bereaved

The Guardian recently published an article about a mix up emanating from HMRC, which caused HMRC to fine the deceased mother of one of its journalists for the deceased failing to send in her self assessment on time.

Seemingly HMRC knew full well that she had died because it did not send its penalty demand to her house, but to her son at his home address.
Quote:

"As power of attorney for Mrs B Levene, Deceased".

Power of attorney ceases on the death of the person who grants the power, the bank accounts are frozen to protect the beneficiaries of her estate and the executors of the estate take over. They cannot act, however, until probate is completed.

HMRC, when contacted by the journalist, said:
"We are extremely sorry for the errors in this case and the distress these have caused.

These should not have happened and resulted from human error.

There is no question of a penalty being payable and we are writing with a full explanation and apology."

HMRC added that it was in the process of reviewing how to improve its service to the bereaved.

Tax does have to be taxing.

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Tuesday, 13 March 2012

War is Declared!

Now here's an interesting thing, last year's public drubbing of "Jack" Hartnett and HMRC's General Council Anthony Inglese (who was forced to take an oath) by the Public Accounts Committee (PAC) over HMRC's handling of the Vampire Squid and Vodafone has not gone down well with the civil service.

As I noted in December last year:

"When it comes to self loathing, no one and nothing does it better than politicians and the State; especially when they viciously turn on one of their own departments.

Therefore it should come as no surprise whatever to read the "public damnation" of HMRC by the Public Accounts Committee ."

Anyhoo, senior mandarins are less than gemused and have, according to Exaro, "declared war" on MPs over the constitutional implications of civil servants being treated in this manner.

Such is the anger felt by the mandarins that GOD himself (the recently retired Gus O'Donnell) wrote to Margaret Hodge (Chairman of PAC), at the end of last year before he was elevated to the Lords, to tell her that civil servants should not be accountable to Parliament and are only accountable to ministers.

In the letter to Hodge GOD accused PAC of using the hearings as a “theatrical exercise in public humiliation”, adding “praise certainly can be a more effective tool for change than blame.”

Hodge is making a speech this Thursday in which she is expected to reveal the contents of a dossier of anonymous, highly critical comments from civil servants and government lawyers who object to PAC's conduct.

At the very centre of the storm is the treatment of HMRC's Hartnett and Inglese.

Hodge is quoted:

"I would agree that Whitehall seems to have declared war on Parliament.”

Aside from Thursday's speech by Hodge, which will stir things up, PAC is adding further fuel to the fire with its ongoing examination of contracts that allow senior civil servants to avoid tax.

This "war" between mandarins and Parliament will of course do nothing to help HMRC improve its service or internal moral; as its failings/improvements will be used as a political football by both sides.

Tax does have to be taxing.

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Monday, 12 March 2012

Communications Confusion

Child tax credits continue to cause confusion, not just for the recipients but also for HMRC.

The Telegraph reports that HMRC sent out letters last month to recipients of child tax credits, stating that the maximum income for a family to be eligible for the benefit will be £26K as from April 6. The letters warned that child tax credit would end for families with income above £26K, unless they got in touch with the HMRC:

"For Child Tax Credit the income limit is £26,000 for both single and joint households."

Whilst this is correct for a household with one child, it is not correct for households with more than one child; families with two children will be entitled to credits, if their annual income is less than around £32,200.

HMRC have admitted that the letters were not that clear, and are quoted:

"We accept that a recent letter sent out to some tax credits claimants was not as clear as it could have been.

We apologise if any confusion has been caused."

What was it Mark Holden (the RTI Programme Director) said recently (granted he was referring to RTI, not something as "mundane" as tax credits)?

"...so the real thing for us is making sure the communications are clear, making sure the guidance we are publishing is in plain English..."

Tax does have to be taxing.

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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