Retrospective Legislation

I read with interest the recent article in the Telegraph about Robert Huitson, an IT consultant, who has been landed with a £100K tax bill (others have also received backdated bills) as the result of retrospective changes made to tax legislation.

Mr Huiston set up Isle of Man trusts to avoid British income tax.

The scheme was entirely legal and ran for seven years until Parliament closed the loophole retrospectively in the 2008 Finance Act, and issued backdated demands for millions of pounds.

Changing the law to close "loopholes", and prevent them being used in the future, is one thing. However, retrospectively applying those laws to tax arrangements set up legally and in good faith is contrary to the fundamentals of British law.

David Elvin QC is acting on Mr Huiston's behalf in the Appeal Court and is challenging the retrospective law, on the basis of a breach in human rights for people to be allowed to have "free enjoyment" of their private property.

"The degree of retrospectivity is unprecedented in the history of tax legislation and imposes an individual and excessive burden on users of the (tax avoidance) arrangement."

It will be very interesting to see how this case progresses.

Tax does have to be taxing.

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"

Whither Kenny?

My thanks to the loyal reader who alerted us about the recent demise of Bernadette Kenny (Director General for Personal Tax at HMRC):

"Well, Bernadette Kenny is no longer part of the ExCom... shame really.. ahem..

Now here is a funny thing, there is a Blog Post from Kenny dated 01/11/10 which waxes lyrical about the challenges facing Personal Tax and all the things that she is focusing on... then on 02/11/10 Leslie Strathie's Newsboard Message is saying Kenny is leaving and thank you and goodbye!

I wonder what occurred between the BlogPost of 01/11 and the departure as noted in the NewsBoard of 02/11/10. Did anyone else find this strange?

Now a cynic may assume it is because heads had to roll because of the PAYE fiasco (of which Kenny was apparently in charge)... but I couldn't possibly comment on such cynicism!"

I did a wee bit of a "Google" on Ms Kenny and came up with a few background nuggets, that may be of interest.

Opprotunity Now (some form of quango by the looks of it) highlights Kenny as a "Champion" in a case study from 2009:

"...Bernadette Kenny who is the Director General for Personal Tax at H.M. Revenue & Customs and also the organisation's gender champion. Bernadette has responsibility for over 35,000 people and is one of the organisation’s most senior women.

As gender champion Bernadette provides visible leadership commitment to equality and diversity. She helps to articulate the business case and ensures that it is understood and acted upon at the highest levels of the business. H.M. Revenue & Customs (HMRC) commends her for her commitment, enthusiasm and personal passion for the subject...."

In the real world, what exactly does a "gender champion" do that cannot be done by the HR department?

Why is the Director General for Personal Tax involved with HR matters?

Oddly enough, despite being "demised", Kenny still appears on the Corporate Governance section of the HMRC site (no mention of her demise, and indeed no mention of her "gender champion" role. Did HMRC not know that she was "gender champion"?)

"Bernadette's Executive Committee portfolio includes Customer Operations, Customer Contact, PAYE, Self Assessment and National Insurance contributions, Individuals Customer Directorate and Charity, Assets and Residence. Bernadette joined HM Revenue & Customs (HMRC) in May 2005, following a short period as acting Chief Executive of the Royal Parks.

She had previously spent 24 years at the Department for Constitutional Affairs (DCA), having started in the then Lord Chancellor's Department as a Government lawyer in 1980. After an early career in a range of both legal and policy posts, she moved into operations in 1991 managing civil and the higher criminal courts in South East England.

She led the team that launched the Court Service as an executive agency in 1995 before setting up the new agency's Human Resource and Learning function. She moved onto the agency board in 1999, leading on business change, IT, procurement and tribunals operations. She returned to DCA Headquarters in 2002 as Change Director."

So is she going or not?

Please could someone send me a copy of the announcement from Strathie about Kenny leaving?

Thanks.

Tax does have to be taxing.

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"

£6.4BN Bad Debt Write Off

HMRC's bad debt write offs have risen by 40%, from £4.6BN to £6.4BN, as at March 2010. This rise is due to a number of reasons including; the recession, the change in IT systems and debts becoming time barred.

There is now some debate as to whether HMRC are becoming more aggressive wrt debt collection (eg sending in private debt collection agencies sooner than they used to do).

Tax professionals and some trade bodies claim that HMRC is "tightening the screw", whilst HMRC are quoted in the Telegraph as saying:

"Before any debt is passed to a debt collection agency, a 'final opportunity to pay' letter is issued – only if that is ignored would the debt be passed to an agency."

Two contrasting views, what's the reality on the ground?

Please feel free to comment if you have noted a change, or no change at all, in HMRC's debt collection procedures/attitude.

Tax does have to be taxing.

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"

Complexity Increases - The Bugger's Muddle

The coalition government has claimed that they want to simplify the tax system.

As ever, when a politician speaks, there is a world of difference between the words of the politician and reality.

George Osborne's recent proposals to stop child benefit for higher rate taxpayers are a case in point. I noted in early October that the claw back mechanism for child benefit payments will increase the complexity of individuals' tax affairs, and add to the burden on the already overstretched HMRC.

This, of course, is not the only complicating factor within Osborne's proposals. In order for the claw back to operate, the taxpayer (and the family unit) will have to be deemed to be "higher rate".

Easy enough for HMRC to deduce if the recipient (the mother) is herself a higher rate taxpayer. However, the proposal by Osborne is that the cut off will apply to the earnings of the wife and her partner together (means tested benefits are calculated on the basis of household income).

Fair enough, in principle.

Except there is one rather large problem. The independent taxation of husbands and wives has been a key principle of taxation since 1990. In order for HMRC to know if the family is higher rate they will now have to ask the husband/wife to disclose if his/her wife/husband is a higher rate taxpayer, and for the husband to disclose if his wife is receiving child benefit.

At the moment the law specifies that an individual's tax matters are an individual's responsibility, yet the government proposes (via HMRC) to fine those who do not honestly/correctly declare their partner's status wrt the new child benefit rules.

The law, as it now stands, makes those proposed fines unenforceable.

Instead of simplifying the tax system, if this is to work, the coalition will now have to pass new legislation to enforce fines on taxpayers for failing to disclose information about other taxpayers; ie the coalition will increase the complexity of the tax system.

It's a "bugger's muddle", make no mistake about that!

Tax does have to be taxing.

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"

Back Claims

Tax professionals will be well aware that HMRC has the right to revise an individual's tax submission, on the assumption that there is evidence to show that the submission contained errors, even if it is up to 6 years old.

The result being that tax paid in previous years may turn out to be over/underpaid.

Unfortunately, not everyone is a tax professional (nor indeed can most people afford to pay a tax professional). The average taxpayer (trusting that their employer and HMRC have managed to get the numbers right) will have assumed that once the tax is paid, that is that.

As we now all know, from the recent issue wrt tax reconciliations, HMRC have discovered that there is a significant amount of unpaid tax (£2BN) over the last two years owed by approximately 2 million people due to errors in their Pay As You Earn (PAYE) tax code.

HMRC are in the process of sending out letters to people who they have identified as owing them money.

However, it seems that this is but the tip of the iceberg and many more people will be on the receiving end of a demand for underpaid tax.

For why?

HMRC is extending its investigation (PAYE reconciliations) into earlier years, as it has every right to do.

HMRC has admitted that it is struggling with a backlog of 17.9 million "open case" files, with almost 2 million dating back to 2004.

As noted, HMRC has every right to issue revised assessments for earlier years. However, many taxpayer will simply not be in a position to (or indeed expect to have to) pay several years of underpaid tax.

The issue is not merely one of "reconciling" open items, but one of politics and understanding human nature when it comes to people's attitude to "money in their pockets" and taxes.

The demands for the underpaid tax of the last two years will spark considerable anger, were the government and HMRC to push ahead with demands going back six years the political fallout and public anger will be unimaginable.

Good luck with that then!

Tax does have to be taxing.

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"

Inquiry Launched

Politicians, fed up with the ongoing cock ups emanating from HMRC (and doubtless worried that some of the shit will, quite deservedly, splatter back on them) have done what politicians always do under such circumstances, they have announced a formal inquiry into HMRC.

A Treasury sub-committee will examine the effectiveness of HMRC and look at "how HMRC is doing its job, whether it can do it better, and what the future holds".

Dame Lesley Strathie, the "beloved and respected" CEO of HMRC, will be called to give evidence.

Ironically there has already been an inquiry into HMRC, the results of which were published this year. That inquiry found that morale was at rock bottom (HMRC are in fact the unhappiest civil servants in Whitehall).

Anyhoo, since then there has been the PAYE debacle and the announcement of further cuts in HMRC's staff etc. The politicians have realised that the government/state in all its many forms (if it is to continue to function) needs money (in the form of taxes), and that HMRC are the means by which that money is collected.

A catastrophic failure of HMRC, its IT systems, or a protracted general HMRC strike could cause a seizure at the very heart of government as the money needed to run the country is left uncollected/processed. The politicians would, quite rightly, be blamed for much of the ensuing chaos.

Therefore the politicians are panicking, and will look at:

- HMRC's performance
- whether it is delivering its key aims
- the implications of HMRC's spending review settlement
- whether it is "able to deliver" the government's aims on tax avoidance/evasion
- whether reforms to the PAYE system are necessary;
- what HMRC's priorities should be for the future.

Good luck with that then!

Tax does have to be taxing.

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"