Revenue Determinations

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Under Self Assessment, taxpayers are required to file their tax return by a certain filing date. If they fail to do so they face the risk of having the HMRC determine their tax liability by raising a so called Revenue Determination.
The Revenue Determination is meant to encourage the taxpayer to send in his/her return to the HMRC by estimating the taxpayer’s tax liability.
Once a Revenue Determination charge has been added to the taxpayer’s Self-Assessment record a notice known as ‘Determination of tax due’ will be issued to the taxpayer and his/her agent.

A Revenue Determination will automatically involve any payments on account for the following tax year. Also, where Revenue Determination and any overdue payment on account remains unpaid, interest and surcharge will be added to the taxpayer’s record.

There is no right of appeal against a Revenue Determination but the submission of the completed tax return will take the place of the Determination and the determined amount of tax will be automatically amended to the return amount. Any related interest, surcharge and payments on account will also be automatically amended.

A Revenue Determination must always be raised for an amount equal to or greater than the previous or last year’s liability, and include where necessary an appropriate percentage addition to the previous year figure.
Very important to know is that Determinations can only be raised within 5 years from the filing date.
Taxpayers can displace the determination with their own self assessment at any time up to the fifth anniversary of the filing date for the year of assessment in question (or one year after the determination was issued, if later). After five years things become a little bit more difficult as a certain concept may need to be applied, that of equitable liability.
In order to avoid having to deal with a Revenue Determinations, self-assessment taxpayers need to make sure that they are familiar with the filing deadlines and seek help from tax companies like Taxfile when sending their tax return , especially now with a new 31st October paper return deadline in place.

Use of Home as Office

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If you are self-employed, there is a type of relief called use of home as office that can be offset against your tax liability.
If you run your business partially from home you can could set a proportion of your home running costs against income tax.What sounds like a very easy task for any tax accountant has proven to be quite difficult as the HM Revenue & Customs can easily argue the figures as there are no clear rules that can be applied.
Among the expenses allowed in this category we can mention the following: Council Tax, Mortgage interest, Rent, Repairs and maintenance, Cleaning, Heat, light and power, Telephone, Broadband, Metered water charges.
The factors to be taken into account when apportioning an expense include according to HMRC:
•the area used for business purposes,
•the usage in connection with electricity,gas or water and
•the time used for business purposes compared to other use.
By following this link you can see some examples provided by HMRC related to ways of approaching the use of home as office.
This is what the courts have approved in terms of apportioning expenditure for home as office:
“… it is possible to apportion the use and cost of a room on a time basis, and to allow the expense of the room during the hours in which it is used exclusively for business purposes, in the same way as it is possible to calculate the business expenses of a car which is sometimes used for business purposes exclusively and sometimes used for pleasure.” (Templeman J in Caillebotte v Quinn [1975] )
Very important is to retain good records to evidence whatever claim you make for using your home as office in case the taxman argues your figures. For more help in understanding tax reliefs for self-employed, Taxfile in South London and Exeter is here to help.

Savings Income and Tax

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Savings income is added to your other income and taxed . Banks and building societies are required by law to deduct income tax at 20% from interest before they pay it to you. They pay this to HM Revenue & Customs. This is confirmed by the entry ‘net interest’ on your bank or building society statement.
If you’re a higher rate (40%) taxpayer you owe tax on the difference. If you have a low income you may be able to claim tax back.
If you are a basic rate taxpayer you do not have to take any action as no extra tax is due and 20% tax has already been deducted at source by the bank or building society.
If you are a higher rate taxpayer than you have to let the Tax Office know what interest you have received so they can collect the extra tax either by asking you to fill in a tax return( if you are self-employed and normally have file self assessment) or adjust your tax code if you are employed or you receive pension. Then they will also send you a form called Tax Review P810 in order to check your level of savings income and then a change your code if necessary.
Your interest is taxable in the tax year that it is paid to you, or credited to your account, even if part of it has accrued in the previous tax year. So you do not have to include any interest earned this year when working out your taxable income if it hasn’t been paid yet.Your bank/building society may send you a ‘Certificate of Tax Deducted’ or a statement containing this information after the end of each tax year.
Also, if you have a joint account with a husband, wife or civil partner you should declare half of the income as yours. The second half should count towards their income.
On some types of savings income you do not have to pay any tax. Among them, we can mention the following:
• Cash mini ISA;
• all prizes received from Premium Bonds;
• interest received from Fixed Interest Savings Certificates;
• interest from Index Linked Savings Certificates;
• interest, including bonuses, received from Children’s Bonus Bonds.
Also the interest paid by HMRC on over-payments of tax (so called repayment supplement ) is non-taxable.
If you are not due to pay any tax you can register your bank or building society account to receive your interest without tax taken off. You do this by completing form R85 and giving it to your bank or building society.
If you need to know more about the interest on savings and whether it is taxable or not, Taxfile’s tax accountants are here to help.

Data Protection Act and HMRC

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As a tax agent you might have found it quite difficult trying to deal with subcontractors’ tax returns (those working in the Construction Industry Scheme) for the year ending on the 5th April 2008. The main reason behind this situation is the struggle of gathering all the relevant data in order to submit an accurate, complete and compliant tax return to HM Revenue & Customs.
In the past years we used to be able to ask the tax office for a so called ”captured voucher list” for our subcontractor clients quite easily. We cannot say this is happening this year, now when the construction scheme has changed and we need their help even more. According to the HMRC, excessive demands were placed before on their resources when requests were made for payment details for scores of subcontractors at a time.
Their refusal of giving away information is normally stated in a letter and we can quote:
”Under Section 12(B) 1 Taxes Management Act 1970 your client must keep all records they need to enable to make a correct and complete tax return.They may receive a penalty of up to £3000 for each failure to keep or to preserve adequate records they need for future reference.[…] If they have lost any of their deduction statements given to them by the contractor(s) or they think they were not given a deduction statement(s), your client must in the first instance go back to the contractor concerned and ask for either a duplicate, or the missing deduction statement.”
That said, unless we can provide evidence that contact has been made to the contractor(s) concerned the HMRC will not be able to release any information. The evidence in question can be either a letter from the contractor(s) confirming why that they are unable to provide the documentation or a letter with the name of the contractor(s) and the dates the client worked for him/them.
As we needed to know more about this subject, we asked one of our legal associates to do some research on this matter. Under Data Protection Law 1998 s.63(1) it is required by all Government departments to reveal information held by them on our clients. However s.29 of the Act states that the right to disclosure of personal data and to have copies of it does not apply to to data collected for the assessment or collection of any taxes:
”Personal data processed for any of the following purposes[…](c) the assessment or collection of any tax or duty or of any imposition of a similar nature are exempt from the first data protection principle.” It looks as if there is a clear statutory right for hmrc to refuse to reveal the information requested.
However, there is nothing in the Taxes Management Act 1970 requiring the client to go back to the contractor for a duplicate copy of the missing document(s) in the first place. As there is no policy stating that that the client or agent should first contact the contractor, it appears as if the policy has no status in law.
Taxfile‘s tax accountants in South London would like to know your opinion on this matter. Have you found it difficult this year to deal with your subcontractors’ tax return? Have you gathered all your data from the contractors or you managed to get some help from HMRC? Write your comments, your opinion matters to us.

Lump sums, redundancy & compensation payments

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When dealing with lump sums, redundancy and compensation payments great care needs to be exercised. The reason behind this is that this type of income will not necessarily be taxed as normal employment income.
Up to the first £30,000 of any compensation payment can be paid to you without deduction of tax if it is made in connection with the termination of your employment. This also applies to statutory redundancy payments. This tax exemption applies whether the payment is made as a result of an unfair dismissal claim or for breach of contract.
In order to qualify for compensation for loss of office relief, strict criteria must be met.
For instance, if your contract of employment gave you a right to compensation on ceasing to be employed or payment in lieu of notice (i.e. the employer pays in lieu of notice instead of the employee working the notice period), then the lump sum you receive will be taxable under PAYE scheme, regardless of the amount.
Also, even if the contract says nothing about pay in lieu of notice but there is an expectation of payment because it has been routinely paid to others, that constitutes an implied contractual term and the payment will still be liable to tax and NICs.
HMRC often challenges this aspect, trying to prove that the payments were contractual in nature therefore they need to be fully taxed.
Very important to remember is that the limit of £30,000 relief relates to each employment but employments with employers under common control only count once. If a payment was received in the previous fiscal year for the same employment but the relief was not used, than the balance can be claimed against any relevant payments in a subsequent year.
Some employees with redundancy payments that exceed £30,000 choose to pay some or all of the excess into their approved occupational pension scheme. As long as the payment is within the scheme’s rules, it has no liability for tax or NICs.
As different rules apply to different lump sum payments connected with an employment it is very important to seek advice from professionals like Taxfile‘s tax accountants in South London and Exeter. They will make sure that your circumstances have been carefully considered before submitting your tax return to HMRC.

Student Loan Deduction

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Student Loans are considered to be a financial support package for students in higher education in the UK with the Government’s help. They are available to help students meet their expenses while they are studying.
HM Revenue & Customs is responsible for collecting repayments of Student Loans in cases where the borrower is within the UK tax system and is no longer in higher education.
The loans are still administered by the Student Loans Company.
In most cases the employer collects Student Loan repayments by making deductions from the borrower’s pay .
The employer has the following responsibilities:
• making deductions of Student Loan repayments from thee the employee’s wages
•keeping records of the deductions made
•paying the deductions over to HM Revenue & Customs
•providing HM Revenue & Customs with details of the deductions at the year end
•giving the employee details of the deductions on their payslips
•identifying on form P45, when the employee leaves your employment, that they are liable to make Student Loan repayments.
There is an Annual Threshold, currently £15,000, below which Student Loan repayments are not due. Employers making Student Loan deductions apply a proportion of the threshold appropriate to the pay period in calculating the amount of Student Loan repayment to deduct.
The rate of deduction when calculating the amount of Student Loan deduction is 9%.
Deductions are made on a non-cumulative basis. In order to deduct the right amount from the employee’s pay than the employer has to look up the Student Loan Deduction Tables on the HM Revenue & Customs website.
If you need to know more about the way Student Loans deductions work out, Taxfile’s tax agents in South London can help you get a better understanding of it.

Types of CIS cards in the Construction Industry Scheme

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Subcontractor? Claim your CIS tax refund!

There are five types of registration cards and certificates used in the Construction Industry Scheme:

CIS 4(P) is the permanent registration card issued to most subcontractors. It entitles the holder to be paid with a deduction on account of tax and National Insurance contributions. It does not have an expiry date but it shows the photograph and signature of the authorised holder, along with their National Insurance number.

CIS 4(T) is the temporary registration card issued to subcontractors who do not hold or do not know their National Insurance number. It enables the holder to be paid with a deduction on account of tax and National Insurance contributions while they obtain a valid National Insurance number.

CIS 6 is the subcontractor certificate issued to individuals, partners in firms and directors of most companies that meet the required turnover, business and compliance requirements. The certificate shows the photograph and signature of the holder and entitles them to be paid gross.

CIS 5 is the subcontractor certificate issued to companies that can’t be issued with a CIS 6. There is no photograph on the certificate but it bears the company secretary’s signature. It entitles the subcontracting company to be paid gross.

CIS 5 (Partner) is the subcontractor certificate issued to one partner in business partnerships that can’t be issued with a CIS 6. There is no photograph on the certificate but it bears the signature of the partner nominated to hold the certificate by the firm. It entitles the partnership to be paid gross.

Sometimes a subcontractor’s payment status will change from payment under deduction to gross payment. If this happens, the Tax Office will tell the subcontractor and any contractors who have verified or used the subcontractor in the current or previous two tax years. The revised payment status should then be applied to all subsequent payments to the subcontractor as soon as it is practical for the contractor to do so.

Subcontractors who meet certain qualifying conditions get the tax certificates and those who do not get the registration cards.

Only a minority of subcontractors will qualify for a Tax Certificate which then entitles them to gross payments. To qualify you must pass three tests; the turnover test, the business test and the compliance test.

  1. The turnover test
    To meet the turnover test as an individual you must show that for a continuous three year period you have had a net turnover of £30,000 a year or more.
  2. The business test
    You need to be in a business that provides labour to carry out construction work, conduct your business primarily through a bank account and also keep proper business records.
  3. The compliance test
    Tax affairs must be kept up-to date during the three years before application. You need to show you have paid all tax, including any PAYE and subcontractor deductions and submitted all tax returns on time.

If you qualify, you should receive your certificate within 30 days of application; if not you will automatically be sent a registration card. If you do get a subcontractor’s tax certificate it will be one of three types; either a CIS6, which is the most common type, a CIS5 which is issued to some companies because of their size, or a CIS5 (Partner) which is again issued to firms which have complex operations or geographical spread. Only the CIS6 shows the authorised user’s photograph and signature.

If you need further information about types of registration cards and CIS tax certificates, Taxfile’s tax accountants in South London, Battersea, Devon, Yorkshire or Carlisle can help you with your registration.

Call 0208 761 8000 or learn more about our tax and accountancy services for CIS contractors and subcontractors in the construction industry here.

Subcontractor? Claim your CIS tax refund!

No April Showers for Landlords!

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Landlords may benefit by having a Taxfile safety net.
Landlords and taxpayers with small amounts of freelance earnings could well expect to find a Tax inspector appearing unannounced at their Buy to Let property or small home business enterprise! Proposals included in last weeks finance bill and coming into force on April 1st 2009, will herald even more investigative powers for the Tax man. HMRC inspectors will have additional powers to investigate landlords and challenge them over perceived income errors on their tax returns, which could result in fines between 30%-100% of any extra tax due.

In a recent report, HMRC have identified 20% of Landlords (nearly 80,000), as having made errors on their Tax returns. But what is meant by an error? Taxpayers could be heavily penalised for just failing to understand the tax rules applied to rental income. For example, being late with the lettings business registration, or using inappropriate expenses and so on.

Any concerns or worries in this area can be directed to Taxfile who will be happy to offer help and advice. We strongly recommend landlords take advantage of our insurance cover against any tax investigation, this offers Landlords peace of mind and financial protection.

Taxfile welcome your call on 0208 7618000 to discuss your situation.

Good luck.

Land and Property Team at Taxfile

What is equitable liability?

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Information about equitable liability was published in the Revenue’s Tax Bulletin in August 1995.
Most people keep their tax affairs up to date and pay their tax in time time. However, where a taxpayer has not submitted his or her return, HM Revenue & Customs can determine the taxpayer’s likely tax liability so that the tax can be pursued. There is no right of appeal against such determinations, and the tax determined is legally enforceable. Taxpayers can displace the determination with their own self assessment at any time up to the fifth anniversary of the filing date for the year of assessment in question (or one year after the determination was issued, if later).
If a taxpayer receives an assessment and does not think it is right, he or she can appeal against it and has thirty days from the date on which the notice of assessment was issued to do so. Inspectors will accept appeals once that time limit has passed if they are satisfied that there was a reasonable excuse for not making the appeal within the time limit and the application to admit the appeal late was made without unreasonable delay thereafter. If the Inspector does not think these requirements have been met, the application must be referred to the Appeal Commissioners for a decision. The Appeal Commissioners are completely independent of the Inland Revenue and their decision on this matter is final.
Otherwise, an assessment is final and conclusive and the Inland Revenue is able to take recovery proceedings — through to bankruptcy if necessary — for the full amount. There is no legal right to adjustment of the liability.
However, where the taxpayer has exhausted all other possible remedies, the Inland Revenue may, depending on the circumstances of the particular case, be prepared not to pursue its legal right to recovery for the full amount where it would be unconscionable to insist on collecting the full amount of tax assessed and legally due.
This practice is known as ‘equitable liability’. The term ‘equitable liability’ reflects the original principle of fairness to other creditors.
The Inland Revenue may be prepared to consider applying ‘equitable liability’ where it is clearly demonstrated that:
• the liability assessed is greater than the amount which would have been charged had the returns, and necessary supporting documentation, been submitted at the proper time.
• acceptable evidence is provided of what the correct liability should have been.
In such cases the Inland Revenue may be prepared to accept a reduced sum based on the evidence provided, and not to pursue its right of recovery for the full amount.
The Inland Revenue would expect full payment to be made of the reduced sum. Furthermore, it would be most unusual for such treatment to be applied more than once in favour of the same taxpayer.
In determining the revised liability, the Inland Revenue will have regard to all the relevant circumstances of the case. Acceptable evidence of the reduced liability must be produced. It will not be sufficient to seek to replace the assessment merely with the taxpayer’s or the accountant‘s estimate of the liability.
In order to make a claim for equitable liability you need a tax accountant like Taxfile in South London to help you explain your circumstances and make sure the concept of equitable liability is applied and your tax affairs are dealt with in an equal and fair way.

Taxman’s new power

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Is the taxman going too far? This is the question we have to ask ourselves today. The taxman has been given the authority to bug people’s phones and read their emails and letters.

In order to reassure taxpayers, the Inland Revenue declared that these new powers will not be used in routine tax investigations. As noticed by Sunday Times ”one area where the new regulations could have an impact is against those who failed to come forward during HMRC’s partial amnesty for offshore account holders. […]HMRC offered a limited window of opportunity for taxpayers to disclose savings held in offshore accounts on which they had not paid tax.
About 45,000 people with bank accounts in tax havens such as the Cayman Islands and Isle of Man coughed up £400m by the November 26 deadline, but this may be only a fraction of the total held offshore. ”(Ali Hussain, Sunday Times, February 17, 2008)
Although the tax office has assured people that the powers will only be used in the most serious of cases, some experts have expressed concerns.

Mike Warburton of tax partners Grant Thornton said: “Once the new powers are available it will be very difficult to stop the taxman using them.”(Ali Hussain, Sunday Times, February 17,2008)

To surprise you even more, senior tax officials are being rewarded for failure as they are given record bonuses totalling more than £23 million this year despite the department continuing to lose £1 billion to fraud and error. This also came just three months after the department admitted it had lost computer discs containing the tax credit details of 25 million people.

In its defence, HMRC said that these payments were based on last year performances and those for the current financial year had not been set.

Taxile‘s tax accountants in South London would like to know your opinion in these matters, so write your personal comments on our blog. Are you for or against the way the tax office handles their tax investigations? Do you think of it as an intrusion in people’s life or is it in our best interest on the long run? Share today your thoughts with us,your opinion matters!