Good news from HMRC is rare, so I am delighted to report that they are now accepting payments made using the Faster Payments Service.

Which means we can stop having to work out how many “banking days” there are before our VAT/tax is due. Instead we can just pay it on the due day (within reason) i.e. don’t leave it until one minute to midnight because that will not work.

The Faster Payments service enables banks to process internet and phone payments 24 hours a day, seven days a week, normally within a couple of hours. In the past, these payments have taken around three days to clear.

With only 47 days to go until the tax return deadline (see timer in sidebar), the 3CA flying pig has been launched to reflect the likelihood of all returns being submitted on time!

This is the pig at work.

This is the pig himself.

Last March the Office of Tax Simplification published  Review of tax reliefs – final report.

I have not mentioned the 191 page report before because I have spent the time since it was published trying to buy a bottle of Black Beer, which is described on the label as

“….. a drop of Yorkshire history.”

Dating back to 1901, Mather’s is the last known surviving Black Beer being produced in the UK.  Famous enough to feature in the Yorkshire Post, the beer’s  high Vitamin C content meant it was popular with mining communities. During the Second World War when rationing was brought in there was a move to stop its production, but because miners were so important to the war effort and needed their supply of Black Beer it was saved.

Its origins can be traced back to the mid 16th-century and a drink made from the mashed leaves of the Spruce Pine. A 100 or so years later, and with the addition of a little barley and malt, the story goes that Captain Cook became one of its greatest advocates believing that a large daily dose kept his sailors free from scurvy and setting up a brewery in New Zealand to make sure they had enough supplies for the long journey home.

Returning to the report of the Office of Tax Simplification you must be wondering what on earth Black Beer has to do with tax. All is revealed on page 169 when the report states

Black beer is exempt from excise duties. This exemption was originally introduced in FA
1930 s2(1) and is now in the Alcoholic Liquor Duties Act 1979 s1(3)(a). It is also exempt from
customs duties by virtue of a derogation negotiated by the UK17

Quite frankly, who cares? Well the Office of Tax Simplification does because it is suggesting that this exemption is abolished to “simplify” tax law.

Really?

How much difference will this make to the typical small business trying to understand the complexities of Self Assessment, corporation tax, VAT and PAYE?

I can think of a better way to simplify tax law, abolish the Office of Tax Simplification and speak to some small businesses and their accountants.

I used to understand HMRC but ever since they started to refer to taxpayers as customers I have been confused. They fall over themselves to tell us how helpful and sympathetic they are but in actual fact they haven’t changed at all.

Take, for example, their latest briefing Giving taxpayers time to pay which has been issued ” for people who want to know more about current issues affecting HMRC and their customers”.

The first paragraph starts off so well

HMRC helps individuals and businesses with short-term financial difficulties by offering them ‘Time to Pay’ arrangements, provided that they meet certain criteria. We have no desire to make things more difficult for taxpayers, so our Time to Pay arrangements can spread payments during difficult times, which both helps the individual or business, and ultimately protects our tax revenues.

The only problem is it doesn’t happen in practice as described recently by Nicola Ross Martin. Well, okay, it does if you’re Vodaphone but forget it if you’re a small business. Mind you, bearing in mind HMRC let Vodaphone off  a £1 billion  in tax and  then allowed the company five years to pay the balance of the underpaid tax, the briefing note tells us

We are legally obliged to get the best deal for the country on any payments owed, we have to also make sure any outstanding tax is paid off as quickly as possible.

Without a doubt, Time to Pay arrangements are  more difficult to get than two years ago when they were introduced and it’s important to realise this if you think HMRC will give you more time to pay your tax especially if you’ve had, in HMRC’s words

a succession of Time to Pay arrangements

HMRC are obviously of the mind that the difficult economic situation which forced the introduction of Time to Pay has gone away. If a business couldn’t pay its tax on the due date in 2009 I doubt if it will be able to do so now.

But HMRC are never wrong, and proudly state that well over 80% of applications are still being approved, carefully avoiding the fact that in 2009 more than 97% of applications were approved. If the present rules were applied in 2009 more than 27,000 businesses would have gone bust. They didn’t. They are still paying their taxes (albeit late) and tens of thousands of jobs have been secured.

Does the Government really want to kill off small businesses because they are still facing cash flow problems and profitability issues? If they do, would they please be honest about it and tell us, instead of allowing HMRC to spin the figures.

Childcare costs paid by an employer (up to £55 per week) are, with effect from 6th April this year, only tax exempt for employees who pay tax on their earnings at the basic rate, i.e. 20%.

The rules have been tightened up so that everyone receives the same amount of tax relief (£11 per week) which means that a 40% taxpayer is only allowed to receive £28 of childcare costs from their employer before paying tax on the rest.

However,some poor drafting of the tax legislation has meant that if you are in the fortunate position of being able to keep your salary low and take the rest in dividends you should still be able to receive the full £55 per week tax free from your employer.

As always the paperwork has to be correct so you should speak to your accountant to make sure you qualify. And, if your accountant doesn’t know about this, e-mail us and we’ll help.

HMRC have just produced a leaflet to help people know how much money they should be saving towards their first tax bill.

What a wonderful idea. It could be improved in places, but it is better than nothing, which is about all  most newly self employed people have to calculate their tax liabilities, unless they are using FreeAgent which does provide an estimate of any tax due and the dates it has to be paid.

The problem of not having any money to pay is compounded by the time between starting self employment and having to pay the first tax bill. Someone who started self employment last April (2011) will not have any tax to pay until 31 January 2013, but will then be faced with a bill for 18 months  tax and Class 4 National Insurance!

The most difficult part of using the table in the leaflet will be arriving at a profit figure. HMRC define profit as income less expenses. It is vital that you don’t include the money you take out of your business for yourself (drawings) as an expense like wages paid to your staff – it isn’t.

Finally, may I suggest that if you are saving for your tax you keep the money in a separate account from your business current account otherwise it will just “disappear” and when the time comes to pay the cupboard will be bare.

This morning the HMRC website wasn’t working. At the back of my mind I thought it was due to a previously announced upgrade. Wanting to check this I clicked on the Online Services Info button on the HMRC homepage

I then clicked Service availablity

to be told the service was unavailable but at least by clicking on here I could find out more.

Unfortunately I was presented with this!

The Independent has an interesting story about HMRC’s increasingly tough attitude to sole traders and partnerships who go bankrupt owing HMRC money.

Nobody ever thinks they are going to fail in business but when you’re short of cash it’s too easy to “forget” to pay over the PAYE you’ve deducted from employees and to delay paying your VAT. And then there is your own tax bill which  isn’t due for another 18 months ……

The article quotes Edward Starling of Wedlake Bell as saying

The authorities are making an example of business owners who have allowed their businesses to run up insurmountable tax debts by banning them from involvement in senior management positions of a company for a long time

This may be yet another reason why you should consider trading as a limited company.