Just before Christmas this question was asked in Taxation.
Like most readers, I suspect, I have been intrigued by the ongoing saga of whether companies such as Starbucks, Amazon and Google are paying the “right” amount of tax in the UK. Thinking about this made me wonder whether this strategy might be something that smaller businesses such as my clients might use….should they pay a royalty to a family member, etc?
A few of the comments published this week reveal why in the tax world it’s definitely them and us.
The first problem is to ensure that the payment is treated as tax allowable for the paying entity – if not, there is the risk of creating taxable income for the recipient without a matching reduction in the taxable profits of the business.
HMRC’s increasing sensitivity to convoluted tax planning arrangements, must mean that the advice for business owners would be to remunerate themselves (and their family members) by way of customary, and still tax efficient, salary and/or dividend payments where possible.
Setting up an overseas entity such as a British Virgin Isles company is expensive (these low-tax jurisdictions are well aware of their appeal and will charge accordingly)
The Treasury has already announced that it would provide HMRC with £77m in new money to help it track down wealthy individuals and companies who tried to avoid paying tax.
Leaving aside the question of whether this is extra money or just “less cuts”, most observers are convinced that George Osborne will use his Autumn Statement as an opportunity to tell us that the government will stop multinationals avoiding UK tax on their UK profits.
At the same time, I think he will announce that HMRC is being encouraged to use new methods to tackle evasion in the small business sector. Today’s news mentioned HMRC checking up to two million credit reference agency files to assess (self employed) taxpayers’ lifestyles.
I don’t, obviously, have a problem with this initiative. What concerns me is the emphasis placed on the two sectors by HMRC.
Until HMRC stop regarding small businesses as easy targets and attack tax avoidance by multinationals with equal enthusiasm,the UK’s two tier tax system will continue unchanged
HMRC have reintroduced their Business Records Check.
Their pilot programme started in April 2011. More than a third of the 3,500 businesses checked “had some issue with their record-keeping” and just under 5% had “issues serious enough to warrant a follow up visit”.
Since 2011 HMRC have reviewed their procedures and are now targeting businesses “who are more likely to be at risk of inadequate records”, whatever that means!
Under the new system HMRC will write to you and then contact you by telephone to ask about your records. When they phone they will ask you questions to help them work out if you are keeping the business records you need. The telephone call should last between 10 and 15 minutes.
- If your records are adequate HMRC will tell you during the phone call and confirm it in writing and that will be the end of it (thankfully).
- If they think you need more help they will pass your details to their Business Education & Support Teams to tell you about self-help and training.
- HMRC may, however, decide your records are inadequate and you need a face to face visit. If your records they will specify what changes need to be made and arrange a follow up visit within three months to check you’ve made those changes.If you haven’t you’ll be fined.
The chances of being phoned are small but you don’t want HMRC visiting your business. Despite their apparent willingness to help you “pay the right amount of tax at the right time to avoid interest and penalties” these visits are nothing more than fishing expeditions.
They will use it as an opportunity to make sure you are operating PAYE correctly (don’t forget there is no such thing as casual labour), to check benefits in kind (if you’re trading as a limited company) have been recorded properly and to make sure your VAT is correct.
Next week I shall give you some advice to make sure HMRC, at worst, just phone you because they realise your records are “adequate”.
The Chancellor of the Exchequer will give his Autumn Statement at 12.30 on Wednesday 5 December.
Let’s hope there is more in it for small businesses than this year’s Budget which without a doubt was aimed at big business.
The Economist summed it up neatly
There was lots of talk about helping small business. The budget sent a different signal.
P.S. Personally I think the small business sector will be ignored yet again. It will be interesting, however, to see what he does about the low tax bills of the multinationals which trade in the UK. Probably the same as for SMEs ……..nothing!
I read Taxation every week to keep my tax knowledge up to date but have never considered the Westmorland Gazette to be another source!
This week they have published a story about a back street bookie who didn’t declare all his earnings and has been landed with a £26,000 bill.
A couple of things stand out from this case which are worth bearing in mind if you’re in business:
- I haven’t seen HMRC use this method of calculating “omitted” income for a few years, which surprises me because it’s very easy for them to use and very difficult for the taxpayer to disprove. Perhaps it’s making a comeback!
- The bookie’s failure to keep proper records was actually used against him to prove he had suppressed his takings!
HM Revenue & Customs (HMRC) recommend that you pay electronically. This is safer, more secure and very efficient. If you pay using one of the following methods you do not need your HMRC payslip:
- Internet banking
- Direct Debit
- Debit or credit card over the internet using BillPay
- Bacs Direct Credit, telephone banking or CHAPS
If you want to pay by cheque you should use the HMRC computer printed payslip which you should have received recently.
If the payslip hasn’t arrived or it’s been lost you can generate your own payslip on the HMRC website
HMRC are warning us that any P9Ds, P11Ds and P11D(b)s must be submitted to HMRC before 6 July, which can mean only one thing
HMRC will penalise you if the returns are late
In a month when tax avoidance and tax evasion have been rarely out of the news, who better to nominate as 3CA Rat of the Month but Philip Green, friend of politicians but no friend of small businesses.
Last week John Humpreys, in an interview with the Prime Minister on BBC’s Today programme, tried to establish what the government meant by the term ‘aggressive tax avoidance’.
Unfortunately, he over-stepped the mark and the BBC was forced to issue an apology to Philip Green.
With a specific link on Wikipedia titled Tax avoidance and the specific target of UK Uncut’s original protests I cannot think of a worthier recipient for this month’s Rat of the Month.
Speculation about the contents of tomorrow’s Budget has been rife but I’m not sure that there will be much in it for small businesses – there has been too much talk about big business and tax evasion.
If you do own a small business and you’re going to listen to the Budget, I suggest you take any announcement of measures designed to “help” business with a large pinch of salt.
If the Chancellor talks about reducing corporation tax make sure he is referring to the small profits rate of 20% (the rate most small businesses pay) rather than the rate which most big businesses pay (26%). It’s interesting that the small profits rate has remained at 20% during a period when the ‘big business’ rate has fallen from 28% to 26% and in just over a year’s time will fall another 2% to 24%.
Abuse of service companies by ‘top earners’ such as Ken Livingstone and the head of the Student Loans Company may well allow Osborne to introduce measures to charge National Insurance on dividends. Be very careful if he starts to talk of abuse and service companies. It could be very costly for SMEs.
Earlier today I wrote
Harry Redknapp has made tax fun and has allowed me to talk to football supporters for the first time in my life and be knowledgeable too!
The editor of AccountingWEB thought it good enough to include in their story on the Harry Redknapp case, which has had to be pulled because the comments may have been in contempt of court. And you thought accountants were boring!
I have never known so many people of differing backgrounds and interests follow a tax case so closely. Yesterday I found myself reading tweets from James Pearce, the BBC Sports News Correspondent, who is at the court. Every so often, he has to leave the courtroom so that he can send a tweet, Twitter and presumably the use of smartphones are forbidden in the courtroom itself.
I was so impressed with his coverage of events that I added him to my Twitter list, TaxTweets, so thatI could read his tweets easier. Bearing in mind this list includes HMRC, Taxation magazine and The Tax Journal I thought I should at least tweet him and tell him, never expecting an answer.