2009 Pre-Budget Report

In the end and despite great anticipation the PBR is already known primarily for what it didn’t mention.  Of course the expected and well publicised super tax on banks and bankers has been introduced, but already this is being shown to be more the hot air of political manoeuvring rather than any real attempt to shore up the Treasury’s coffers.

This article by Nick Morgan, of www.tax-hell.co.uk fame, appeared in the Sunday Times at the beginning of the 2008-09 tax year. We would make the following comments 16 months on: 

• Tax is certainly not getting any simpler.
• It is true that negotiation still plays a part in investigation cases. The Litigation and Settlement Strategy of HMRC has made it increasingly hard to get HMRC to negotiate on technical matters, especially those that have not arisen from an investigation. That may seem somewhat illogical. Part of “sticking to your guns” is being prepared to fight the case at the Tax Tribunal.
• HMRC have certainly been exploring the boundaries in relation to “discovery”. They have had some success in the Special Commissioners and at Judicial Review which has given them encouragement, but one should not necessarily interpret the case law as widely as HMRC might like. There is often scope to resist. HMRC will be quick to refer to case law that supports their position, even if a matter is not yet final.
• We do not subscribe to the view that you are guilty until you prove otherwise. Evidence is very important, although it can sometimes seem as though the lack of any does not prevent a good investigation! HMRC are entitled to make reasonable enquiries and have their legitimate concerns addressed, but we would not expect someone to be taxed on something unexplained in the absence of some evidence that it should be.
• Interviews are often not necessary. Questions can often be put in writing and addressed with due consideration before replying in the same manner. When an interview is the best way to make progress, the taxpayer should not see it as a trap if properly prepared, although we can see how someone unrepresented could end up feeling that way.
• Lifestyle questionnaires are not a substitute for evidence.
• Sadly, investigations do take time, although this is not always down to HMRC! If one appreciates what HMRC is entitled to know and sets about providing it swiftly, there is no reason for the investigation to drag on. One of the tools available to the taxpayer is to apply to the Tax Tribunal for a direction to issue a closure notice. If the application is properly prepared based on the facts and the evidence this tool is effective, but it should not be employed prematurely, while HMRC still lack information they can reasonably require. When HMRC’s questions have been answered, a specialist will not let an investigation drag on.
• The use of the Data Protection Act and Freedom of Information is likely to play a greater part in contentious tax issues. Nick Morgan did well to get on to this! There is a time to complain in appropriate cases but it should rarely be necessary.
• “Scaling back” has always been a part of settlement negotiations. It only arises if there has been a tax loss attributable to an error that is likely to have occurred in a previous year and in many cases it will be completely inappropriate to consider going back 20 years. Mind you, if someone has been “on the fiddle”, we can see no objection to scaling back.
• HMRC does have more power although some of the provisions have been watered down a little as a result of representations from professional bodies during consultation. What is now urgently needed is a Taxpayer’s Charter” with statutory backing to provide some balance in cases that go too far. Consultation on a Charter is ongoing, but HMRC wishes it to be quite different from what is really needed, and wants it to be non-statutory. There will always be some excesses or even abuses of power by HMRC, as long as the Department is comprised of human beings, and as long as there are persons who will evade tax. Knowing and understanding the boundaries is key in preventing or countering excessive use of powers, new and old.

Many people are now aware of HMRC’s recently announced ‘New Disclosure Opportunity’ (NDO). Which follows on from HMRC’s ‘Offshore Disclosure Facility’ (ODF) in 2007.

In order to qualify for the reduced penalty rate of 10% individuals must notify HMRC of their intention to make a disclosure by 30th November 2009, and subsequently make a complete and accurate disclosure by 31st January 2010 (by paper) or 12th March 2010 (electronically).

Dave Hartnett, HMRC Permanent Secretary for Tax has said that “this will be the last opportunity of its kind.” HMRC have detailed on their website that “Once this disclosure window closes on 12 March 2010, those taxpayers who have not come forward but are found to have unpaid tax liabilities will face penalties of at least 30% rising to 100% of the tax evaded. They also run a risk of criminal prosecution”.

It is therefore advisable for anyone who falls under these arrangements to take advice, and although this has currently been launched for ‘offshore’ disclosures only we anticipate that there may well be scope to make a disclosure on similar terms in relation to ‘onshore’ matters. 

Please contact us if you require any further information or advice.

The House of Lords has ruled in the case of Stringer v HMRC that workers who are refused holiday pay while on sick leave can make a claim to an employment tribunal for an unauthorised deduction from wages (under the Employment Rights Act 1996).

To reflect the changes in pump fuel prices, HMRC has announced a revision to the advisory fuel rates for employees driving employer provided cars.

Changes introduced in Finance Bill 2009 should enable chargeable gains and losses arising across a group of companies to be offset more easily, with certain restrictions being eased.

The Budget Notes do contain a few points of interest, especially after last week’s TONIGHT programme on ITV!

The Chancellor has announced the introduction in Finance Bill 2009 of legislation to ensure that receipts derived from a right to receive income (and which are an economic substitute for income) are taxed as income for the purposes of corporation tax and income tax.

The Chancellor has announced that additional relief will be provided for businesses who make a loss during the period from 24 November 2008 to 23 November 2010 for companies and for 2008/2009 and 2009/2010 for unincorporated businesses.

A number of minor changes have been announced that affect investors in EIS, VCT and CVS.  Perhaps the most important concerns the reliefs available to investors.

Living Accommodation

The Chancellor has announced that measures will be introduced in Finance Bill 2009 to prevent attempts to avoid tax on the benefit of living accommodation.

SPC737 details HMRC's attempt to obtain a penalty for non disclosure of a "tax avoidance scheme" that was not disclosable under the original (2004) disclosure regulations. This is understood to be the first such appeal against a penalty brought under the DOTAS regulations.

HMRC's new powers to inspect business premises come into force on 1st April.

It is not too often that the accountancy profession can be described as becoming overexcited, but a great deal appears to have been said and written recently about remittance planning in advance of the end of the current tax year.  This year, 2008/2009, is of course the first year of the new rules.

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