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HMRC tax investigations are on the increase.

£34 billion – the estimated tax gap between what HMRC should collect and what it does collect.

£26 Billion – the additional amount of annual tax income that HMRC are targeting to achieve through compliance activity.

£80 Million – spent to develop strategic risk database that automatically generates tax enquiries.

HMRC are proactively targeting individuals and businesses using sophisticated software that has been specifically developed to search trends, indicators and behaviours and analyse in minutes. Data that doesn’t cross match can automatically initiate an enquiry. This software combined with wider powers and increased targets means that your chances of being investigated are rising. 

What does this mean to you? 

Tax investigations are time consuming, stressful and costly. Investigations can last for many months. During this time you could find yourself incurring accountancy fees as well as having to deal with costly business disruption and probing questions. Even if you’re found to owe nothing you will still have to pay your professional representation fees.

What can you do to remove the risk? 

For a modest annual fee you can safeguard yourself from the cost of the professional fees associated with a tax investigation.

How does a fee protection service work? 

In the unfortunate event that you are selected for investigation you can relax safe in the knowledge that there will be no professional fees to pay.

The service covers up to the equivalent of £100,000 towards accountant/tax advisors’ professional fees resulting from an HMRC Enquiry.

At McPhersons, we encourage all clients to take up our fee protection service. For a modest, interest free, monthly fee, they benefit from professional representation on all

matters relating to the investigation, ensuring that the enquiry runs as smoothly as possible and providing them with peace of mind. We also deal with the insurers on their behalf. Benefits include:

  • McPhersons have the expertise and experience in dealing with HMRC
  • Peace of mind that the experts are dealing with HMRC on your behalf
  • Dealing with HMRC on your own could make matters worse
  • Early intervention can lead to early resolution
  • Additional tax due can be avoided or mitigated

Anyone can be selected for investigation, a business, director and individual tax payer. Contact us on 01424 730000 or info@mcphersons.co.uk for more information.

Dividends have been a very tax-efficient way of making savings in National Insurance Contributions (NIC) and Income Tax contributions for a number of years, with many business owners and shareholders choosing a smaller salary, plus an additional remuneration package paid as dividends.

However, this has now all changed from April 2016 as the income tax position of dividend income will effectively increase for most taxpayers. This may have a direct impact on the overall savings in NIC and income tax that can be achieved after 5 April 2016.

Up to 5 April 2016, no additional income tax would be due if a company paid a dividend to its shareholders, as long as the person receiving the dividend was a standard rate tax payer.

Individuals receiving dividends then only paid additional personal tax if their dividend income fell partly or wholly within the higher rate (40 per cent) or additional rate (45 per cent) bands. The following rates applied for 2015-16:

  • All dividend income in the standard rate band was taxed at 10 per cent.  As the tax credit was deductible, recipients paid no additional tax
  • All dividend income at the higher rate was taxed at 32.5 per cent (of the gross dividend, including the tax credit) less the 10 per cent tax credit
  • All dividend income at the additional rate was taxed at 37.5 per cent (of the deemed gross individual, including the tax credit) less the 10 per cent tax credit

From 6 April 2016, the way dividends are being taxed changed. The 10 per cent tax credit was abolished and each individual has a flat rate dividend allowance of £5,000.

Any dividends received by an individual in excess of the £5,000 allowance will be taxed as follows:

  • 7.5 per cent if your dividend income in within the standard rate (20 per cent) band
  • 32.5 per cent if your dividend income is within the higher rate (40 per cent) band
  • 38.1 per cent if your dividend income is within the additional rate (45 percent) band

In all cases, any tax liabilities for 2016-17 will be collected on 31 January 2018. At the same time, HMRC will also add 50 per cent of the tax liability to the first self-assessment payment on account for 2017-18, also due 31 January 2018, with a further 50 per cent due at the end of July 2018.

The new changes will also have an impact on PAYE codes for owners and directors in 2016-17. Under the new rules, HMRC will amend tax codes to automatically ‘code out’ a sum approximately equal to the amount of dividend tax due for that tax year.

 

Every month, the directors at McPhersons share some useful financial tips especially for Business in Hastings readers. This month, Ainsley Gill looks at the recent announcement regarding paper tax forms being replaced with digital accounts.

Changing over to digital could make it much easier for over 11 million taxpayers and 12 million companies.

The Chancellor, George Osborne announced the end of the paper annual tax form and he promises to bring in digital tax accounts for all individuals and small businesses.

These new tax accounts unveiled in the March Budget and will be accessible at any time from a computer, smartphone or iPad. They will perform just like an online bank account.

The Treasury are selling the idea as a concept that will make it much easier for the 11 million taxpayers and 12 million companies who currently fill in an annual tax form to pay the right tax at the right time without filing a return. It describes the current system as complex, costly and time consuming.

Many believe the digital process is more to do with transparency for the Government and Treasury. When people log on to their account, they will be able to see how their tax is calculated as HM Revenue & Customs automatically updates it with information from employers, the Department for Work and Pensions, pension providers and banks. People will be able to pay their taxes when it is most convenient to them by linking to a bank account and arranging payments by instalments or by Direct Debit.

Instead, firms will be able to provide details in ‘real time’, the Government will benefit from prompt payments from this up to date information.

This change should help growing companies who will no longer have to pay a ‘one off’ big end of financial year tax demand because HMRC has calculated their payments on the previous year’s information.

According to the Treasury, the switch will be completed by 2020. In early 2016, 5 million small businesses and the some 10 million individuals will have access to their own digital tax account (or their accountant may access it for them).

By 2017, the first group of people with simple tax affairs will no longer have to complete an annual return. By 2020, businesses will be able to link their accounting software to their digital tax account so they can feed in information as they choose.

People who currently do their tax return on paper can continue to do so if they wish, but over time this is thought to reduce in favour of digital returns.

Need more help?

This feature aims to give some informal hints and McPhersons are offering small businesses free advice so get in touch now to arrange your free meeting 01424 730000.

The Directors at McPhersons Chartered Accountants are pleased to keep Business in Hastings members up to date with regular, useful financial information. In the first of a new series of exclusive columns, Ainsley Gill focuses on Payroll and how smaller businesses are impacted by recent HMRC changes.

WHAT IS RTI?

McPhersons, Chartered Accountants East Sussex

Ainsley Gill from McPhersons Chartered Accountants tells us about the HMRC RTI changes for PAYE which come in to effect next year.

On 6th April 2013, HMRC changed the way nearly all UK businesses report Pay as you Earn (PAYE).

Real Time Information, or RTI, is a new system that HMRC has introduced to improve the operation of PAYE. RTI does not change the way you calculate PAYE, it simply means you need to make more regular submissions. Each time you pay your employees you will need to submit PAYE information to HMRC, rather than just once a year at the end of the Payroll Year.

HOW HAVE THE RULES BEEN RELAXED FOR SMALLER BUSINESSES?

Businesses with fewer than 50 employees can benefit from a temporary relaxation of the Real Time Information (RTI) reporting arrangements. Until April 2014, employers with fewer than 50 employees who pay their staff weekly or more regularly and find it difficult to report at the time of payment may now send information by the date of their regular payroll, but no later than the end of the tax month (which is the 5th of the month).

HMRC has confirmed that for 2012/13, penalties will not be applied for inaccuracies found within the in-year Full Payment Submission (FPS). However, they may be charged after the end of the tax year based on the final FPS for the year. Penalties may also apply for inaccuracies found within the in-year returns for the 2013/14 tax year, using existing criteria. From 6 April 2014 there will be new late filing and late payment penalties.

WHAT ARE THE TEETHING PROBLEMS WITH RTI?

New Employees incorrect Tax Codes

RTI Money

RTI is coming soon. Make sure your business is ready for it.

For new employees, if the employee shows up on a later RTI submission, HMRC will treat them as a new worker and issue a tax code which may be incorrect as it won’t take into account their past employment record. If this happens, you should continue to use the previous code and call HMRC on 0845 300 0267 to correct the records.

What if an employee doesn’t have a National Insurance Number (NINO)?

You are allowed to submit a Full Payment Summary for employees without a known NI number. What is not allowed is to make up a number.

If an employee does not know their NI number they can submit a form CA5403 to HMRC.

 

What if there is nothing to report?

If there is nothing to report, you need to submit a nil Employer Payment Summary (EPS). This will avoid you being sent estimated demands.

DISCLAIMER

This feature aims to give some informal hints and tips for small businesses. McPhersons Chartered Accountants will not be held responsible for any inaccuracies. For detailed advice, please contact McPhersons to arrange a consultation. on 01424 730000.

For additional information please visit the official RTI HMRC page here.