Deregister for VAT, IR35 for public sector contracts, Penalty notices

Our most recent email contained tips on how to manage a smooth withdrawal from VAT for those clients who are only VAT registered in order to take advantage of that scheme. Clients who have contracts for services with public sector bodies need advice about the new IR35 rules, so we examined the HMRC guidance in this area. Finally, we shared a warning about inaccurate penalty notices.

Below we share just part of one of the above 3 tax tips – see the side boxes on this page to learn how you could subscribe to receive the full 3 tax tips every week.

Penalty notices

HMRC has a number of legacy computer systems, which don’t always talk to each other effectively. This has caused problems with class 2 NIC liabilities disappearing from taxpayers’ records, as we reported in our newsletter on 8 December 2016.

A work around invented by HMRC staff is to issue a temporary NI number for the taxpayer, so class 2 NIC can be paid alongside his SA income tax liability. However, in some cases the temporary NI number has triggered the creation of a duplicate UTR number for the taxpayer.

When the taxpayer’s 2015/16 tax return was submitted only one of their UTR numbers recorded the receipt of that return, so the HMRC computer has issued a late filing penalty for the other duplicate UTR number. What a mess! Your only option is to appeal against the incorrect penalty notice.

The HMRC computer also has its calendar in a knot. The £100 late filing notices for 2015/16 SA returns should have been dated 22 February, but were actually dated 15 February, and did not arrive with taxpayers until early March. If you have only just received a penalty notice for your client, you can submit a late appeal. A mistake by HMRC in the detail of the penalty notice – such as with the issue date, should be accepted as a reasonable excuse of making a late appeal.


Apprenticeship levy, Immigration skills charge, Appealing penalties

Two new levies come into effect on 6 April 2017: the apprenticeship levy and the immigration skills charge. These can apply to smaller employers as well as larger ones. In our latest tax tips we outlined the principles for both of these new taxes. There are also two developments relating to how penalties can be calculated and appealed.

Below we share just part of one of the above 3 tax tips – see the side boxes on this page to learn how you could subscribe to receive the full 3 tax tips every week.

Appealing penalties

The tax penalty system contains two broad categories of penalties; those for late filing or late payment which increase according to the delay in filing or payment, and behavioural penalties which relate to errors in documents, failure to notify and under-assessment by HMRC.

Late filing or payment

These penalties are based on the period of delay of the filing or tax payment, which is easy to quantify. The second element of the penalty is either a fixed charge or the tax liability. It is always worth checking that both of these elements have been correctly measured before they were included in the penalty calculation, as HMRC does make mistakes.

If the calculation is correct, the taxpayer must demonstrate a reasonable excuse for the delay as grounds for an appeal against the penalty. You can help your client frame their story which supports the reasonable excuse, and suggest which documents need to be retained to send to HMRC, should they undertake an internal review of the appeal.

The factors making up the reasonable excuse can include the actions or inactions of HMRC, as demonstrated in the VAT surcharge case of MOC (Scotland) Ltd v HMRC. In that case the company received such poor service from HMRC that the tribunal decided the taxpayer did have reasonable excuse for late payment.

The taxpayer can now make an online appeal against late filing or late payment penalties relating to their 2015/16 SA return. You can’t submit an online appeal on behalf of your client, as the online mechanism hasn’t been opened up to tax agents. However, you can still submit a paper appeal for your client using the form SA370.

Behavioural penalties

The first element of a behavioural penalty is a percentage based on whether the taxpayer’s mistake was careless, deliberate, or deliberate and concealed, which is further adjusted depending on how the error was disclosed. This percentage is multiplied by the potential lost revenue (PLR).

Our tax enquiry experts can help you check whether penalties for tax return mistakes can be challenged or reduced.


VAT on goods for staff, Challenging penalties, Budget forecast

Last week we considered
the VAT implications of providing free goods to employees and the
circumstances in which HMRC’s behaviour creates a reasonable excuse for
taxpayers. We also polished our crystal ball to look ahead to the
next Budget on 8 July 2015. Certain clients should be advised to take
action before that date.

Challenging penalties
The HMRC machine spits
out automatic penalties when tax returns or tax payments are delivered
late. Unless the taxpayer can prove he has a reasonable excuse, HMRC
won’t cancel the penalties. But what if HMRC itself is the cause of the
reasonable excuse?  
 
HMRC are reluctant to
admit that they can be in the wrong or that their “helpline” has misled
the taxpayer. The Tax Tribunals tend to take a more sympathetic view of
the taxpayer’s position, as illustrated in two recent cases: Joanna
Porter and John Crangle, which were both heard by the same judge: Peter
Sheppard.
 
When trying to file her
tax return Ms Porter received the message “access denied” from   the
HMRC’s online filing system. The online helpdesk told her the problem
was an IT error and was not her fault. They eventually sent her with a
new ID number which she was able to use to submit her return. However,
HMRC still issued a late filing penalty, and refused to accept her
appeal against the penalty. The Tribunal agreed Ms Porter did her best
to file her tax return and cancelled the late filing penalty.     
 
Mr Crangle ticked the
box on his 2012/13 tax return requesting that tax due of £1442 be
collected through his PAYE code for 2014/15. This return was submitted
online on 20 December 2013, before the cut-off point for altering the
2014/15 code (30 December 2013) but HMRC ignored that request.
 
Mr Crangle believed the
tax due would be coded out until he received a letter from HMRC dated 1
April 2014, which was after the tax due date of 31 January 2014. That
letter was apparently promoted by the taxpayer ringing HMRC on 11 March
2014, but HMRC still issued a late payment penalty on 24 April and
charged interest. The taxpayer had to appoint a tax agent to sort the
mess out.
 

Where your client has
suffered shoddy treatment by HMRC and as a result has received
penalties, it’s worth challenging those penalties at internal review and
through to Tribunal. Our personal tax experts can advise you how to do
this.

This is an
extract from our tax tips newsletter dated 21 May 2015. The newsletter
itself contained links to related source material for this story and the
other two topical, timely and commercial tax tips. It’s clearly written
and extremely good value for accountants in general practice. Try it
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