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Holiday homes abroad – tax and letting issues

Many people go on holiday and then think “Wouldn’t it be lovely to own a place here?”

Some of those people will go the next step and purchase somewhere as a holiday home. Since it will be vacant much of the year it can make sense to let it out as a holiday home. What people sometimes ignore is that this has tax consequences both in the UK and often in the country the property is.

Tax myths

First I will dispel a few myths about overseas holiday homes. The right way of it is:

  • You must declare any overseas rents to the UK HMRC.
  • The tax authorities in the host country ARE interested in tax on rents there.
  • The property remains part of your Inheritance Tax estate.
  • You have to pay UK CGT if you sell.
  • You cannot reinvest in another property and avoid CGT.

That may have left a few of you somewhat shell-shocked and depressed.  Better that you learn it from me than in a letter from the tax-man – whether the tax-man is in the UK or overseas.

UK tax

If you are a UK resident for tax purposes then your worldwide income is to be declared to HMRC.  That includes rents from overseas property – even though you may feel you make no money at it.  The rents must be declared but relief can be claimed for expenses appropriate to the rent – like a sensible proportion of mortgage interest, maintenance fees, heat and utility charges. Note I said a PROPORTION of the running costs. If you also use the property for family and friends you cannot claim a year’s expenses against the rent you receive from part of a year’s rent.

Also you can claim any managing agent fees and indeed the accountant’s fee back home for showing the rents on your Tax Return.

Tax abroad

If you rent out a property in a foreign land then almost certainly the tax authorities in that country will want to know.  You should check this out.  Internet research can be helpful – though not guaranteed accurate – or you can check out the many books on buying homes abroad.  If you have a local letting agent they can help too. Bear in mind that tax authorities share information across the borders more and more these days.

If you do make a declaration to the local tax people be sure to show the paperwork to your UK accountant.  If you pay some tax overseas on the rents then you will probably get some tax relief in the UK as a result.

Inheritance tax

Just because the property is outside the UK it still counts as yours for Inheritance Tax purposes.  It can be quite difficult to escape UK Inheritance Tax even by moving overseas, often requiring severing your ownership of links to the UK such as property here etc.  If you live here then you are almost always caught for IHT on your assets anywhere in the World.

Capital Gains Tax

As a UK tax resident you will have to account for Capital Gains Tax (CGT) if you sell a holiday home.  There may or may not be any tax payable after the calculation is done.  So long as the proceeds exceed £43,600 (2013/14 year) then you will have to complete Capital Gains pages on a Self Assessment Return – even if you normally are not sent a Return. This applies even if in the end there is no tax due to be paid.

To the extent that your gains exceed £10,900 (2013/14 rates) then there will be CGT to pay.  If the property is held by two people then gains for the year could be £21,800 before tax is payable.

Reinvesting in property

Contrary to popular belief you cannot reinvest the proceeds from selling a house into buying another and so avoid a Tax Return or bill. (That type of relief applies to certain business assets only).  If you sell your Spanish home for a £30,000 profit then you have to pay tax on it – even if the entire proceeds were spent on another overseas property.

Huston’s Hints

Having the overseas property in joint names will often reduce the CGT on its eventual sale.

Keep records and receipts for capital expenditure on the property – such as putting in a pool, building a garage, installing aircon etc.  These will reduce the eventual CGT bill. 

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080. Huston & Co specialises in UK clients with income overseas.

Taking tax to the High Seas as a cruise ship lecturer

May 2013 marked a new experience for my tax career – going on a lecture tour, talking tax, but on a cruise ship. On 31 August 2013 David Frost died on the cruise ship Queen Elizabeth which he was on as a guest lecturer. I suppose if I were to die suddenly, on a cruise might be as good a place as many.

Why cruise ship lecturing?

By way of background, for many years some clients and friends had been suggesting my speaking style, and ability to make tax a little easier understood, could have another use.  They suggested I go on cruise ships as a guest lecturer.  And for many years I did nothing about it.  Then in 2012 I decided to fire up the search engine.  Within a few minutes I was on the phone to the leading agency providing cruise ship speakers for the top cruise lines.

Next stage in the process was to fly to England and give a 45 minute talk.  The agency is very protective of its reputation with the cruise lines, so won’t take anyone onto its books without having seen them present a lecture in person.

Preparing for the lecture meant doing a PowerPoint presentation, normally something I avoid in case of technical hitches.  However the presentation was prepared and the flight booked. Once I arrived at the agency I was able to see other prospective lecturers giving their demo, before my turn came.  I think I was the first person they had seen who was planning lecturing on tax, tax avoidance and finance.  The agency saw that this could be a subject of great interest to cruise passengers.  They took me onto their books for the 2013 year. (Most bookings are arranged the previous summer so summer 2013 books the speakers for 2014.)

Having suggested parts of the World I was interested in I was given one of my chosen cruises – Fred. Olsen to Norway, May 2013.

Jumping forward to May 2013 and my wife Felicity was unable to accompany me due to Patrick our son doing his AS exams.  So our older son Alex stepped in.  He was on a gap year before studying Politics at University of Nottingham from September 2013.

Arrival at the ship – MS Balmoral

Our cruise was on Fred. Olsen’s largest ship – MS Balmoral.  Still not large compared with some ships these days, it takes 1,350 passengers and has a crew of 510.  For the ship enthusiasts out there, it has a tonnage of 43,537. (I was surprised how many passengers would compare the tonnage of the ships they had been on!)

Checking in it a civilised experience compared with flying on a holiday.  Firstly you dump your bags at one place and then park up or have your taxi bring you to the passenger entrance.  Secondly you have a baggage allowance of 90Kg! Useful to pack those clothes a size bigger – for the second half of the journey. Finally you go though airport-style security scanners and check in with the cruise line staff.  They check your passport and give you the personalised card used for going on and off ship, and for charging things to your cabin.

There is no passport control. Indeed that was the last time I used my passport. It stayed in my room safe.  On arrival at port you didn’t need your passport to go ashore.

A first cruise experience?

This was my first proper cruise.  Way back around 1979 I had sailed on SS Uganda to Madeira and the Canaries, but since that was a school cruise in large windowless dormitories it barely counts as a cruise.  When I told my wife we ate off those metal trays with compartments for each course I think she thought I was on a prison ship.

The Fred Olsen 2013 experience could not have been more different. The ship was very comfortable and had lots of places to lounge around – whether on deck or inside. Wi-Fi could be purchased and accessed in various locations, and there was a peaceful library with a respectable range of books and picture windows to look out.

This was school term-time so Alex and I were certainly younger than most of the passengers.  The vast majority have retired, in some cases early retirement.  The company was great.  As well as chatting with other passengers we made friends with the entertainers and dancers on board (well as far as dancers I left that to Alex!)  Drinks on board were UK bar prices – with a pint costing about £3.20 and a measure of spirits under £3. A bottle of wine was from about £15 and the staff were very happy to keep your bottle over to finish at the next meal.

The staff – mainly from the Philippines – could not have been nicer.  They were very friendly and a few would remember our names and our favourite drinks.

I can see now why lots of people, having been nervous of cruising, try it and then become hooked. Unpack once. Sail by night, and arrive somewhere new every few days. No packing, no passport queues, so easy.

Norway and Norway Day on Oslo (17 May)

Norway day was the highlight. Lots of schools processing in a parade, and all the locals out in their best outfits to watch.  Teenage boys in three piece suits with ties, girls in the season’s latest outfit.  Lots of people in national dress.  If you get a chance to visit Oslo on Norway National Day – grab it with both hands. (A brief video from my phone is on YouTube HustonTV – see it here.)

Norway is a beautiful country with a very high standard of living.  Sailing up the fjords was breath-taking. Wonderful for photographers.

The prices were eye-watering. Plate of fish and veg in a pleasant restaurant £25.  Pint of beer £8. Two coffees and two scones £13.  Little wonder a lot of people nipped back to the ship for lunch!

The tax lectures

There were only two guest lecturers on the ship – with very different subject areas.  The 45 minute lectures were done in the large theatre used for nightly shows – so a stage with about 500 seats on three sides. The speakers wear a cordless mike making them feel like a pop star.  For me this was useful as I prefer to walk around the stage rather than stand still at a lecturn.

As the cruise went on the attendance at my lectures increased considerably, peaking at about 200.  The most popular lecture was the one on HMRC’s prosecutions of the famous and the less famous. 

People also enjoyed my tongue-in-cheek video called “Tax evasion for pets – the Harry Redknapp System” – featuring Kim the tax-fiddling collie. View it at http://youtu.be/mysNp0X52kU

After each lecture there was a trail of people following me out to ask questions and seek further nuggets of advice.  It was interesting to see the range of things people were concerned about.

The future

As both of us enjoyed the cruise this is certainly something I will be repeating – hopefully next time with my wife.  Now we have the arduous task of sitting down to examine the various cruise lines – to come up with suggested places I would next like to visit in 2014. Cruises depart from various UK cities including Belfast.  Then for 2015 I will try to find a cruise that son Patrick can come on when it’s his turn for a gap year.

£10 per day to HMRC for late Return penalties?

Tax Return fines – how does £10 per day sound?

George Osborne has his calculator out. 500,000 people who are yet to file their 2011/12 Tax Return. From Wednesday 1 May 2013 they will start getting hit with penalties of £10 per day! Yes – per day. Well the Coalition needs to get money from somewhere.

Are you one of them? If so you need to act quickly to file your Return online. If you can’t face it then have someone help you.

By the way don’t make the mistake of filing a paper return. The deadline to do that was 31 October 2012. Filing on paper now means you leave yourself liable to £900 in daily penalties.

Let me explain.

  • Miss a filing deadline and there is a £100 fine.
  • File your return more than 3 months after the deadline and you are liable to £10 per day in flat penalties. That’s for every day over the 3 months.
  • The deadline for paper filing was 31 October 2012, so 3 months late meant 31 January 2013.
  • File a paper form after 30 April 2013 and you are a full 6 months late leaving you 90 x £10 in penalties.
  • On the other hand the deadline for online filing was 31 January 2013 so 3 months late means 30 April 2013.
  • File the 2011/12 return online on 1 May 2013 and you are liable to one daily penalty of £10. Procrastinate until 30 May and the fines are 30 x £10 = £300, and so on up to £900.

 

In the old days many of these Self Assessment penalties would go away once you filed your Return and there was no tax actually due. No more.

Now if you get hit with these penalties they stick – even if in the end you have no tax bill. So move Heaven and Earth to get that 2011/12 Tax Return filed soon – very soon.

If you don’t have (or cannot find) the User ID and password needed to file online, we have software which will let us do it for you – within a day or two.

 

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.

Close Protection abroad – UK HMRC tax-free status – rules change April 2013

I am a former Tax Inspector, also ex RMP (TA) and Police Authority Northern Ireland. I now sort out non-residency for hundreds of guys from the UK deployed abroad. Check me out on Linkedin at http://uk.linkedin.com/in/adrianhuston

New rules from April 2013. There is intended to be new legislation for 2013/14 bringing in a new Statutory Residence Test. In the past residency has been assessed using some HMRC booklets and was not actually enshrined in law. This changes things and in my view for the better.

For most of the people for whom I work this is a genuine improvement because if working abroad full-time there will be no more lingering concerns about whether the person has substantial ties to the UK. It ceases to be a concern if you have been deemed ‘automatically non-resident.

The law will not be passed until after the March 2013 budget, but just last month HMRC published its ‘Guidance Note: Statutory Residence Test (SRT)’ on how it plans for the law to work , unless Parliament interferes before Royal Assent, which is unlikely. It is at
http://www.hmrc.gov.uk/budget-updates/11dec12/stat-res-test-note.pdf

For most UK guys in CP around the World they qualify as non-resident (automatically overseas) under the third test on page 5 as follows:

Third automatic overseas test
11. You work full-time overseas for the tax year without any significant breaks from that overseas work, and:
• you spend fewer than 91 days, excluding deemed days, in the UK in the tax year, and

• the number of days in the tax year on which you work for more than three hours in the UK is fewer than 31.

The full-time overseas part of the test does not apply to you if you are an international transportation worker.

I claim credit for changing HMRC’s policy by one day – to the advantage of members of this Group! See the ‘fewer than 91’ above. That’s how the old rules talked.

When HMRC launched its consultation
(http://www.hm-treasury.gov.uk/consult_statutory_residence_test.htm see page 12)
they said non-residence if fewer than 90. In my formal consultation response I pointed out that this was a pointless loss of one day. It moved away from the long-held understanding of the importance of 90 UK days being allowed to make it 89. I am therefore delighted to see that the HMRC December 2012 draft has corrected the matter. It is expected to be mentioned in the UK Budget March 2013 and then go into law for 2013/14.

Note the old averaging rules are gone – so from 6 April 2013 make sure your UK days are always fewer than 91.

So, in summary, if you work full-time abroad on CP work (or non-CP work indeed), your work extends over 2 x 6 Aprils, and your UK days are 90 or fewer per full tax year, then the April 2013 rules are not scary for you.

You will still have to complete the necessary paperwork or have someone help you, record your UK days and – very important – keep records and proof of leave spent outside the UK.

Stay safe, and keep your tax affairs safe too.

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or +44 (0)28 9080 6080    Skype Adrianhuston

HMRC names and shames tax fiddlers for first time – who and why?

History was made today 21 February 2013.  HMRC published its first ever list of people who have fiddled their taxes but not been prosecuted.  Up to now if you were caught fiddling then in over 99% of cases HMRC just took a lot of money off you – and your secret was safe.  Only HMRC, your accountant and you would know. Only a tiny number of people are taken to court each year.

The gloves are off now and HMRC today used its new law for the first time.  They held back on spoiling Valentines Day last week!

HMRC hopes that by naming and shaming tax-fiddling businesses, some of which might be in your town, people will be encouraged to be more careful to declare all that they earn.  By the way when I say fiddling I am also referring to people who have failed in their tax obligations, and as a result HMRC did not get its tax when it should, and as a result HMRC charged penalties.

I will give a link to the list shortly, but firstly I want to set out the ground rules, and explain why the list will get much longer each quarter that it is published.  The ground rules:

  • The tax has to be paid late as a result of failing to declare it, or understating one’s income
  • The inaccuracy or failure must be for a period after 31 March 2010. (For individuals this mainly means the 2010/11 or 2011/12 tax years).
  • The offence can relate to income tax, Capital Gains Tax, corporation tax or VAT.
  • This one’s important – even when coming clean to HMRC the person still did not make a FULL disclosure.  In other words they were silly enough to continue to play cat-and-mouse with the tax-man.
  • If HMRC had not found out about the problem, the loss of tax would have been at least £25,000.  Note this must all be after 31 March 2010.
  • The law states that once the name and shame details have been published for 12 months the publication must cease.

The inaugural list 21 Feb 2013 of significant tax defaulters can be read at http://www.hmrc.gov.uk/defaulters/defaulters-list.pdf

What should you be aware of when reading this list?

  1. Firstly the list shows the name and address, at the time of the offences, plus the tax which wasn’t declared on time, plus the penalty levied. It shows the period after 31 March 2010 for which the penalties applied.
  2. Secondly when you add up the tax and the penalty you will know some of what HMRC needed paid, but you may not have the whole picture.  For example there may be interest added as the tax is paid late.
  1. Much more significantly – the traders may owe an awful lot more.  This is because HMRC can only tell us about the tax owed after 31 March 2010.  Most tax investigations go back a number of years – even up to 20 years.  Just because HMRC says they owed £30,000 and paid a £15,000 penalty doesn’t mean that’s the lot.  The trader might owe tax from 1992 to 2012 of £500,000, of which only £30,000 relates to the last year or two.

Why do I say the list is going to get longer every quarter a new one is published?

Even though names only stay on the list for 12 months, I know the list will get longer as the years go by.

At the moment HMRC can only publish where £25,000 of tax would have been lost since 1 April 2010 – less than three years.  Think forward two years to May 2015.  By then HMRC can name and shame you if you owe £25,000 in tax over a 5 year period. So the bar is getting lower every year.

£25,000 in 5 years – is that a lot?  Well if you pay tax at 40% and you failed to declare £20,000pa of your income then the tax and National Insurance would be at least £5,000 per year. So if caught in May 2015 you could find your name address and tax amounts published.

Do you think the local papers might run a wee story about the tax defaulters in their area?  You bet they will!

What lessons can we draw from HMRC naming and shaming tax defaulters?

If you yourself are fiddling – then if you stop now then chances are your tax after March 2010 will never exceed £25,000.  So even if you are caught, or come clean, your name will not be published.

If you go forward to HMRC to admit something – or HMRC catches you – then tell them the whole story.  Don’t hold back or fail to admit to some assets or bank accounts.  If you do the local press may come sniffing!

If you have something to confess to HMRC, or if they are onto you, seek tax specialist help NOW. We often take on cases from the regular accountant, settle the tax investigation, then hand the case back to the accountant for ongoing normal accounts work.

I have already had to advise some of our tax investigation cases about the naming and shaming rules, and consider whether our client stands to have their name publicised.

Contacting Adrian Huston:

As a potential client – call 028 9080 6080 – outside office hours 9-1 and 2-5 there is a voicemail.

Media and interview requests – in office hours call 028 9080 6080, outside office hours media can contact Adrian here:

http://www.huston.co.uk/media-contact.html?sTask=message&r_id=1439957649&task=display&pf=4

Tax refund email scam alert, not from HMRC

It’s the phishing season again.  Since lots of people filed their tax returns in recent weeks, the criminal fraternity is out to benefit.  They are sending out emails suggesting people are due refunds.

Should you read no further, get this – HMRC NEVER EMAILS TO SAY YOU ARE DUE A TAX REFUND.

Read on if you want some background.

We all see these emails which purport to come from our bank and to alert us to something.  It’s great when we know we don’t have an account with that bank – we know it’s fake.  The situation is less clear where the supposed sender is your own bank, or some ‘trusted’ organisation like HMRC.

What these people want to do is have you read the email and click on some link.  Therein lies the problem.  Click on the link and you might be downloading something nasty to your computer.  It might start telling someone what keys you press (hence revealing your passwords and indeed all correspondence). This is called key-logging. 

The other thing the email will try to trick you into doing is entering your security details or bank / card details.  The surprising thing then is that rather than nice stuff happening, you find your bank account has been cleared out, or charges put on your card.

So what’s the tax angle on all of this?

At various times of the year, but especially in February and March, emails arrive saying they are from HMRC.  They can have convincing email addresses, HMRC logo, all the right colours etc.  These generally say that having reviewed your tax affairs you are eligible for a tax rebate.  Sometimes they talk about your ‘fiscal activity’ – not even the most nerdish civil servant would use such a phrase.  They invite you to click a link and/or download a form to process your rebate.  They will also say exactly how much you are due.  Bit like PPI texts – putting an amount of money in the email makes the thing seem attractive.

I received one of these emails this week and it was better than many at trying to trick me.  It quoted what looked like a legit HMRC email – I won’t give the address the oxygen of publicity!  It was even signed off by a named member of staff, with a Western sounding name.  My email did however have some clues:

  • The day was spelled incorrectly
  • I know that HMRC email addresses (used only by the chosen few) have .gsi in them
  • It talked about ‘fiscal activity’
  • It quoted a rebate number which was not my tax ref
  • The amount was shown as J123.45 rather than £123.45, and, most importantly,
  • I know that HMRC never emails about refunds. 

By the way I predict these fraudsters might move onto threatening emails about tax bills.  Again I stress HMRC will not email you about a tax demand.  Only if your specific tax debts are the subject of ongoing correspondence might a named HMRC officer give you their email address.  Then it would be OK to use email, but this would be extremely rare.  Correspondence about tax debts will come by post. (Or in person if you are really naughty!)

ACTION PLAN

  • If you receive one of these emails then forward it to HMRC (who are daily closing these things down). Simply forward the email to phishing@hmrc.gsi.gov.uk
  • If you have received an email and may have entered personal details like User ID, national insurance details or tax reference then you must contact a different part of HMRC at security.custcon@hmrc.gsi.gov.uk
  • If you have supplied bank details for your ‘refund’ then contact the bank asap.

So in summary:

  1. HMRC never ever emails about tax refunds.
  2. HMRC will not email you about tax debts.
  3. If you get such an email report it as above.
  4. Never click on a link in an email supposedly from HMRC about your tax position.

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.

HSBC whistleblower names UK accounts in Jersey – is your tax paid?

The Daily Telegraph reported on 9 November 2012 that that same week a bank whistleblower had grassed up 4,388 UK people with accounts at HSBC in Jersey.

HMRC has, unusually, confirmed that they have received this information and will be using it to check the tax rules ‘are being respected’. What a lovely phrase!

What have HMRC been given?

Details of over 4,000 people in the UK who had money in HSBC in Jersey, sometimes known as HSBC Expat. This means their name, UK address and the amount in the HSBC account.

The average balance in the accounts disclosed is £337,000.

Whose accounts are these?

The accounts are held by a wide range of people from people who are now retired to senior figures in the City, to criminals of various sizes.  They will doubtless be from all parts of the UK.

My own experience as a Tax Inspector, and more recently as a tax consultant, tells me that people in Northern Ireland have a particular attraction to putting their money in Jersey, Guernsey or the Isle of Man.

Should everyone named be scared?

Absolutely not.  There is nothing illegal in having money in Jersey or anywhere else offshore.  Wat is illegal is not paying the right UK tax.  The tradition of banking secrecy surrounding the Channel Islands, Switzerland, Leichtenstein and the Isle of Man has encouraged certain behaviour.  This behaviour may, in itself, be illegal.

So who has something to fear?

You should worry if the existence of your money offshore points to some form of illegal activity, including tax evasion.  This could mean:

  • The source of the money invested was not properly declared and taxed, or
  • The means of obtaining the money invested was itself criminal (drugs, guns, bribery etc), or
  • The interest earned on the accounts was not declared.

This last point is interesting.  We help a lot of people to declare offshore savings and income, sometimes going back many years.  In some cases the original source of the money is completely legit.  For example the life insurance when your spouse died, or a transfer from a UK savings account.  Where people have come unstuck is that once the legal money was offshore they failed to declare the interest it earned.  That then becomes illegal tax evasion.

If you have an undeclared offshore account…

Now is the time to confess to HMRC – that is before they come to you.  In general you will be given an easier time if you come forward to HMRC to tell them something was wrong with your tax affairs.  You will also generally pay a lower penalty – that is what is added to the bill as a percentage of the tax you owe.

Who will help me with this?

I would say a person who declares offshore income without professional help has a fool for a client.  This is a case where expert help may save you thousands, and will get the matter closed more quickly. (These are stressful experiences.)  You may feel that your regular accountant does not have the practice and expertise in handling such tax investigations.  It is for this reason that we are often brought in.  When the case is closed we then hand the client back to the regular accountant to continue with routine tax returns and preparing of business accounts.

And if I am on HMRC’s list and do nothing?

Then you simply check the post every morning wondering when HMRC will write to you.  Of course they might call in person or phone your accountant.

What HMRC will NOT do is email you about your offshore account.  If you get an email from HMRC with an allegation (or good news about a refund) then the email is false and should be reported by forwarding it to phishing@hmrc.gsi.gov.uk

This is just the latest of a range of banking disclosures HMRC has received from whistleblowers – some of whom were paid substantial rewards.  (See video here). It seems this is likely to continue and whoever still has offshore money hidden should be afraid.

 

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080. He and his former Tax Inspector wife Felicity Huston specialise in handling tax investigations and disclosures to HMRC.

Adrian also appears on TV radio and in the press commenting on tax matters. See www.YouTube.com/HustonTV 

Earning money as an HMRC informant?

HMRC is paying many thousands of pounds each year to informants who tell them about people who are not declaring all of their income. 

Paid informants received £373,780 in 2011/12 which was well up on the previous year’s £309,620.

This information was obtained thanks to the London law firm Reynolds Porter Chamberlain LLP (RPC) who extracted it from HMRC under the Freedom of Information Act.

One of RPC’s partners Adam Craggs said “Typically, an HMRC informant will be an angry spouse during divorce proceedings. For the spouse, threatening to supply information to HMRC provides them with some leverage during divorce settlement negotiations. If the divorce is particularly acrimonious, it is not uncommon for a spouse to turn HMRC informant.”

And how right Mr Craggs is. I know from my time working for the Revenue that one of the most valuable informants is an aggrieved former spouse. I recall specific cases where these spouses came into the tax office to provide very detailed information about the tax-fiddling of their estranged other half. I recall one woman confirming we had all the information we needed, then announcing “Right then, now I’m off to the dole office!” This was because the guy was also fiddling his benefits. A woman scorned…

VIDEO ON THIS: http://youtu.be/ljX2jcf1gVk

In my days in HMRC there was no prospect of paying informants. People told you stuff about suspected tax evasion for a variety of reasons, for example because:

  • they felt it was the right thing to do
  • they were jealous that they couldn’t fiddle their taxes
  • they had been annoyed by your business (perhaps they live nearby)
  • you did a shoddy job for them for cash
  • you used to employ them
  • you and they used to be in a relationship and it’s over

People still call in a local tax office (if they can find one) to share information about tax fiddling, and they also write to HMRC, either giving their name or just dishing the dirt anonymously.

HMRC has set up a Tax Evasion Hotline 0800 788 887 which is staffed 0800hrs to 1800hrs Monday to Friday. This is a confidential number so you can report someone who you suspect is not paying the right amount of tax. By the way, before calling, see how much you can gather to help identify the suspected fraudster, like name, address, vehicle number, mobile number, landline number.

As with any confidential supply of information, HMRC is aware you may have your own motives for making the call. They also know that what you say is suspicious may turn out to be innocent, or may be properly declared. Nevertheless they will consider everything you tell them.

Again from my experience as a Tax Inspector I recall investigating people where we had anonymous information in a letter making various allegations. Many of the allegations turned out to have an acceptable explanation, but there were very useful nuggets which turned a dead-end investigation into a fruitful one.

Nowadays the Tax Evasion Hotline even allows you to inform on someone over the internet – using the form at www.hmrc.gov.uk/tax-evasion/hotline.htm You must supply an email address that HMRC can use to send you an acknowledgement. If you don’t supply that then they will ignore what you are saying. They will not however contact you for further information.

On the other hand if you are happy to be contacted for further clarification, then there is space to leave your fuller contact details. Given how easy it is to set up a gmail account, this effectively means you can give your information pretty-much anonymously.

As for becoming one of these paid informants, I haven’t a clue how you go about it. I know in the past some of the money HMRC paid was to obtain, from former bankers, lists of offshore account-holders from the UK. As for who the recent payments went to, it’s anybody’s guess as HMRC has the whole process cloaked in secrecy. If your information helps bring down a big-scale tax fiddler then there might be scope to get paid for your help. I guess if you wanted to see if a reward might be payable you should make that clear in your first contact with HMRC. Also keep a note of when you phoned and any reference you are given. This would help if in the future you wanted to claim your information helped HMRC bring down Mr Big.

Are there any lessons to learn now you know HMRC pays informants?

  1. Don’t fiddle your taxes.
  2. Don’t let others know you fiddle your taxes – even your spouse or closest friends.
  3. If you are fiddling, then stop.
  4. The longer you are stopped the more chance you might get away with it.

Wonder how much HMRC will pay people for tax evasion intelligence this year?

VIDEO ON THIS: http://youtu.be/ljX2jcf1gVk

Hair-raising tax task-force for N Ireland

Hairdressers and beauty salons in Northern Ireland face a clampdown from today. HMRC has launched a taskforce in the province hoping to bring in an extra £2.5 million. Up to 300 businesses may be hit.

This follows a series of taskforces into various business sectors across the UK. Each Taskforce tends to be dedicated to a region of the UK, and now it is Northern Ireland’s turn. 

Regular readers of my column may remember that one of only a handful of people jailed in Northern Ireland for tax offences was a hairdresser. Michael McGuigan was sentenced to over 2 years jail in a Belfast court back in 2000. He was later disqualified from being a company director.

So what should today’s hairdressers and beauty salon operators fear from this taskforce into the hair and beauty business?

CHAIR RENTAL – some hairdressers will try to avoid ‘employing hairdressers’ by charging them a rent for their chair. Then the stylist claims they are self-employed. This is used as a way of the owner keeping their turnover down, avoiding PAYE paperwork and perhaps not registering for VAT. HMRC doesn’t like this and anyone charging rents for chairs, or themselves paying a landlord chair rent, may find they are under the spotlight. The same will apply for beauticians who rent a space in a salon.

VAT REGISTRATION – If your sales in any rolling 12-month period exceed £77,000 then you have to register for VAT. So any salon with more than about 3 stylists should probably be registered. Bigger salons which aren’t VAT-registered may find HMRC coming for them. They may even borrow tips from their Customs colleagues, and watch the premises for a while before contacting the business. That way they can assess how many customers come and go. It’s a good way to see if the till records might be wrong.

NOT REGISTERED AS SELF-EMPLOYED – Once you set up on your own you must register with HMRC within 3 months. It’s easy to do – by phone, online or by filling in a wee form. If you miss this deadline you become liable to a £100 fine, and you have started off your relationship with HMRC in a bad way!

CASH TAKINGS, not declared – these days, with the Ulster Bank in free-fall and RBS only recovering from a melt-down, people are forced to operate in cash more than they might normally. Many people still pay for hair and beauty treatments by cash. Nothing wrong with that. Of course the problem comes if the person in business does not declare the sale! HMRC looks at cash business and assumes some of the cash is not declared. You then have to convince them otherwise.

PAYE FOR STAFF – two problems arise with employers who have staff. One is that they don’t tax them properly as employees, deducting tax and National Insurance. The other problem is when they take tax and National Insurance off the staff, but don’t pay it over to HMRC. This sometimes happens due to cash-flow but in all cases is viewed very seriously by HMRC. They see is as akin to theft – you took the money off your worker saying it was tax, then aren’t passing it on to HMRC. I expect this new HMRC taskforce will be on the lookout for workers paid but not properly taxed, and also for employers who are holding onto the tax they have deducted.

TAX ARREARS – if your hair or beauty business has arrears of income tax or corporation tax you can expect that your higher profile may encourage the HMRC Taskforce in your direction. After all you have demonstrated that your business poses a risk to HMRC of them not getting the tax which is payable.

WEDDINGS – just like the rest of us, HMRC staff often get married. (To prove the point I married a Tax Inspector myself, but she has since joined me on ‘the other side’). This means the staff are well aware how much is spent on treatments coming up to a wedding, or on the big day. If your business fails to declare these large one-off events then you are committing an offence and could face the wrath of the Revenue.

HOME-BASED & MOBILE SALONS – lots of people start out in a small way working from home, or the back of their car. The same rules apply about having to register and declare all your income. Don’t forget that HMRC receives anonymous information about people who may be fiddling their taxes. So even if you think you have kept a low profile, HMRC may still have your details on a little list. And they use Facebook too!

ACTION PLAN

This HMRC taskforce on hairdressers and beauty salons is only operating in Northern Ireland. There’s a good chance, if you are in the business, that you or one of your competitors will come to their attention. Of course your competitor might never admit it. Take the time, now, to do some housekeeping to make sure your compliance with the tax rules is top-notch. You will have an easier run from HMRC if they see you have already improved things.