Menu

Personal Tax

Home / Tax Blog / Archive by category "Personal Tax"
Self Assessment worries dog the new year 2017

Self Assessment worries dog the new year 2017

By Adrian Huston

January tax help.

Firstly I hope all our readers and clients have a Prosperous 2017, not held back by Self Assessment worries.

As is so common after Christmas, we are getting loads of calls from new clients. People are keen to sort out their taxes.  I think Christmas focuses the minds.  People have time off at home.  They have chats with spouses and family.  They realise all is not well.

Self Assessment Tax Returns having been around for 20 years now. Despite this the 31 January date still creeps up and bites people every year – though the penalties are now nastier.

VIDEO – on similar content to this – see here

Why might you call Huston & Co?

  • You have income to declare and have not yet registered with HMRC
  • You are registered and realise there is not long left until the 31 January filing deadline, and want help with the Self-Assessment form.
  • There is a confession to be made to HMRC covering a number of years, and you want us in your corner against HMRC
  • You just want a chat or a review and can get that for an hourly consultation, by phone or in person.
  • You live or work overseas and want our specialist help with UK rents or overseas earnings.

Some people phone having seen my free tax videos on YouTube ( www.YouTube.com/HustonTV ).  I am delighted that these have been viewed well over 80,000 times.

Self Assessment

We can get your Self Assessment return filed before the deadline even late in January.  Also, in the early part of the month we can still get you registered with HMRC in time too!

Call Adrian Huston or Felicity Huston on 028 9080 6080 for a chat and a price to help you out. View the video for this post here

We are both quite approachable, despite both having been Tax Inspectors before we crossed the floor!

Panama Papers – 10 reasons people use a tax haven

Panama Papers – 10 reasons people use a tax haven

By Adrian Huston

Panama Papers – 10 reasons people use a tax haven

This week’s big financial and political story is the 11 million documents obtained from a law firm in a tax haven – Panama – known as The Panama Papers.  These documents are ticking time-bombs for many of the people named.  They are wealthy people, heads of state, politicians and people in business.  Many have good reason for not wanting their offshore affairs plastered all over the media.  These range from embarrassment to risk of prosecution and imprisonment.

It is only right to point out that there is nothing illegal for most people to set up accounts, companies or business structures in somewhere they do not live. The legality can vary according to which country you live in or pay your taxes in.

Since there is so much interest in what motivates such actions, I will list 10 of the main reasons below.

1. Tax evasion (the illegal one)

This used to be the main reason people put money abroad – to hide it from their tax-man. These days such people find it hard to spend the money hiding abroad – ie to spend it without leaving a trace.2

2. Hiding the proceeds of crime

This could be bribes, robbery, drug-dealing or other illicit activities.  Tax havens often allow you to put your money into companies there with little checking on how you came by the money.

3. Tax avoidance (within the law)

Individuals and large international businesses have the legal right to arrange their affairs to reduce their tax bills.  As we know from Google and Starbucks, this is often done by routing transactions and the associated costs via low-tax countries.  These activities are within the laws of the countries involved, but have become the subject of public ridicule.

4. Spouse/partner issues

Either before marriage or once a marriage is on the rocks, a spouse may try to get some money off-side.  This is so they don’t have to share it in future divorce proceedings. Putting it into a foreign country, or maybe a foreign company with nominee directors can disguise whose money it is. See this story.

5. Currency restrictions

Many countries limit the amount of money you can transfer out of the country.  Money may be smuggled out and then lodged in a tax-haven to keep it hidden.  Or if your business has income Worldwide, then you might send some of your money straight to the tax haven rather than sending it home.

6. Bribes and commissions

I think we will see from the Panama Papers that a number of the people with money controlled via Panama were receiving money they couldn’t admit to at home.  They may have been serving politicians, sports administrators or business-people.  The money may be bribes for turning a blind eye, or commissions for securing a lucrative deal.

7. Valuable property transactions

People owning large houses, planes and yachts often have them held in other names, and registered in other countries.  Often using companies or trusts based in tax havens.  This used to be popular with expensive London properties to save on stamp duty when selling.

8. Hiding assets from creditors

If someone realises their business is going down the tubes, they may stash some money overseas for a rainy day.  This could leave them funds to spend should they be made bankrupt.  Of course this is illegal as well as immoral – if you are declared bankrupt you must declare all your assets, no matter where you have them.

9. Hiding your name

Offshore tax havens make it easy to hide your connection to money or property.  The use of nominee directors is common – where some locals are paid to be the directors or trustees.  They actually do what you tell them to, but your name doesn’t appear. (Remember ‘The Night Manager’?)  I expect the Panama Papers will include correspondence linking the people with the money to those who are fronting-up the companies or trusts.

10. Secrecy and commercial confidentiality

The secrecy offered by tax havens is attractive to many wealthy people and big businesses.  It may allow them to bid for or invest in projects without the person behind the money being known.  Sometimes there will be sensible and legitimate commercial reasons for this. I suspect however that some of the other 10 factors are also involved when people use these tax havens.

 

The Panama Papers story has been prepared over the past 8 months, and the repercussions will last for years.  As the information comes out and turns to confessions and prosecutions, we can expect this to be the gift that keeps on giving.

VIDEO on this story – see here http://tinyurl.com/HustonTV53

The #PanamaPapers story is being run by The International Consortium of Investigative Journalists – see http://panamapapers.icij.org

 

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.

Dividend tax changes from 2016/17

Dividend tax changes from 2016/17

By Adrian Huston

Nasty extra dividend tax hits owners of small companies.

April 2016 sees the start of a new dividend tax regime which will affect the owners of most of the UK’s small limited companies. Many will be hundreds or thousands of pounds worse off.

Individual investors who own shares can also be affected, but only if their total dividends in the year exceed £5,000.  So that means a fairly small number of people.

The Chancellor George Osborne has introduced this new dividend tax to balance out the tax bills suffered by people who have the same income, but receive it in different ways.

My video at http://tinyurl.com/HustonTV52 explains the change, and read on for further details.

Take 3 categories of people:

  • Jenny runs her own limited company. It can make £50K per year and she can take a mix of salary and dividends.
  • Roger is a sole trader who makes profits of £50K per year.
  • Andrew is an employee and his salary is £50K.

Prior to April 2016 Jenny could arrange her dividend/salary mix to make a big saving, mainly on National Insurance Contributions (NIC)

If we worked out the 2015/16 total tax and National Insurance bills (including Jenny’s company tax) there would be widely varying bills, as follows:

  • Jenny’s percentage of the £50K taken in taxes could be as low as 18% (or up to 33% if she took all her money as salary, against the advice of her accountant.)
  • Self-employed Roger would lose some 25% of his profits in tax and NIC.
  • Andrew, the employee would lose 27%.

Why the changes for 2016/17 and beyond?

With previous governments having encouraged businesses to form up as limited companies, now the Chancellor has decided to take away one of the main advantages – the ability to juggle your salary and dividend split to save some money.  He wants self-employed and limited companies to have a more similar tax regime.  I do not need to get into the morality of the old or new approaches, I must merely warn those with large dividends about the new regime. Before I go into the detail, let’s see the effect of the changes in April 2017.

How do Jenny, Roger and Andrew fare in 2016/17?

  • Jenny’s best case split of salary and dividend raises her tax bills to about 21%, up from 18%. (If she took all salary there would be no change at 33%, but that would be daft.)
  • Roger, being self-employed, is unaffected at 25%.
  • Meanwhile employee Andrew is also unaffected at 27% to the government.

So we can see that the Chancellor’s measure is closing the gap in the tax regimes between someone being self-employed and choosing to set up their business as a limited company. Jenny faces a few thousand more in tax each year due to the dividend tax.

The 2015/16 dividend tax regime in summary

Up to 5 April 2016 dividends, to the basic rate taxpayer, were simply treated as if they had already been taxed.

Higher rate taxpayers paid extra tax on dividends – 25% of the net they received.

This meant that the owner of a small company could take out a salary of say £10,000 and dividends of say £28,000 and pay no tax and only minimal National Insurance.  The company would pay tax, but taken together the company and owner would be better off that if they had just been self-employed.

Working out if you were close to the limit to start paying higher-rate tax was confusing.  Net dividends you received had to be grossed up.  Every £90 of dividend was treated as £100 gross.  The gross dividends plus your other income dictated whether you had some higher rate tax to pay.

The 2016/17 measures in detail

Dividend income will no longer have any form of tax credit to confuse the sums.  What you get is regarded as the gross dividend.

If your dividends in the year are £5,000 or less there will be no income tax to pay. This £5,000 is called your Dividend Allowance.

More reading and some examples are on the HMRC website at https://www.gov.uk/government/publications/dividend-allowance-factsheet

If your dividends exceed £5K, then those dividends above the allowance will be taxed.

The tax rates will depend on whether your total income exceeds the basic rate threshold. (£43,000 in 2016/17)

  • The starting rate for dividend tax is 7.5% on dividends over £5,000.
  • Any dividends which push you into the higher rate threshold will be taxed at 32.5%.
  • People earning over £150,000 will have a dividend tax rate of 38.1%.

Tax planning points for those in business

If thinking about setting up a limited company, then the decision is much less clear-cut than it used to be. You might decide just to be a sole trader or some form of partnership.

Limited companies will still be attractive if you can make a lot of money but do not need to take it all out of the company each year. They will also still provide some protection from risking your house and savings if something goes wrong or the business is sued.

Advice on the best form to use for your business is now more important than ever.

If you already operate through your own limited company then look carefully at dividend levels, amount you need to take out, and pension contributions.

Tax planning points for people with high dividends but are not in business

This new tax makes it much more attractive to reduce your dividend income to under £5,000, and one way to do this is to move your shareholdings into an ISA.  Dividend income in an ISA is tax-free.

Ba careful of Capital Gains Tax if selling a lot of shares or ones which have risen well since you bought them.  If worried, then paying for a chat with a tax expert might be worthwhile.

In conclusion

Anyone who gets more than £5,000 in dividend income will be affected by this from 6 April 2016.  They need to know what tax they will owe, and how to declare the income to HMRC.  They also need to set some money aside to pay the bill when it arrives.

VIDEO: See also my video on this subject at http://tinyurl.com/HustonTV52

 

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.
Will you die without a will? David Bowie knew better

Will you die without a will? David Bowie knew better

By Adrian Huston

Die without a will and you leave a mess.

David Bowie left a will.  Because of this, and his years of tax planning, his multi-million pound estate is reckoned to face very little Inheritance Tax.

After over 20 years of practice, and some personal as well as professional experience, my article today is to highlight why you must make a will – and make the appointment this month.

When we hear that an appalling 54% of us die without having made a will (intestate) it shows that people do not realise just how important this simple matter is.

Make a will, and use a solicitor. Not expensive.
Make a will, and use a solicitor. It’s not costly.

Here are ten tips gleaned over the years:

  1. Do you want the government rules to dictate who gets your money and property when you die?  This is what happens if you die intestate.  Then the government rules set down who gets what.  It might not be how you want it.  Do you want to hand that much power to the government?
  2. Don’t assume you can relax because ‘sure everything will go to my spouse.’  Firstly this may not be correct. It depends on where in the UK you live and how much you were worth.  Secondly – and this is important – you don’t know that you will die first.  Whoever is left on their own – if they die without a will then the intestacy rules will be very important.
  3. Based on the above point it is vital that both parties to a marriage or civil partnership set out their wishes on death.  And of course is you are not in either of these, the ‘other half’ will get nothing on your death if you die intestate.
  4. Making a will is easy.  I made my first one in my early twenties.  By making one you achieve two things.  Firstly you have set out who should get what.  Secondly if your circumstances, or opinions, change, you have a clear incentive to get down to the solicitor and change your wishes.  A simple will should cost no more than a couple of hundred pounds.
  5. Don’t use a will kit you download or buy in a shop.  It is true that you could use one and it may end up being a valid will.  However a lot of these are faulty in some way, and this is usually discovered when it is too late – you are dead!  Then the cost of sorting things out will be far greater than a few quid given to your local solicitor to make a proper will.
  6. A witness to your signature cannot benefit from the estate.  That would make the will invalid.  However the executor (the person you ask to handle tidying up your estate) CAN benefit.
  7. Intestacy – who inherits what is set out in a handy ready reckoner at http://www.gov.uk/inherits-someone-dies-without-will  Note the rules are different according to which part of the UK the deceased was living in.  Apart from Scotland, if the estate is worth no more than £250,000 then the spouse gets everything, but MUST live for 28 days after the first death.
  8. Your executors are the people who must tidy up your esatate and distribute it according to your wishes.  They do not have to be legally-qualified.  Do NOT have your solicitor or accountant as one of your executors.  They may make a very convincing argument about how sensible it is.  From very painful personal experience I can state that this is a bad idea.  It means that solicitor or professional advisor must be involved in the handling of the estate, because you have named them.  This could mean higher fees than necessary.  Far better is to have other trusted friends or relatives as executors.  Tell them by all means get legal help with the job.  But get a fee quote from your solicitor, and get a couple of others too.  That way you can ensure not too much money goes in fees.
  9. Inheritance Tax (IHT) planning can be important, especially if your estate as an individual or a couple exceeds £650,000.  However do not let concerns over this tax prevent you from making a will.  Get that first one made, even if you later change it when you have someone look at the IHT situation.
  10. Make sure your nearest and dearest know where the will is located – the safe of your solicitor is a good idea.  Also tell them who your executors will be (though you don’t have to tell everyone that).

Why did I say make your solicitor appointment this month?  Simples.  To avoid further procrastinating.  Get on with it.

Death is too important to leave to chance! Make that appointment.

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.

Unpaid salary – what if your employer paid you too little? What to do.

Unpaid salary – what if your employer paid you too little? What to do.

By Adrian Huston

My net salary is wrong. Why? What can I do?

This is quite a common occurrence, and this article is inspired by a story of unpaid salary  Northern Ireland health service workers who in May 2014 were being paid less than they were due, or in some cases being paid twice! The unions NIPSA and Unison were understandably cheesed off with this issue – blamed on a new payroll system installed in October 2013. A 6 minute interview with a union official and me about this case is at http://youtu.be/Ri9SfcNVAE0

This article will tell you how to complain if you are paid the right amount, and how to take a case to an Industrial Tribunal or Employment Tribunal. Also the websites and phone numbers.

 

Why might your employer pay you too little or too much:

  • Their computer system is playing up (as above)
  • They are using the wrong tax code (or National Insurance code)
  • They have decided to deduct something from your pay – maybe for accommodation, or something you damaged
  • They worked out your pay wrongly

Let’s look at these scenarios in a little bit more depth, and consider your options.

Computer system playing up

These days it is very easy to blame computers for things going wrong, but of course it needs a human to be at the heart of the problem. That human might have designed the system poorly. Or they might work in payroll and have put the wrong information into the computer (and guess what comes out!)

One is much less sympathetic when the employer has hundreds or thousands of employees, because the assumption would be that they buy in a powerful payroll program or service which can cope with all eventualities. (More on this later.)

Using the wrong tax or National Insurance code

Lots of people are aware of tax codes, even if they don’t fully understand them. Fewer people are aware that there are different codes for National Insurance, and these too can make a big difference to your net pay. NI codes appear as letters, A, B etc. A is the standard one.

Your tax code tells your employer how much tax to take off you each pay-day. No amount of complaining to your wages department will get your tax code changed. They can only change the code on instruction from HMRC.

If you think your tax code is wrong then phone HMRC on 0300 200 3300. They are open 8 to 8 Monday to Friday and until 4 on a Saturday. Have your National Insurance number handy, and make sure to note down the name of the person you speak to, plus the date and time of the call.

If HMRC agrees that your employer is operating the wrong code they can issue one to work. It should then be used in the next payroll run. If not then talk to your wages department or to HMRC again.

Our son recently had an employer who operated the wrong tax code and even after HMRC issued correct ones, still failed to use them. It took a lot of pressure to get the thing sorted. Don’t give up!

National Insurance (NI) codes tell the wages department how much NI to take off your pay. A lot of people are on the same NI code and all will work smoothly. However if someone has more than one job, they can ask HMRC to issue a special NI code, and save themselves money.

On the National Insurance type of problems, my wife Felicity Huston worked part-time for the Northern Ireland civil service, as well as being a director of Huston & Co. She applied to HMRC and the correct, special NI code was issued to the civil service. They refused to operate it, potentially costing Felicity over a thousand pounds a year. Despite employing tens of thousands of staff, they claimed their payroll system was incapable of using this special NI code. Only by threatening taking a claim to an Industrial Tribunal (Employment Tribunal) did the civil service wake up and smell the coffee. Somehow they managed to do what HMRC was requiring of them.

Refusal of an employer to operate a tax or NI code is simply not an option. The law requires the employer to do as HMRC says.

If you are paid too much, then your employer is entitled to have their money back. If you have spent it before the problem came to light them your employer should be reasonable in how they ask you to repay it. They might, for example, seek your agreement to paying it back over a number of months.

Employer has deducted something from your pay

Sometimes your pay packet is light because your employer has deducted something else, apart from tax and National Insurance. This could be for:

  • Replacement uniforms
  • Damaged goods or equipment
  • Accommodation
  • Private phone calls on a company phone
  • Private purchases on a company card

The key tests here are firstly is the deduction correct and fair? Secondly is the employer entitled simply to deduct this from your pay? Check your contract or staff handbook.

If you think the deduction is wrong, or shouldn’t have been taken out of your pay, then you should raise this matter in writing with your employer, in the first instance. In unsatisfied with their response there needs to be an appeal, and then you can take the matter of unpaid salary to an Industrial Tribunal (or Employment Tribunal.) The claim you are making is that the employer has made an “unlawful deduction from wages.”

Employer has worked out your pay incorrectly – you have unpaid salary

This could be because you feel you have unpaid salary or wages as they haven’t

  • paid you for all your hours worked
  • paid overtime at the right rate
  • paid you less than an equivalent worker of a different sex
  • given you the sick pay you were entitled to

In each of these cases you need to put your concern in a letter to the employer, and if need be then appeal their decision. After that you are back to taking a case to an Industrial or Employment Tribunal.

Contacts for Industrial Tribunals / Employment Tribunals

Northern Ireland – http://www.employmenttribunalsni.co.uk 028 9032 7666

England & Wales – http://www.justice.gov.uk/tribunals/employment 030 0123 1024

Scotland – http://www.justice.gov.uk/tribunals/employment 014 1354 8574

 

At all of the stages of taking a complaint you could use your trade union or solicitor to help make your case, but of course the solicitor will need paid, the union will offer free advice, as will Citizens Advice.

   Adrian Huston is a former tax inspector, now director of Huston & Co Tax Consultants & Accountants.  www.huston.co.uk   028 9080 6080    @HustonTax

 

Tax codes explained – are you on the wrong tax code?

Tax codes explained – are you on the wrong tax code?

By Adrian Huston

Is my tax code wrong?

Tax codes dictate how much tax we lose from our wages and pensions. If they are wrong then the tax is wrong. If we don’t spot it then there is no guarantee that HMRC will! This is why understanding tax codes is important.
Unless your tax code begins with a K, or is BR or D0, then there is a simple rule of thumb. Most tax codes show your tax-free allowances, but divided by 10.
For example the standard tax-free Personal Allowance is £10,600. Divide this by 10 to get the tax code. Thus most people are on a code of 1060L.
Picture is an example tax code for 2015/16 for a 40% taxpayer who pays gift aid and personal pension contributions

HMRC tax code
Example tax code for 2015/16

Adjustments to tax codes
Sometimes HMRC will try to make adjustments to your tax code. This is normally a good thing. They are trying to have the correct amount of tax deducted from you over the year. In theory this should leave your tax correct at the year-end of 5 April.
Examples of adjustments made include:
• State pension or benefits expected
• Collect tax owed from an earlier year
• Rental profit estimated
• Company car – the taxable benefit
• Relief for professional subscriptions you pay
• Relief for gift aid payments (if you pay higher-rate tax)
• Higher-rate relief for pension contributions
So your tax code may have extra allowances added – to give you extra tax relief. Or it may have things deducted – HMRC’s way of taxing some income.
By far the most common adjustment is to reflect the state pension HMRC thinks you will get this year. State pension is taxable, though if that was all you earned it would be below the tax-free Personal Allowance. However if you have another source of income, and it is taxed at source, then HMRC will try to collect the tax due on both the pension and that other source, all from the same place. This can make it look like you are losing a lot of tax from your job or works pension. In fact you are losing the tax from two sources of income, but only having it taken off one!
What if I think my tax code needs changed?
You need to contact HMRC in one of two ways:
• Phone them on 0300 200 3300 (open 8-8 weekdays, 8-4 on Saturday)
• Write to them at HMRC, BX9 1AS. (Yes the address is that short.)
If you are nervous about phoning them then write to them. The answer may take longer, but at least the answer will be in writing. You will have time to study it. If phoning then write down the date of the call and who you speak to.
If you don’t understand part of what makes up your tax code – then ask for it to be explained. It is the tax official’s job to help you understand.
What happens if code is wrong and I do nothing?
Then your employer or pension provider will deduct the wrong amount of tax. Depending on the error, this may never be discovered by HMRC, and you could lose out.
Deferred state pension
HMRC is normally told how much state pension you will get. They use this to adjust your code. The adjustments are NORMALLY correct.
However I have seen some cases recently were people put off receiving their state pension for a few years. I found that HMRC was adjusting their tax code each year. In other words HMRC assumed they were getting the pension, and were taxing them too highly. One client was owed a tax refund of thousands.
Unusual codes
Here are the most common codes which are NOT simply 10% of your tax-free allowances after adjustments:
• BR – means deduct Basic Rate tax of 20%. Used for second jobs, extra pensions etc.
• D0 – means deduct 40% tax. Used for second jobs where the person pays higher-rate tax.
• K codes – mean the items deducted from the code are greater than the allowances, and you have a negative amount of tax-free allowances. The K code is roughly 10% of the negative allowances. These codes are most common with company cars or large state pensions.

In conclusion

• Tax codes dictate the amount of tax your employer deducts.
• They may be wrong, and the mistake can go undiscovered.
• If in doubt ask HMRC to check your tax code.

The author 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.

Rent out property in UK-rules for non-resident landlords – NRL1

Rent out property in UK-rules for non-resident landlords – NRL1

By Adrian Huston

Landlords and Buy to let, rent , rental income, non-resident - rules HMRC insist on.Are you non-resident for tax purposes, either because you live abroad or live in UK but work abroad, and rent out a place in the UK?

Do you own a property in the UK which you rent out?

Answer YES to both of these and this video ,which I filmed in Umbria, is for you – see below.

If you have a UK rental property and are non-resident for tax purposes then you face two stark choices:

  • You can declare the rents and expenses to HMRC each year, or
  • You can have basic rate tax (20% in 2015/16) deducted from the rents before you get them.

This latter point is quite painful and often means you will pay more UK tax.  This is because you cannot claim any expenses.  Also you do not get any Personal Allowance. (The amount of UK income a UK person can earn before tax, £10,600 in 2015/16.)

 

The law requires your letting agent to deduct this tax and pay it to HMRC.  If you do not have a letting agent then this onerous law means the TENANT must deduct the tax and pay it to HMRC!

If you prefer to declare your rents each year, then you can complete a tax return each year.  But first you must send HMRC form NRL1.

Huston & Co are specialists in tax for non-residents and have hundreds of British clients living or working abroad, many getting rent in the UK.  We can help you with all this.  We can complete the NRL1 form and also the annual tax returns, leaving you to enjoy life with a clear conscience. Directors Adrian Huston & Felicity Huston are both former Tax Inspectors.  This is a family firm with no outside staff.

Tax on rent – call us on +44 28 9080 6080, email IRAQ@huston.co.uk (or desk for overseas work) or check out www.Huston.co.uk

 

Contact HMRC – 10 tips to do it right

Contact HMRC – 10 tips to do it right

By Adrian Huston

22 years in our tax practice has taught me a few things about effective communication with my former colleagues in HMRC. It has also left me almost bald, from tearing my hair out when contact goes wrong. So let me make things easier for you.

Recently I had an unsatisfactory call to an HMRC officer, and what happened when I asked for the supervisor beggared belief! I was so shocked that I obtained the recording of the exchange (for how, see later) and posted it on YouTube. Suggest you listen from 5:05 on the following link http://tinyurl.com/HMRC-hangsup

So from years of experience here are 10 tips to having an effective contact with HMRC.

1. NERVOUS ON PHONE? THEN WRITE. If you are nervous on the phone to the government, or might get flustered, then writing might be easier. Then you have time to digest their written response. Or show it to a friend. Put your National Insurance number on the letter and write to the office which contacted you recently, otherwise to:

HM Revenue & Customs
Pay As You Earn
PO Box 1970
Liverpool
L75 1WX

I still write to HMRC to sort a lot of things out. My copy is a record of what was said, when and where I sent it.

2. PHONING HMRC. They are open 8 to 8 weekdays and 8 to 4pm on Saturdays. Call them on 0300 200 0300. If you can avoid the lunch hour and just after 9am you will find the waiting time on the phone shorter. Try calling at 815am, in the evening, or Saturday. ALWAYS, but always, write down the time and date of the call. Then the name of the person you spoke to, then what was agreed would happen.

3. EMAIL? HMRC is still very nervous about email and they don't publish email addresses for contacting them. Having said that they do have an email service for telling them a change of name or address. It is at http://www.hmrc.gov.uk/individuals/change-of-circs.htm

If your tax code for the present year may be wrong then you can contact them by email on http://www.hmrc.gov.uk/incometax/email-taxcode-wrong.htm

Take a screenprint BEFORE you hit submit, because after that you just get a message saying we have your message. No reference number, no proof of what you said.

4. ACCOUNTANTS – AGENT PRIORITY NUMBER – accountants and tax consultants can use a special number to contact HMRC which means they will rarely sit in a queue. I won't publish it here, because if a member of the public uses it they will not get helped.

5. GET A RECORDING OF YOUR CALL? If you think HMRC didn't do what they promised, or an officer behaved badly, then you may be able to get an audio recording of the whole call.       This is free and is done under Freedom of Information. You will need to know the number you phoned and the date and time. The application is easy and is at http://tinyurl.com/HMRC-FOI  When I applied this way the reply and CD was back inside two weeks – impressive.

6. WHEN NOTHING IS DONE? If you ring HMRC and nothing is done within say 3 weeks of the call, then consider a complaint. If you wrote a letter then best allow 5 weeks before complaining. Sometimes phoning to ask what's happening can work, but I tend to favour a written complaint. Mark the top of the letter COMPLAINT. Details on complaints at http://www.hmrc.gov.uk/complaints-appeals/how-to-complain/make-complaint.htm  If you still have problems then complain to your MP at:

House of Commons
London
SW1A 0AA

MPs get a priority service which often helps resolve things.

7. CAN AN ACCOUNTANT COMPLAIN FOR ME? Yes, and, once a second attempt to get HMRC to sort something has failed, they have a special service to use. It is called the Agents' Issue Resolution Service. I have had mixed results using this service, but your accountant should give it a go. They may not know about it.

8. COMPLAINING ON SOCIAL MEDIA. Increasingly people make complaints about companies and organisations via social media. Twitter can be good as someone in the PR department often monitors tweets which paint the organisation in a bad light. I have seen no sign of this causing HMRC to spring into life, but if you want a go then mention in your tweet @HMRCgovUK If you have a juicy case of incompetence, or hardship caused, you could always contact the national press, like the Daily Mail or BBC Radio 4's Money Box.

9. CAN I JUST CALL IN AT THE TAX OFFICE? No. In its drive to 'improve' customer service, HMRC has closed all its public enquiry offices! Yes, it's hard to believe. HMRC says that in some (probably extreme) cases they may do house calls. I reckon you would need to be very elderly or very infirm, but if you would like a home visit then ask them.

10. HOW DOES HMRC WANT ME TO CONTACT THEM? Really they want everyone to get their tax information from the website www.hrmc.go.uk  And where that's not enough they want you to phone. They would prefer not to receive letters – but don't let that put you off sending one!

Don't be scared of contacting HMRC. They genuinely do want to help, and most things can be sorted first time around. My tips above also show what to do if things go wrong.

 

Adrian Huston, a former Tax Inspector, is a director of tax consultancy Huston & Co, www.Huston.co.uk or 028 9080 6080. Twitter @HustonTax

Gary Barlow tax avoidance notes and links

Gary Barlow tax avoidance notes and links

By Adrian Huston

23 May 2014

www.billboard.com

According to The Times of London, the Take That members poured £66 million ($111 million) into two dubious partnerships, set up by a company called Icebreaker Management. It is claimed the musicians were able to avoid tax on about £63 million ($106 million) from tours and CD sales, and they could be forced to pay back £20 milllion ($33 million).

Judge Colin Bishopp said: “Icebreaker is, and was known and understood by all concerned to be, a tax avoidance scheme.” The aim, the tax judge continued, “was to secure [tax] relief for members, and to inflate the scale of the relief by unnecessary borrowing.”

A spokesman for Icebreaker Management told reporters: “This decision puts valuable funding for the U.K.’s independent music industry in jeopardy.”

The singers are said to be among 1,000 investors who sheltered more than £480 million ($809 million) through Icebreaker partnerships, which have been under the microscope since details were exposed in a Times investigation back in 2012.

Telegraph

Judge – “No serious or even moderately sophisticated investor, genuinely seeking a profit… would rationally have chosen an icebreaker partnership,” said the judge.

 

Mail

The judge concluded that icebreaker members inflated investments through “entirely circular” loans. In doing so they could offset losses against other tax bills.

 

Tory-supporting Barlow, 43, and bandmates Howard Donald, 46, Mark Owen, 42, and their manager Jonathan Wild, poured £66million into Icebreaker Management, which styled itself as a music industry investment scheme.

Tax avoidance – for dummies (i.e. explained for non-experts!)

Tax avoidance – for dummies (i.e. explained for non-experts!)

By Adrian Huston

Tax avoidance schemes – not only the rich and famous get burnt!

Why so many words?

This is not an article typical of my articles about tax, as it is very detailed and about twice as long. My more normal articles can be accessed on my website at www.huston.co.uk/blog.html

The article was written, on request, as a detailed background to, and opinion on, the tax avoidance cases we read about in the national news, and should be a valuable resource for journalists and anyone with an interest in the tax avoidance subject.

Who is the author Adrian Huston?

Adrian was a senior HM Inspector of Taxes before leaving the Revenue to set up UK tax firm Huston & Co Tax Consultants & Accountants www.Huston.co.uk . He was joined by his Tax Inspector wife Felicity Huston and they have built a successful practice with a national and international profile.

Adrian has hundreds of overseas clients and the firm has the full range of accountancy clients ranging from landlords through business-people and companies to High Net Worth Individuals.

Adrian & Felicity help people who find they are being investigated by HMRC, whether for a failed tax-avoidance scheme or for suspected tax fiddling. Many are brought to them by accountants, and then, once all sorted, handed back to the accountant who continues with their routine affairs.They use their tax/negotiation skills, and HMRC inside knowledge, to steer the client though this stressful time with the minimum of cost and in the quickest possible time.

Adrian is regularly consulted by the national media and frequently quoted by them as a tax expert. He commented on Tony Blair’s business network in Bloomberg Magazine http://www.bloomberg.com/news/2013-04-04/blair-scorned-at-home-builds-business-empire-abroad.html

Adrian frequently appears on the BBC (TV & radio) and independent news channels and is quoted in The Times, the Mail on Sunday, Sunday Times, Belfast Telegraph etc.

 

Background and timeline of a tax avoidance scheme

After many years where complex tax schemes were talked about in hushed tones and no-one knew who was in them, a new era has dawned. One where word reaches the national press perhaps monthly of failed tax avoidance schemes and the well-known people caught up in them. Gary Barlow is the latest to hit the headlines, in May 2014.

In just one week in February 2014 we heard how:

 

 

Those involved in tax avoidance schemes includes very experienced and respected professionals as well as highly paid media personalities and business-people. These people probably have some idea of how things can go wrong.

For the rest of you I will paint a picture of what happens and how it can all unravel – very, very slowly. I will use a fictional character called Danny Danegeld.

  1. Danny pays 40% tax or more and decides he would like to pay less. People like Danny typically pay a lot of tax every year, but sometimes his friends want a tax saving on an isolated Capital Gain or house deal. There they may want to reduce the CGT or Stamp Duty.
  2. Danny finds an advisor who knows the ‘perfect’ scheme to cut his tax bill. Maybe for a fee they can even make the tax bill disappear altogether (however the fee might be 10-15% of the income covered, which is as good as a tax.)
  3. This scheme has usually been devised by clever financiers, accountants and lawyers who believe they have spotted a weakness in UK tax law, and plan to exploit it until the weakness is corrected by new legislation.
  4. The schemes have often been reviewed by QCs (Queen’s Counsel) who give their opinion that if implemented properly the tax avoidance scheme will legitimately reduce one’s tax bill. And if challenged by HMRC it should stand up to scrutiny. This QC opinion is a massive selling point used by the promoters selling the idea.
  5. Danny decides to go for it and hands over a hefty fee to the promoter. The paperwork starts being generated.
  6. Tax avoidance schemes generally have some odd features – like loans which will never be repaid, businesses you really aren’t running, but for tax purposes look like you are – that sort of thing.
  7. In due course Danny files his personal or company tax returns with HMRC. The tax bill is greatly reduced.
  8. HMRC expects those using registered tax avoidance schemes to declare them on their Tax Return. For example in the 2012/13 Return this is entered in the Additional Information, page 4 – see http://www.hmrc.gov.uk/forms/sa101.pdf
  9. The idea of having a tax avoidance scheme registered with HMRC, and having to put down its number on your Tax Return always amuses me. If a tax expert tells HMRC they have devised a clever scheme and plan to sell the idea to others, what’s going to happen? Of course HMRC is going to try to close whatever loophole they plan to exploit. And then HMRC will investigate everyone they find using the scheme.
  10. In Danny’s case he either admits on his tax return that he is using scheme number 123456, or his advisors tell his he is not obliged to admit it. (Perhaps because they say the scheme does not need to be registered.)
  11. Then HMRC discovers some or all of the people using the scheme, including our Danny. This is easy if he and others put the scheme reference on his tax return.
  12. In other cases HMRC might stumble across the scheme when investigating someone’s affairs. Or investigating a scheme promoter. Then they might require the promoter to tell them everyone who is in the scheme.
  13. There then follows a deliberately long and protracted game. HMRC launches formal tax ‘enquiries’ into the hundreds of people in the scheme, including Danny. They have to do this to keep open their chance to ask for extra tax.
  14. HMRC then selects a small sample, say 5, of the taxpayers. In their case they will be required to supply all the supporting documentation about their tax scheme. HMRC’s aim is to probe the papers and see if they can find faults, or perhaps to see if the scheme is legit.
  15. HMRC has no interest in doing this quickly. Remember while only 5 people have their affairs gone over with a fine-toothed comb, Danny and the other 500 are told their enquiry (investigation) remains open until the samples are examined. This could be years. (Chris Moyles’ tax return was for 2008 and only now in 2014 does he know he has to pay the full tax after all!)
  16. If properly advised Danny and the 500 will consider paying, on account, to HMRC the original tax they would have owed – to reduce the amount of interest HMRC can charge them. If Danny wins the case he will get the tax back. If he loses then he only owes HMRC penalties and interest to the date the tax was paid. Interest over 6 years could add nearly 20% to what he owes HMRC.
  17. If HMRC, after taking its own sweet time, decides the scheme is legal and achieves the tax advantage it set out to do, then they will apply this decision to Danny and all 500 investors. They are in the clear. (HMRC may change the law to stop new people doing the same.)
  18. Of course on the other hand if they decide the case fails then they will expect all Danny and the 500 investors to accept the ruling and cough up their tax, interest, and probably penalties.
  19. Only the brave would continue to fight their corner since they would be spending thousands of pounds with a limited chance of success.

So what were Alex Ferguson and Chris Moyles up to?

  • Alex Ferguson, in common with Sven-Goran Eriksson and about 287 others, joined a partnership to buy the rights to Disney films Enchanted and Underdog. The scheme was called Eclipse 35 and was first used in 2006. Yet only now in 2014 is it becoming clear that HMRC has successfully defeated the scheme. (See what I mean about the long delays.) The partnership borrowed money to buy the rights to the films. These were bought by Eclipse 35, who then promptly leased them back to Disney over 20 years. HMRC has to date successfully challenged the legitimacy of the scheme. Fergie could face a £1 million bill in the end and lots of fees to advisors.

 

  • When Moyles’s tax avoidance scheme came to a Tax Tribunal he asked for anonymity as the bad press could damage his career. He lost that point as well as the overall tax case. In his case his tax returns claimed he was a car dealer making massive losses and thus claiming tax relief. His scheme was called Working Wheels. In an incredible tax return Moyles declared used car sales of just £3,731. (Was that one car or maybe two?)  Yet finance costs left him with losses of £1 million! Amazing that HMRC noticed this looked a little odd. It was clear to the tax Tribunal that Moyles was not really a car dealer and the whole aim of the exercise was to generate losses and thus tax advantages. Of all the fund managers, celebrities and high earners who tried this ‘Working Wheels’ Moyles was one of 3 taken for detailed testing. All the other 450 people who paid to get into scheme will now be expected to settle up with the tax-man – including paying penalties.

Why does HMRC take so long on these cases?

They will say the matters are complex and accountants take time to supply information.

However it is clear to those in the tax avoidance field (and those of us who help clear up the mess) that HMRC is quite happy that the cases drag on. If people considering a tax avoidance scheme know their affairs will be under scrutiny for 5 or 6 years – and they won’t know their true tax liability until it’s over, then this will discourage people from the schemes.

The March 2014 Budget saw the Chancellor announce that he wants people embarking on a tax avoidance scheme to pay their full tax, then argue with HMRC and hope to get the tax back later.  This will make tax avoidance schemes much less sexy.

What to watch out for in tax avoidance schemes?

Have in your mind the old saying “If it looks too good to be true…then it probably is.” Paying 11% fees to a tax avoidance scheme and no income tax might seem attractive. 5 years on and HMRC descends. Then you have years of uncertainty, and end up paying all the original 40% plus of tax, added to that interest and penalties. Not to mention tens of thousands in accountancy and legal costs. And then you may not be able to get back any of the 11% fees to paid the scheme. So you end up massively worse off than if you paid the full tax in the first place …and could have slept easy in your bed.

Also watch for schemes where – if the full workings were sent to your own tax office – the Revenue might not agree with the tax treatment. Ask the person promoting the scheme if you should do this, and watch their reaction. I find this approach flushes out the truth from many people who say they have the perfect scheme. Most schemes involve some form of smoke-screen. Many also involve offshore jurisdictions, though that aspect on its own may be legal. HMRC often looks for the commercial purpose of a series of transactions. If none is visible, then they may win their tax case.

Conclusion

I do not recommend these tax avoidance schemes to my clients. Even the ones which sound good can leave people with years of uncertainty. And just because it has worked for a few years does not mean you are in the clear. HMRC can look back 20 years! At worst a failed scheme can cost people a small fortune.

There are legal ways of managing your tax bills – especially now Corporation Tax rates are going to be at most 21%, and 20% for many. It’s not long ago that big companies paid 30%, 21% is pretty good. Pension contributions can be very helpful, though not of much help for those earning millions.

If you use a company then the amount of personal income tax you pay will be a factor of the amount of money you insist on taking out of your company to fund your lifestyle. Take more salary and dividends, pay more tax. Live quieter, pay less. You decide.