Here's a video Felicity and I filmed in Umbria, with the help of a friendly black cat with very sharp claws.
The video looks into your responsibilites around tax if you buy a property abroad, and the extra things you have to do if you let it out, even a little.
The video touches on UK income tax, Capital Gains Tax (CGT) and Inheritance Tax, as well as claiming foreign tax credit against your UK bill.
10 step guide to fraud protection
I recently met convicted fraudster Elliot Castro at a fascinating event run by the Northern Ireland Fraud Academy. Suppress that yawn – having a convicted fraudster on the platform answering our questions was far from dull.
The book of his life of crime (before he went to jail) is a good read. “Other People’s Money: The Rise and Fall of Britain’s Boldest Credit Card Fraudster” was written by Neil Forsyth & Elliot Castro.
Just like the wonderful Leonardo DiCaprio film about the real life con-man (“Catch me if you can”) Scottish Elliot Castro travelled the World on £2 million of other people’s money. In Elliot’s case credit card details obtained in a number of ways. Also on the platform were Jonathan Wilson, Head of Special Investigations at the bank AIB plc, and Charlie McMurdie – the woman who was until recently the Met’s Head of Cyber Crime. So we had former fraudster, victim and enforcer all there together.
Inspired by the talk, and aware from clients and daily professional life how easy it is to be conned, I have pulled together my top ten tips to help keep you safe from fraud. Further detail on each is after number 10.
Now I will go into why I gave these 10 tips.
And finally I am sure you are wondering why Elliot Castro flew back to Belfast (where he once lived) to talk about his life before jail. The answer is that he has turned his life around and now advises the police and lots of blue-chip companies about how businesses can beef up their security and prevent the fraudster making off their or their customers’ money. I wish him all the best – we need his help.
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.
Are you affected by DATS / Diss Accounting and Taxation Services (European) Ltd /BMST?
A lot of people have been shocked in the last few days receiving a letter saying that Diss Accounting and Taxation Services (European) Ltd is closing on 31 October 2013. The clients are told that from 1 November 2013 the firm (sometimes known as DATS) will no longer act as their accountants.
I would expect this sad news is related to the HMRC attention on the tax-avoidance arrangements knows as BMST – Bridgham Managed Service Trust. A lot of people who used this scheme were introduced to it by the late Fred Robertson of this accountancy firm. The letter is signed by or on behalf of Catriona Robertson the director.
I go into more detail on BMST in the following article also on this website under Our Blog.
http://www.huston.co.uk/blog/191-hmrc-sets-bmst-deadline-of-30-nov-2013-tax-avoidance.html
VIDEO about BMST – see http://youtu.be/q2_MpwCCFO0
DATS / Diss Accounting and Taxation Services (European) Ltd
This business closing on 31 October 2013 is sad news for those involved and no doubt there are sound business reasons for taking the difficult decision.
The clients coming to me having used BMST are always pointing out how they had been happy with the service they received from the firm, Fred Robertson and the staff.
Furthermore I have been very happy with the cooperation I have received from DATS as a result of my taking over clients’ affairs and writing to DATS for information.
I wish the staff all the best as they embark on the next phase of their professional career.
What if you were involved in BMST?
You now find yourself about to be without an accountant. They will not be completing your 2012/13 Tax Return or helping you settle the enquiry into your return as a result of using BMST.
We can help you with both matters, and if you so wish your ongoing tax and accounting needs.
What if you were not involved in this, but are a client of this firm as it closes in October 2013?
We are a full service accountancy practice, and act for limited companies, sole traders and partnerships. We can set up a limited company or LLP for you, and we have special expertise in the area of non-residency.
Distance is not a problem – if we work with a client in Kabul or South Sudan on a satellite phone, then working for you via email, phone and Skype will be quite smooth.
Contact:
Adrian Huston on +44(0)28 9080 6080 Email IRAQ@Huston.co.uk Skype: Offshore.Tax
Further reading
On BMST – http://www.huston.co.uk/blog/191-hmrc-sets-bmst-deadline-of-30-nov-2013-tax-avoidance.html
Video on BMST – http://youtu.be/q2_MpwCCFO0
Feel free to check out Adrian Huston’s LinkedIn profile.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm (non-residency specialists) Huston & Co – www.huston.co.uk or 028 9080 6080.
CHILD BENEFIT – SPECIAL OFFER: For a special flat fee of £149 (including VAT) we will register you with HMRC and complete the 2012/13 Tax Return for you. We cannot guarantee meeting the 31 Jan 2014 deadline after 10 Jan 2014. This special offer only applies if Child Benefit is the ONLY reason you need to submit a Self Assessment Return. Call 028 9080 6080 or email mail@huston.co.uk
Child Benefit Chaos – a guide
Child Benefit has changed for over a million people.
As of 6 October 2013 some 165,000 people had missed an important deadline to tell HMRC they were affected by the new rules. Are you one?
Did you cancel your Child Benefit by 6 January 2013? If you still got child benefit after 6 January 2013, have you filed your 2012/13 Tax Return?
How do you sort this mess out? Read on…
Does this affect me?
If you answer YES to all three then 5 October 2013 was an important date.
VIDEO on this – http://youtu.be/D3R694xhu98
Non-residents escape the charge!
If the only party with income over £50,000 is non-resident for tax purposes – as many of our clients are – there is NO obligation to register for Self Assessment or to repay any of the Child Benefit. We have had this specific point confirmed January 2014 by HMRC.
What needed done by 6 January 2013?
If, due to one of you earning over £50,000, you are affected you should have done one of the following:
If one of you earns over £50K and you DIDN’T cancel the Child Benefit by 6 January 2013 then, unfortunately, the high earner MUST complete a 2012/13 Tax Return. This applies even if you cancelled the benefit in mid-January, ie. just a week or two late. Though at least by doing so there would be less Child Benefit clawed back.
What needed done by 5 October 2013?
If you are the higher earner, earned over £50K in 2012/13 and the houshold got child benefit after 6 January 2013 then you need to file a Tax Return. Unless you already file one every year you need to register with HMRC. This should have been done by 5 October 2013. There is the chance of penalties for late registration, so don’t sit on your hands any longer – don’t make the situation worse.
If you have a UTR (Unique Taxpayer Reference) from filing a Tax Return anytime since 1996, then it’s not too late. You can still file a Tax Return using that. However it must be filed online. Your choise there is to pay an accountant to file online (they have all the right codes) or to enrol for online filing. This is not a quick process, as you need to be posted an ‘activation code’.
So, in simple terms, what’s this all about?
To reduce government spending (by some £2 Billion) the Chancellor has decided better-off families should not have the advantage of Child Benefit. To achieve this he decided, in conjunction with HMRC, that the easiest way was to hit households where one party earns £50,000.
If one party earns over £60K then, in the end, all the advantage of having child benefit will be lost. Between £50K and £60K the advantage is gradually taken away.
The problem is that not even HMRC knows all the people who are affected by this. They don’t know all your sources of income unless you already fill in an annual Self Assessment Return. Also for some people they will not have an up-to-date address. So of the 1.2 million people they wanted to write to about this big change, some 300,000 people were not contacted.
But it isn’t fair!
Correct! Nobody is claiming it is fair. It is a very blunt instrument designed to take the advantage of child benefit away from better-off families.
The main unfairness arises with looking only at individual income, not the combined income of the couple.
Example of the unfairness:
Say Ms Jones earns £60,000 then she and her non-working partner will not gain from continuing to receive Child Benefit. Indeed she may have to fill in a Tax Return each year – an added hassle.
Say her neighbours Mr & Mrs Smith each earn £30,000 then their Child Benefit claim is unaffected and they have no tax worries.
So despite the same household income, one couple loses out big time.
There is nothing to be achieved thinking about the unfairness of this system, just work out if you are affected and do what you need to do. (Write to your MP if you want the system changed.)
My income is over £50,000 – what happens?
Unless you asked to have your Child Benefit cancelled, nothing will have changed about the payments.
You have however got a tax problem. Unfortunately all Child Benefit earned from 7 January 2013 becomes taxable – at a rate from 0% up to 100%. The rate rises according to your income. 0% at £50K up gradually to £100% if your income is £60K or above. So if your income was exactly £55,000 you would have to pay HMRC half of the child benefit earned after 6 January 2013 up to 5 April 2013.
How does HMRC get the Child Benefit back?
Important – it is up to you to register with HMRC for Self Assessment using form SA1. That is the only way they will know to send you a Tax Return. Only by completing that Return will they get from you that part of the Child Benefit which the government wants back.
You needed to register by 5 October 2013, though if you missed the dealine just do it today. You can download the SA1 form at www.hmrc.gov.uk/SA1 Another way to register for Self Assessment is to fill in the HMRC online form here
Failure to register with HMRC leaves you liable to a penalty.
What income counts?
All income which is taxable, so that is the total of:
What if we can’t be sure if one of us will earn over £50,000?
This will be common for people who are self-employed, or whose overtime or bonuses vary each year.
In this case you should continue to take the Child Benefit. If, at the end of the tax year, you discover one of you has income over £50K, then you need to register for Self Assessment and fill in a Return. If your income is below then you are in the clear for that year. You still need to check each year.
I already complete a Self Assessment Return each year. What do I do?
For you things are simpler. If you know your come will consistently be over £60K then you might as well just stop your Child Benefit claim.
Otherwise just continue claiming it.
If, once the year is over, you know your taxable income exceeds £50K then you must put the Child Benefit figure into the relevant box on your Tax Return – or ask your accountant to do it.
For the 2012/13 year only put the benefit received from 7 January 2013 to 5 April 2013. Enter it in Box 1 on page 5. In future years you declare the full year’s Child Benefit.
How much Child Benefit do I put in the form?
The amount you have to declare for 2012/13 is only what you received from 7 January 2013 to 5 April 2013. I will help you here and tell you what the numbers are:
How much of this is repayable will depend on how much your income exceeds £50,000 on the way to £60,000. For example at £51,000 you have to repay 10%, £52,000 20%, and so on. This is payable on 31 January 2014.
What if I just ignore things?
HMRC may or may not already have you in their sights. They should know your household gets child benefit. If they know, or find out later, that your income when all added together, exceeds £50,000 they will contact you. By that stage they can charge you a penalty for ignoring your responsibilities. Ignorance is not accepted as an excuse. The penalty will be in the range 0% right up to 100%. You will get charged a lower penalty, or maybe none at all, if you tell HMRC (late) before they get in touch with you.
Further reading on HMRC site:
More on this subject www.hmrc.gov.uk/childbenefitcharge
To stop your Child Benefit www.hmrc.gov.uk/stopchbpayments Note that stopping after 7 January 2013 was too late to get out of the need to file a 2012/13 Tax Return.
Estimate how much you will be charged on your Child Benefit https://www.gov.uk/child-benefit-tax-calculator
HMRC’s Child Benefit Helpline is 0845 302 1444.
MY VIDEO on this – http://youtu.be/D3R694xhu98
Note the person to fill in the Stop Child Benefit online form, or phone to have it stopped, must be the person who receives the Benefit. Even if it is their other half who is the high earner.
If you might be affected don’t dig your head in the sand. Failure to understand things now will only cause you headaches in the future.
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.
PS: If you or your partner earn over £50,000 per year, and one of you gets child benefit, these new rules affect you.
If you failed to stop the child benefit by midnight Sunday 6 January 2013 then you NEEDED TO register by 5 October 2013 to complete a Self Assessment Return for 2012/13.
SPECIAL OFFER: For a special flat fee of £149 (including VAT) we will register you with HMRC and complete the 2012/13 Tax Return for you. This only applies if Child Benefit is the ONLY reason you need to submit a Self Assessment Return. The fee is payable before we register you with HMRC. If you have registered yourself, the offer still applies. The fee is payable up-front, that is when you ask us to do the Return for you.
Call 028 9080 6080 or email mail@huston.co.uk
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:
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.
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.
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.
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
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 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?
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
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:
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
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.