EJBC Chartered Accountants

A recent press story caught my eye. It involved a Kent tradesman who was penalised under HMRC’s new penalty regime for overclaiming a rebate by £2,000.  The rebate error came about when he submitted his self assessment tax return expecting a refund of £3,000, when in reality the correct amount to be refunded was only £1,000.
Under the old penalty system, HMRC fined taxpayers who had either underpaid their taxes or were late in submitting their returns or paying their due taxes. 

Under the new regime, HMRC can now levy penalties on individuals and businesses for inaccuracies in tax returns and other documents. They can even raise penalties if the taxpayer is owed money, but have made administrative errors, as in this case.
 

The new approach allows HMRC to impose a maximum penalty of 30% for “careless” mistakes, and between 30% and 70% where taxpayers have been deliberately misleading, but have not concealed their actions.

Those who have been deliberately misleading and have concealed their actions can pay fines ranging from 50% to 100% of the amount owed.
 

In this case, the taxpayer was fined 70% (his actions were seen to be deliberately misleading) of the £2,000 difference between the size of his claim and what he was actually owed, which amounted to £1,400.
 

So what went wrong?

In 2009, the taxpayer completed his first self assessment tax return on paper, without the assistance of an adviser. As a self-employed subcontractor under the Construction Industry Scheme, he interpreted the instructions on the form to mean that he did not have to file full details of his income or expenditure if he earned less than £30,000, but he did include the full amount deducted under the CIS.
 

HMRC spotted that he couldn’t have had CIS deductions without any income and wrote back to ask if he had made a mistake to open an enquiry into the matter.
 

The worrying thing in this case, is the fact that had the return been completed online, it would have been rejected due to pre-submission checks.  The paper system obviously did not allow for this.

This case shows how an apparently simple misinterpretation, can have serious financial implications.

By 30^th April you may have to file your VAT returns electronically, as paper VAT returns are being phased out.
 

All businesses that register for VAT on or after 1 April 2010 must file electronic returns and will not have the option of paper returns.
 

In addition, a business that is already VAT registered and has a turnover of £100,000 or more must file electronically after this date.
 

If VAT returns are filed electronically, then any VAT due must also be paid electronically.
 

If you are not prepared for this, what do you need to do?

• Register and enrol for the VAT online service.
  
• Consider whether you need to change any of your business processes for checking and signing off your VAT return.
  
• Identify your preferred form of electronic payment (e.g. direct debit, internet banking etc.) and set up the necessary arrangements.
  
• If your business has to pay your VAT by cheque, make sure you order from HMRC the necessary Bank Giro paying-in slips.  If you pay this way bare in the mind, that if the cheque is not cashed by the filing deadline, it will be treated as having been received late, therefore you may be liable for a late surcharge.
  

For more information, see the HMRC website or call us for details and help.

Although there are a lot of column inches being dedicated to the 1% increase in National Insurance Contributions (NIC’s) due to take effect next April, we find it odd that a change in pension legislation due to come into force in 2012, which will have a big impact for small businesses who employ staff, hasn’t attracted much media attention at all.

The changes:-

If, as an employer, you don’t currently offer pension provision with employer contributions, from 2012 you will have to automatically enroll employees into the new proposed pension scheme to be run by the Personal Accounts Delivery Authority (PADA). As an employer, you will be required to make a contribution of 3% of earnings. Employees will be required to pay 2% of their gross earnings as a contribution.

If you already provide a pension scheme, you may be able to opt out of the PADA, but only if your current scheme offers a 3% employer contribution to all staff.

From personal experience, we would recommend that employers start to look at this area now.  In February, we mentioned the option of paying employer contributions into pension scheme as a tax efficient alternative way of paying salary increases. Why not start this now and gradually make the contributions up to the 3% in time for 2012.