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If Your Business Is ‘Chosen’ For An HMRC Enquiry

What happens if your business is ‘chosen’ for an HMRC enquiry?

HMRC has the power to enquire into any return and request any information to establish whether that return is correct. No reasons need be given and invariably will not be disclosed.

An enquiry may be:

Full – checking a return as a whole including the accounts. Random – standard procedures as part of the overall crackdown on tax avoidance possibly targeting specific businesses deemed as high-risk. Previous enquiries have targeted the construction industry, private health care professionals and more recently, those involved with cryptocurrencies and obviously ‘cash’ businesses. Aspect (or ‘compliance check’). A full enquiry is both costly and time-consuming, for both sides, therefore should a business find itself the subject of one then it will be for a good reason – at least in the HMRC’seyes. As such, an enquiry letter will more likely be for an aspect enquiry where HMRC look at specific areas or claims relating to a return e.g. HMRC may have received information that a property is let but the owner has not completed the letting pages of the return or the taxpayer may declare a small amount of tax when turnover is high. Some compliance checks begin as ‘aspect’ checks before being upgraded to full enquiries if HMRC believes serious issues are evident.

Which businesses can be chosen?

HMRC identifies cases using various means, having invested in technology that collects data, analyses information, highlighting potential cases. Their ‘Connect’ computer system obtains information from a range of sources – newspaper advertisements showing a trade but no accounts submitted, lists of market stall holders, DVLA records, data of racehorses and their owners, estate agents details of rental properties or house sales, local authority lists, planning applications, Land Registry, credit card information from issuers, data from companies such as eBay, PayPal and Airbnb.

However, a sizeable number of investigations are made due to calls to HMRC’s fraud hotline or submission of an online form headed: “HMRC Fraud Hotline – Information report form”. Currently HMRC is concentrating on ‘compliance checks’ specifically relating to suspected CJRS fraud. HMRC believes that between 5% and 10% of CJRS grants contain mistakes or have been illegally claimed and has apparently received over 21,000 reports from the public of suspected CJRS fraud; 26,000 cases are being looked into, some of which include criminal investigations. The process is part of the government’s pledge to invest in a Taxpayer Protection Taskforce created to focus on fraud committed on any coronavirus support package.

Enquiry process

The first indication of a full enquiry is the receipt of a letter accompanied by a Code of Practice leaflet, confirming the type of enquiry, the information expected to be provided and the deadline for providing this information. A Statement of Assets may be included enabling the Inspector to ascertain whether any assets have been acquired of which HMRC was unaware, payment of which might have been via the use of undisclosed earnings.

A Disclosure Report will be issued at the end of an enquiry to include a Certificate of Full Disclosure signed by the taxpayer to the effect that a full disclosure has been made ‘to their best knowledge and belief’. Should any additional tax be due then a tax penalty will be levied, the amount being determined by consideration of the reasons why the underpayment arose and the amount.

CJRS grant compliance check letters confirm that HMRC are looking into whether the taxpayer has ‘received a CJRS grant payment and may need to repay some or all of the grant you have received. This is because you may have:

– claimed for a CJRS grant which is more than you are entitled to based on the information we hold about your employees

– not met the conditions to receive a CJRS grant – for example by including employees in your CJRS claim who are not eligible.’

A response is required within a set timescale (sometimes just two weeks from the date of the letter) otherwise a full compliance check will be opened.

HMRC has an official time limit of five years and ten months after the tax year end for compliance investigation which can be extended to 20 years where fraud or negligence is suspected.

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Applications Open for Self-Employed and Business Grants

Financial support schemes for newly self-employed workers and close-contact businesses such as hairdressers and driving instructors have opened for applications. Grants worth £4000 will be available through a self-employed hardship fund and a scheme for mobile and home-based businesses unable to trade because they require close contact between people.

The Scottish Government has allocated £60m to the two funds and urged anyone who could be eligible for support to apply.

Finance secretary Kate Forbes said: “These new funds will support harder-to-reach businesses and newly self-employed people across Scotland as we continue to focus our efforts on helping those who are not captured by UK Government schemes.

“We’ve committed more than £3bn to support businesses and protect jobs during the pandemic, and I would encourage all those affected to check what support is available to help them through such a challenging time.”

To be eligible for the Newly Self-Employed Hardship Fund, which paid out more than £11m last year, applicants would have become self-employed on or after April 6, 2019, and before March 17, 2020, and therefore do not qualify for the Self Employment Income Support Scheme (SEISS).

Alternatively, those who became self-employed between October 1, 2018, and April 6, 2019, but are ineligible for SEISS due to being unable to prove 50% of income came from self-employment can apply for the grants.

Only Scottish residents with trading profits below £50,000 in the financial year 2019-2020 who have lost business income due to coronavirus restrictions are eligible.

Owners – rather than employees – of businesses such as tattoo and piercing salons, driving instructors, hairdressers, massage therapies and alternative medicines including homoeopathy can apply for the Mobile and Home-Based Close Contact Services Fund.

The business has to operate either at the owner’s home or on a mobile basis more than 50% of the time.

The funds will open for applications for four weeks, although the government has not said when it expects money to be paid out.

Information above is from STV NEWS page.

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Electric Cars From April 2021

Electric Cars From April 2021 For 2020/21, it was possible to enjoy an electric company car as a tax-free benefit. While this will no longer be the case for 2021/22, electric and low emission cars remain a tax-efficient benefit. How are electric cars taxed?

Under the company car tax rules, a taxable benefit arises in respect of the private use of that car. The taxable amount (the cash equivalent value) is the ‘appropriate percentage’ of the list price of the car and optional accessories, after deducting any capital contribution made by the employee up to a maximum of £5,000. The amount is proportionately reduced where the car is not available throughout the tax year, and is further reduced to reflect any contributions required for private use.

The appropriate percentage

The appropriate percentage depends on the level of the car’s CO2 emissions. For zero emission cars, regardless of whether the car was first registered on or after 6 April 2020 or before that date, the appropriate percentage for electric cars is 1% for 2021/22. For 2020/21 it was set at 0%. This means that the tax cost of an electric company car, as illustrated by the following example, remains low in 2021/22.

Example

Jaz has an electric company car with a list price of £30,000. The car was first registered on 1 April 2020. For 2020/21, the appropriate percentage for an electric car was 0%, meaning that Jaz was able to enjoy the benefit of the private use of the car tax-free. For 2021/22, the appropriate percentage is 1%. Consequently, the taxable amount is £300 (1% of £30,000). If Jaz is a higher rate taxpayer, he will only pay tax of £120 on the benefit of his company car. If he is a basic rate taxpayer, he will pay £60 in tax. This is a very good deal. His employer will also pay Class 1A National Insurance of £41.40 (£300 @ 13.8%). For 2022/23 the appropriate percentage will increase to 2%.

Low emission cars

If an electric car is not for you, it is still possible to have a tax efficient company car by choosing a low emission model. The way in which CO2 emissions are measured changed from 6 April 2020. For 2020/21 and 2021/22, the appropriate percentage also depends on the date on which the car was first registered as well as its CO2 emissions. For low emission cars within the 1—50g/km band, there is a further factor to take into account – the car’s electric range (or zero emission mileage). This is the distance that the car can travel on a single charge. The following table shows the appropriate percentages applying for low emission cars for 2021/22. Appropriate percentage for 2021/22 for cars with CO2 emissions of 1—50g/km

Electric range -- Cars first registered before 6 April 2020 -- Cars first registered on or after 6 April 2020

More than 130 miles ---------- 2% ---------- 1%
70—129 miles----- ---------- 5% ---------- 4%
40—69 miles------------------ 8% ---------- 7%
30 – 39 miles------------------ 12% ----------- 11%
Less than 30 miles -----------------14% ---------- 13%

As seen from the table, choosing a car with a good electric range can dramatically reduce the tax charge. Assuming a list price of £30,000, the taxable amount for a car first registered on or after 6 April 2020 with an electric range of at least 130 miles is £300 (£30,000 @ 1%); by contrast, the taxable amount for a car with the same list price first registered before 6 April 2020 with an electric range of less than 30 miles is £4,200 (£30,000 @ 14%). The moral here is to choose a new greener model and you will be rewarded with a lower tax bill.

Utilise the trivial benefits exemption to provide tax-free Christmas gifts

The Covid-19 pandemic has placed the office Christmas party firmly off the menu this year. Regardless of what restrictions are in place over the Christmas season, many employers will want to take the opportunity to spread some seasonal cheer amongst workers, who may have been furloughed or working from home for much of 2020.

The impact of any goodwill gesture is somewhat diminished if it comes with an associated tax bill. This is where the trivial benefits exemption can come into its own, enabling employers to provide employees with tax-exempt Christmas gifts, while keeping the costs low at a time when many businesses are struggling financially. Personal and family companies can similarly make use of the exemption. Nature of the exemption

Under the trivial benefits exemption, a benefit is exempt from income tax and National Insurance if all of the following conditions are met. • The cost of providing the benefit does not exceed £50. • The benefit is not in the form of cash or a non-cash voucher. • The employee is not contractually entitled to the benefit. • The benefit is not provided in recognition of, or in anticipation of, services performed as part of the employee’s employment duties.

Where a benefit is provided to a group of people and it is impracticable to work out the exact cost of providing it to each recipient, the average cost is used to determine whether the benefit is trivial.

Directors of close companies (together with members of their family or household) can only receive tax-free trivial benefits to a maximum value of £300 in a tax year. For other recipients, there is no annual limit (but each individual trivial benefit must cost £50 or less).

Seasonal gifts

The following example illustrates how the trivial benefits exemption can be utilised to provide tax-free Christmas gifts to employees.

Example 1

An employer purchases 100 turkeys to be given to employees at Christmas. The total bill is £4,800. The turkeys vary slightly in weight but are not priced individually.

As it would be impracticable to work out the exact cost of the turkey provided to each individual employee, the average cost of £48 is taken as the cost of the benefit. Assuming all the other conditions are met, the gift of the turkey falls within the trivial benefit exemption and is free from tax.

Gift card trap

Care should be taken using gift cards which are topped up on several occasions. Rather than evaluating each use of the card separately for the purposes of the trivial benefits exemption, HMRC look at the total cost of providing benefits via the card in the tax year in question. The following example illustrates the trap.

Example 2

An employee is given a gift card at Christmas which can be exchanged in a particular store for a gift. The card costs the employee £30 to provide. The card is topped up by a further £30 on the employee’s birthday. Although each top-up costs the employer less than £50, the total cost of providing the employee with a gift card is £60 for the tax year. As this exceeds the £50 trivial benefit limit, the exemption does not apply.

Instead, the employer should give the employee separate gifts costing £30 each, both of which would be exempt.

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Making Tax Digital: Why bookkeepers are more important now than ever before!

With technology moving at a faster pace than ever before, even the accountancy industry, that is renowned for being stagnant, is on the move as well.

HM Revenue & Customs are looking to shake things up, in a bid to make the UK’s tax system the most advanced in the world, by improving the efficiency and effectiveness of the compliance by UK tax payers.

With the MTD being rolled out, business with a turnover in excess of £83,000 are due to comply .

So what’s new? No longer will there be a mad rush to submit your figures for the prior tax year by the following 31 January. Instead, the requirement will be to submit your figures quarterly.

The idea is, to make it simpler for business owners, to submit their financials via software, directly to HMRC’s website. Easier must mean they won’t need an accountant or bookkeeper, right? WRONG!

In our opinion, the value of a top quality bookkeeper has never been do high. If you can have your records constantly up to date, and in good order, your tax submission will be a breeze. Failure to do this, could lead to multiple inaccurate lodgements, and therefore this could trigger unwanted attention for HMRC.

Here at Cloud 9, we are ready for Making Tax Digital, and we want to make sure all our clients make the transition as smoothly as possible. To find out more about how we can help you and your business, please drop us an email at This email address is being protected from spambots. You need JavaScript enabled to view it. and we would be happy to guide you through the process.

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