What is The Difference Between Tax Avoidance and Tax Evasion?

By Jennifer Adams | October 2011

No-one likes paying tax – not even those of us who can appreciate that payment for our hospitals and armed forces need to come from somewhere. Be honest – if you were approached by someone who promised a reduction in your tax bill if you joined a ‘tax avoidance scheme’ being sold, wouldn’t you at least listen?

If you do decide to listen, you need to be very wary because TAX AVOIDANCE is legal but TAX EVASION is not. It is sometimes difficult to appreciate the difference between the two but in basic terms tax evasion is deliberately escaping from paying tax that should be paid, whereas tax avoidance is the exploitation of rules in order to reduce the tax that would otherwise be paid.

How Can I Tell the Difference?

There is a clear distinction between the two. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax bill and includes, in particular, dishonest tax reporting (such as under-declaring income, profits or gains or overstating deductions).

The most often quoted ruling on this subject confirming that tax avoidance is acceptable and legal comes from the court case of IRC v Duke of Westminster (1936). The Duke of Westminster paid his gardener a weekly wage and entered into an agreement by which he stopped paying the wage and instead drew up a covenant agreeing to pay an equivalent amount.

The gardener still received the same amount in wages but the Duke gained a tax benefit because under the law that applied at the time the covenant reduced the Duke’s liability to surtax.

When the case came before the House of Lords, the judge, Lord Tomlin, stated:

“Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax” (IRC v Duke of Westminster [ 1936 ] AC1 (HL)).

The Duke of Westminster won the case!

Common Law

There is a specific offence relating to the ‘fraudulent evasion of income tax’ in the Taxes Acts, which was originally introduced in 2000. However, this legislation is not frequently used, as the Revenue often prefers to rely on the common law when they prosecute.
Very occasionally, you might find that a taxpayer is prosecuted under the Theft Act for false accounting (or possibly the Fraud Act 2006) but the majority of tax evasion cases are brought under the common law criminal offence of ‘cheating the public revenue’ (remember Harry Rednapp and PJ Proby?).

Cases brought under this common law have established that for the offence to be committed there does not have to be a dishonest act – an omission such as the failing to account or register for VAT will suffice provided that the act or omission was intended to reduce the tax bill.

Tough Penalties!

There is no maximum penalty for such an offence if found guilty so a defendant could be sentenced to life imprisonment as well as having to repay the Revenue. The previous Chancellor, Dennis Healey, famously described the difference between tax avoidance and tax evasion as being “the thickness of a prison wall”.

Unsurprisingly HMRC do not like the idea of tax avoidance and they appear to view all actions taken to reduce a tax bill as suspect unless the action can clearly been seen as taking advantage of a tax relief in the manner intended.

Recent years have seen the government stepping up its efforts to reduce the £42 billion ‘tax gap’ (i.e. the amount of tax they think should be paid in comparison to the amount actually paid). They state that more than a sixth of that amount is due to tax evasion but a further one sixth is due to tax avoidance (the balance being just uncollected taxes).

Tax Avoidance Disclosure

In March 2011, the Revenue issued a document entitled ‘Tackling Tax Avoidance’ which detailed how they would be approaching the problem of tax avoidance in the future.
The document states that they intend to develop the Tax Avoidance Disclosure rules, under which certain tax planning schemes have to be notified to the tax authorities shortly after they are marketed or implemented. The intention is supposedly to assist users so that they can work out the difference between what it terms ‘artificial avoidance schemes’ and ‘ordinary sensible tax planning’.

HMRC describes some specific Tax Avoidance Schemes they have encountered so far in the Spotlights section of its anti-avoidance pages online.

The text states that ‘the schemes featured are generally those which HMRC consider have the widest implications and about which there is the greatest need to warn potential users. They will often be schemes that have been disclosed to HMRC and have been given a Scheme Reference Number (SRN). Please note that the issue of a SRN does not mean either that HMRC ‘approves’ the scheme or that HMRC accept that the scheme achieves its intended tax advantage.’

Under the Spotlight!

One scheme in relation to property matters that has been placed under the ‘Spotlight’ is Spotlight Scheme number 10: ‘SDLT staged completion’ (7 June 2010).

HMRC state that they have noted that ‘property sales are apparently being carried out in ways intended to avoid Stamp Duty Land Tax (SDLT) by reducing the purchase price below the SDLT band or threshold. In some cases an intermediate sale, often on the same day, is introduced into the arrangements with the sole intention of removing the true purchase price from tax. These arrangements seek to exploit ‘sub-sale relief’. This relief is intended to ensure that, where a property transaction happens in stages, SDLT is paid once on the full amount paid for the property by the person who ultimately acquires it and no double charge arises.

HM Revenue & Customs’ (HMRC) view is that these contrived transactions, including those involving sub-sales, produce a charge to SDLT on the full amount paid for the property.

The text goes further by giving the following warning:

‘Where HMRC find property sale arrangements that have been artificially structured to avoid paying the correct amount of SDLT these will be actively challenged, through the courts where appropriate’.

Why is HMRC Targeting Stamp Duty Land Tax (SDLT)?

Spotlight Scheme No 10 was a result of a recent increase in SDLT avoidance schemes attempting to exploit potential loopholes in the rules. HMRC conducted an exercise to determine the scale of the problem comparing data held by the Land Registry with SDLT returns and the exercise revealed that through the use of such schemes, about 1,200 people had avoided paying the right amount of tax due on their property transactions.

Practical Tip

HMRC has sent new tax assessments to those individuals concerned. They have not issued court proceedings, you notice, but closed the schemes by notification on their website. What is interesting is the warning given that ‘We will also be using the full range of HMRC information powers to identify and challenge promoters and scheme users who fail to notify us of the marketing or use of disclosable schemes’. You have been warned!

New Penalties if you miss the tax return deadline

If you miss the deadline for filing your tax return, HMRC have made some changes to the penalty regime, so that the longer you delay, the more you’ll have to pay. So it’s important to send your tax return to HMRC as soon as you can.

Penalties for missing the tax return deadline

If you are 1 day late, you will have to pay a fixed penalty of £100. This applies even if you have no tax to pay or have paid the tax you owe.

If you are 3 months late, you will have to pay £10 for each following day – up to a 90 day maximum of £900. This is as well as the fixed penalty above.

Should you be 6 months late, you will be fined £300 or 5% of the tax due, whichever is the higher. This is as well as the penalties above.

Heaven forbid you should ever be 12 months late, but if you are, a fine of £300 or 5% of the tax due, whichever is the higher will be payable. In serious cases you may be asked to pay up to 100% of the tax due instead.
These are as well as the penalties above.

Example

Mrs A’s tax return is due on 31 January 2012 but HMRC don’t receive it until 5 August 2012.

It is over six months late so she will have to pay all of the following:

• £100 fixed penalty
• £900 penalty – this is £10 each day from 1 May to 29 July, when the maximum 90 day penalty is reached.
• £300 or 5 per cent of the tax due – whichever is the higher

The message here, is don’t let this happen to you – and the best way to prevent it happening, is to let accountants4dentists handle it for you!

If you miss the deadline for filing your tax return, HMRC have made some changes to the penalty regime, so that the longer you delay, the more you’ll have to pay. So it’s important to send your tax return to HMRC as soon as you can.

Penalties for missing the tax return deadline

If you are 1 day late, you will have to pay a fixed penalty of £100. This applies even if you have no tax to pay or have paid the tax you owe.

If you are 3 months late, you will have to pay £10 for each following day – up to a 90 day maximum of £900. This is as well as the fixed penalty above.

Should you be 6 months late, you will be fined £300 or 5% of the tax due, whichever is the higher. This is as well as the penalties above.

Heaven forbid you should ever be 12 months late, but if you are, a fine of £300 or 5% of the tax due, whichever is the higher will be payable.  In serious cases you may be asked to pay up to 100% of the tax due instead.
These are as well as the penalties above.

Example

Mrs A’s tax return is due on 31 January 2012 but HMRC don’t receive it until 5 August 2012.

It is over six months late so she will have to pay all of the following:

• £100 fixed penalty
• £900 penalty – this is £10 each day from 1 May to 29 July, when the maximum 90 day penalty is reached.
• £300 or 5 per cent of the tax due – whichever is the higher

The message here, is don’t let this happen to you – and the best way to prevent it happening, is to let Ark Aurora handle it for you!

VAT Returns Go Online after March 2012

Stuart Thorpe MCMI

 

Were you aware that VAT returns covering periods ending after 31 March 2012 will have to be submitted online rather than in paper form?

Since 1 April 2010 most VAT-registered businesses have had to submit online returns and pay electronically. At the moment, the only businesses which have been exempt are those that have been registered for a long time and have an annual turnover of below £100,000, although they too will have to file online from April next year.

Penalties for not submitting online returns start at £100 and increase according to annual turnover. It is therefore important for all VAT registered businesses to register for online services via HMRC’s website in good time to meet these new requirements.

We at Ark Aurora are completely familiar with all the requirements, and are regularly filing returns on behalf of our clients.  Why not take advantage of our VAT service, and let us take the hassle out of preparing and filing your VAT return for you?

For further details, call Kully Basi on 0845 815 0767 or e-mail info@arkaurora.co.uk

HMRC extend ‘tax cheats’ campaigns

 

HMRC have announced that they will be launching new campaigns over the next year targeting VAT defaulters, private tutors and e-marketplaces.

HMRC will use more IT, such as ‘web robot’ software, to search the internet and find targeted information about specified people and companies. Using the software, HMRC feel that they can pinpoint more accurately people who have failed to pay the right tax. The software, used with HMRC’s Connect computer system, also helps find people who are trading without telling HMRC.

The Connect computer system alerts HMRC to previously invisible tax evasion by matching a vast amount of HMRC and third-party data. It can identify previously hidden relationships, uncovering anomalies between such elements as bank interest, property income and lifestyle indicators before homing in on unexplained inconsistencies.

HMRC announced last month that a campaign targeting VAT rule-breakers trading above the £73,000 turnover threshold but who have not registered for VAT will be launched in the summer.

Other campaigns to be launched in 2011/12 will focus on:

• those who provide private tuition and coaching
• e-marketplaces, which buy and sell goods as a trade or business
• trades, which will build on HMRC’s plumbers’ campaign and give an opportunity to another group of ‘tradespeople’ to declare unpaid tax.

Mike Wells, HMRC’s Director of Risk and Intelligence, said:

‘We want to make sure HMRC listens to as many informed views as possible for our future campaigns. We want the views and experience of people and organisations outside the department to play a fuller part in the campaigns that we design for customers.’

‘By being open about our areas of interest for the coming year we hope to maximise that exchange of information and ensure we reduce the tax gap and help customers pay what they owe.’

‘We will use the information we gather to pursue people who choose not to use the opportunities we provide for them to put their affairs in order on the best possible terms. It will be more expensive if we come and find people, so I urge them to come forward and disclose voluntarily.’

Late paid PAYE: a ticking bomb

 

By Rebecca Benneyworth in Tax on Mon, 23/05/2011 – 09:14

 

PAYE late payment penalties have been in place for a year, but have not had an impact yet because of the way they are calculated. Rebecca Benneyworth offers a precautionary guide for those who may be affected.

Penalties for late paid PAYE and related liabilities commenced in April 2010 but due to the way that penalties are calculated none will have been levied until now. Even then, it is not clear how the penalty regime will be applied in the period until Real Time Information is implemented.

The new penalties for late payment of payroll taxes are determined by the number of defaults (ie late payments) in a tax year. The first default does not attract a penalty if it is the only late payment in the year. However if there are further defaults, the penalty is:

· When there are 2, 3 or 4 defaults in a tax year the penalty is of 1% of the total of the defaults (including the first)

· When there are 5, 6 or 7 defaults the penalty is 2% of the total of the defaults,

· When there are 8, 9 or 10 defaults the penalty is 3% of the total amount of the defaults, and

· For 11 or more defaults the penalty is 4% of the total defaults.

Any amounts that are unpaid more than six months after the penalty date are liable to 5%, and a further penalty of 5% applies after 12 months. Higher penalties are due when the amounts relate to periods of six months or more.

Some businesses will clearly be due to pay a penalty for late payments in the 2010/11 tax year, but it is not until; after the last payment for the year was due (19th or 22 April) that it is possible to determine the number of defaults in a year and therefore the rate of penalty.

HMRC indicated that the penalty would be applied on a risk assessed basis for 2010/11, but it is not absolutely clear what this means. For example, a client who has paid £500 per month for 11 months, followed by £45,128 in April to top up his year’s payments is clearly abusing the system, but HMRC would not be able to identify the precise amounts paid late without inspecting the records, as the final payment for the period ending 5 April 2011 is not late, but it is not clear how much of the final payment relates to April.

Some agents have expressed concern that these penalties could come out of the woodwork years down the line if a business has a compliance check and it is found that late payments have been made. There seems to be nothing to stop an officer from tracking back through each year identifying the amounts on which penalties are due and collecting a huge penalty at one go.

Clearly, it is in your clients’ interests for you to warn them carefully about these penalties in respect of future years and then wait for the letters to arrive!

Other PAYE penalties
From 1 April 2011, most employers must now file the in-year forms (P45/leavers and P46/joiners) as well as end-year returns (P14s and P35s) by internet. If you do not file online when required to do so, HMRC may charge penalties from £100 up to a maximum of £3000 depending on the number of forms that should have been filed online. Extra-statutory concessions for firms will fewer than five employees who file paper returns will not apply this year. Further details:

Penalties could also be raised for those who fail to file nil returns

Forthcoming changes to Solicitors’ Accounts Rules

The legal profession is currently going through a period of change as a result of the Legal Services Act 2007.

Earlier in April, the Solicitors Regulation Authority (SRA) issued a new Handbook for solicitors, which introduces the new ‘principles based’ regulatory regime with effect from 6 October 2011. Within the Handbook there are new, currently draft, SRA Accounts Rules 2011. Within the new rules, there are some changes which will have an impact on the work carried out by Reporting Accountants.

In summary, the key areas of change to the existing Rules are:

• Rule 6 – all firms of solicitors will be required to have a Compliance Officer for Finance and Administration (COFA) who will have the same responsibility for compliance with the Rules as principals in the firm. Additionally, they will have a responsibility to report breaches in the Rules to the SRA as soon as practicable.

• Rule 23 – replaces the prescriptive list of who is eligible to authorise withdrawals on the client account by a rule requiring ‘an appropriate person in accordance with the firm’s procedures for signing on the client account’. (NB. will be new Rule 21.)

• Rule 24 – removes the distinction between the treatment of interest earned on the general client account and separate designated accounts. Interest should be paid on all accounts when it is fair and reasonable to do so. The blanket deminimis £20 limit has also gone and is replaced with the requirement for the firm to have a written policy on the payment of interest to clients, which must be drawn to the attention of the client at the outset. (NB. will be new Rule 22.)

• Rule 32(6A) – allows the use of the electronic version of the bank’s online record to be used in the monthly reconciliation process. (NB. will be new Rule 29(11).)

The new Rules are effective from 6 October.

If you’d like to know more, please call Stuart Thorpe on 0844 815 0767

Bribery Act 2010: implications for accountants

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Posted by Anil Rajani in In business on Tue, 12/04/2011 – 11:34

 

IBB Solicitors partner Anil Rajani summarises the Bribery Act 2010 guidance and the important implications for accountants.

The countdown to the implementation of the Bribery Act 2010 has now started.

The publication on 30 March of guidance on adequate procedures served as a firm reminder to the commercial sector that firms now have less than three months to get to grips with the legislation and implement these procedures, or face investigation and even prosecution at the hands of the Serious Fraud Office (SFO).

The Act creates four new offences:

· bribing another person

· accepting or receiving a bribe from another person

· bribing a foreign official

· failure by a commercial organisation to prevent bribery

Offences one to three can be committed by an individual or a business, if the acts constituting the offence can be attributed to a senior member or employee in the organisation.

This will be of particular concern in identified cases of bribery where senior employees or directors are found to have had knowledge of the alleged incident, whether or not they explicitly authorised or approved it.

A lateral as well as top down approach will be taken, so if it can be established that, for example, a company’s financial director or accounts manager had knowledge of acts within the organisation which constituted an offence under the act, not only could they find themselves personally liable, but if they are sufficiently senior within the organisation the courts could also impose liability on the company as a whole. 

The fourth offence is a corporate only offence, and it is this which is causing concern for firms and businesses all over the world, because the drafting of the Act means that any company carrying on business or part of a business in the UK can be prosecuted.

Common sense approach

This has caused understandable consternation world-wide. In an attempt to assuage doubts, Kenneth Clarke in his guidance makes assurances that a common sense approach will be taken, and that only organisations with a demonstrable business presence in the UK will be affected.

However, ultimately he concedes, it is a matter for the courts to decide whether or not an organisation ‘carries on a business in the UK’. It therefore remains to be seen how widely the courts are willing to construe this jurisdiction.

The issue should further be considered in light of comments made by the director of the SFO, Richard Alderman, who has confirmed that he aims to adopt a broad interpretation of jurisdiction under the Act. He has also confirmed that he is not afraid to pursue prosecutions against organisations even when there is little more than a UK stock market flotation tying the company to the UK.

Consequently, UK firms with international roots and ties will need to ensure that they have a firm grip on operations overseas, as it would seem that remoteness will not keep the SFO at bay. Until further guidance has been handed down by the courts, firms would be well advised to adopt a very broad interpretation of these provisions.

Hospitality

Another key area of concern for firms and businesses is the extent to which corporate hospitality and promotional expenditure might constitute an offence under the Act. The MOJ guidance draws a distinction between reasonable and proportionate corporate hospitality, and hospitality or promotional spending deliberately employed as a bribe.

There is therefore a grey area between reasonable hospitality expenditure and lavish, disproportionate expenditure which could constitute an offence. Firms will have to ask themselves when considering corporate hospitality whether proposed spending is commensurate with the reasonable norms for their industry. If the answer is ‘no’, there should be cause for concern.

Furthermore, simply asserting that the expenditure incurred was within the norms for your particular industry will not necessarily exculpate you if there is evidence of a specific intention to bribe. Firms will need to ensure that they continually monitor accepted practice and regularly review what is commercially proportionate when considering hospitality and promotional expenditure.

Conclusion

Firms which can prove that they have taken such precautionary measures should be afforded the protection of section 7 (2) of the Act if they find themselves facing prosecution for failure to prevent bribery.

The Act provides a defence if organisations can prove that they had in place at the time the bribery was committed, adequate procedures to prevent such acts.

The MOJ guidance sets out six principles to guide firms when devising such procedures, with a particular focus on risk assessment and proportionality. Companies should adopt a risk based approach when considering what would constitute adequate procedures for preventing bribery within their sector.

It is clear that the MOJ does not envisage smaller firms incurring crippling expenses drafting reams of internal policies and implementing complex procedures for preventing bribery, but an ability to demonstrate an awareness of the risks and steps taken to avoid them will be necessary.

Needless to say, any company with links to the UK should by now be taking steps to ensure that they are properly protected, before this legislation bites.

The Act comes into force on 1 July 2011

Happy iXBRL Day

John Stokdyk celebrates the latest landmark in HMRC’s march towards universal online filing, now rebranded as "Digital by default"

Warning: This is not an April fool. Today really is the first date from which any company filing their Corporation Tax Return for financial years ending on or after 31 March 2010 will have to ensure that the accompanying accounts (and tax computations) are in the inline XBRL format, or iXBRL.

On the eve of iXBRL day I found myself at the Digita user conference near Cirencester with some of iXBRL’s key players including HMRC’s tireless technology champion Julian Hatt and Anita Monteith, who has masterminded the ICAEW Tax Faculty’s iXBRL education campaign.

To celebrate the occasion, Digita had organised a panel discussion on iXBRL with Anita, Mazuma co-founder Lucy Cohen and AccountingWEB stalwart Nigel Harris. In truth, there was no tolling of church bells and anguished cries of “we’re doomed!” as midnight passed. Most accountants will arrive at their place of work and carry on as normal…

But perhaps that might be one of the problems. People who read AccountingWEB’s iXBRL coverage and attend software events have probably got a handle on what’s needed to comply. People who still don’t know what they should be doing present the biggest problem.

Anita Monteith commented that the calls coming into the Tax Faculty tend to be from smaller groups who still haven’t got their heads around iXBRL. “There are people who aren’t at the starting gate.”

Mazuma’s experience was slightly different. Lucy Cohen said that she had been pleasantly surprised by staff whose were not directly responsible for managing the change taking an interest in iXBRL. “There’s a good awareness and a lot of it has come internally. In terms of cost and information, the burden has not been that heavy – there’s a lot of information out there. So we’ll just suck it and see – that’s when the real questions will come up.”

Nigel Harris added: “We don’t have any accounts to file before the end of May, so we’ve got a little time to do a bit of training. We’re not expecting a lot  of extra cost required.” For all the technical niggles that the panellists were asked about, their most frequent answer was, “We’ll let the software take care of it.” However as a Sage Accounts Production Advanced user, Harris muttered that he was still waiting for an email confirming that the iXBRL software  was ready. “Perhaps there will be an email in my inbox at 5pm.”

The most interesting questions asked during the panel session had to do with nitty gritty details such as:

· With iXBRL, will there be a facility to send in white space information? Yes, replied Monteith. “They won’t lose it – that will be different now. You can attach it as a and HMRC has said it will undertake to eyeball every filing with a PDF file attached to it.”

· Will members’ voluntary liquidations be required to submit iXBRL accounts – which could cost them sums running into the thousands? HMRC’s Julian Hatt answered that generally speaking companies in insolvency will be taken out of the online filing, but warned that MVLs were not specifically included in the relevant regulations – keep an eye on them if you want to confirm this for sure

· How will the soft landing period work? Monteith explained that the soft landing would operate for two years, during which “you’re expected to do your best to file to neccessary standard.” This means that if a tag is listed in HMRC’s 1,400-item minimum tagging dictionary, you should apply it. But HMRC indicated that if you use “push button” accounts production software that includes minor tagging discrepancies, the accounts would be accepted. If you’re really tearing your hair out, you should be able to tag just the 15-20 items required to pass the government web gateway, and HMRC would accept them. Hatt revealed that the soft landing has been rebranded “managing the transition” and explained that  HMRC has the legal flexibility to relax the requirements. “The guidance we published in early February made it clear we would not intervene in Company Tax returns solely to check the quality of tagging,” he added.

The point about enquiries is important. When iXBRL fully matures it will standardise the collection of data and make it possible for HMRC’s computers to run an analysis of every set of submitted accounts. This will save the department money and also streamline its assessment process.

Inspectors will continue to use their existing skills and judgment, and other sources of information to decide where an intervention will be made, but as the accuracy and comprehensiveness of iXBRL tagging matures, there should be fewer variations in interpretation, Hatt promised.

Well that’s a comfort. It is sincerely to be hoped that anyone reading this article has got their head around iXBRL and that it’s now more a question of nailing down the finer technical points and internal workflows. AccountingWEB will continue to monitor iXBRL developments over the next two years, but as the deadline passed another of the speakers at the Digita event pointed to another unwelcome digital presence lurking near the threshold…
After voluntary testing from next April, Real Time Information for PAYE will go life for large organisations from October 2012, and small firms will enter the regime in January 2013, explained Grant Thornton’s Francesca Lagerberg. “That is not a long time to go and clearly you are going to have clients and employers who are going to worry about it,” she said.

There will be some real advantages to RTI, for example in resolving the messy area of notice of coding administration and all the paperwork around end of year forms. “There will be some genuine savings, but they depend on how clearly the information flows into HMRC,” said Lagerberg. “As you know that will go swimmingly and with no problems…”

Fasten your seatbelts everybody, we’re in for another bumpy ride.

Take care with Electronic PAYE payment dates

Last month we reported that HMRC were reminding employers to ensure that PAYE payments made electronically have been cleared into HMRC’s bank account by the due date.

According to HMRC many employers have taken advantage of the electronic payment option which generally gives a later payment date of 22nd of the month. However HMRC are stressing that where the 22nd falls on a non banking day (a weekend or Bank Holiday) the payment may need to be made earlier to ensure that HMRC has cleared funds by the due date. HMRC need to have received cleared funds by the last bank working day before the 22nd.

According to the HMRC employer diary the next time the 22nd is due to fall on a non banking day is in May 2011. Their diary states that cleared funds must reach HMRC’s bank account by Friday 20th May 2011.

It appears that HMRC have forgotten about Easter Good Friday which falls this year on Friday 22nd April 2011.  As this is the last payment date for 2010/11 PAYE it is important that the cleared payment is received into HMRC’s bank account by Thursday 21st April 2011.

HMRC may issue penalties to any employer who makes late payments of PAYE more than once for 2010/11. These penalty notices will not be issued until after the end of the tax year.

Internet links: HMRC guidance payment deadlines Late payment penalties

Struck-off companies dodge £16bn a year

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Government agencies taking a “blind eye” to non-compliance are losing the Exchequer up to £16bn a year in lost tax, according to tax justice campaigner Richard Murphy.

In a 68-page report published this weekend, Murphy found that in the year to March 2010 more than 500,000 firms were dissolved after failing to file accounts with Companies House.

“Rather than chase or prosecute them Companies House simply gets rid of the offending companies – so sweeping the problem of non-compliance with the law out of view,” the report concluded.

The agency’s reluctance to pursue non-compliant firms, combined with HMRC’s failure to collect tax from a majority of registered companies means that up to £16bn in tax goes uncollected every year, Murphy estimated.

Analysis of the Companies House register found that a majority of the 500,000+ companies dissolved during the year to March 2010 were removed from the Register of Companies because they did not file documents required by law. Roughly a third of all companies dissolved were less than two years old and had never filed accounts.

“Maybe hundreds of thousands of companies a year are struck off before they ever have to file a set of accounts with either Companies House or HM Revenue and Customs, meaning that the directors of these companies can avoid all their obligations to declare any of the income that they have earned as a result of the actions of a UK regulatory agency,” the study noted.

Evidence from the study suggested HMRC’s stance with non-compliant companies was equally lax. According to Murphy, HMRC does not appear to demand information from companies struck off if they are less than two years old. “In many cases we know almost nothing at all about those companies that disappeared forever,” the study stated. It also found:

· Only 70% of companies are asked to file tax returns by HMRC.
· Of those companies asked to file tax returns in the year to March 2010 only two thirds actually did so.
· As a result of these two figures, only just over 45% of all companies filed tax returns for the year to March 2010.
· In the year to March 2009 (the last year with data available) just 33.6% of all UK companies actually paid corporation tax.
The report is also critical of HMRC’s penalty regime, pointing out that more than £220m of penalties were outstanding March 2010. “This suggests that H M Revenue & Customs are running a system that, even after penalty waivers, appears seriously out of control. The result is that the penalty system must be a wholly ineffective deterrent to those determined not to pay tax,” the study concluded.

While detailing “a catalogue of failure, mismanagement, error, and official neglect” in the report, Murphy, the director of Tax Research, explained that they stemmed primarily from inadequate resourcing: “It is clear that they do not have the resources they need in terms of staffing to undertake the duties demanded of them by parliament. [HMRC] has already lost more than 30,000 staff in the last few years and is going to lose 15,000 more by 2014. Companies House has just announced plans to reduce its staffing by 25% even though it is already very clearly failing to undertake the role demanded of it.”

Among 18 recommendations, the report suggested that UK-based banks should be required to advise HMRC and Companies House of bank accounts operated by UK-registered companies in order to pursue those that do not pay taxes nor file their accounts. It also suggested increased personal penalties for directors of non-compliant companies.

The study was aided by Green Party leader Caroline Lucas MP, whose parliamentary questions helped to uncover information used in the report. She commented: “This report reveals the shocking complacency of HMRC and BIS, who seem to be taking an ‘out of sight, out of mind’ approach to following up and collecting corporation tax from limited companies. This horrifying catalogue of failure to regulate properly means that the UK government is forgoing literally billions in taxation every year.

“At a time of savage cuts to public spending, it is outrageous that these enormous tax loop-holes remain available. The government must not be allowed to continue turning a blind eye to the need for better regulation.”