Posted by Natalie Brandweiner   PM | on Tue, 13/12/2011 – 13:36 

Sloppy, short-sighted accountants are making costly mistakes and harming small businesses, according to a new report authored by Mark Wickersham and Steve Pipe.

The study by The Accountants Club found that accountants frequently make mistakes including:

• not considering incorporation for sole traders
• allocating illegal dividends
• failing to claim capital allowances properly
• not claiming R&D tax credits
• failing to undertake inheritance tax planning
• not reviewing tax credit eligibility

The report says there are two types of client: "overlooked" clients and "valued" clients, and that there are many instances where partners lavish outstanding service on a handful of favoured clients, while at the same time cutting budgets so drastically on the affairs of other clients that service is inevitably compromised.

Mark Wickersham, one of the report’s authors, said: "Large parts of the accountancy profession are costing clients a huge £1.8bn in poor advice. The entire profession has to sit up and do something about this as a matter of urgency."

The study suggests that accountants are making mistakes with 40% of the 4.5m private sector businesses in the UK, therefore affecting 1.8m clients. In many cases these mistakes will cost those clients many thousands of pounds each, so factoring in an average cost of £1,000 is unlikely to be excessive, the study claimed.

The report labelled accountancy as a "two-track profession" made up of "stars" and "laggards". Laggards who fail to provide a full range of services and advice to their business clients make up the majority of the market. Star firms that pick up the mistakes other accountants tend to miss only make up 27% of the industry.

Star firms are also more likely to leave client meetings more profitable because they are:

• more proactive
• more likely to share ideas that can generate significant additional amounts of cash for the clients
• more likely to link the fee to the value so that the client can’t possibly lose
• Make it easier for the client to say yes by offering client satisfaction guarantees

If all accountants followed the example of Star firms they could get better results and small business could save billions, the report claimed.

01/12/11

Pat Sweet

HM Revenue & Customs has won a court case involving an attempt by an online trader to evade VAT, and says it will be launching a campaign targeting e-marketplaces in the near future.

Gregory Allnutt from London was sentenced to 20 months’ imprisonment following an HMRC investigation which found he had sought to evade over £420,000 of VAT due on goods sold online.

Allnutt used a VAT registration number to obtain zero-rated goods from suppliers within the EU & then sold them on through another online company, failing to declare and pay the tax to HMRC.

Over a three-year period, Allnutt sold £4.7m of electrical goods via eBay at prices which undercut the competition because he did not charge VAT, according to the Daily Mail. The paper said Allnutt’s accountant warned him of his VAT liability at a meeting in 2007 but the trader, who was making £4,000 a week, continued to file ‘nil’ accounts until 2010.

Chris Martin, HMRC’s assistant director of criminal investigation said: ‘Allnutt thought that by trading online he could avoid paying his taxes, but he has discovered that isn’t the case. Our successful investigation and today’s sentencing send a clear message to others involved in such crime that our investigators will identify and pursue you.’

HMRC said has already begun gathering information about other individuals and companies who may be failing to pay the tax owed when buying and selling goods online, and will start a campaign focused on e-marketplaces in early 2012.

Two sisters from Wales have also been given jail sentences following an HMRC investigation into an employment agency which they claimed to be running. Andrea and Roberta Owen were found guilty of a range of offences connected to a series of tax and benefit frauds.

The pair received £120,000 in tax credits over a five year period, despite one sister claiming incapacity benefit and the other claiming to be self employed. The sisters also attempted insurance fraud by seeking out mortgage and motor vehicle repayments by claiming loss of earnings. Finally, they submitted a false VAT repayment claim for £161m in December 2008, which was not paid.

Simon De Kayne, assistant director, HMRC said: ‘The scale and variety of their criminal attempts was astonishing, but it wasn’t enough for them and their greed led to the £161m VAT claim, and their downfall.’

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!

Ark Aurora Ltd have signed up to the Government Cycle 2 Work Scheme, in conjunction with Halfords and Salary Exchange.

The scheme has benefits for both employers and employees.  The employee sacrifices a proportion of their salary to pay for a bicycle and safety equipment to the value of up to £1,000, thereby saving tax and national insurance on the amount sacrificed.  Meanwhile, the employer saves the Employers national insurance contribution on the salary sacrificed.

In addition, the employer benefits from fitter, more alert employees, and the employee benefits from getting fitter, and savings on petrol.

Ark Aurora’s Practice Manager Stuart Thorpe (pictured) was the first person to take up the scheme.  He lives 10 miles from the practice, and intends to cycle to work at least 3 days a week when practical.  Stuart said “It takes me around 50 minutes to cycle in – and on a bad day with traffic, the same is true! I’m really enjoying the journey, although oxygen is occasionally needed at the top of one or 2 big hills!”  When asked how he will cope with bad weather, he replied “There’s no such thing as bad weather – only the wrong clothes!”

The Government has published proposals to reduce financial reporting requirements for small and medium enterprises.

The new proposals, which would allow more small companies and subsidiaries to decide whether or not to have an audit, could save more than 100,000 UK businesses more than £600 million a year.

Current EU rules mean that to classify as ‘small’ for accounting purposes, a company must comply with two out of three criteria in relation to turnover, balance sheet, and average number of employees.

But to qualify for audit exemption in the UK, small companies must fulfil both the turnover and balance sheet criteria, which currently means:

• Annual turnover must not be more than £6.5 million
• The balance sheet total must not be more than £3.26 million.

Under the new proposals, UK SMEs would be eligible for audit exemption by meeting any two of the three criteria, to include the average number of employees, and saving them an estimated £206 million per year.

Other proposals include the introduction of legislation in 2012, which would exempt most subsidiary companies from mandatory audit, provided that their parent company is prepared to guarantee their debts, and save an estimated £406 million a year.

Commenting, Edward Davey, the minister responsible for Corporate Governance, said: "Over time, both the volume and costs of reporting requirements for UK companies have increased, and businesses have stressed to us the need for more flexible and targeted rules. Tackling these problems now will save UK SMEs millions every year and give them more opportunities to expand and grow their business.

"Audit is very valuable for many companies. But the proposals we’ve published today are aimed at removing EU gold plating and freeing up enterprise, which ultimately benefits the whole UK economy and will help put us on the path to long-term, sustainable growth. So I encourage businesses to read the consultation document and share their views with us."

The consultation launched today covers the whole of the UK and will close on 29 December 2011.

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!

Flexi-time response to World Cup viewing aims to maintain productivity

Pat Sweet

As the Rugby World Cup kicks off today, a survey from Close Invoice Finance shows that the UK’s SMEs are taking steps to minimise the impact that watching the games may have on staff productivity.

All four home nation teams are taking part in the six-week tournament in New Zealand, and the time difference means many games will be shown either early in the morning or at the start of the working day.

But Close Invoice Finance’s quarterly Business Barometer shows that 87% of UK SME bosses do not believe this will have a knock-on effect on staff attendance and motivation.

One in three say they plan to accommodate flexi-time requests to allow rugby-keen employees to enjoy the action, and 18% are allowing staff to watch matches on the TV or listen to them on the radio at the workplace.

According to the survey, employers in Scotland (20%) and Northern Ireland (25%) appear to be less flexible than their English counterparts. Those in the South-West are most sympathetic to fans, with 54% of employers expecting to increase flexible working options.

David Thomson, CEO Close Invoice Finance said: ‘Maintaining staff productivity levels in tough times is crucial for the survival of businesses. Getting the most out of your staff can mean the difference between survival or failure for many SMEs and the introduction of flexible working is one way companies can make sure their staff are engaged and motivated.

And as I am an avid fan, there will be no issues here!  Come on England!

Visit to Ibrox over tax repayments due

Pat Sweet

HM Revenue & Customs has paid a visit to Ibrox, home of Rangers, to deliver documents as part of an ongoing claim for repayment of backdated tax by the Scottish football club.

The two sides are in dispute over the total amount due, which is made of £2.8m plus a £1.4m penalty.

The case involves tax payments dating back to 1999 and the issues only came to light as part of due diligence carried out by Craig Whyte before his recent purchase of the club.

Rangers is contesting the £1.4m penalty largely on the basis of how the bill emerged and also because the figure owed relates to a previous management. It also says it has paid up hundreds of thousands of pounds already and is in active talks with HMRC to resolve the issue.

According to The Guardian, the latest batch of HMRC paperwork included a warning that the club’s assets could be frozen or Rangers wound up if the liability was not met.

The paper also says that Rangers is awaiting the findings of a significant tribunal with HMRC over employee benefit trust benefits to players. If that goes against them, the club could be liable for tens of millions of pounds. The affair is first due for a provisional hearing in court in Edinburgh in the next few weeks. HMRC says it will not comment on individual cases

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

Santhie Goundar

The government today announced the location of the remaining 11 Enterprise Zones throughout the UK, which are designed to boost local growth and create over 30,000 new jobs by 2015, following the announcement in the Budget of 11 Enterprise Zones located in the largest UK cities.

The second wave of Enterprise Zone will be located in: Humber Estuary Renewable Energy Super Cluster; Daresbury Science Campus, near Warrington and Runcorn; Newquay AeroHub in Cornwall; The Solent Enterprise Zone at Daedalus Airfield in Gosport; MIRA Technology Park in Hinckley Leicestershire; Rotherwas Enterprise Zone in Hereford; Discovery Park in Sandwich, Kent and Enterprise West Essex in Harlow; Science Vale UK in Oxfordshire; Northampton Waterside; Alconbury Airfield, near Huntingdon in Cambridgeshire; and Great Yarmouth in Norfolk, and Lowestoft in Suffolk. Ministers are urging areas that missed out today to remain ambitious and pursue their innovative ideas to foster local enterprise.

Alongside the new Zones, the government also announced that enhanced capital allowances available will be available for plant and machinery investment to a limited number of Enterprise Zones, including the Tees Valley and North East. Companies setting up in these areas will be eligible to claim enhanced First Year Allowances for plant and machinery from 2012, which is intended to give them an upfront cash flow benefit.

The Prime Minister, David Cameron, said: ‘We are determined to do everything we can to make Britain the best place in the world to start and grow a business. Enterprise Zones are a major step towards delivering this; cutting business taxes, easing planning restrictions and giving business the tools they need to invest and expand. These new Enterprise Zones will be trailblazers for growth, jobs and prosperity throughout the country,’ while the Chancellor, George Osborne, added: ‘It is vital that we create balanced economic growth across the country. It is time for us to help every part of the country to grow and realise its potential.’

Business Secretary Vince Cable said the Enterprise Zones ‘are creating an environment for businesses to grow in places with the most potential,’ adding that: ‘Local Enterprise Partnerships have worked closely with businesses in their communities to put forward a range of high-quality proposals. The successful bids they will now take forward are going to help inject new growth into their economies. Across England, these Zones will generate new jobs, investment in areas that can benefit, and develop high-tech products that will secure long-term sustainable prosperity.’ Communities Secretary, Eric Pickles, said: ‘Too many of our towns and cities have been left behind, but the answer has never been to impose ineffective sprawling regional structures. It is local business and commerce that drive the private sector growth, jobs and wealth this country needs.’