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London suffers highest annual tax on enveloped dwellings

London suffers highest annual tax enveloped dwellings (ATED).

London is suffering the highest burden on a recently introduced tax on high value, over £2m in value, which targets properties owned by non natural persons.

This tax has raised a substantial amount of money since it was introduced in April 2013. In this tax year it has raised £100m of which 89% of it related to London properties.

Pension Tax Windfall

The Government may have next April and unexpected tax windfall. It is expected from April 2015,  people will be allowed to access their pension funds, under the new UK Pension reforms.

It is expected that people will be able to withdraw all of their defined benefit scheme savings in one lump sum and then pay tax at their applicable marginal rate.

This should produce a spike in tax receipts which will be a welcome boost to the UK Treasury.

Are HMRC getting more powerful?

The Inland Revenue were once the least least frightening of the all the UK tax authorities, lagging behind the VAT people who had inspection powers comparable to the police service.

Now that Inland Revenue and HM Customs and Excise have joined forces to become HMRC the old Inland Revenue departments have started to get or are pending seriously increased powers, added to that powerful computers called Connect which can data mine information from a variety of sources, from the taxpayers information, the internet, credit card/bank information and land registry information which can pick-up perceived irregularities on tax payers returns and disclosures. The balance of power is definitely shifting between the authorities and taxpayers who evade or avoid taxation.

Whilst the accountancy and legal profession generally welcome any effort to support the Governments attempt to tackle  evasion there are concerns that HMRC does not have the best record in making accurate tax assessments.

This was highlighted just last week when it sent out about 200,000 incorrect income tax calculations which it put down to a computer error.

The powers which are now in force are demanding without appeal, upfront payment from any individual who participated in any arrangement deemed to be a tax avoidance vehicle (what is a tax avoidance vehicle is determined by HRMC’s judgement) this concerns many accountants.

Another pending power is the ability to recover tax debt directly from a taxpayers bank account. The taxpayer must have a balance of over £5000 in their account before any recovery of the amount over £5000 can take place. HMRC would not need to notify the taxpayer before recovery takes place.

Plus there are now added pressures in the system, as the Government has a  public finance deficit which will increase pressure on HMRC to collect tax and recover tax debts.

The regular tax paying member of the public shouldn’t have much to fear about these increases in HRMC’s powers, but the balance of power between the tax payer and HMRC is changing and HMRC will make mistakes which unfortunately accountants will be less able to stop.

Has your bonus been reclaimed?

If you have been paid a bonus and your employer reclaims it through your contractual obligations, rather than a breach of contract then you may be able to claim income tax relief of the amount reclaimed.

There has been a recent tribunal case involving Julian Martin and a signing on bonus, which he had to repay when he left his employment after a year. The sum involved was higher then the amount he received. The tribunal case was found in the tax payers favour.

Automatic exchange of financial information

The Organisation for Economic Co-Operation and Development, OECD, an organisation which promotes policies which will improve the economic and social welfare of people around the world which has published, on the 21 July 14, a publication outlining the standards agreed for the automatic exchange of financial information in tax matters between key tax authorities worldwide.

The G20 leaders met in September 2013 and endorsed the OECD proposal for a global model for automatic exchange of information to fight tax evasion and ensure tax compliance.

The standard was approved by the OECD council on the 15 July 14. The standard calls on jurisdictions to automatically exchange information between their fiscal authorities on an annual basis and outlines common due diligence processes which will need to be followed by financial institutions.

It is a big move towards automatic exchange of information in a multinational context and a tool in the global fight against tax evasion.

Have you used a tax avoidance scheme?

The Finance Bill has now received Royal assent and controversial accelerated payment notices are now law. This means from next month HMRC can issue accelerated payment notices to people HMRC consider have been involved in tax avoidance vehicles and demand the full disputed tax is paid upfront.

The more interesting point is not how HMRC use these powers with current tax avoidance vehicles, but how it applies the powers to schemes and investments made many years ago, where investors will have got tax relief and the scheme is now a distant memory in the tax payers mind.

Will HMRC use these new powers to demand back payment of associated tax relief, penalties and interest?

The treasury have published a list on gov.uk website which lists the avoidance schemes HMRC are targeting and state HMRC may issue notices to people using such schemes over the next 20 months or so.

This will be an interesting story to follow, as the sums involved are likely to run into millions of pounds plus the powers have been criticised by leading accountants and lawyers as they do not give the taxpayer an option of disputing the tax before paying at a tribunal and also not giving a right of appeal. Perhaps a more fundamental issue, one which HMRC disputes, is that it is changing the tax law retrospectively. It is going to get interesting!

Tax Avoidance

Tax avoidance is an all too common headline in the papers these days, it seems as though almost every celebrity is at it to some degree or another, while the man or woman in the street is struggling to make ends meet.

With tax paying being an almost moral question, how to pay one’s fair share of tax, and what is ones fair share? The papers have always taken an interest in celebrity tax payers, be it the Beatles or the Rolling Stones it has always made good headlines, so is today any different? Is tax avoidance by the rich and famous any more prevalent these days than in the past, probably not, according to HMRC’s figures the top 1% of earners now contribute 30% of the UK’s income tax, whereas in 1999 it was just 21%.

Well media scrutiny is much more intense these days, with the rise of the internet, twitter and Facebook as well as the traditional channels of television and newspapers have increased the spotlight on tax avoidance and also the new phenomenon of  ‘celebrity’ where you only need to go into the newsagent and see magazines devoted to people who are famous for being famous.

Plus HMRC has more powers and access to information than it ever has, and with more powerful computers and data mining techniques the playing field is changing. An interesting example of this may happen in the next few months when HMRC will be allowed to demand tax on disputed tax amounts, and then the tax payer will be allowed to contest the disputed amount in the courts.

This will no doubt cause some tax payers significant cash flow problems or maybe bankruptcy, the playing field is definitely changing and it it towards HMRC.

Contracting during the World Cup

How should  Freelancers and contractors cope with the world cup?

The football world cup is just around the corner and the excitement is building for both football and non football fans alike.

The world cup give employers an added problem, should they allow staff time off to watch the matches, should they supply a room with a TV in it so staff can watch matches during work time or should they ignor it and try to carry on business as usual?

This time the  schedules have been reasonably kind to employers, being held in Brazil the matches will be held at times which have limited effects on a normal contractors working schedules. The only significant England group match which needs consideration is the Costa Rica match on the 24 June 14 which has a 5pm kickoff.

Is it better to be a contractor during the world cup?

A benefit of being a freelancer or contractor is the ability to be more flexible around how your work is undertaken.

As a contractor you normally have flexibility around the place of work, and methods of working plus control of how you undertake the task.

This should allow you to plan your world cup easily around your work commitments and hopefully England will stay in the competition longer than the knockout stage.

One thing wrong with the tax system?

One thing most people would agree on is tax is complicated. The detail of tax is where people will disagree and politicians spend an awful lot of time debating, amending, rewriting and tinkering with tax laws.

An aspect or idiosyncrasy of the personal tax system is the oddity that exists on personal income between £100,000  and £121,000 where income between these bands is taxed at a marginal rate of 60%.

Obviously this is nonsense as everyone knows the top rate of personal tax is 45% which starts on income of over £150,000. But what happens when your income reaches £100,000 the Government starts to restrict your personal allowance which reduces down to zero when your income reaches £121,000.

How this situation ever came to exist is anyone guess, but to someone looking in, it would seem like it was an idea raised in a discussion focus group that went too far without somebody looking at how the numbers feed through, because its hard to believe anyone wanted the highest marginal rate of tax to be in a band between £100,000 and £121,000 as band rates are generally progressive in nature.

HMRC's plans to recover tax debts direct from taxpayers bank accounts

HMRC published a consultation document this week where it discussed proposals on how to recover tax debts directly from tax payers bank accounts without the need for a court order.

This would be used to target any taxpayer who owes over £1000 in taxes and would not require the taxpayers consent.

Like a lot of consultation documents, the important bit is if and when this comes into legislation, then the devil will be in the detail.

At the moment this consultation document is causing concern amongst some advisers and accountants on, amongst other things, the ability for HMRC to take money from joint accounts or the sale of stock and share ISA’S to cover tax debts, also what should be the level of savings to which HMRC can take up to, but not go beyond.

Whilst most people would not argue that people should pay the correct amount of tax, and people that do not pay should be held accountable for non payment. It is a step to far for some people that HMRC, who do not have a perfect record on getting things right, intend to act both as calculator of tax liability and collector/enforcer.