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Solicitors targeted in new tax clampdown

Solicitors are being given the chance by HM Revenue and Customs (HMRC) to bring their tax affairs up to date or face tougher penalties, as part of a new tax campaign.

The Solicitors’ Tax Campaign is the latest voluntary, intelligence-led disclosure opportunity giving specific groups of taxpayers the chance to get their tax affairs in order on the best terms available.

Previous campaigns have included medical professionals, plumbers, tutors and coaches, electricians, online traders, landlords and health professionals. This approach has so far raised almost £1 billion from voluntary disclosures and follow-up activity by HMRC.

Solicitors have until 9 March 2015 to tell HMRC that they would like to take part in the campaign, and until 9 June 2015 to disclose the tax they owe and pay it.

By using this campaign to come forward voluntarily, any penalties they might have to pay will be lower than if HMRC has to approach them first.

Caroline Addison, Head of Campaigns, HMRC, said:

“Information gathered by HMRC has allowed us to identify solicitors who thought they could operate without declaring income and paying the taxes that others have to pay.

“If you have not declared all of your income, you need to put your tax affairs in order. Take this chance to come forward and put things right in a straightforward way and on the best possible terms. It will be easier and cheaper for you to come to us than for us to come to you.

“Those who make a deliberate decision not to pay the taxes due could face a penalty of 100% or more of the tax due, or even a criminal prosecution.”

Solicitors can take part in the Solicitors’ Tax Campaign by:

  • Telling HMRC they want to take part in the campaign by 9 March 2015
  • Disclosing details and paying what they owe by 9 June 2015

For more details, plus help and support on the campaign, solicitors can phone a dedicated helpline on 0300 013 4749 or visit www.gov.uk/solicitors-tax-campaign online.

For independent help and support contact Davenports Accountancy today on 01367 602011

 

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Digital services suppliers urged to register for new EU VAT service

Businesses supplying digital services across the European Union will be able to register for a new online VAT service from 20 October.

This will mean that they do not have to register VAT separately in each country where they do business.

To help the estimated 34,000 or so small-to-medium-sized enterprises (SMEs) affected by the changes, HM Revenue and Customs (HMRC) has released a short YouTube video: http://youtu.be/cZdDIVNaL18

The digital services affected include most types of broadcasting, telecommunications and e-service supplies. Examples range from telephone services, supplies of music, films and games to downloads of apps, images, text or other information.

From 1 January 2015 the place of supply, and therefore taxation, of EU business-to-consumer supplies of digital services is changing. Currently the place of taxation is where the supplier is established, but from January it will be where the consumer lives.

On 1 January all EU Member States will also implement the VAT Mini One Stop Shop (VAT MOSS), to avoid additional administrative burdens and costs if a business is required to register for VAT in every Member State where it has consumers.

Sally Beggs, Deputy Director, Indirect Tax, HMRC, said:

“The VAT MOSS will save digital services suppliers from having to register for VAT in every Member State where they do business, removing a significant administrative burden. Businesses with their main operation or headquarters in the UK will register with HMRC to use the service.”

Between 27,000 and 42,000 UK businesses are expected to register for VAT MOSS in the UK.

While they will be able to register from 20 October 2014, the service will start operating from 1 January.

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Experts warn over VAT digital services rules

Businesses who make and sell apps or provide digital services to consumers in the European Union will see their paperwork increase in January due to new legislation to counter tax avoidance, experts have warned.

Currently VAT on digital services is charged at the national rate where the supplier is. Providers of electronic services such as Amazon have been criticised for basing their European headquarters in countries such as Luxembourg where VAT rates used are much lower than the UK.

From the 1 January 2015, businesses supplying broadcasting, telecommunications and digital services to consumers will have to charge customers VAT at the rate of the country where the customer buys the service from.

So a UK business selling an app to a customer in Luxembourg, will have to charge VAT at 15%, but at 27% for same app if the customer lives in Hungary.

“There are 28 countries in the EU with 30 different VAT rates [which] creates a high administrative burden, plus enormous potential for mistakes,” said Ruth Corkin, VAT senior manager at accounting firm James Cowper.

Tax rules on digital transactions are further complicated because different technology platforms are categorised differently by the new tax rules.

Apple’s App Store, for example, is considered a marketplace with purchasers buying directly from Apple, and Apple automatically accounting for the VAT, Corkin said.

In contrast, Google Play acts as an agent taking a commission on sales, leaving the retailer having to account for the VAT themselves.

“A business selling the same app from both Apple’s app store and Google Play will have to account for VAT in completely different ways,” Corkin added.

In the UK, businesses can register once with HMRC for VAT in every EU country they supply electronic services to.

The online registration – called the VAT Mini One Stop Shop (MOSS) – is intended to make it easier for businesses to comply with the new VAT rules.

The service will start on 1 January but businesses can register to use it from October. HMRC consulted on the registration service over the summer.

Businesses will have to submit separate VAT returns for their cross-border digital services and pay tax due every three months. But the government’s online service won’t apply to Britain’s smallest businesses, which trade below the threshold for VAT registration, which is £81,000. These businesses will have to register for VAT in each EU country they sell digital services to.

This and other implications of the new VAT rules were discussed by tax experts during an AccountingWEB webinar in August.

Kevin Hall, a VAT specialist at Gabelle, said it may be hard for some businesses to work out if their service is defined as an electronic service for consumers under the new VAT rules. He advised businesses to start planning for the new rules.

“They may even need to consider whether some countries are not worth targeting [because of the new VAT rules],” he said.

Tax expert Rebecca Benneyworth said some small businesses below the VAT threshold – who will not be able to register with HMRC’s VAT registration service for electronic services – will have an “unenviable task”.

As a director of a small tax software company with European customers, Benneyworth said she would also be affected by the rules.

Story from AccountingWeb

If you need help with the transition or any other VAT issue, call us today on 01367 602011

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SFO fined for incorrect VAT claims

The Serious Fraud Office (SFO) was fined more than half a million pounds for owing HMRC £4m in VAT.

The fraud watchdog used to reclaim VAT on legal fees and some specialist staff.

After a new chief financial officer reviewed its VAT policy, the SFO decided to stop re-claiming VAT on external counsel fees in December 2012.

In 2013, the SFO, which investigates the most serious and complex cases of fraud, bribery and corruption, asked HMRC to confirm how it should account for recovered VAT on outsourced services.

“These discussions, coupled with an HMRC assessment which took place in October 2013, led to the SFO having a liability for reclaimed VAT in previous years… amounting to a total of £4,635k [£4.6m] including a penalty of £564k, interest of £104k, accrued tax of £798k and outstanding tax of £3,169k,” the SFO said in its annual report for 2013-2014.

It shows that the £660,000 in penalties and interest were accounted for as programme costs under civil litigation – sums that one might assume should be devoted to pursuing wrongdoers.

The annual report indicates that £1.9m of the VAT repayment was accounted for as fees for legal counsel, £580,000 was included as other staff costs; and £17,000 under IT costs.

The VAT bill was partly responsible for the SFO net operating costs rising from £38.1m in 2012-13 to £51.7m. Costs associated three “blockbuster” investigations were also to blame along with a £200m damages claim from businessman Vincent Tchenguiz for malicious prosecution, trespass, false imprisonment and misfeasance in 2013.

The investigator frequently comes under fire for ineptitude and is castigated by Private Eye as the “Serious Farce Office”. In February, the Financial Times reported that SFO director David Green QC had asked the Treasury for £19m in exceptional funding, equivalent to more than half its overall annual budget.

But Green struck an optimistic note in his introduction to the 2013-14 annual report. “We have had eight prosecutions of 18 defendants either concluded or in progress. The conviction rate by defendant was 85%. All of our cases are high profile and therefore high risk.

“With our recalibrated caseload, expanded intelligence capability, the building of cooperation with partners and stakeholders foreign and domestic, blockbuster funding for exceptionally large cases and the recruitment and retention of high quality staff, I am confident that we have in place the building blocks necessary for the success of the SFO.”

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Crackdown on North East’s VAT cheats

Tax cheats in the North East who try to fraudulently reclaim VAT are being targeted as part of an HM Revenue and Customs (HMRC) taskforce.

HMRC has seen an increased risk of fraudulent VAT repayment claims in the North East, in particular businesses being set up purely for the purpose of making false VAT repayments claims.

The VAT repayment taskforce – targeted at individuals and businesses – aims to tackle that and is set to bring in £6 million in the North East and Lincolnshire. A taskforce is also being launched in South Wales and South West England.

Taskforces are specialist teams that undertake intensive bursts of activity in specific high-risk trade sectors and locations in the UK. The teams visit traders to examine their records and carry out other investigations.

David Gauke, Exchequer Secretary to the Treasury, said:

“We are determined to support hardworking people who want to get on, but the people being targeted by these taskforces have no intention of playing by the rules.

“This Government has made it clear that we will not tolerate tax evasion and has provided HMRC with the resources to crack down on those who break the rules.”

HMRC has collected more than £100 million as a result of taskforces launched since 2011-12. It expects to bring in over £90 million a year from taskforces launched over the next three years.

HMRC’s Jennie Granger, Director General of Enforcement and Compliance, said:
“Deliberately falsifying VAT records is serious. It is really important that we level the playing field by stopping tax cheats. Our message is – do the right thing. If you haven’t already, come clean now. If you don’t, we will find you, investigate you and, not only could you face a heavy fine, but you may face a criminal prosecution as well.”

Other taskforces being launched today to tackle tax evasion will target:

– road transport industry in the South East and South – hidden wealth in the South East and South

If you know anyone who is evading their taxes, you can tell HMRC by calling the Tax Evasion Hotline on 0800 788 887.

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Food and living accommodation for staff now liable for VAT

Hotels and hospitality firms must now account for VAT on any income from providing living accommodation for employees, including on payments made via salary sacrifice schemes, under changes announced by HMRC

Other VAT changes mean that firms letting rooms to guests for more than 28 consecutive days, now no longer have to charge VAT on income from the 29th day onwards. Pub trade accountant David Jones urged hospitality firms to ensure they are up to date with the changes to VAT rules. If a staff member pays for accommodation for food and drink, the money received will be treated as including VAT and must be accounted for on VAT returns. This means that firms could be worse off by almost 20 per cent unless they increase the charges they make to staff.

If you require assistance with your VAT returns contact Davenports Accountancy today on 0845 351 0381

Story from Federation of Small Businesses

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Online-only VAT returns deemed unlawful

Three small business owners have won an appeal against HMRC’s requirement that all VAT returns are filed online. The requirement was deemed to breach their human rights and EU law. The business owners were unable to file the returns online due to disability and lack of any computer skills. According to the Low Incomes Tax Reform Group (LITRG), which supported the case, all three had previously filed their returns accurately and on time. Anthony Thomas, Chairman of the LITRG, said HMRC must give older and disabled people an alternative means of complying with their tax obligations, such as paper-based filing.

Read more about the case at:
http://www.litrg.org.uk/News/2013/PR_VAT_tribunal_win

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HMRC withdraws research VAT exemption

UK businesses and academic organisations may do less research after after the withdrawal of an exemption of VAT on research, businesses and universities said.

The government withdrew the VAT exemption for the supply of research on 1 August after it was told that the exemption was incompatible with European Union legislation.

HMRC said that the changes to VAT rules for research services will have a negligible impact on businesses and civil society organisations.

It expects to get an additional £50m increase in revenue from the tax by 2017-2018. About 100 to 200 charities and universities are reportedly being affected.

Respondents to the consultation on the proposed change to the VAT rule, recognised that the government had no option other than to withdraw the exemption for supplies of business research between eligible bodies but said that the withdrawal should be managed so as not to impact on existing contracts, according to HMRC.

But many respondents to the consultation, especially universities, expect that the tax changes will cause them problems, according to a summary of responses to the consultation on the tax change released by the Revenue.

Some respondents wanted the changes to be completely deferred until 2014.

“There is a concern that the consequence of an increase in the costs of research will lead to a corresponding reduction in the volume of research activity that can be undertaken within fixed funding,” HMRC said.

Respondents to the consultation included the British Universities Finance Directors Group, PwC, Department of Health, Imperial College London, and Joseph Rowntree Foundation.

HMRC has published a guide on which types of contracts are exempt from VAT and how the transitional arrangements work.

For supplies of business research where the written contract was entered into before 1 August 2013, whether or not work has already commenced, the exemption will continue to apply to services within the scope of the contract.

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HMRC admits losing 60% of VAT penalty cases

More than half of HM Revenue & Customs’ decisions in VAT penalty cases are cancelled upon appeal, data in the tax assurance commissioner’s latest report reveals.

Of 30,345 cases, the taxman’s decision was overturned in 18,317, 60%, in 2011/12. Of the remaining 12,028, some 9,785 HMRC penalties were upheld – equating to 32% – with the balance of decisions varied upon appeal.

HMRC has faced pressure to improve its performance on VAT after a National Audit Office report criticised the department for unpaid VAT contributing £9.6bn to the UK’s estimated tax gap of £32bn.

The data suggests the taxman has become more aggressive in its pursuit of VAT receipts, according to Pinsent Masons head of tax Jason Collins.

He said: “HMRC is operating under a lot of pressure to increase its revenues across the board, but this pressure is particularly acute in VAT. The NAO report highlighted the huge difference between the VAT HMRC believes it should be collecting, and the amount it actually does receive.”

“The fact that HMRC loses 60% of the penalty cases that businesses appeal shows that it may have become over-aggressive in hunting for cases of VAT evasion, and is making errors in issuing penalties. HMRC is also too quick to say a taxpayer has been negligent when it gets things wrong.”

“Unfortunately, it seems that thousands of UK businesses have been forced to challenge unfair fines as a result.”
A spokesman for HMRC said: “Only a small proportion of the millions of decisions HMRC makes each year are challenged. The review and appeal system provides a quick and easy way to resolve disputes.

“Where we change a decision it is often because our customer has given us new information: for example, a reasonable excuse for their tax return being late, or fresh evidence to support a claim.”

If you need help with VAT or any other tax, call Davenports Accountancy today on 0845 351 0381 to see how we can help you.

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Game on for new tax regime

A new tax regime for businesses operating gaming machines comes into effect on 1 February 2013.

Machine Games Duty (MGD) will be charged where customers pay to play a game on a slot, quiz or other machine in the hope of winning a cash prize which is greater than the cost to play. It replaces both Amusement Machine Licence Duty (AMLD) – an annual charge for making a gaming machine available for play – and standard-rate VAT on net takings. This means tax on machine games will now be entirely linked to takings, rather than including a fixed fee element on all machines.

Bookmakers, casinos, arcades, bingo halls, pubs and clubs and any other premises operating such machines must apply for registration with HM Revenue & Customs (HMRC). Affected businesses that continue to operate machines from 1 February onwards without having applied for registration could face a penalty.

Businesses should apply to register with HMRC as soon as possible if they continue to operate machines for play. The quickest way to register is via its MGD Online Registration Service – visit www.hmrc.gov.uk/machinegamesduty/mgd-online.htm and follow the instructions.

Under the new regime, businesses must keep certain records, including: bank statements; takings records, and relevant business correspondence.

We can assist you in completing your VAT returns and make sure you’re claiming everything you’re entitled to. For further information please contact us on 0845 351 0381 or visit our website www.davenportsaccountancy.co.uk

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