HMRC: on the offensive!
The HMRC landscape has changed considerably in recent years and we believe it is fair to say that it remains in a high state of flux!!
The level of HMRC debts has escalated dramatically since the onset of the credit crisis and recession. The BBC reported that uncollected HM Revenue & Customs debts in the last financial year rose to an estimated £42 billion.
Whilst the UK economic outlook continues to appear challenging, pressure on meeting regular and ongoing PAYE/NI, VAT, CT and other tax obligations will continue to mount. Strong steps are being taken by HMRC to identify problematic situations at an earlier stage and proactively take preventative action.
The steps include:
• Mandatory electronic filing of PAYE/NI and VAT for many businesses;
• VAT and PAYE/NI security bonds for extremely poorly compliant businesses;
• The advent of “roving” case officers to make “at the coal face” business assessments;
• Closer integration of VAT and PAYE&NI offices to allow greater transparency and ensure joint compliance;
• Targeting of specific sectors such as football clubs, recruitment, import, retail and “cash” businesses in general; and
• Streamlining of winding up procedures to bring non compliant businesses to the forefront sooner.
What a difference 2.5% makes
Whilst the 2.5% decrease in VAT to 15% in 2008 may have been intended to kick start the economy, many observers have likened this approach to “stopping a freight train with a bullet”. In the main, it is generally accepted that it was unsuccessful in inspiring consumer confidence or providing the desired fiscal stimulus but, crucially, it further cost the UK treasury some £10 billion in lost revenues during 2008.
Whilst consumers may have been happy to receive a 2.5% discount (equivalent to a saving of £10 for every £400 spent!), the same ambivalence by individuals and indeed corporate entities is unlikely to be forthcoming when they are required to pay an extra 2.5% when the VAT rate increases to 20% from 4 January 2011.
The British Retail Consortium in particular expressed considerable concern with this move and stated that it is more likely to have a negative impact on the retail sector and the wider economy as a whole. Whilst we do share these concerns which will impact on a business’s ability to service an existing time to pay andlor ongoing HMRC obligations, there are practical and effective. planning options for management which can mitigate the impact of the above.
Bond, VAT Bond … licensed to kill (your cashflow!)
Whilst a “Notice of requirement to give security under paragraph 4 (2) (9) of schedule 11 to the Value Added Tax Act 1994” or demand for a VAT bond as they are more commonly known, may have been around for nearly 20 years, we have observed a sparing use of this powerful tool in recent years.
Although the VAT Bond fund is ultimately refundable typically after one year for subsequent unblemished compliance records, however, many businesses will face funding and cashflow issues as a direct consequence.
We have witnessed an increase in disqualification proceedings launched against company directors based on their failure to pay tax which is consistent with HMRC’s apparent clamp down on Tax arrears for repeat offenders.
According to research from Syscap, there has been a 24% increase in the number of directors facing’disqualification proceedings for nonpayments of company tax. More than 800 company directors faced such actions over the year ending 31 March 2010, up from around 650 a year earlier.
HMRC has announced plans to seize an additional £4 billion in revenue in 2010/11 through a more aggressive strategy which could leave compliant businesses facing unnecessary investigations into their dealings.
The total figure projected to be clawed back in tax under the new strategy is £16.1 billion – a 33% increase on the previous year. The increased target has been set after pressure to ensure businesses do not escape their full tax responsibility. Directors beware!
Other topical points
• PAYE/NI – a new late payment regime was introduced from 6 April 2010 where surcharges will be levied on a sliding scale depending on the number of defaults and value of the liabilities within any given tax year.
• Please say goodbye the short-lived BERR and say hello BIS (The department for Bureau Innovations and Skills). BIS handles many aspects of employment law and also can provide financial support to fund redundancies.
• Following a number of high profile cases such as Portsmouth and Cardiff City Football Clubs, HMRC have adopted a new zero-tolerance approach to the football clubs with greater disclosure and proof of financial standing.
• A new unit for processing agent authority application known as a VAT form 64-8 was launched in 2010.