Get ready for when an inspector calls

Get ready for when the taxman calls, small businesses are urged...

Small businesses are being warned to prepare for a call from the tax inspector, as a national “grab for cash” targets business owners. HM Revenue and Customs (HMRC) are expected to massively increase the number of tax investigations they make, in a bid to reduce the tax gap – the difference between tax raised and what is thought to be owed – by £4 billion at the end of this financial year.

Cash businesses across the UK such as private taxi firms, pubs, corner shops and takeaways, are particularly vulnerable and should ensure they have all their books in order and answers ready. The investigation insurance company, CCH, has already seen an explosion in new cases, with new claims up 82%* compared to the previous year and this is expected to ramp up even more in the next few months.

Business owners should not take this attack on their legitimate earnings and hard work lying down. If they ensure they have all the right procedures, records and proof of income and expenditure in place, they can show the tax inspector the door. They should also ask their accountant for fee protection insurance to cover the costs which could be run up in fighting any claims from HMRC.

How we can help

HM Revenue and Customs no longer need a reason for opening an enquiry into your business or personal affairs. If you have concerns about your business’ vulnerability to a tax investigation, or would like more information about protecting your business from the cost of an investigation, contact us today to speak to a local advisor. 

How to deal with an enquiry

Small businesses should follow five golden rules when the tax inspector calls:

• Challenge any part of the tax assessment you know is wrong
• Answer all correspondence from HMRC within their deadline – or fully explain why if you need more time
• Anticipate the inspector’s questions – if there is anything to declare do so early
  
• Ensure your tax advisor is experienced in negotiating with HMRC


• Appeal against any HMRC order to the independent commissioners within 30 days and go to the Tax Tribunal if you have a particular grievance

HMRC to clamp down on poor record keeping

The government has announced that small businesses and other enterprises demonstrating poor bookkeeping are to be punished, it has been reported.

With all the activity surrounding the Self-Assessment Tax Returns deadline, taxpayers have every incentive to ensure that their records are in order and up to date.

However, in a bid to see small businesses and other taxpayers improve their bookkeeping, HM Revenue & Customs (HMRC) is preparing to fine those found demonstrating poor practice in this area, as reported by Accountancy Age.

According to the news provider, HMRC is looking to reduce the amount of unpaid tax by targeting small firms that make mistakes based on information from poor records.

"The businesses will benefit from improved financial management which in turn will boost their chances of survival. Those seen to be fulfilling their obligations will likely have a lower chance of a subsequent compliance intervention from the taxman."

News of the crackdown, which could see firms fined up to £3,000, was met with concern from a number of industry experts, with the Forum of Private Business (FPB) saying the move comes despite HMRC promising a "lighter touch" approach to bookkeeping mistakes in light of the recent VAT rise, which saw the rate increase from 17.5 per cent to 20 per cent.

HMRC's website explains that the department promotes a high level of record keeping in order to minimise the risk of tax overpayment, saying that if sufficient evidence of income and outgoings cannot be shown, mistakes are more likely to occur.

"If you do not maintain good records, you might not be able to render your VAT return on time and this can result in a surcharge," the department warned.

"Wherever possible, we will give you the benefit of the doubt, but don't forget there are penalties for failing to keep proper records to back up a tax return or claim. The law says that everyone who pays tax must keep the records they need to fill in a tax return. If you don't keep records, how can you show what you've earned and what you've spent?"

HMRC added that VAT-registered businesses are "legally required" to keep certain types of business record and reminded taxpayers that if they are charged any penalties, they can appeal against the decision to independent tribunals.

Tax Saving Advice: VAT is going up to 20%...

Tax Saving Advice: VAT is going up to 20%...: "The standard rate of VAT will be rising to 20% on 4 January 2011. So what should you be doing? InvoicingThe correct rate of VAT to apply i..."

VAT is going up to 20%...

The standard rate of VAT will be rising to 20% on 4 January 2011.  So what should you be doing?

Invoicing

The correct rate of VAT to apply is that applicable on the day the customer receives the goods or services. This means that invoices raised before 4^th January 2011 should charge VAT at 17.5%; invoices raised on or after 4^th January 2011, 20%.

However, if you raise an invoice in January 2011 for goods etc delivered in December 2010, you can charge 17.5%.

Increasing your VAT inclusive prices

To increase your VAT inclusive prices to reflect the increase in the VAT rate to 20% you should multiply your old prices by 120/117.5, which is equal to 48/47.

Deposits

If you take a deposit on goods or a service before 4^th January but deliver on or after the 4^th January then the deposit is subject to 17.5% and the balance at 20%. If you raise the full invoice before 4^th January then the VAT rate is 17.5%.

Continuous Work

If you provide work on a continuous basis, once you pass 3^rd January 2011 you can charge VAT at 20% on the entire bill, including the work done when the rate was 17.5%, so long as you can prove that this is fair. Otherwise charge 17.5% on the work done before 4^th January 2011 and 20% on the rest.

Single Supplies

For single supplies (e.g. decorating a house) carried out over a period of time, you could also issue a VAT invoice before 4^th January on the whole job and, even though the job is finished after 4^th January 2011.  It can all be charged at 17.5% provided your bill has been paid for by the 3^rd January 2011.

Credit Notes

If you raise a credit note after the 3^rd January against a 2010 invoice you should use the same VAT rate on the credit note as per the original invoice.

Suppliers

All the above applies in reverse for invoices you receive from suppliers.  Therefore you should check that you have been charged the correct rate of VAT.

Tax Saving Advice: Guidance on Christmas Parties and Gifts

Tax Saving Advice: Guidance on Christmas Parties and Gifts: "Once again the Christmas season is upon us so this year we've put together a basic guide to help you understand what you need to know about ..."

Guidance on Christmas Parties and Gifts

Once again the Christmas season is upon us so this year we've put together a basic guide to help you understand what you need to know about tax and VAT when it comes to Christmas parties and giving gifts to customers and staff.

Staff Christmas Parties

HMRC allows up to £150 per employee for an annual party as long as all employees are entitled to attend. Be careful though, if the party exceeds the £150 per person threshold then the full amount of the benefit will be chargeable.

The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.

• If non-employees attend the party, i.e. partners or spouses, expenditure is allowable for tax. This is providing the total expenditure for the party, including the non-employee guests, amounts to £150 or less per attendee.

• If you are a small, owner-managed business then you are still able to claim up to £150 per employee for any Christmas party or meal, even if just two or three members of staff attend.

•  Where VAT is concerned, the expenditure on non-employees is viewed as entertainment which means the VAT on that proportion of the expenditure cannot be claimed back, so you will need to show the split between employees and their non-employee guests.

Social functions and annual parties

Seasonal Gifts

All gifts to staff including Christmas gifts are classed as taxable benefits, except where they deemed to be trivial gifts.

• An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable.

•  Monetary gifts, for example bonuses, are accounted for through the payroll system and taxed in the usual way.

•  Any non-monetary, non-trivial gifts must be included on form P11D.

 

Particular benefits: Trivial Benefits 

Christmas Gifts to Clients

Normally gifts for customers and clients are treated in the same manner as entertainment but gifts (up to £50) carrying conspicuous advertisement can be an allowable expense.

However as with Christmas parties you need to be careful as if the gift costs more than £50 including gift wrap the whole amount will be disallowed.

Common examples of allowable gifts are diaries, pens and mouse mats. The advertisement should be on the gift itself, and not just on the wrapping.

Have an enjoyable Christmas!

Tax Saving Advice: Salford Advertiser Christie Appeal Fundraiser

Tax Saving Advice: Salford Advertiser Christie Appeal Fundraiser: "Salford Advertiser Christie Appeal/TaxAssist Accountants Anniversary Fundraiser – Thursday 9th December We are holding our 1st anniversary c..."