As we all knew at the time, the March 2010 Budget was likely to be out of date before the ink on it was properly dry, with the general election due just six weeks later. Now after the protracted political horse-trading following the most unusual election in nearly forty years, we face a new Budget in the near future – and apart from ‘general misery’ it’s hard to know what to expect over the coming months. However, while it means that potentially anything that Alistair Darling announced in March might soon be ripped-up by George Osborne & Co., on a day to day basis the machine grinds slowly, and many of the detailed changes announced in March will continue to fall into place. This is particularly true of the low-key, non-headline changes to tax rules and thresholds; however unpopular they might have seemed ‘then’, and however much the then-opposition may have condemned them at the time, the political price will have been paid already – and incoming politicians often find that the benefits [to the Treasury] are such that there’s really no point in reversing what’s already in place.
It’s a World Cup: think Penalties!
One such area that no incoming Chancellor will rush to undo concerns various Penalties that HMRC have available against taxpayers who don’t quite follow the rules [as it were..]. A new, streamlined penalty regime came into effect from 1st April 2010; it didn’t really make headlines then, and although many individuals and businesses might think the changes were unnecessary or just another sign of the power of Government versus the individual taxpayer, they are unlikely to be suddenly cancelled by the new government.
Inaccuracy penalty
From 1 April 2009 there was a penalty for inaccurate tax documents and returns. This penalty is being extended to almost all taxes for return periods starting on or after 1 April 2009, for documents that are due to be filed on or after 1st April 2010. Apart from the ‘big ones’ [e.g. PAYE/VAT/Corporation Tax – for which these penalties already applied last year] the new rules cover virtually every other tax you can think of, such as Excise Duty, Tobacco Products Duty, etc.
Under the new system HMRC “will not penalise you if you take reasonable care to get your tax right”. Taking ‘reasonable care’ includes:
· keeping accurate records to make sure your tax returns are correct
· checking what the correct position is when you don’t understand something
· telling HM Revenue & Customs (HMRC) promptly about any error you discover in a tax return or document after you’ve sent it.
This clearly puts the onus onto every business operator to maintain an accurate accounting system, and to be open and honest when providing their accountant or tax advisor with information that will be used for preparing returns to HMRC.
Failure to notify penalty
From 1 April 2010 HMRC can apply a penalty if people don’t tell them about a tax obligation at the correct time. Again the penalties relate to almost every tax that you can think of, as well as quite a few that you’ve probably never heard of.
The failure to notify penalty will most commonly apply where you don’t tell them at the right time that:
· you are liable to tax because your new business has made a profit
· your business’s turnover has reached the VAT registration threshold
· you sell an asset and make a capital gain on which tax should be paid
· you start a type of business that is required to register with HMRC – for example for Excise
· your circumstances change in another way that affects your tax position [which is a classic ‘catch-all’ provision if ever we’ve seen one].
VAT and Excise wrongdoing penalties
From 1 April 2010 HMRC will apply wrongdoing penalties where a person:
· issues an invoice that includes VAT which they are not entitled to charge
· handles goods on which Excise Duty has not been paid or deferred
· uses a product in a way that means more Excise Duty should have been paid
· supplies a product at a lower rate of Excise Duty knowing that it will be used in a way that means a higher rate of Excise Duty should be paid
-the latter clause should be noted in particular by those fuel retailers selling products such as “Agricultural Diesel”! This penalty applies to anyone registered for VAT or Excise, anyone who should be registered to pay VAT or Excise duties and to other members of the general public.
Name & Shame
If those are the ‘penalties’ – what are the actual sanctions? What will HMRC do to you if you get caught? Simple: first the actual amount of tax that’s been underdecalared, plus an additional amount calculated as a percentage of that tax; exactly how hard they hit you comes down to how much you cooperate with them – and that includes just how good [or otherwise] your basic accounting records are. That’s been HMRC practice for a long time, what’s new is the ‘name & shame’ part: from April of this year if a taxpayer is found to have evaded over £25,000 in tax, HMRC can publish the names, business details and amount involved on their website, together with a press release to the media. Apart from any personal embarrasment, that’s not something that will do you a lot of favours if you’re trying to raise funds or get anyone interested in investing in your business in future.
Given that there’s going to be another Budget in the next few weeks, it’d take a brave or foolish soul to try and predict what will be in it; as we go to press there are persistent rumours of another hike in VAT rates, and possibly an extension to the scope of VAT to include things like newspapers and maybe even more categories of groceries. As a retailer, one can only hope that if any of these changes are being considered, they’ll be kept relatively simple and that we are all given sufficient notice [say six months..] to implement them smoothly, unlike the ‘overnight’ VAT changes back in December 2008.
