Some tax enquiry cases…
Tax Enquiry Investigation
Client A had been in a 4 year running battle with HMRC. The client was keen to finalise matters but at a reasonable compromise based on the facts and circumstances. HMRC were asking for approximately £200,000 and the previous accountant and insurers were not able to reduce this figure.
Shipleys were then appointed at this late stage and discovered flaws in HMRC’s argument. We supplied irrefutable evidence and successfully negotiated tax down to £30,000.
Comment: This is unfortunately a typical case where HMRC officers tend to hastily take a defensive position and refuse to move. Our tax expertise was invaluable in dealing with these type of enquiries.
Serious Tax Fraud
Client B had a 15 year back duty case, the tax assessed was approximately £300,000. Shipleys managed this stressful process from start to finish and achieved a good result both on time and reduced overall duty payable and secured a sensible time to pay plan.
Comment: HMRC are much more aggressive now with collecting tax with these kind of formal tax cases on the increase; it is thus essential that the client has proper representation by experienced advisers in order to achieve the desired outcome.
Latest news & blogs…
LEGISLATION introduced to tackle the abuse of Research and Development (R&D) tax relief claims, which inadvertently affected genuine claims from small businesses, is being amended.
In today’s tax brief, Shipleys Tax looks at the new proposed changes to R&D rules and suggests why it’s good news for SME’s looking to get tax relief on research expenditure.
For a general overview of R&D and its abuse see: https://www.shipleystax.com/2020/09/beware-of-unscrupulous-rd-tax-relief-claim-companies/
Under the UK R&D tax credit relief rules, R&D costs incurred for work done anywhere in the world can potentially qualify for R&D tax relief. This is a very generous aspect of the tax relief but one that was open to widespread abuse.
For example, companies outside the UK with no real business interests in the UK, would set up UK companies and run foreign R&D costs through the company only to obtain the refundable/payable R&D tax credit from HMRC. HMRC state they have identified approximately £300M in fraudulent claims.
In order to prevent this abuse, draft legislation was introduced whereby any payable R&D tax credit would be capped at three times the PAYE costs incurred (thereby limiting the claim).
One of the major problems with this cap was an unintended result to deny or substantially reduce the R&D tax credit payable for certain SMEs; in particular start-ups. In many cases, start-ups tend to engage staff on a contract basis as opposed to employee/PAYE basis for various reasons. This would mean a low PAYE base cost.
As such, you could have the situation where a start-up has one employee on a reduced salary (because the company is “bootstrapping”) and hiring R&D staff on a contract basis. For example, if the PAYE were £5,000, the payroll cap would be £15,000 and hence any payable tax credit over this amount would be denied even if the qualifying expenditure was much higher. With the average SME receiving over £55K in tax credits, this could result in a substantial reduction, or denial, of R&D tax credit relief.
Under new draft legislation however, these restrictions have been lifted and there are now two exceptions to the rule above.
Firstly, any payable R&D tax credit below £20K is not affected by the cap. Secondly, and more importantly, any SME will not be subject to the cap if:
- its employees created the intellectual property behind the R&D work and
- its expenditure on externally provided workers (and work subcontracted to a related party) is less than 15% of its overall R&D spend.
Currently the legislation is draft and, if passed, is welcome news to SMEs in the UK. In particular it would benefit those startups with very low PAYE costs and hand them a cash boost when it’s needed most.
The new legislation is expected to apply to accounting periods on or after 1 April 2021.
To talk through your potential R&D claim and how our team of experts might be able to help, please call 0114 272 4984 or email email@example.com.
Tips on avoiding tax scams
AS THE FESTIVE SEASON draws nearer, HMRC is warning millions of Self Assessment customers to be aware of fraudsters in the run up to the 31 January tax deadline. Cyber criminals are taking advantage of “reminder” SMS messages and bogus emails during the festive season to trick taxpayers out of their money.
Just in the last year, HMRC received nearly 900,000 reports from the public about suspicious HMRC contact – phone calls, texts or emails. More than 100,000 of these were phone scams, while over 620,000 reports from the public were about bogus tax rebates.
At Shipleys Tax we look at some of the most common techniques fraudsters use to entrap taxpayers and what you should do if you suspect foul play.
Probably the most common methods we come across that fraudsters use includes:
- Phoning taxpayers offering them a fake tax refund
- Leaving a voicemail message threatening enforcement action or imprisonment if a bogus tax bill is not paid immediately
- Pretending to be HMRC by texting
- Emailing a link which will take customers to a false page, where their bank details and money will be stolen.
Taxpayers need to recognise the signs to avoid becoming victims themselves. HMRC, like other genuine organisations and banks, will never contact customers asking for their PIN, password or bank details. HMRC also do not email taxpayers direct.
Needless to say, but taxpayers should never give out private information, reply to text messages, download attachments or click on links in texts or emails which they are not expecting, even if it looks like a message from HMRC complete with logo and branding.
What should you do if you suspect a scam?
- Number one rule: do not respond. Always check with your professional adviser (or HMRC direct) regarding the status of your tax affairs.
- HMRC operates an inbox for people to report suspicious emails to, at firstname.lastname@example.org, while SMS messages should be forwarded to 60599.
- If you have suffered financial contact your bank immediately and report it to Action Fraud online at actionfraud.police.uk or by calling 0300 123 2040.
As always, if in doubt check and check again before taking any action.
If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email email@example.com.
Please note that we do not give free advice by email or telephone.
FOR MANY BUSINESSES, COVID-19 has caused a massive shock and presented previously healthy companies with a terrible set of challenges. With no income and losses mounting, managing cash flow to stay afloat is vital.
One way to boost cashflow is to tap into tax previously paid by a business. There is a little-known way in which businesses can claim tax back from HMRC even before the losses have been realised. Known as a “provisional loss carry-back claim”, businesses that were previously profitable but are now potentially loss-making, can apply for this to get cash back. This could significantly help cashflow and may even help the business survive.
In today’s Shipleys Tax brief, we look at this valuable mechanism and how it works.
What is a provisional loss carry-back claim?
A “provisional loss carry-back claim” is a claim by which a business, in exceptional circumstances and set to make a loss, can reclaim tax back for corporation tax paid to HMRC on profits made in a previous accounting year. COVID-19 qualifies as such an exceptional circumstance.
HMRC has updated its company tax guidelines detailing how businesses who wish to make claims for repayments of corporation tax based on anticipated losses can make the claim.
How do you qualify?
Any submission to HMRC requesting an early claim to carry back of losses will need to show
- there is sufficient evidence that losses will be incurred; and
- that it will be included in the company tax return for the loss making year when it is eventually submitted.
In the current climate this should not be too difficult to do. For example, the business will need to show evidence of the following for the current period:
- Significant losses – that would exceed other income
- Management accounts showing losses
- Accurate forecasts
- Board minutes where financial performance was noted
- Consideration of whether performance could improve over the remainder of the accounting period
Providing an acceptable form of evidence is therefore critical to the timely success of a repayment and liaising with your professional adviser is crucial.
What are the next steps?
Businesses would need to look to prepare and finalise their accounts to quantify any losses that could be claimed by the company. It is possible, together with the aforementioned supporting evidence, to agree a provisional loss carry-back claim with HMRC, potentially enabling a business to claim anticipated losses immediately rather than having to wait for years thereby boosting cashflow now when its most needed.
If you require any assistance compiling and submitting an early loss carry back claim to HMRC in order to try and aide cash flow, please contact us 0114 272 4984 or email firstname.lastname@example.org and we would be delighted to help you with your claim.