HMRC collected £819m in additional tax through payroll investigations last year, as it continued to crack down on organisations that wrongly classify workers as self-employed.
It was a 16% increase on the additional tax generated in 2015/16 and was recovered following payroll investigations by its employment status and intermediaries team, which was set up to investigate businesses that have declared a high number of self-employed workers.
The team looks into the use of self-employed workers in the gig economy and organisations that classify workers as self-employed in order to avoid paying tax and national insurance contributions, acting on intelligence and complaints about alleged misuse of self-employed workers.
HMRC, which released the information following a freedom of information request, also revealed that investigations into the payrolls of large businesses specifically generated £503m in additional tax in 2016/17, up 31% from £383m the previous year.
HMRC is making no secret of its suspicions of how companies classify their workers. Considering the scale that the gig economy has grown to, it is no surprise that it is now under intense scrutiny by HMRC.
As well as its broader brush investigations in which HMRC aims to collect millions at a time, it is also combing carefully through the minor details of payroll. Even the most trivial of expenses are now being investigated.
We feel that it was more productive for HMRC to target employers and intermediaries than individual workers, and therefore it is vital that employers kept up to date with HMRC initiatives and reviewed their PAYE systems.
January can be a tricky time for companies and business owners. Even if you’ve kept on top of it all throughout the year, you can still have a time consuming task on your hands.
Companies face a number of challenges at this time of year, particularly as the tax deadline is in tandem with reduced revenue after the Christmas break.
It’s all too easy to forget that small business owners don’t have the luxury of enjoying much downtime over Christmas. The break is often a prime opportunity to catch up on important business admin and to start planning for the year ahead.
It’s worrying that nearly half of small businesses in the UK admit that they have struggled to pay tax bills, according to a report from insurer RSA. But what’s more worrying is that problem with accounting, or simply a lack of awareness about the process or the deadline, mean that as many as a quarter of companies are missing the due date.
Failing to file a self assessment form by 31 January can leave you facing an automatic £100 penalty.
The fines build up after three months, with HMRC starting to charge penalties of £10 per day, and after six months, the penalty amounts to five per cent of the person’s tax or £300, whichever is higher.
Being hit with fines will inevitably put a strain on the cashflow of small businesses, so managing your tax properly is important. We have here some tips to help you manage your taxes:
First, stay organised. You don’t want to be panicking the day before the deadline trying to find bits of paperwork, so it’s a good idea to file everything in an organised fashion throughout the year.
If you haven’t made any progress, there’s still a week until the deadline. Just don’t leave it until the last minute.
Second, keep tabs on all expenses and include all the information required. Make sure you don’t miss any sections out on the form, and include all earnings, including dividend income on any shares you own. You don’t want HMRC to reject your tax return if there are any mistakes, so also allocate time to double-check the form before you submit it.
Third, use tools available to you. The days of doing everything by hand are long gone. Software’s are available to give you a helping hand when managing your accounts, so do a bit of research to figure out which app is best suited to your business. Making use of these tools will make your life a whole lot easier; think of it as an investment.
Finally, if you are really stumped when it comes to your tax return, you can get a professional accountant involved who should be able to take all the stress away.
Yes, this will come at a cost, but you have to consider if that cost outweighs the penalty from HMRC. Seeking advice from an accountant on your finances can be invaluable to your business, particularly later down the line as your company grows.
Fulfilling tax obligations can be one of the biggest barriers to the success of a business, but don’t let it stop your company from having a prosperous future.
We’re just a matter of days into the New Year and no doubt accountants are already looking ahead at the new challenges and obligations 2018 will bring.
Of course, some of the most important deadlines for accountants to meet fall in the first few months of the year, and May 2018 brings a deadline of a different nature – with firms needing to ensure their data is compliant with the new EU-led General Data Protection Regulation (GDPR).
But what other challenges might accountants be facing this year, and how might they need to prepare to respond to them?
Self-assessment deadline looms large
The first real target to meet for accountants is the annual scramble to ensure clients submit their online tax returns in order to meet the 31 January deadline.
In truth, of course, the majority of accountants will have done the bulk of preparation by now; readying their clients and securing the necessary information for the 2016-17 tax year in the hope of comfortably ensuring submissions are made.
However, if you are struggling to extract the last pieces of information from your clients it’s worth sending out one last mail shot as soon as possible, not only to remind them about the deadline but also to ensure they fully realise they are entirely responsible for submitting their returns and thus avoiding triggering the automatic £100 penalty.
You don’t want to be in a position where any client tries to put the blame for any penalty at your door.
HMRC is in the process of reviewing how penalties are applied, with a review suggesting a driving licence-style points system, but for now, the immediate £100 fine remains in place, with further penalties following for clients who continue failing to submit.
From the start of the new tax year in April, legislation will come in reducing the band where dividends incur a 0% tax charge from £5,000 to just £2,000. Clearly, this could have an implication for how some clients choose to be remunerated in the future.
Tax relief for finance costs reduced
Also in April, the tax relief available for the finance costs of individual landlords will continue to be hit.
During the current 2017-18 tax year, higher rate tax payers have only been able to claim higher rate tax relief on 75% of the total finance costs deductible from rental income received. The remaining 25% of finance costs incurred only qualify for tax relief at the basic rate. From April 2018, the higher rate relief available will fall to 50%. Ultimately, landlords will only be able to claim basic rate tax relief on finance costs incurred; this process is set to be completed at the start of the 2020-21 tax year.
Making Tax Digital comes ever nearer
Finally, while Making Tax Digital (MTD) will not start to come into force until April 2019, many sole traders, partnerships or limited companies likely to be affected should be advised to consider whether their existing bookkeeping function will meet HMRC’s strict MTD filing requirements. If it doesn’t they will need to invest time and effort into adapting their record keeping to be MTD-compliant. This is not something that can happen overnight. The smooth transition can only be achieved if sufficient time is allowed for planning and evaluation.
While many VAT registered entities are already virtually compliant, for others the process will take a little longer, and it will be prudent to consider software choices a good nine months in advance of any new legislation coming into place. For a number of businesses therefore, the summer of 2018 will be a good opportunity to choose an option that will work best for your needs.
When it comes to claiming R&D tax credits, many business managers assume that their accountant is best-placed to handle the claim while they provide the technical input.
Furthermore, there’s often an automatic assumption by many accountants that if they have the correct technical information, a claim is fairly straightforward.
Admittedly, the fact that any limited company developing new products, technology or processes may be eligible and can claim for up to two accounting years retrospectively, sounds straightforward enough.
But, even when a business owner or director feels he or she can identify R&D projects better than anyone else, scoping them in the context of the R&D tax criteria is not that simple. It requires technical understanding combined with an in-depth knowledge, without which the numbers might not add up.
Therefore, the reality is that presumptions can fall way short of the need for an in-depth understanding of what potential R&D activity may or may not fit within the context of the current legislation.
Take the meaning of R&D in the context of R&D tax relief; an issue that isn’t simple to handle. R&D in this case is not limited to the R&D department, as HMRC defines it as work that achieves a scientific or technological advance when scientific or technological uncertainty exists.
This can include achieving an increase in overall scientific or technological knowledge or capability; significantly improving products, processes, materials or services through scientific or technological development; or using science or technology to duplicate the effect of an existing product or process in a new or appreciably improved way.
For instance, a whole project might not qualify but the element addressing the technological uncertainty does. That can include planning and managerial activities in some instances.
To be sure a claim is justifiable and as beneficial as it can be, an accountant must fully understand the detail of the HMRC guidelines. That’s a 15-part manual and, once you have read through it all, you will need the technical expertise to define, quantify and support a claim.
This is where a specialist partner that lives and breathes R&D and has extensive experience in supporting companies in funding, resourcing and exploiting R&D would make the process more efficient and more profitable for all parties.
With Stanley Carter R&D, clients often find that the objective, expert evaluation and broader experience in supporting technology companies can fundamentally change the way they look at and approach their R&D strategy going forward.
For many UK contractors and micro-business owners, the process of managing business finances has historically been a solid Excel spreadsheet and a lot of patience.
But with an ever-changing small business landscape and the looming spectre of digital tax on the horizon, more and more people are looking past their spreadsheets and searching out more sophisticated technology to help them with their accounts.
Although technology is becoming increasingly sophisticated, we are not quite at the point where everything can be fully automated and your accounts just take care of themselves. So while software is designed to make the process easier, you still have to do some work too.
When approaching accounting software for the first time, the most important thing is to ensure that the information you are entering into it is correct. This includes everything from inputting accurate bank data (if you’re manually entering transactions rather than using a direct bank feed), and categorising your expenses correctly, right through to simply making sure your company start and year-end dates are correct. By doing this, you will avoid making simple mistakes that could cause you a headache with your finances down the line.
Bookkeeping is not the most exciting task when it comes to running your business, and it’s easy to let it slip down your priority list, especially if you’re facing the prospect of using a new method after years of your reliable spreadsheet. But the less disciplined you are, the more difficult it will become.
Take out a dedicated time each week to do your basic admin (such as inputting expenses, chasing invoices and reconciling bank transactions) and stick to it. By making bookkeeping a regular habit, you will keep on top of your finances more easily while getting better acquainted with your software much faster.
Perhaps the biggest obstacle that puts people off stepping away from spreadsheets and giving accounting software a try is the issue of data security. It’s certainly not a mistake to be concerned about this; data security is absolutely vital and any accounting software provider worth its salt will take it very seriously. These providers should be completely transparent about what they do with your data and how they store it, so take the time to do some research and put your mind at rest.
The number of personal penalties levied by HM Revenue and Customs (HMRC) against corporate senior accounting officers (SAOs) remained high last year. The figures showed that HMRC was taking an aggressive approach to enforcement.
Given the scale and complexity of the money flows in large businesses, simple errors in the finance department can result in mis-reporting and subsequent fines. Finance directors need to understand all the requirements set out by HMRC. The policies, procedures and systems in place to ensure tax compliance need to be carefully monitored to avoid the potential for mistakes,”
There are two types of personal penalty that can be issued under the regime: firstly, for failing to take steps to ensure the accounting arrangements are adequate; and secondly, for failing to provide an annual certificate either confirming the arrangement are adequate or disclosing details of the deficiencies. Accounting arrangements are considered ‘adequate’ if they enable all relevant tax liabilities to be calculated accurately in all material respects. Businesses can also be fined under the regime for failing to provide the name of their SAO to HMRC.
The total number of penalties issued under the SAO regime last year was actually lower than the number issued in each of the previous years.
Fraud is a real and growing problem for organisations and companies of all sizes. For SMEs, it can be catastrophic. According to the Annual Fraud Indicator 2016, the cost of fraud to the UK economy is £193bn a year and of course that is just the fraud we know about.
The danger of fraud if left undiscovered is that the perpetrator becomes emboldened in your company and it can repeat the behaviour. We have known situations where detection has taken five years or more by which time small amounts of expense fiddling have increased to large thefts with a real impact on the bottom line. Often it is a company’s auditor who spots irregularities but sometimes it can be an employee whistleblower or a change of manager who highlights a reason for suspicion. The only lesson for business managers is to be ever vigilant.
If you suspect fraud is taking place in your organisation and require expert advice please email us on firstname.lastname@example.org or check our website for further details www.stanleycarter.co.uk
Self-employed professionals and business owners (there are currently 4.7 million in the UK, according to the Office for National Statistic) may be tempted to spend freely and take as many deductions as possible in any given year, yet there are circumstances where it makes more sense to be more economical or defer deductions.
It’s important for the self-employed to know the rules. Businesses must report all earned income and expenses. There are cases where businesses claim items that aren’t actually legitimately deductible.
Not only does that cause a problem if they’re audited by the tax man, it could also hurt their business when it comes to a sale, qualifying for a loan or making a retirement contribution based on taxable income. However, there are times where it makes sense to defer making purchases.
When you sell your business, you’ll likely be asked to give the potential buyer at least three years of tax returns. Many buyers rely on these net income numbers more than your accounting books, because so many expenses can be claimed in a sole proprietor business when you’re doing your end-of-year accounting. Loan companies will also look to your tax returns to assess your ability to repay a loan.
Small-business owners should be concern of their personal finances. Deductions lower business income, but that also hurts a business owner’s ability to qualify for other financial needs like a mortgage or a loan for new equipment or a van.
You may want defer expenses to the next reporting period because you are anticipating a large income item which will come in. The important thing when it comes to all tax decisions and opportunities is keeping good records.