Managing Deliberate Defaulters

After conducting a series of campaigns to encourage the disclosure of undeclared income or gains abroad, HMRC has introduced new measures to clamp down on tax evasion. Changes include increased levels of scrutiny and harsher penalties for those who deliberately evade tax.

Under the Managing Deliberate Defaulters (MDD) programme, individuals who deliberately evade tax will now be subject to detailed inspection for up to five years. The level and term of monitoring will depend on the seriousness of the offence, but HMRC does not envisage that anyone will be released from the scheme within two years.

There are a variety of ways that HMRC can now monitor a deliberate defaulter's tax affairs. These may include:

• making announced or unannounced inspection visits to carry out pre-return checks of their books and records
• asking for certain records and additional information to be sent in with the individual's tax return
• conducting in-depth compliance checks into all or any part of the person's tax affairs
• observing and recording the person's business activities and cross-checking details in their accounts
• requiring more frequent VAT returns or withdrawing certain favourable VAT schemes such as cash accounting, annual accounting, the flat-rate scheme and retail schemes.

If HMRC finds that a person has continued to deliberately evade tax, it may instigate criminal proceedings against that person. From April 2010 where someone has deliberately evaded tax of more than £25,000 HMRC can also publish the person's name and other details.


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Record checks - HMRC

Following a period of consultation, HMRC is proceeding with its plans to carry out spot checks on small businesses. The visits were not due to start until July 2011 but HMRC decided to introduce what it describes as a 'test and learn' trial.

However, following protests from some professional organisations, HMRC subsequently released a Briefing Paper explaining the status and extent of the Business Records Checks (BRC), which are already being undertaken in some parts of the country.

It confirms that HMRC is testing BRC in a limited way between 4 April and 15 July 2011, involving 30 HMRC staff in eight locations (Edinburgh, Irvine, Manchester, Liverpool, Stockport, Sunderland, Sheffield and Portsmouth). It estimates that around 1,200 businesses will be targeted during this initial phase of the programme.

HMRC said it has 'no intention' of charging penalties for record-keeping failures during this testing period, adding that it will continue to review its long-term planning around the introduction of such charges in the future.

Don't get caught out by the taxman! A round-up of new HMRC penalties and powers

HM Revenue and Customs (HMRC) recently unveiled a plethora of changes to its penalties and regulations, as well as proposed increases in its powers and capabilities. This factsheet provides a round-up of some of the most significant changes affecting businesses and individuals, including the new penalties for late filing.

Increased penalties for late filing

A new penalty regime for late filing and late payment of Income Tax through Self Assessment has now come into effect.
Under the new framework, which first applies to 2010/11 tax returns, the penalties for submitting tax returns late have risen significantly. It means that a return filed six months after the deadline could attract a fine of at least £1,300.
Previously, filing the returns after the annual 31 January deadline would lead to a £100 fine. However, HMRC claims that this failed to act as a deterrent. It hopes the new harsher penalty system will therefore encourage people to 'submit returns as soon as possible'.
Another big change to the penalty regime is that the fines will no longer be cancelled if the taxpayer owes no money to HMRC, because there was no extra tax to pay or because it had been paid. The new penalties for fi ling tax returns late are as follows:

• Day one - Individuals will be charged an initial penalty of £100, even if they have no tax to pay or have already paid all the tax owed
• Over three months late - Individuals will be charged an automatic daily penalty of £10 per day, up to a maximum of £900
• Over six months late - Individuals will be charged further penalties, which are the greater of 5% of the tax due or £300
• Over 12 months late - Individuals will be charged yet more penalties, which are the greater of 5% of the tax due or £300. In serious cases people face a higher penalty of up to 100% of the tax due.

Meanwhile, the penalties for paying tax late are:

• 30 days late - Individuals will be charged an initial late payment penalty of 5% of the tax unpaid at that date
• Six months late - Individuals will be charged a further late payment penalty of 5% of the tax that is still unpaid
• 12 months late - Individuals will be charged a further late payment penalty of 5% of the tax that is still unpaid. The above penalties are levied on top of the interest that HMRC will charge on all outstanding amounts, including unpaid penalties, until payment is received.

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HMRC proposes to move more VAT filing online

HM Revenue and Customs has launched a consultation on the next steps for moving VAT online.

It proposes that from 1 April 2012, it will be compulsory for VAT registered businesses with a turnover below £100,000 to file VAT returns online and make electronic payment of any VAT due.

There are also plans to make online the default (though not compulsory) channel for all businesses for VAT registration, deregistration and changes to registered details.

Since 2010, larger businesses and all new VAT registrations have had to file VAT returns online and pay their VAT electronically. Others can still file paper returns and pay by cheque.

Although HMRC claims that moving to online filing has so far been 'considerably faster' than predicted, with 'few practical problems', for some older businesses and some in rural locations where broadband is limited, compulsory online filing could be a burden.

The move is part of a wider general Government drive to move transactions from paper to online. There are plans to introduce a new online VAT registration service from October 2012, with the aim of making registering quicker and easier, and there are also consultations to move direct taxes online.

The consultation on the VAT proposal closes on 31 October 2011.

Cameron pledges to support business as latest enterprise zones revealed

The Government has announced the locations of 11 new enterprise zones in England in a bid to boost local economies.

It is hoped the new sites, which will benefit from cheaper business rates, superfast broadband and lower levels of planning control, will create 30,000 new jobs by 2015.

Plans to create 21 new enterprise zones nationwide were first unveiled in the Chancellor’s Budget in March.
The enterprise zones previously announced were: Leeds, Sheffield, Birmingham, Bristol, Liverpool, London, Manchester, Derby, Nottingham, the Black Country, the Tees Valley, the West of England and the North East.
Now Warrington, Cornwall, Gosport, Norfolk, Hereford, Kent and Oxfordshire, Essex, Suffolk,

Northampton, Leicestershire, Cambridgeshire and Humber Estuary will also become targeted zones for enrichment.

The Prime Minister David Cameron said: 'We are determined to do everything we can to make Britain the best place in the world to start and grow a business.

'Enterprise zones are a major step towards delivering this - cutting business taxes, easing planning restrictions and giving business the tools they need to invest and expand.

'These new enterprise zones will be trailblazers for growth, jobs and prosperity throughout the country.'

Household finances 'worse than in the recession'

Household finances are declining at their fastest pace since the height of the recession in February 2009, new research suggests.

According to a survey by the financial information company Markit, almost 40% of those quizzed reported a fall in their finances between July and August, while just 6% said their financial situation had improved.

The drop in household savings and available cash was the fastest fall for two and a half years and has been attributed to high inflation, soaring debt levels, high unemployment and decreasing take-home pay.

The research found that all income groups, age ranges and regions monitored are suffering in the current economic climate, although those in the north of England are under more financial pressure than those in the south of the country.

Commenting Tim Moore, senior economist at Markit, said: 'Recent events have made a week seem a long time in economics, and August's survey is the first sign that the slew of downbeat headlines has knocked consumer sentiment.

'With consumer spending accounting for around two-thirds of UK gross domestic product, this does not bode well for the second half of the year. It is likely that the UK economy will be increasingly dependent on external demand.'

More shops left empty as consumer numbers fall

More than 10% of shops in towns and cities across the UK were vacant at the end of May, latest figures have revealed.

According to new data from the British Retail Consortium (BRC), the national town centre vacancy rate (high streets and shopping centres) was 11.2% in May 2011.

Northern Ireland had the highest vacancy rate, where 17.1% of shops were reported empty, followed by Wales with 13.4% and northern England with 13.1%.

The study also found that the number of people visiting shops has fallen, with overall footfall between May and July down by 1% when compared with the same period last year.

Greater London (1.6%), the South West (0.4%) and Scotland (0.2%) were the only locations that saw an increase in shopper numbers.

Commenting on the study, Stephen Robertson, BRC director general, said: 'This is the first time we've been able to publish footfall and vacancy figures in this level of detail and it shows stark differences in retail health between some of the UK's nations and regions.

'Generally, the parts of the UK where the public sector is a bigger proportion of the economy are the ones where customer spending is most likely to be hit by worries about job prospects and cuts, meaning people are shopping less and more retail businesses are failing'.

UK businesses 'turning to eBay'

The online marketplace eBay has reported a 'surge' in the number of businesses using its services since the start of the recession.

While many high street retailers have been struggling over recent months, eBay said the volume of online SMEs was growing rapidly.

Its latest figures also suggest that the number of million-pound businesses trading on the site is likely to increase by a quarter this year.

The company said it expected the number of eBay millionaires to rise to 159, with the majority of these boosting their sales through exports to countries such as the United States, Australia, Germany, Ireland and France.

Retailers in the fashion, automotive, home and garden and electronics sectors are thought to the behind the recent drive in growth.

Angus McCarey, retail director for eBay UK, said: 'Whilst the UK economy is often compared unfavourably to Germany, our figures show good reason to be optimistic.

'Online SMEs (small and medium-sized enterprises) are growing faster on eBay, with millionaire businesses developing at three times the rate compared with Germany.

'Exports are helping to drive this success as UK SMEs benefit from the international audience that selling online gives them.'

Skills shortage 'hampering micro firms' ability to grow

Micro businesses are struggling to fulfil their ambition to grow because they are unable to find the right staff, a new report has claimed.

Research published by the British Chambers of Commerce (BCC) suggests that more than half of micro businesses (those with fewer than 10 employees) are unable to expand their business due to an apparent 'lack of skilled candidates'.

Some 47% of respondents to the survey said they would not be confident that school leavers with A-levels or equivalent qualifications would have the necessary skills for their business, while 22% said they were very or fairly confident.

Although many companies are finding it difficult to source the right candidates, 55% of firms said they intend to increase their staff intake before 2015. Just 2.5% of those surveyed said they would be decreasing staff levels during this period.

Commenting on the findings, Dr. Adam Marshall, Director of Policy at the BCC, said: 'Micro-firms make up an important part of our economy, and the fact that over half want to increase staff numbers is good news. However, for those wanting to take on more staff, finding the right person for the job can prove difficult.

'Despite high levels of unemployment, many micro-firms are frustrated by the quality of applicants for vacant roles. There is a real mismatch between business needs and local skills supply, with many businesses unable to find school leavers, or even graduates, with the right mix of skills.

He added: 'At a time when we need to fight hard for every new private sector job, Britain needs a skills system that delivers what businesses require. A courageous government must recognise this and put more control in the hands of employers when it comes to training the nation.'