Do you owe the Taxman?
September 30th, 2012
With a growing focus from HM Revenue & Customs (HMRC) on closing down aggressive tax avoidance schemes– as the furore created by the Jersey-based K2 scheme used by comedian Jimmy Carr illustrates – it is also worth noting that current HMRC activity is not simply constrained to targeting the wealthy.
Since HMRC launched an amnesty in respect of undeclared offshore income in 2007 tax amnesties have become even more commonplace as attempts continue to ensure everyone pays the tax they owe. In July HMRC launched a number of tax amnesties to encourage individuals to make good any unpaid tax liabilities they may have outstanding with the latest amnesties also focusing on specific roles such as doctors or online traders. HMRC have even refined this to specific occupations in specific regions to allow their taskforce to further focus their attentions.
Perhaps the main initiative of interest, however, is the Tax Return initiative launched on 3rd July – This is targeted at individuals who pay tax at 40% or above and who should have submitted a Self-Assessment tax return
The question is, are you affected and should you take advantage of the amnesty?
Should I have completed a tax return?
This campaign is primarily targeted at individuals who have been sent a Self Assessment tax return or have been told they are required to complete one but have so far failed to do so. The first phase is focused on individuals who have failed to complete returns for 2009/10 or earlier.
Do you owe any unpaid tax?
HMRC are targeting are people who they know to be higher or additional rate tax payers, as quite often they know this through the PAYE system (utilised for employed pay and for pension income by pension providers).
The expectation is that these people may also have additional income which has not been declared – such as interest from bank deposits or dividends from shares. It should be remembered that this quite often is paid net of basic rate tax and additional tax due should be declared via a self-assessment tax return.
What you may not realise though, is that the campaign is also directed at others who perhaps should have completed a tax return but failed to do so even though they were not invited to do so , i.e. those who may have incurred a chargeable event gain from encashing an investment bond, as this can have the effect of pushing you into higher rate tax or if you are of a certain age (pensioners), impacting on your age-related personal income tax allowance – both situations could mean additional tax was payable, but this quite often needs to be declared to HMRC for them to know that this tax is due.
What is the benefit of responding to the amnesty?
The standard penalties for not submitting a self-assessment return are as follows
• £100 is charged when a return is late with another £100 for returns that are still outstanding six months later.
• Interest and surcharges are also payable on any tax paid late.
• Also HMRC can also charge a penalty based on the amount owed. This can be as much as 100 per cent of the tax
If you are affected, however, and you send in your completed tax returns for years 2009-10 or earlier and pay any tax you owe before 2 October 2012 then, in some circumstances the latter penalty (based on the amount owed) could be reduced to nothing.
By taking part in the campaign, people will receive the best terms on offer and HMRC expects that most will not have to pay this penalty. It is always better to come to HMRC before they come to you
Although the amnesty can assist those who do owe tax to avoid greater penalties, this needs to be a timely reminder to ensure your tax affairs are in order and that any claims you have made were appropriate.
It should also be a reminder to make sure your investments are held as tax-efficiently as possible as it may be that, with better financial planning, you can reduce or eliminate any increased tax liabilities. For example use of ISA allowances or simply re-arranging ownership of income-producing investments to a lower tax-paying spouse could be simple yet effective solutions.
As always please contact us for further guidance or if you require any advice on the above issues.
Please note that the Financial Services Authority does not regulate taxation advice
The tax treatment outlined above depends on the individual circumstances of the investor and may be subject to change in the future