Tag: tax disputes

HMRC and the 2019 loan charge

Posted on by Alicia Sprott

Previously, loan schemes, known as ‘disguised remuneration’ (DR), were marketed. DR schemes involved paying employees through loans instead of PAYE, and it was a way to avoid paying Income Tax and National Insurance. These loans were usually interest free, non-repayable in practice and involved the use of Employee Benefit Trusts (EBT) or Employer Financed Retirement Benefit Schemes (EFRBS).

The DR schemes have since been categorised by HMRC as tax avoidance schemes and state they do not work. The government moved to recover lost tax, setting a deadline of 30 September 2020 for taxpayers to reach a settlement with HMRC or repay the loans, otherwise the controversial loan charge would be applied.

The loan charge

The loan charge is a tax charge designed to collect unpaid tax, in relation to the DR loan schemes. The loan charge amounted to tax on the total value of all loans outstanding, as of 5 April 2019, to be declared in the 2018/19 Self Assessment tax return.

When it was first introduced, the loan charge received a lot of attention, including discussion in Parliament, and in 2019 a review into this legislation was commissioned. The review recommended various changes, including spreading the loan charge over the tax years 2018/19, 2019/20, and 2020/21

The loan charge applies to loans made between 9 December 2010 and, either 5 April 2019 for employees, or 5 April 2017 for self-employed individuals.

Following a review, all loans made prior to 9 December 2010 fall outside the scope for Loan charge purposes, as well as loans issued between 10 December 2010 to 5 April 2016, where reasonable disclosure was made to HMRC.

HMRC holds information on those it believes are subject to the loan charge and has been checking tax filings (or lack thereof). HMRC is now acting against those it believes have not properly declared the loan charge, either by not declaring or under-declaring it, in the following ways:

  • Opening enquiries
  • Sending nudge letters
  • Raising discovery assessments for lost tax

Opening enquiries

If HMRC receives a return on or before the filing date, an enquiry can be opened within 12 months. An enquiry can be long running and intrusive and allows HMRC to check the correct tax has been paid in the tax year of enquiry.

However, HMRC is now out of time to enquire into your 2018-2019 tax return, in relation to the loan charge, if you filed on time. This does not mean you are in the clear, as HMRC will open a discovery assessment (see below) or, if you did not file at all, HMRC may be able to open an enquiry.

It is important to note that paying the loan charge does not necessarily resolve the underlying HMRC enquiries for the years in which loans were made. Tax years that are subject to an open enquiry or assessment will still need to be resolved, either by way of settlement with HMRC or, in extreme cases, through litigation.

HMRC issuing nudge letters

HMRC has been utilising a ‘one-to-many’ approach, commonly known as ‘nudge letters’ – this is where the same communication is sent to multiple taxpayers. We have seen HMRC sending nudge letters to prompt those who have not declared, nor paid, the loan charge but should have, according to its records.

This gives taxpayers a chance to disclose the required information before any further action is taken by HMRC, as well as paying any penalties or interest which may be due.

HMRC has been inviting those who may be subject to the loan charge to submit a 2018/19 tax return or to make a disclosure. Whilst not stated as an option on the letter, a professional advisor will be able to assist with further information and guidance, if you believe the loan charge does not apply to you.

Discovery assessment and penalties

HMRC has started to issue discovery assessments to taxpayers who it believes have not disclosed the loan charge, in their 2018/19 tax return.

Discovery assessments are a formal assessment which allow HMRC to collect any loss of tax.

The standard time limit for HMRC to make a discovery assessment is four years, which can be extended to six years for careless behaviour or twenty years for deliberate behaviour.

It is worth noting that you have 30 days to appeal against HMRC discovery assessments, however, if not appealed within the time limit, an assessment becomes final and therefore payable.

Professional advice

If you have received a communication from HMRC, or believe you may fall foul of the loan charge, we recommend that you speak to a professional tax advisor. Communications from HMRC must be taken seriously and you must act quickly to mitigate penalties and interest, where applicable and if possible.

At haysmacintyre, we understand the stress caused by HMRC in relation to the loan charge. We guide our clients through every step of the process, resolving matters in an efficient way, to ensure a clean slate going forward

For any advice or to have a discussion, contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions or Riocard Hoye, Senior Manager.

Code of Practice 9 enquiries – football agents

Posted on by Alicia Sprott

What is COP9?

Code of Practice 9 is HMRC’s most serious civil investigation type, which carries an allegation by HMRC of fraud or deliberate behaviour leading to a tax loss.

COP9 is one step away from criminal prosecution and is seen as the ‘last chance’ by HMRC – make a full disclosure and pay the tax, in exchange for avoiding criminal prosecution.

The COP9 process invites a disclosure under the Contractual Disclosure Facility (CDF) where all tax matters are fully disclosed. HMRC can still open a criminal prosecution into any matters which are not disclosed or if the disclosure is incomplete.

We strongly recommend seeking specialist advice as soon as the CDF is issued, as most accountants do not have the expertise to deal with COP9, or the insurance to undertake such work. In addition, you have 60 days within which to respond and make an initial disclosure, which cannot be extended, and it is this initial disclosure which offers the protection from criminal investigation.

What are the issues HMRC is looking at?

We understand the recent COP9 enquiries have been issued in relation to commission payments.

HMRC is likely to hold concrete information on such transactions and must believe they have strong evidence of deliberate behaviour for them to allege tax fraud.

We also understand HMRC has been looking into ‘dual representation contracts’ in the Premier League. This is where the same agent represents both the player and the club in transfers, negotiations, or new contracts.

Dual representation is prohibited by FA rules, however, it can be allowed if all parties provide written consent. Under this practice, the portion of the fee relating to work for the club avoids VAT, Income Tax and National Insurance.

In 2021, HMRC updated its guidance on this issue and tightened the rules by stating clubs need to keep records of evidence that they are legitimately working on both sides of the contract, as well as showing the extent to which they represent the club and the player, rather than just splitting it 50/50.

It is clear HMRC is taking a keen interest in the tax affairs of the football industry and it has shown it is willing to use its most powerful tools available to investigate any errors.

HMRC is regularly scrutinising football and associated stakeholders due to the amount of money in the game at the top level, and therefore the tax potentially lost if a mistake is made.

If you believe there are any irregularities in relation to your tax affairs, it is strongly recommended to seek professional advice. Making a voluntary disclosure, before HMRC contacts you, will result in the most favourable outcome, both in terms of the lowest possible penalties and the shortest possible timeframe to resolution, compared to an HMRC enquiry.

Should you require any assistance, please contact Danielle Ford, Partner and Head of Tax Disputes and Resolutions or Riocard Hoye, Senior Manager.

Electronic sales suppression: the latest nudge letter campaign by HMRC

Posted on by Alicia Sprott

It is believed that HMRC holds concrete information and this data will be used to issue one of two nudge letters. Both letters state HMRC holds information which suggests the taxpayer has misused their till system to reduce their tax bill. Taxpayers will then have 30 days from the date of the letter to respond to HMRC.

HMRC has sent a clear message: they will take further action, such as making an assessment or opening an enquiry, if the taxpayer does not make a full disclosure to HMRC.

Letters will be sent to taxpayers identified by HMRC, encouraging them to review their tax affairs and, should they need to bring their tax affairs up to date, to make a disclosure. Depending on the taxpayer’s circumstances, the online disclosure may not be the most suitable method of disclosure to HMRC. Due to the nature of ESS, HMRC is likely to allege that the taxpayer’s deliberate behaviour led to the loss of tax and fraud could be suspected. Taxpayers should consider the Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9) to provide them with protection from criminal prosecution, for those issues disclosed.

Serious consideration should be given to this matter, as not responding to a nudge letter or making an incomplete disclosure, could set the ball rolling towards criminal prosecution. On receipt of an ESS nudge letter, care should be taken, and taxpayers should seek competent professional advice – not every advisor will have the expertise and may inadvertently make a misstep.

Disclosures and penalties 

If a taxpayer finds a mistake in their filings to HMRC, disclosing the error or omission before HMRC sends a letter (such as those detailed above), or opens an enquiry, will lead to the most favourable outcome. Following receipt of a nudge letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than those that apply to unprompted penalties. For example, the maximum prompted penalty for an onshore, deliberate and concealed omission is 100%.

Voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error. Broadly, the length of time interacting with HMRC will also be significantly shorter compared to a full investigation.

A professional tax advisor can guide a taxpayer through the disclosure process, advise on the appropriate next steps and, where applicable, the penalty mitigation available. We recommend taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.

Our Tax Disputes & Resolutions team are experts in dealing with all types of HMRC disclosures including CDF. We obtain favourable results for our clients, allowing them to move on without further intrusion from HMRC.

We are here to help; should you require more information or professional advice, please contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

Crypto holdings and nudge letters: The Financial Times

Posted on by Alicia Sprott

We have previously commented on HMRC’s approach to crypto assets here, making those who hold cryptocurrency and crypto assets aware of their obligations in regards to reporting to HMRC. In HMRC’s view, cryptocurrencies are a chargeable asset and should be treated as such. The pitfall often occurs when individuals do not seek professional advice on how their crypto assets could affect their tax position, since multiple transactions and reinvestment could trigger Capital Gains Tax (CGT).

The key takeaway from Danielle’s feature, is that those holding crypto assets are simply not aware of the tax consequences, which is why it’s worth seeking expert advice for any gains or losses made.

You can read Danielle’s answer in full in the FT article here (subscription needed).

If you need further advice, please get in touch with Danielle here.

HMRC pursuing dual representation in the Premier League

Posted on by Alicia Sprott
Dual representation

An agent would normally represent one side – either the club or a player – in a negotiation such as a new contract, acting in that party’s best interest. However, HMRC is now looking into ‘dual representation contracts’. This is where the same agent represents both the player and the club on transfers, negotiations, or new contracts.

Dual representation is prohibited by FA rules, however it can be allowed if all parties provide written consent. In reality, this is happening increasingly frequently, with FA data in 2021 showing that 68% of Premier League player deals were completed with dual representation.

Under this practice, the portion of the fee relating to work for the club avoids VAT, Income Tax and National Insurance. With the size of transfer fees and contracts in the Premier League, it is clear that the tax at stake can be significant, hence why HMRC is taking a keen interest.

In 2021, HMRC updated its guidance on this issue and tightened the rules, by stating that clubs need to keep records of evidence that they are legitimately working on both sides of the contract and need to show to what extent they represent both parties. HMRC does not accept a default 50/50 representation split. Providing HMRC with this level of detail about each deal carries in terms of administration and implementation for both agent and football club.

HMRC action

HMRC is now said to be investigating “a number of clubs”. Whilst these clubs are not disclosed, the BBC names Manchester City, Manchester United, Arsenal and Chelsea as the clubs thought to have benefitted from dual representation the most.

If HMRC’s investigations find that the agent has not been legitimately working for both club and player when brokering transfer deals, HMRC will demand repayment of the lost tax and will look to charge a penalty.  This could be up to 250% of the tax for an offshore asset.

The BBC quotes an HMRC spokesperson who states that the regulator has “recovered £573 million from the football industry that would otherwise have gone unpaid”. We know first hand that HMRC has a dedicated team focusing on the football industry, due to the transfer fees involved and the public interest. Previously, we have seen a lot of HMRC activity around the structuring of image rights payments, and dual representation seems to be the new area of focus.

Seek professional advice

If you or a client has been contacted by HMRC, or believe this may be a possibility, we recommend immediately seeking professional advice. This will help to mitigate any penalties which may be due, and an experienced professional advisor can help navigate the disclosure or enquiry process. In addition, your advisor can assist with related issues, such as agreeing a payment plan with HMRC for any potential liabilities concerned.

At haysmacintyre, we have a wealth of experience in making successful disclosures and resolving disputes with HMRC.  We have a proven track record in obtaining the most favourable result for clients, allowing them to draw a line under the matter and move forward without further intrusion from HMRC.

Should you require any assistance, please contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions or Riocard Hoye, Senior Manager.

IR35 legislation: Gary Lineker wins tax appeal

Posted on by Alicia Sprott

The amount of Income Tax and National Insurance at stake was in the region of £4.9m, so not an insignificant sum.  Unlike most IR35 cases, HMRC pursued their claim that the ‘intermediaries legislation’, often referred to as IR35 legislation, applied to the partnership which was in place between Lineker and his ex-wife, Danielle Bux. In February 2013, both signed an agreement for the provision of Lineker’s services as a TV presenter, mainly fronting the Match of the Day programme on the BBC. The agreement covered the period 1 July 2013 to 30 June 2016. Further agreements were later entered into by Lineker with BT Sport, under his trading name Gary Lineker Media (GLM) and a further contract with the BBC running between 2015 and 2018.

HMRC contacted GLM in April 2017, requesting details of the partnership income. It was at this stage that HMRC advised they were not enquiring into the partnership’s tax return, but instead asked whether the partnership had considered the ‘intermediaries legislation’.

HMRC raised Income Tax determinations under Regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 ,for the years 2014/15 and 2016/17, and National Insurance determinations under Section 8 of the Social Security Contributions Act 1999, for the years 2013/14 to 2017/18. The total liabilities being pursued totalled £4.9m.

The First Tier Tribunal found that the IR35 legislation did not apply to GLM because the contracts were entered into directly between Lineker and both the BBC and BT Sport, not via an intermediary. Consequently, HMRC’s appeal was dismissed.

However, it is expected that HMRC will appeal the decision since under IR35 legislation, an intermediary can include a limited company, partnership or individual. HMRC has 56 days to appeal to the Upper Tier Tribunal.

If you have any concerns regarding the application of the IR35 legislation, or HMRC has opened an enquiry into your arrangements,  please contact either Danielle Ford, Head of Tax Disputes, or Nick Bustin, Employment Tax Director, to discuss matters further.

Careless behavioural penalties: Taxation Magazine

Posted on by Alicia Sprott

Penalties are applied when a taxpayer fails to take reasonable care to get their tax affairs in order. At the end of an HMRC enquiry, if errors are found, the taxpayer and HMRC must agree the penalty position. Danielle and Riocard note that agreeing the penalty position is not as straightforward as you might think. HMRC penalties are categorised by ‘behaviours’ and it is these behaviours which determines the penalty range a taxpayer faces.

It is crucially important however to seek the assistance of an experienced professional adviser to ensure careless penalties are suspended where possible and fully mitigated where they cannot.

You can read the full article on Taxation here (subscription needed).

We have also commented on the nature of careless penalties in the case of former Conservative Party Chair, Nadhim Zahawi, and his settlement with HMRC in February 2023.

If you need assistance with an HMRC enquiry, or if you need further information or advice, please get in touch with Danielle Ford or Riocard Hoye.

 

 

Nudging up the pressure: HMRC’s increase in nudge letters

Posted on by Anna King

HMRC continues to widen its nudge letter campaigns with new communications. HMRC’s nudge letters are designed to remind taxpayers of their legal obligation to review and declare their tax affairs and correct any errors or omissions.

Nudge letters represent HMRC’s ‘One to Many’ approach – a single communication is sent to a large number of taxpayers who have been identified in respect of a specific tax risk. Nudge letters are therefore a cost-effective way for HMRC to communicate with many taxpayers, as HMRC does not have the resources to open full enquiries on each taxpayer it identifies through the information it receives.

To date, HMRC has ‘nudged’ taxpayers who they suspect have paid insufficient tax in regard to an extensive list of matters including, but not limited to: Overseas income and gains, Coronavirus Job Retention Scheme (CJRS), Annual Tax on Enveloped Dwellings (ATED) and Capital Gains Tax (CGT) on property disposals.

Nudge letters in circulation 

HMRC’s recent campaigns have focused on:

  • Those with an interest in offshore entities following the offshore entity register
  • Business Asset Disposal Relief (BADR) lifetime allowance
  • Research and Development (R&D) tax relief
  • Income from short term property letting
  • ATED filings which may have used incorrect bands used on returns
  • Online traders
  • Creating content on digital platforms such as TikTok, Instagram and YouTube
  • Self-Employment Income Support Scheme (SEISS) grants
  • Super-deduction

We have seen nudge letter campaigns becoming ever more specific, focusing on smaller groups of taxpayers, as the approach becomes more refined, and the number of sources providing detailed financial information to HMRC increases.

The campaigns are based on accurate sources of information which have been provided to, and reviewed by, HMRC. For example, the nudge letters sent to online content creators were generated by financial information given to HMRC by TikTok, Instagram and YouTube respectively. In a small number of cases, we have seen errors in HMRC’s interpretation of the information it receives.

The nudge letter campaign relating to the register of overseas entities also shows HMRC is utilising information it collects internally. This data is processed quickly, increasing the chances of HMRC identifying lost tax in a timely manner.

Nudge letters are not statutory – but they still need a response 

A nudge letter is not a statutory enquiry into a taxpayer’s affairs. However, these letters should not be ignored, and appropriate action must be taken. This does not mean signing and sending the requested certificate of tax position to HMRC – there is no statutory requirement to do so.

If HMRC subsequently opens an enquiry and finds an error, failure to take action following receipt of a nudge letter could lead to higher penalties being charged.

Disclosures and penalties 

If you have found an error or omission in your tax return, disclosing this before HMRC sends a nudge letter, or opens an enquiry, will have a more favourable outcome. It can result in the form of lower penalties, as the disclosure would be considered ‘unprompted’. If you have received a nudge letter, HMRC will deem your disclosure as ‘prompted’, meaning potentially higher penalties. For example, a prompted penalty for an offshore omission can be as high as 200%.

We have also noted that HMRC has started follow-up communications to nudge letters which have not been responded to. HMRC will have a database of taxpayers to whom it sends a nudge letter, a record will be kept noting those who have not acted. If HMRC finds an error, we expect action to be taken following an unsuccessful nudge to be much stronger and carry higher potential penalties.

Given the vast amounts of information HMRC has in its possession, its ability to review this using its dedicated teams and Connect software, and dedicated resource to ensure HMRC targets those identified, it means the risk of receiving a communication from HMRC has never been greater.

When to seek advice

If you have received a nudge letter from HMRC, a statutory enquiry notice, or believe you have made an error or omission in your filing to HMRC, we recommend taxpayers immediately seek professional advice. This will help to mitigate any penalties which may be due, and an experienced professional advisor can help navigate the disclosure or enquiry process. In addition, your advisor can assist with related issues, such as agreeing a payment plan with HMRC for the liabilities concerned.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC. We have a proven track record in obtaining the most favourable result for clients, allowing you to draw a line under the matter and move forward without further intrusion from HMRC. To see how we can help, contact Danielle Ford, Head of Tax Disputes, or Riocard Hoye, Senior Manager.

Euro Pacific Bank – HMRC arrest two with further action to follow

Posted on by Alicia Sprott

We previously addressed HMRC’s use of nudge letters sent to UK taxpayers who were believed to have held or controlled accounts with Euro Pacific Bank (EPB), which can be found here. On 20 February 2023, HMRC issued a press release announcing that two arrests had been made in the UK, for suspected tax evasion and money laundering, in respect of this.

HMRC are in possession of detailed information regarding those believed to have used EPB; we expect these arrests to be the start of HMRC’s action against those who have not yet come forward. It is likely HMRC will not make arrests in all cases, but criminal investigations and fraud enquiries are expected.

When the nudge letters were first sent, HMRC recommended the use of the Worldwide Disclosure Facility (WDF) to make a disclosure, in order to bring a taxpayer’s affairs up to date. In our article, we also suggested the Contractual Disclosure Facility (CDF), under Code of Practice (COP) 9, as an option for those who may have committed tax fraud and would benefit from the immunity it offers from criminal prosecution.

Interestingly, HMRC’s press release has now also suggested both the WDF and CDF as options for making a disclosure. This is a clear sign of HMRC’s intention and assessment of the behaviour of those who have used EPB.

Further action to follow from HMRC

As part of the press release, Zoe Gascoyne, Deputy Director of HMRC’s Fraud Investigation Service said: “When we launched this probe, we were clear that customers of this bank should come to us before we came to them. These arrests prove we’re true to our word. Anyone who is not sure they paid the right amount of tax, must come forward and tell HMRC as soon as possible.”

The time to bury your head in the sand has now gone. If you have previously interacted with EPB, but have not yet been contacted by HMRC, or have previously received a communication from HMRC, but have not yet taken action, it is essential to act now – please contact Danielle Ford, Head of Tax Disputes or Riocard Hoye, Senior Manager.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC, under the CDF and WDF. We have a proven track record of obtaining the most favourable result for clients, allowing them to draw a line under the matter and move forward, without further intrusion from HMRC.

Careless penalties and deliberate tax errors: Accountancy Daily

Posted on by Alicia Sprott

In January 2023, Mr Zahawi reached a settlement with HMRC in respect of undeclared Capital Gains Tax relating to disposals of shares in YouGov, the polling company which he co-founded in May 2000. The settlement amount is unknown but is believed to be in the region of £5m including a 30% penalty. It also led to him losing his job as the Conservative Party Chair.

Danielle and Riocard provided an analysis on Mr Zahawi’s case. Their analysis highlights that expert advice should be sought with careless penalties, as these can often be mitigated and even suspended.

In their Accountancy Daily article, Danielle and Riocard deep dive into HMRC’s position on careless penalties, why careless penalties are unique in having suspension conditions, and whether Mr Zahawi could still have his job as Conservative Party Chair if his penalty was mitigated.

Read Danielle and Riocard’s insights in more detail in the full Accountancy Daily article here (subscription needed).

If you have any kind of dispute with HMRC then please contact Danielle or Riocard. Our team have a proven track record in representing our clients in tax disputes with HMRC to reach the best possible outcome for them.

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