HMRC has launched a campaign of one-to-many letters given its increasing concern surrounding the electronic suppression of sales (ESS). The campaign targets businesses that might have unpaid taxes due to misuse of their till systems.
ESS allows a till system to hide or alter the value of individual transactions, while producing a credible audit trail. For example, only one out of every four sales might be recorded, resulting in lower reported turnover. Lower reported turnover means income tax or corporation tax is underreported, along with VAT. One-to-many letter The letter provides an opportunity for a business to get its tax affairs in order by making a voluntary disclosure of underreported sales:
HMRC’s campaign is expected to run for at least a year. Even if your sales have been correctly reported, you still need to confirm this within 30 days of receiving a one-to-many letter. Penalties A new penalty has been introduced, along with the usual penalties for inaccuracies, for being in possession of an ESS tool: This is defined as software or hardware which allows a business to hide or reduce the value of individual transactions on its electronic sales records. It includes using a till – or modifying a till – to suppress sales. The initial penalty for possession of an ESS tool can be up to £1,000. A daily penalty of up to £75 a day is then charged if possession or access to the ESS tool continues. A penalty can be charged for simply being in possession of an ESS tool, regardless of whether the tool is actually used to suppress sales. Possession also includes access to, or even trying to access, an ESS tool. Companies without a digital invoice processing system in place are leaving themselves open to invoice fraud. Over the past year, nearly a third of businesses have been targeted.
Fake invoices often appear to be genuine and are easily processed by employees if the amount involved is below a company’s payment threshold. Types of invoice fraud Common types of invoice fraud include:
Fake invoices can be harder to identify if they appear to be from a business that your company has previously dealt with. The threat of invoice fraud is not always external. Companies also need to be wary of internal threats, which can be much more difficult to identify. Typically, a senior employee will swap the bank details on an invoice to divert payment to their own account. In a recent case involving a member of staff, a public limited company lost £660,000 due to 29 fake invoices in one month. Invoice fraud is not just a case of suffering financially. It can also harm business relationships, brand reputation and impact staff morale, especially among the team that fell for the fraud. Prevention Updating to a digital processing system will mean that invoices are automatically compared with orders and payment information, preventing most types of fraud:
Updating to a digital system also means supplier invoices will be conveniently stored for easy retrieval in the future. For 2022/23, the tax gap has increased to a record £39.8 billion, with small businesses being blamed for around 60% of uncollected taxes.
The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and what is actually paid. Despite the record high receipts in monetary terms, the overall tax gap has fallen in percentage terms. It is now estimated that 4.8% of taxes are unpaid compared with 7.4% back in 2005/06. Small companies The worst offenders are small limited companies, with the amount of unpaid corporation tax now standing at £10.9 billion, nearly triple the £3.7 billion of five years ago. This means:
By comparison, the tax gap for mid-sized companies is 6.7%, and for large companies is 2.9%. High tax take The recently released figures also give a stark illustration of how much the tax take has increased:
Tax receipts as a proportion of GDP over the past 20 years have previously been steady at around 28% but now stand at just over 30%. Behaviour The two types of behaviour contributing most to the tax gap are:
If you need help with your tax liabilities, please get in touch. Self-employed workers will see a substantial reduction in their Class 4 national insurance contributions (NICs) for the current tax year after two percentage cuts were announced in the 2023 Autumn Statement and 2024 March Budget.
Maximum saving Class 4 NICs are earnings-related with the main rate paid on profits between £12,570 and £50,270. For 2023/24, the main rate was 9%, but for 2024/25, it is reduced to 6% – representing a maximum saving of £1,131. Add to that:
The additional rate of Class 4 NICs on profits in excess of £50,270 is 2% and this rate is unchanged from 2023/24. However, there can be less tax saving for business investment for 2024/25. Buying a new laptop for £1,500, for example, would have saved a basic rate taxpayer £435 last year, but the tax saving is now £390. Lower profits Those who are self-employed with profits of less than £50,270 will see the following reductions to their total NIC liability: Tax thresholds NICs cannot, of course, be considered in isolation. The personal allowance and basic rate income tax thresholds remain frozen at 2021 levels with the NIC reductions insufficient to offset fiscal drag. However, for Class 4 NIC purposes, it has been beneficial to have the main rate threshold frozen at £50,270. If it had been increased to, for example, £60,000, the self-employed would be paying 6% – rather than the 2% additional rate – on a further £9,730 of profits. With a majority of over 200 and a weight of expectations, what happens next for Sir Kier Starmer’s new Labour government?
The importance of the first 100 days of a new government cannot be understated. Within that period the new incumbent has the greatest political capital to take bold actions, as well as the greatest opportunity to lay the blame for ‘inherited’ problems on its predecessor. Given the timing of the election, Labour’s first 100 days are a little complicated and will look something like this: 17 July This date has been set for the State Opening of Parliament and the King’s Speech. Before then parliament will have gone through the process of electing a Commons Speaker and swearing in the fresh intake of MPs. The King’s Speech will provide an insight into the new government’s immediate priorities and could reveal the first surprises. Early August? The House of Commons was due to start its summer recess on 23 July before the election was called, but that would not leave enough time for the debate of the King’s Speech. Unless the summer recess is delayed, the new government won’t have time to get to work on those commitments. 13 September Presuming one of Chancellor Rachel Reeves’s first acts was to give notice to the Office for Budget Responsibility on 5 July to start preparing its Economic and Fiscal Outlook, then – perhaps ominously – Friday 13 September would be the earliest date she could give her Budget. However, speculation is growing that there will be no Budget before October. One reason is 22 September... 22 September The Labour Party conference in Liverpool runs from 22–25 September 2024. Previously parliament has had a three-to-four-week recess to cover the conference season. The new government may reduce the length of this recess, although it is unlikely that Labour MPs will be at Westminster rather than at what is set to be a victory conference. 12 October Counting from 5 July, 12 October will mark the end of Labour’s first 100 days. As suggested, we could still be waiting for Rachel Reeves’ first Budget. At her first speech and press conference at the Treasury on 8 July, she confirmed she will present an interim report to Parliament on the state of the government’s finances, or Labour’s “spending inheritance”, before the recess, with the Budget to come later. She may combine her fiscal premiere with the announcement of the Spending Review as the two are closely related. HMRC is warning iPhone users about a new wave of scam text messages claiming to be about tax refunds. Unlike most spam texts, these reportedly cannot be blocked by iPhones or reported to the usual Ofcom anti-spam number.
The scam messages are targeted solely at the owners of Apple devices and claim that the recipient is entitled to a tax refund. Scam messages can also be sent through an email, other messaging services or social media. QR codes are also used. Unwary users will end up being directed to a fake link. HMRC has said that 79,000 fake tax refund scams were reported in the year to January 2024, which is nearly 40% up on the preceding year. Real figures are almost certainly much higher. Spotting a scam message What is the advice to worried iPhone users who do not want to be scammed? HMRC point out that they will never contact taxpayers by text message or email in relation to a tax refund. Instead, the taxpayer would receive an official letter. Nor will HMRC ask for personal details or payment information to be disclosed in a text or email. While scammers may be able to find out your name – for example, if your email address is [email protected] – they should not have access to your unique tax reference (UTR) or NI number. Warning bells should be ringing if a text or email includes these details. Tax refund scams Although the prime time for tax refund scams – February – has passed, taxpayers still need to be on alert the year round:
Tax refund scams are designed to access a taxpayer’s bank account, or to obtain personal details which can then be sold on the web. HMRC’s guidance on identifying tax scam phone calls, emails and text messages can be found here. Employers need to be aware that since 6 April 2024, employees are entitled to take a week’s unpaid leave each year if they need to fulfil caring responsibilities for a dependant. An important consideration is when an employer is entitled to postpone a request for carer’s leave.
The basics Employees are entitled to carer’s leave from their first day of employment. The provision means:
Apart from more obvious examples, carer’s leave could be used to care for an elderly neighbour when their main carer is unavailable, or to accompany a housebound relative on a day trip. As an alternative to carer's leave, an employee might be able to instead take time off for dependants, parental leave or holiday entitlement. Postponement A request for carer’s leave cannot be refused, but an employer can ask for it to be taken at a different time if the employee’s absence would cause serious disruption. The request can be postponed for up to one month. Options to consider include:
Taxpayers will benefit from the changes made to the high income child benefit charge thanks to all tax measures from the March 2024 Budget being enacted before parliament was prorogued.
Changes to benefit charge For 2024/25, the high income child benefit charge (HICBC) does not apply until income exceeds £60,000, a £10,000 increase from the previous threshold of £50,000. This means:
Despite the changes, the HICBC can still mean a high effective marginal rate of tax. Calculating income A recently lost appeal to HMRC shows the importance of correctly calculating income for threshold purposes. The taxpayer’s basic salary did not exceed the former HICBC income threshold of £50,000, but for the seven years under investigation he had overlooked the taxable benefit from having a company car. This was sufficient to take income over £50,000, so the charge was payable. Taxpayers therefore need to be particularly careful when calculating income:
The gross amount of pension contributions and gift aid donations reduce the income figure, providing a useful tax planning opportunity where income is between £60,000 and £80,000. Don’t forget to extend child benefit claims for 16- to 19-year-olds who continue in approved education or training. This can be done online or using the HMRC app. A useful new web tool has emerged, a little late in the game, in a joint effort from two government departments.
In early 2023, HMRC and the Department for Work and Pensions (DWP) found they were unable to cope with the volume generated by a 5 April cut-off date that had been set a decade previously. The deadline related to the option to pay backdated National Insurance contributions (NICs) to fill in gaps in contribution records going back to 2006/7, rather than the standard six-year period. Media coverage of the option – often quoting the more extreme examples of benefit – had prompted a surge of last-minute interest, which the departments were unable to manage. After denying there was a problem, the government finally revealed a band-aid solution in March, pushing the deadline out to 31 July 2023. This solution came unstuck about three months later when, still unable to cope with requests for information, the deadline was extended again to 5 April 2025 – two years after the original cut-off date. One of the biggest issues causing delays was the difficulty in obtaining details of contribution gaps from the DWP (unavailable online) and then paying HMRC the appropriate amount. Now, at long last, a ‘fully end-to-end digital solution’ has been launched by the DWP and HMRC under the banner Check your State Pension forecast. It is not a complete solution, because it will not work if you are beyond the State pension age (presently 66 years), self-employed or currently living outside the UK with gaps incurred while working abroad. You will also need to have a Personal Tax Account with HMRC to log in (or register for one first with GOV.UK). If you think you might have missed contributions going back to April 2006, it is well worth taking a few minutes to check your position with the new tool. To fill in one year’s missing contribution (before the 2023/24 tax years) costs £824.20 and could mean an extra £328.64 a year in State pension. Despite support from the Labour Party, the Renters (Reform) Bill was not enacted before parliament was prorogued ahead of the general election. The Leasehold and Freehold Reform Act made it under the wire, but without the expected cap on ground rents.
Rental reform The Renters (Reform) Bill would have seen the abolition of the controversial Section 21 notices, which enable landlords to take possession of a property without providing a reason. Tenants and homelessness charities expressed consternation at the failure to enact the provision. The Bill is likely to return in some form regardless of who wins the election. A Labour government might well abolish Section 21 notices for all tenancies straight away despite the readiness of the county court system to process possession orders. Leasehold reform There was no expectation of an immediate reduction of all ground rents to a peppercorn amount, but it was reported a month ago that a compromise would see ground rents initially capped at £250 annually. Although this measure was not included, the new Act may help landlords who own leasehold flats and apartments:
The valuation process is now more favourable to the leaseholder because there is no longer any requirement to pay a marriage value, plus the future value of ground rents in the valuation calculation is restricted. Prior to the new Act, marriage value came into play when a lease had 80 years or less to run. It represented the increased market value of obtaining a longer lease. Ground rent is not payable on new leases granted from 30 June 2022, so the new measure will help landlords with older leases move to a level playing field. Furnished holiday lets The advantageous tax regime for furnished holiday lettings is set to be abolished from April 2025, but the election announcement has introduced uncertainty here as well. The draft legislation has not even been published yet. HMRC have rejected a suggestion to introduce a brightline test which would have clearly set out the distinction between trading and investment for such properties. |
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