August 19, 2010

Changes to Tax Penalties 1

A new penalty regime enacted by the Finance Act 2007 will come into force for Returns covering periods on or after 1 April 2008 and filed after 1 April 2009. The new regime applies to ALL taxes.

Particularly of note from a VAT perspective are the facts that higher penalties will be imposed for deliberate actions.

All the following will disappear

• The current thresholds for misdeclaration penalties,

• the concept of a Voluntary Disclosure removing liability for a penalty, and

• ‘reasonable excuse’.

Once details of the penalties are known we will circulate these.

Elysian Associates
September 2007

Changes to Tax Penalties 2

Further to the announcement that new Penalties are to be introduced by HMRC for the financial year commencing April 2008 the following are the proposed changes. These are still however, the subject of consultation.


• Careless error – 30% of potential lost revenue

• Deliberate error but not concealed – 70% of potential lost revenue

• Deliberate error and concealed – 100% of potential lost revenue

• Under Assessment by HMRC – where the taxpayer should have recognised the mistake – 30% of potential lost revenue

Presumably if we are innocent unless proved guilty HMRC will be looking for some sort of evidence of deliberate error and concealment or will they be looking for evidence to prove that we the taxpayer did not make a deliberate error or conceal their mistake as seems to be the case where Customs are looking at large potential revenue gains particularly of VAT.

It has also come to mind that when accountants and consultants such as ourselves review a client’s records we leave ourselves open to criticism or worse if we miss a potential error. This could have the effect of making one more reluctant than ever to certify tax matters without some sort of caveat.

In addition as yet there is no definition of what is meant by ‘concealed’ or ‘deliberate’ error.

We wait to hear – if you want to submit comments to the consultation there is a document of the HMRC website.

Elysian Associates
October 2007

New addresses for VAT Registration forms

As you are probably aware HMRC are currently experiencing difficulty in processing its backlog of VAT registration applications, currently estimated at 3 months. As a result of this there has been some reorganisation of the offices dealing with the various applications as follows.

With affect from 01 October 2007 all paper registration, de registration forms and change of details notifications should be sent to HMRC inWolverhampton.

All requests to transfer VAT numbers, VAT Grouping, Flat Rate and Annual Accounting Scheme applications are to be dealt with byGrimsby.

Agricultural Flat Rate Scheme applications will be dealt with byCarmarthen.

Evidence of import and export

Please remind your clients that only original documentation will be accepted by Customs as evidence of import or export. Shipping documentation can be falsified and Customs are becoming paranoid about it, particularly where there are goods involved that could be used in carousel fraud i.e. large quantities of small and expensive items.

Elysian Associates
October 2007

Unannounced Customs visits

We have learned that HMRC are carrying out unannounced visits to the home addresses of small businesses in the construction industry.

Using figures collated from the Construction Industry Scheme (CIS) Registrations they are checking which contractors are not VAT registered and visiting those where the figures declared suggest this to be incorrect.

As one united Revenue Department they now have the ability to quickly check figures declared for one tax purpose against figures used for another tax purpose. Worryingly they express the view that as one Department they can now rely on the stronger powers given to VAT Officers – this latter point is very dubious.

Elysian Associates
October 2007

VAT and Housing

New VAT rates have been announced which will affect construction contractors and property owners.

VAT is currently chargeable at the rate of 5% where renovation works or alterations to residential properties that have been empty for at least 3 years.

With effect from the 1 January 2008 the 3 years criteria will be reduced to 2 years.

Elysian Associates
October 2007


We have become aware of an email purporting to be from HMRC which advises that the recipient is due a tax refund (normally of a few hundred pounds) and requests the usual details so that a refund can be made.

The email is very convincing in appearance with the correct logo etc. but uses phrases not normally used by UK HMRC.

Recipients are advised not to reply to the email.

Elysian Associates
October 2007

Compound Interest on VAT claims!

It may be possible to claim compound interest on overpaid VAT where a taxpayer mistakenly pays too much VAT, particularly where there was no error of the part of HMRC. It is important to act as soon as possible, so if any of your clients have in the last 6 years overpaid or under recovered VAT through his/her own mistake perhaps by a simple oversight or accounting system error they are entitled to make a claim for compound interest to HMRC. This is even possible where simple interest has already been paid. See Sempra Metals tax case.

Three year capping

The House of Lords has now heard appeals against the Court of Appeal’s decisions in the cases of Conde Nast and Fleming. It is possible that the Judgment may be issued before Christmas but most likely it will be delivered in the New Year. Apparently one of their Lordships mentioned “temporal limitation” which means that only claims submitted before the decision is released will be accepted. This is a very rare situation but it is possible that this could affect belated claims to recover output tax overpaid before 4th December 1996 and input tax under recovered before 1st May 1997. We would recommend that any claims be submitted as soon as possible just in case.

Elysian Associates
November 2007

Happy New Year to you all

Three year capping

Further to my note in November The House of Lords has now released its decision regarding the three year capping cases in respect of Conde Nast and Fleming.

The Judgment was a resounding success for the tax payers and the three year capping was judged to be illegal and implemented incorrectly in the UK.

The claims relate to input tax under-claimed prior to May 1997 and over-paid output tax up to December 1996. Any claims could go as far back as April 1973.

Not surprisingly Customs are strangely quiet on the matter but it could mean that any claims reduced by the three year capping should be pursued for payment. In addition any claims not lodged as yet should be lodged as quickly as possible. Remember that any claims paid will also include interest – possibly compounded.

If you wish to discuss please give us a call.

Elysian Associates
January 2008

VAT Errors 2

HMRC have at last increased the ridiculously low threshold at which you have to notify them of a VAT error, currently £2000.

With effect from 01 July 2008 adjustments of £10,000 or 1% of quarterly turnover can now be made on the VAT Return without having to consult HMRC.

This is subject to a maximum of £50,000.

Adjustments exceeding this value must still be made on a VAT 652 (Voluntary Disclosure of Errors) and of course get the adjustment wrong and there are penalties.

Elysian Associates
May 2008

VAT Errors 1

Further to my note in May regarding the Disclosure of Errors, HM Revenue and Customs have issued a Business Brief 38/2008 regarding default interest on net errors of £2000 or less separately notified using the Voluntary Disclosure of Errors regime.

Customs have announced that their practice of not charging default interest on these notified errors is not lawful and will only continue until the end of August 2008.

From 01 September 2008 all notifications of errors requiring an Assessment may be subject to default interest charges from that date irrespective of the amount involved.

However, as mentioned previously deminimis net errors can continue to be corrected on a VAT return and will not attract interest.

Downturn in the economy and the construction industry

Many small and larger building companies are feeling the pinch at the moment particularly bespoke house builders who are unable to sell their newly built houses. We are finding that they are turning to the rental market in the hope of weathering the storm. Doing this however, means that they stand to lose all the VAT recovered on the materials etc used in the construction in addition to a possible Stamp Duty Land Tax charge.

You should be aware that it may be possible to restructure things so that it is possible to avoid the VAT hit.

Elysian Associates
August 2008

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