Author: Sean Wakeman, Partner, Head of Tax Resolutions
The government will invest £87 million over the next five years in HMRC’s existing partnerships with private sector debt collection agencies to collect more unpaid tax debts. The use of debt collection agencies will decrease direct accountability within HMRC. Such outsourcing could accelerate the numbers of people going into bankruptcy and businesses going into liquidation. This may result in even less money being collected than the current systems generate.
There are plans to invest £114 million over the next five years to recruit an additional 600 debt management staff, and £100 million over the next five years to recruit an additional 500 compliance staff. This move is to be welcomed. The debt management teams are currently severely understaffed which is evidenced by long waiting times on centralised telephone numbers. Hopefully these will be new recruits rather than a redeployment of existing staff, and increased training of existing staff will be budgeted for. There is currently a very mechanised, dispassionate approach to dealing with individuals and businesses who owe tax.
Some additional information on the three consultations that were announced at the Autumn Budget 2024 is outlined below.
- Modernising how HMRC acquires and uses third-party data to make it easier for taxpayers to get tax right first time.
Our initial comment: Any extension of HMRC powers must be accompanied by suitable safeguards. Accessing and utilising third party information must be treated sensitively as injudicious use can cause commercial damage to a business, hence the need for safeguards. - Options to simplify and strengthen HMRC’s inaccuracy and failure to notify penalties.
Our initial comment: It is not clear why reform is needed in behavioural based penalties. It is suspected that the only real reason to reform the penalty rules is to raise more money for the Exchequer. - Options to enhance HMRC’s powers and sanctions to take swifter and stronger action against tax advisors who facilitate non-compliance.
Our initial comment: Again, another move to be welcomed in clamping down on abusive tax advisors and the tax avoidance industry.
More resources at HMRC and tighter tax avoidance measures are very much welcomed. Crowe will be looking to submit comments to the consultations on behalf of our clients and we will actively monitor the outcome of these processes.
Author: Nicky Owen, Partner, Professional Practices and Private Clients.
HMRC has announced a consultation looking at:
- how to improve the quality of information received from third parties
- receiving details in relation to purchases using debit and credit cards.
The first part is particularly looking at interest, dividends and other income gathered from banking and financial institutions.
The information provided will assist HMRC in:
- incorporating the income in PAYE codes so that the income is captured and taxed
- checking the income is incorporated in tax returns
- pre-populating returns under the Making Tax Digital (MTD) regime.
The second element is looking to identify unregistered taxpayers and businesses and ensuring taxpayers and businesses are not misrepresenting their income.
Currently, HMRC gathers information from institutions and this assists the raising of enquiries.
There is frustration when accounts are held in joint names, as nominee, as a personal representative, as a Trustee; this valuable information is not necessarily included and can result in enquiries being raised. Dealing with these enquiries can be challenging as there is an automatic assumption by HMRC that the taxpayer is evading tax, and this is coupled with the taxpayer struggling to work out the source of the income, particularly if it is in relation to a historic account.
This consultation is therefore welcomed because it helps to highlight the issues with the information that HMRC currently receives.
In an increasing cashless society it will become more challenging for businesses to hide their income from HMRC.
Author: Stuart Weekes, Partner, Corporate Tax
The government has launched a consultation on the introduction of a system of advance clearance for Research and Development (R&D) tax reliefs.
The government’s stated aims of this system are:
- reducing error and fraud
- increasing certainty for customers
- improving the customer experience.
This affects UK companies or overseas companies with UK branches that make a claim for UK R&D tax credits. If this new system works in line with these objectives, it should be great news for companies as they should have certainty that their R&D activity qualifies without worrying whether HMRC will challenge the claim.
In recent years, HMRC has followed a policy of pay now and question later in an attempt to return R&D tax payments to companies as soon as possible. But this has caused problems for those business owners when months later HMRC challenges the R&D claim as some companies have spent the funds on business costs and don’t have the cash available to repay the tax to HMRC.
The advance assurance should give those companies certainty that their claim will be accepted, so that when the refund arrives, they can confidently use the funds to invest in their business.
Given that HMRC’s resources are under pressure, the key question is whether any advance assurance system will work as smoothly and effectively as the government intends. Will it create more certainty for businesses and will the customer experience with HMRC improve?
There is also the added question about whether HMRC will provide teams who are adequately trained in sciences and technologies to engage with companies that seek this advance assurance.
Could this idea be further developed if, like the system in other countries, independent bodies approved by the respective government provide certification that a company’s R&D activities meet the qualifying conditions for R&D tax credits? This could provide further certainty to the claimant company and ease pressure on HMRC resources.
It is good that the government has listened to calls from advisors and companies to extend the advance assurance system. This is a positive step, but whether it will give the much-needed improvement to certainty and experience will depend on how HMRC ultimately decide to implement it. We welcome the consultation in this regard.
Author: Andy Spencer, Director, VAT and Customs Duty Services.
HMRC is increasing the penalties that will be applied to late payments of liabilities declared on VAT returns and also for Income Tax Self-Assessment (ITSA) as taxpayers join Making Tax Digital (MTD) from April 2025.
The new rates will be:
- 3% of the tax outstanding where payment is overdue by 15 days
- plus 3% of the tax outstanding where payment is overdue by 30 days
- plus 10% per annum where tax is overdue by 31 days or more.
The current rates are 2% each for overdue by 15 and 30 days and 4% per annum for over 31 days.
The above changes are in addition to the increase in the rate of interest that applies to unpaid tax liabilities to base rate plus 4% points that was announced in the 2024 Autumn Budget – this was an increase of 1.5% points.
All of these changes will be effective from 6 April 2025.
These new rates mean that it is even more important for businesses to ensure that VAT and ITSA returns are paid on time. In addition, these returns must be correct so that there are no additional liabilities which would be liable to the increased rate of interest announced in the 2024 Autumn Budget.
HMRC has also issued a consultation on the reform of behavioural penalties which runs until 18 June 2025 so more change can be expected in future announcements.
