Taxman’s ‘Amnesty’ not so Clear-cut

The taxman’s recent offering of an ‘amnesty’ for offshore tax-avoiders seems to have grabbed the attention of the entire nation. And yet under closer inspection it would seem that it isn’t really an amnesty at all, warns a local tax expert.

In a recent announcement, HMRC has vowed to give investors of offshore accounts or overseas property the chance to come clean about any income previously not disclosed in their tax returns, without being subject to hefty fines. There is also a parallel ‘amnesty’ for UK source income, although this aspect has not received the same degree of publicity.

Labelled the ‘offshore disclosure facility’, taxpayers have until June 22 2007 to notify HMRC of their intention to declare unpaid tax, after which they have until November 26 2007 to calculate the amount of tax owed along with any interest lost. The incentive being that HMRC is offering a capped rate penalty of ten per cent, while no penalty will be charged for ‘innocent’ or where the amounts undeclared are less than £2,500 in total.

Those who fail to do so before this period face being potential liable for a full tax investigation and forced to pay a tax penalty of 100 per cent.

Alan Weatherer, senior partner at Sutton Coldfield based Weatherer Bailey Bragg comments: “Despite all the publicity that it has gained, HMRC’s offering of an ‘amnesty’ isn’t really an amnesty at all. This is because there is no guaranteed immunity from prosecution for those who do come forward and there are fears throughout the profession that a small number of high profile individuals will be prosecuted as a warning to others.

“Plus, for those who do come forward, if they previously signed a complete disclosure statement to the UK tax authorities and it now proves to have been false, then the amnesty will not even apply.

“However, those who do not choose to come forward voluntarily run a high risk of being sought out at a later date and there are rumours that HMRC is actually preparing to move in on all those liable immediately after the amnesty deadline by sending out thousands of enquiry letters.”

Alan concludes: “This offering of ‘amnesty’ is not as clear cut as commonly perceived and needs to be carefully considered and it is high advisable to contact a professional adviser with any queries.”

For more information please contact Alan Weatherer on 0121 355 1901.

All Change for Capital Allowances

The system of tax reliefs on expenditure on equipment in your business is a complex one. Broadly when you buy a piece of equipment to use in your business you normally cannot set the full cost against that year’s profits, unless the value of the item is quite small, or a special tax relief applies. The cost of more expensive items is written off against profits over a number of years, using the capital allowances system.

From April 2008 it is proposed that up to £50,000 spent on equipment in one year by any business will be set-off in full against the profits for that year. This allowance should cover most items of plant and machinery purchased by smaller businesses, although cars will not be included in this total. Where the expenditure on equipment exceeds £50,000 in one year the excess will be written off at a rate of 20% per year.

The principle of giving relief over a number of years has also applied for expenditure on certain industrial or agricultural buildings.

The capital allowances that are currently available for the cost of buildings will be phased out by 2011, and the changes apply for any alteration in ownership of those buildings from now on. Where equipment is fixed in a building used for your business, you can currently claim 25% of the remaining cost each year against profits. This will be reduced to 10% per year from 2008.

Up until April 2008 the old system of capital allowances largely remains in place, except small businesses can claim a 50% first year allowance for the cost of new equipment purchased before 1 April 2008 by companies, or before 6 April 2008 by unincorporated businesses.

The tax savings are potentially high. Please get in touch if you are planning additional expenditure on equipment or premises.

Internet Links: HMRC Budget notice and HMRC Capital allowances reform

HMRC Ask if you Have Anything to Declare

It is a common misconception that interest from offshore bank accounts is not subject to UK tax.

HMRC have now received information from many banks about offshore accounts and to encourage taxpayers to declare their offshore income HMRC have announced what the newspapers are calling a ‘Tax Amnesty’.

The term amnesty is misleading as it only applies to the penalty that will be charged on undeclared tax relating to the offshore accounts, which HMRC have promised to cap at 10% if a voluntary disclosure is made before 22 June 2007. HMRC could in theory impose a 100% penalty. The tax and penalties due will need to be paid by 26 November 2007.

HMRC have advised that the penalty cap will also apply to tax relating to other undeclared UK income if a declaration and full payment of the tax due is made by the same dates.

The timescale for making use of this disclosure facility is short, so please do contact us as soon as possible if you have any concerns.

Internet Link: HMRC website

Smoke Free Zone

From 1 July 2007, as a result of provisions in the Health Act 2006, enclosed public places and workplaces have to be smoke free. This date applies to England only. Wales and Scotland are already smoke free. Wales went smoke free from 2 April this year, whilst Scotland has already passed its first anniversary of the introduction of the law which became effective from 26 March 2006. The date for the introduction of the law in Northern Ireland is 30 April 2007.

The introduction of the ban in Scotland has been heralded a success by Health Minister Andy Kerr who said:

“Although it is too early to know exactly what the health and economic impact of the ban has been, we are already beginning to reap the health benefits.

The ban is working extremely well. More people have come forward to smoking cessation services. We are continuing to be creative in how we support smokers. We are not out to get them, we are out to help them.”

As noted by the Health Minister, the economic impact on businesses will take some time to be established.

The Act obliges employers to prohibit and take steps to prevent smoking on their premises. Clearly visible ‘No Smoking’ signs must be displayed at the entrance to premises that are ‘enclosed’ or ‘substantially enclosed’ (these terms are defined in the regulations).

Smoking rooms will no longer be allowed as complete smoking bans must be imposed. However, you can decide to provide a smoking area outside but still on your premises, providing such an area is not ‘substantially enclosed’. All company vehicles used by more than one person are covered by the legislation and must display an appropriate ‘No Smoking’ sign.

The Smokefree England website contains lots of useful information to enable businesses to get ready for the change. For those parts of the UK which are already smoke free it enables businesses to ensure that they are complying with the law.

Internet Links: Smokefree England advice and BBC Scotland article

New VAT Rules for Mobile Phones and Computer Chips

Following negotiations with other European Community member states the UK Government has decided to implement the reverse charge accounting mechanism on mobile phones and computer chips with effect from 1 June 2007. HMRC are restricting the new rules to mobile phones and integrated circuit devices. Blackberry’s fall within the definition of a mobile phone and will come within the scope of the reverse charge rules.

The implementation of the reverse charge accounting is designed to counteract ‘Missing Trader’ fraud, which we have previously reported on in enews. ‘Missing Trader’ fraud is a sophisticated and organised criminal attack on the VAT system. The fraud arises through contrived transaction chains involving supplies of high value goods with the tax loss occurring when the VAT charged by the supplier is not paid to HMRC but can be reclaimed by the recipient.

The legislation for the reverse charge procedure was introduced in Finance Act 2006 whereby the VAT registered customer, rather than the seller, will have to account for and pay the VAT on the supply of these goods.

Although the legislation was introduced in Finance Act 2006 it has taken some time to implement due to difficulties in the negotiations with other member states on the change in law in other countries to introduce the charge.

If you would like any advice on the implementation of the new rules please get in touch.

Internet Links: HMRC VAT Brief and VAT Information sheet