New HMRC Penalties

February 2009

There is a significant change in the approach which HMRC will be taking in dealing with tax returns relating to periods starting on or after 1 April 2008, where the return is due to be submitted on or after 1 April 2009.

HMRC have the legal right to enquire into any return and if they find that there is an error in that return which has caused tax to be underpaid, they have the power to levy a penalty which is usually based on the tax underpaid. It is these powers that are to change from April 2009.

New penalties

Under the new regime, there will be a presumption that every taxpayer has taken reasonable care in completing their tax return. What constitutes reasonable care will depend on the size of the case – a large company will be expected to have sophisticated accounting systems in place, whilst an individual will be expected to have records of all their income and expenses.

No penalty will arise if it can be shown that the error was due to a simple mistake by the taxpayer. The three levels of behaviour that will give rise to a penalty are defined as:

  • careless action;
  • deliberate action; and
  • deliberate action with concealment.

Level of penalties

The legislation sets a maximum penalty for each type of offence. The rules then allow a certain level of reduction, taking into account only the level of disclosure, but there is a minimum penalty below which the Inspector will not be able to go.

These levels are considerably in excess of the levels which have, historically, been negotiated with HMRC for similar types of offence. It seems inevitable that the cost of making an error is going to increase significantly and the utmost care needs to be taken in keeping records to ensure that they are accurate and complete.

The future

We are expecting HMRC to finalise guidance on these matters in the next few months and we will keep you up to date with developments. We will also let you have details in due course of the other changes that are being introduced, such as powers to obtain information from taxpayers and third parties. In the meantime, if you have any queries about this area, please do not hesitate to contact us.

Internet link: HMRC guidance on penalties

Holidays

February 2009

On returning to work in the New Year, many will be reaching for the travel brochures to plan their next holiday getaway. Now would be a good time to ensure that your employees’ (or your own) holiday entitlement has been correctly calculated, especially as many employees’ entitlement may need to be increased due to a change in the minimum holiday entitlement, which takes effect later this year.

The current minimum statutory holiday entitlement is 4.8 weeks (24 days per annum for an employee working a normal 5 day week). This entitlement has applied since 1 October 2007 and is inclusive of Statutory Bank Holidays.

A further increase in entitlement from 4.8 weeks to 5.6 weeks (28 days per annum) applies from 1 April 2009.

Where the holiday year end is not 31 March, then employers must pro-rate the entitlement.

For example for an employee working a normal 5 day week with a year end of 31 December 2009 then their minimum holiday entitlement would be:

3 months x 4.8 weeks = 6
9 months x 5.6 weeks = 21
Total entitlement 27 days

The Business Link website gives a link to enable an individual’s entitlement to be calculated. This is particularly helpful for part time employees.

Internet links: Business link holiday calculator and BERR website

Government Help for Businesses

February 2009

Richard Lambert, CBI Director-General, has given his analysis of the Government’s announcement on lending in the economy.

In his analysis:

“This intervention will not stop the recession in its tracks, but it should prevent the current problems from becoming a steeper downward economic spiral… But they [the measures announced] are a necessary precondition for a return to stability which our economy badly needs.”

The BERR website provides a link to a one stop shop for businesses looking for support. This can be accessed using the second link below.

If you have concerns and would like help in this area please do get in touch.

Internet links: CBI press notice BERR website

Financial Fitness for your Business

February 2009

Sutton Coldfield Accountants, Weatherer Bailey Bragg say that “fit businesses” are the ones that will survive in 2009 and here offer their top ten tips to keep your business in good shape to weather the ongoing economic storms.

1. Cash is the number one reason why businesses fail, so understanding the cash flow in and out of your business is vital for survival while regular cash flow projections – monitored and updated daily, if necessary – will help you to identify relevant indicators for how your business is performing.

2. Businesses also need to know where they are now, so updating bookkeeping records is a vital task. Producing monthly management accounts for comparison with forecasts will also provide early warning of future difficulties.

3. Keeping in regular contact with your bank and other creditors will give them a better understanding of your business and sector. Alerting them to potential difficulties at an early stage will also create more time to identify solutions.

4. Be creative when it comes to sourcing finance, such as invoice discounting or factoring as an alternative to an overdraft. With invoice discounting, a bank or finance company will advance money to a business against its invoices – usually 80 or 90 per cent of the value – to improve cash flow, while the business manages its own debtors. Factoring is a similar arrangement that includes a collections service to chase unpaid invoices.

5. Issue invoices regularly. One of the most common reasons for invoices not being paid is a query over the amount owed, so agree the invoice amount in advance if possible.

6. Make sure your customers are aware of your debt collection policy and that that your terms of business allow you to add interest to overdue accounts. If your terms set credit limits, stop supplying when these are reached.

7. Pursue outstanding debts, as customers will often pay the suppliers who are the most persistent.  Be prepared to threaten legal action if phone calls and letters fail to get results.

8. Cash is not the only form of remuneration. Share options or equity stakes are among the alternatives.

9. Think carefully about accepting every contract and consider how it will generate cash and add to your profits. Be wary of taking on non-profitable work that simply increases turnover.

10. Look at the bigger picture. Making time to look at how the businesses is performing, what you hope to achieve and how you plan to do so will give you a clearer focus for the way forward.