1,100 tax dodger prosecutions

Here is the counterblast from HM Revenue & Customs, in the face of today's attack from MPs on the Public Accounts Select Committee, accusing officials of not doing enough to tackle tax fraud...

HMRC says it has 1,100 prosecutions of tax dodgers in the pipeline.

Last year it secured 1,200 prosecutions, resulting in prison sentences of 407 years.

Those prosecuted included barristers, accountants, lawyers, bankers, medical consultants, people hiding money offshore, money launderers and smugglers.

Two out of five of those convicted had dodged more than £50,000 of tax.

So what about the criticism that HMRC only has 35 wealthy people either in court or waiting to be prosecuted for tax evasion, despite having 26,000 staff working on enforcement and compliance?

Well, the figure is correct, but the explanation from the tax office is that all of the 35 have wealth of at least £1m.

In other words, the number isn't as small as it looks because the people involved are from a tiny proportion of the population.

Critics will, no doubt, say that this is exactly the well-off part of the population which tax officials need to concentrate on, to make it clear that no one gets an easy ride.

£2bn seized from tax avoidance

Tax officials say they have received £250m in the last few days from people who were involved in tax avoidance schemes.

The biggest of these recent payments was for £5m.

HM Revenue and Customs has new powers to demand that users of tax avoidance schemes pay disputed tax up-front while their tax affairs are investigated, instead of waiting for a decision.

It does not name particular avoidance schemes behind the rush but sports figures, celebrities and other wealthy investors have been reported as facing demands for tax.

By sending out Accelerated Payments Notices, officials say they have "seized" £2bn since 2014, with half of that pouring in since September.

3,000 Notices a month are being issued, with a view to bringing forward over £5 billion tax revenue by March 2020.

Queen's Speech ticklist

Personal allowance to rise to £12,500

Higher rate threshold moving to £50,000

Ban on increases in main income tax, National Insurance and VAT rates

Scotland set own income tax rates and bands, plus VAT and housing benefit powers

Double free childcare to 30 hrs

Confirm tax break on paid-for childcare

Right to Buy for 1.3m housing association tenants

Reduce benefits cap to £23,000

No housing benefit if under 21

Will the government:

*Mention inheritance tax (the promise to let couples pass on a £1m home)  Benefit cuts
*Give further signals about how benefit cuts will be achieved
*Re-confirm triple lock on state pension increases

Beware of tax if you free up your pension

How much tax will you pay on your pension?

Tax is a crucial consideration with the pension freedoms being launched in April and the latest idea -- cashing in your annuity -- which might arrive in 2016.

The tax penalty of 55% on taking out your money is being removed, but there will still be tax: 25% will be tax free, then you pay income tax at 20%, 40% or 45%, depending on which threshold you smash through.

It's a point which may have been overlooked in the excitement over the cash-in-your-annuity idea.

A typical pension pot of £20,000 to £30,000 buys a very small annuity, perhaps around £25 a week.

However, for many pensioners, that money could be free of tax, because their incomes will be less than the personal allowance, the amount of income you are allowed to have before income tax kicks in.

On the other hand, taking the money as a cash lump sum would push many of them into 20% tax and there's no tax-free element.

People on slightly higher incomes will need to worry about the 40% tax threshold.

So it will be very important to calculate what might happen to your tax bill, even though you might be very unhappy about the size of your annuity.

Low pay caused low tax revenue

Low wages have been a major factor producing disappointing income tax receipts for the government, according to new analysis of official figures.

The proportion of earners with incomes below £18,000 rose to 44% from 39% in the six years to 2014, after the financial crisis and including the recession.

Behind the trend was an increase in the number of low paid part-time workers and below-inflation wage rises for those working full time.

The Office for National Statistics, which published the figures, adjusted them for the effects of price rises over the period.

Income tax receipts rose by just 0.1% a year, while the economy grew on average by 2.4% annually.

The other significant factor holding back tax revenue was the reduction in the Personal Allowance -- the point at which we start paying income tax.

The Allowance rose from £5,225 six years ago to £9,440 in the 2013-14 tax year and currently stands at £10,000.

The combination of depressed wages and more earners being exempted resulted in weaker tax revenue for the Treasury.

Rabbits out of the hat

We all wonder what eye-catching give aways, reforms or consulations the Chancellor will put on show today.

Stamp Duty
One being mooted is a reform to Stamp Duty, whereby you'd pay a bit more on each extra portion of the purchase price of a home, replacing the current method of paying a higher rate on the whole purchase price each time the price goes over a threshold.
This change is already being brought in Scotland.

Pensioner Bonds
Special high interest bond for pensions, starting in January. Yes, we already know about them, but Osborne's likely to say more about the rates being offered.

Inheritance Tax
The Conservatives wanted to raise the threshold to £1m from £325,000. One for the Budget, maybe.

Personal Allowance increases.
Going to £10,500 in April, but perhaps we could be given detail about the stepped increases to the further goal of £12,500.

Pension Tax Relief
Lots of speculation recently about taking full tax relief from 40% taxpayers, taking them down to the standard 20% or something in between. And lots of warnings that a Tory Chancellor wouldn't do this. The lure is the billions of pounds that could be released to cover the Tories' promise of £7bn in tax cuts if they won the election.
A possible half way house would be to restrict the tax relief for 45% taxpayers.

Fuel Duty
Keep going with the freeze.

Peer to Peer lending
More about including this and Crowdfunding in tax-free Individual Savings Accounts. And more on promoting new Financial Technology. The Chancellor's very keen on cyber-banking and how the UK can be a leader.

That's a start, anyway.

Your rights to stop tax officers grabbing cash from your account

This how HM Revenue & Customs explain ways you now be able to challenge their planned power to grab cash directly from bank accounts. 

Its what they call Direct Recovery of Debt and it only applies to people who they say have ignored 4 demands by letter or phone.

Direct Recovery of Debts – routes of appeal and opportunities to object to HMRC

Debtors will have several ways to challenge the use of DRD:

- Taxpayers already have appeal rights if they do not agree that the tax or tax credit debt due is correct. The exact process differs depending on the type of tax, but usually involves first requesting an internal review by HMRC. If the taxpayer does not agree with HMRC’s decision, they can appeal to an independent Tribunal. DRD will not affect these existing rights.

- Debtors who are considered for DRD will receive a guaranteed face-to-face visit from HMRC’s agents. Even those who have failed to respond to the numerous attempts to contact them  – by letter, telephone or SMS message – will again be made aware of their debt and have a further opportunity to discuss their case. This will confirm beyond doubt the identity of the taxpayer and that the debt is owed.

- Once DRD has been applied, debtors will have as a minimum 30 days before any money is transferred to HMRC. During this window, in which money is held in their account, the debtor can get in touch with HMRC directly and object to the use of DRD if they believe HMRC has made a mistake, or that removing the funds will cause undue hardship. HMRC will promptly carry out an internal review of their case. If there is clear evidence that DRD action will cause undue hardship, it will instruct the debtor’s bank to release an appropriate amount to the debtor.

- If the debtor still does not agree with HMRC’s decision, they will have a further right to appeal to a County Court on HMRC’s use of DRD or on the grounds of hardship. 

Britain's £34bn tax gap

Britain's tax gap -- the gap between was is collected and what should be -- widened to £34bn in the year to April 2013.

HM Revenue and Customs say there was a rise from £33bn the previous year, partly the result of an increase of nearly a billion in the VAT shortfall and a widening of the tobacco tax gap.

It is the biggest overall gap in cash terms since 2009 and will add to concerns that some are managing to avoid tax in a time of austerity.

HMRC says causes include taxpayers simply not taking enough care with their tax returns and criminal attacks on the tax system.

It points out that the shortfall on the £500bn which should be brought in is much narrower in percentage terms than in 2006, at 6.8 per cent of tax owed compared with 8.5 per cent seven years before.

And that some other countries have much bigger shortfalls: Mexico's is in excess of 25 per cent.

£1.9bn tax error

HM Revenue and Customs has come under fire from the National Audit Office, and from an influential committee of MPs, for exaggerating its performance in squeezing more revenue out of tax avoiders.

In a report on the tax office's 2013-14 accounts the head of the National Audit Office, Amyas Morse, said he was concerned "that an error of as much as £1.9 billion in HMRC's baseline calculation led it to report the trend in its performance in a way that inadvertently exaggerated the improvement since 2010-11".

The error did not affect the amount of tax collected but made it appear that tax compliance targets had been exceeded by a significant margin.

Margaret Hodge, the Labour MP who chairs the House of Commons Public Accounts Committee has called HMRC officials in to give evidence later this month.

She said, "It is truly depressing that HMRC's failure to take appropriate action has led to its unwittingly misleading Ministers, Parliament and the taxpayer".

There are a lot of red faces at the Revenue, where I understand officials are "penitent" at the shambles over targets.

HMRC has said: "We regret an historic error made in 2011 when we wrongly calculated the baseline against which our performance was measured. 

"We have corrected this error and even against the corrected baseline we have still exceeded our targets. We will work closely with the NAO to prevent this happening again."

Tax pensioners says IFS

The influential Institute for Fiscal Studies is suggesting a dramatic change in the tax paid by pensioners.

It wants the government to look at charging a levy on private pensions in payment, on the grounds that pensioners -- in the opinion of the IFS -- get more out of the tax system than they should.

Make no mistake, this would be a major reform which would result in pensioners paying much more tax.

The IFS argues that it would help to spread the task of dealing with the government’s financial problems "more evenly across the generations".

At the moment pensioners don't pay National Insurance on their pension income, a substantial benefit in comparison to workers who pay 12% National Insurance on top of their income tax.

However, if you save for a pension, that is out of money that is likely to have incurred National Insurance.

The tax break on pension contributions only applies to income tax, at whatever rate you pay. You still have to pay National Insurance on money paid into a pension scheme.

The point of this complicated system is to avoid the situation where pensioners are taxed twice on the same money - once when they pay into a scheme and again when they take their pensions.

The IFS suggests that pension contributions should attract National Insurance tax relief. But pensioners should then pay a charge on their pension income.

To prevent double taxation on people who have already salted away money in pension schemes, this charge or levy should start low, says the IFS, and then rise to the level of National Insurance as the bulk of pension savers began to benefit from National Insurance relief.

The maths favours the Treasury, because the new levy would also apply to pension income which came from pension contributions added by the employer.

Each 1% charged to pensioners would raise £350m a year for the government's coffers, so Chancellors would have a big incentive to push up the levy as quickly as possible.

A Treasury spokesperson commented that there were no plans to put National Insurance on pension income, nor were there plans to change pension tax relief.

Mini-budget: Will he, won't he?

George Osborne delivers his Autumn (or is it Winter?) Statement tomorrow.

So will he or won't he..

Clobber wealthier pension savers by limiting what they can take from their fund as a tax free lump sum?

Fiddle with stamp duty thresholds to soften the impact on people buying lower value homes?

Let people do more with tax free ISAs, to encourage savers?

Give a cast iron promise to freeze fuel duty until 2015?

Curb buy-to-letters by axing the tax break they get on mortgage interest?

Charge foreign property owners Capital Gains Tax when they sell up in the UK?

We'll find out at 11.15 in the morning.

235,000 risking Child Benefit fine

235,000 Child Benefit claimants on higher incomes need to register with HMRC by midnight on 5th October or face fines.

After that they will need to fill in self-assessment tax returns, to be returned on paper by the end of October or by 31st January 2014 if submitted online.

HMRC says that 1.1m were caught by the new policy of removing Child Benefit progressively, through a tax charge, from those on between £50,000 and £60,000 a year and completely from those on over £60,000.

405,000 have simply opted out of the benefit. Others are already caught up in the self-assessment process or have recently registered.

But 235,000 have only 11 days to register or risk fines ranging up to 100% of the extra tax they owe. As Radio 4's Moneybox highlighted over the weekend, the fines could be many hundreds of pounds, in theory.

Child Benefit is paid at the rate of £20.30 a week for the first child and £13.40 for each subsequent one, so a family with two children receives £1,752 a year.

In reality, HMRC is only likely to impose 100% fines on deliberate tax-dodgers.

And there is a way to redeem yourself, even if you fail to register by the 5th October deadline.

If you still pay the extra tax due, through the self-assessment system, the penalty is likely to be offset against your tax - in other words, it reduces to zero.

Here's the government website which tells you how to register. It's a simple process - the tax forms come later.

Twitter's tax

Much of the recent outcry over corporate tax avoidance erupted on the rapidly expanding social media site, Twitter, with tax campaigners, MPs and financial experts rushing to compose their 140 word tweets to stir up argument and debate over the tactics used by Google, Amazon and Starbucks.

So it is ironic that Twitter itself is remarkably coy about how much tax it pays and where.

Twitter submitted a brief set of UK accounts this week and by looking at them you can deduce that it declared profits of £92,000 in the UK in 2012, up from a mere £16,000 the year before.

Worldwide its advertising sales are expected to top $1bn or around £660m in 2014, mainly from charging advertisers to promote their tweets on the website.

There's not much more detail, because Twitter is a private company, though it gives an assurance that it pays all relevant taxes as set out by HM Revenue and Customs including corporation tax, VAT and all applicable payroll taxes.

What will tickle the interest of tax geeks is that San Francisco-based Twitter has located its European headquarters in Dublin, along with the majority of its international sales, finance and legal staff.

Google was condemned as "evil" by the chair of the House of Commons Public Accounts Committee, Margaret Hodge, for booking UK sales through Dublin, thus bypassing the need to pay UK corporation tax on the business.

Twitter declined to comment on whether it accounts for sales to UK customers in Ireland. It has 100 staff in Dublin and 60 in London.

Of course, it is important to point out that none of these companies is breaking the law in the way they structure their operations or declare profits for tax.

Google, for instance, has said it complies with all British tax rules and that it is up to politicians to change the law if they are unhappy with the outcome.

No corp tax flowing from Thames Water

Another company pays no corporation tax. This time it's Thames Water during the 2012-13 tax year.

Here are the numbers:

Turnover £1.8bn
Operating profits £549m (that's after business costs)
Pre-tax profit £149m
Corporation tax: Nil

Thames Water's explanation is that it has invested nearly £1bn in new water infrastructure and there are tax breaks for investment.

In exchange for spending money on new pipes and drains, they can defer paying tax until future years.

But it's also important is that it has huge borrowings, incurring £405m in interest during the year.

Like every other business, Thames can lop of the cost of interest from its operating profit to calculate its taxable profit.

It's net debt is a colossal £8.4bn.

Beggar-thy-neighbour over tax?

"The stated intention of Fiat Industrial to relinquish its Italian tax residency (tax rate around 30%) and move to the UK (tax rate 20% from 2015) demonstrates the effectiveness of the UK’s strategy to tempt international business with the lowest tax rate in the G20."

"This also reveals the hypocrisy of UK politicians who seek to establish the UK as a future tax haven while reviling overseas companies for tax planning which has in the past allegedly extracted taxable profits from the UK."

Not my view but an interesting one from George Bull, tax expert at Baker Tilly.

Tax defaulters named and shamed

The tax authorities have named and shamed 15 individuals and small businesses who have been penalised for deliberately defaulting on tax bills of more than £25,000.

The new list from HMRC, which adds to a collection of 8 names published in February, includes two pubs, a Tandoori takeaway and a kebab shop.

Paymaster Ltd, a labour provider from St Paul's Square, Birmingham, has been fined over a million pounds over a tax bill of nearly two million, while an Essex petrol wholesaler, EU Oil Ltd of Harlow, is named as facing a £719,000 penalty and owing over a million pounds in tax.

James Joseph Farmer, a painter from Belfast, was fined £132,000 on a £222,000 tax bill.

The tax debts relate to the period 2010 to 2012, but HMRC says the money still hasn't been paid.

Tax evasion or avoidance?

It might be perfectly legal and above board to AVOID tax, when its what the Revenue calls tax PLANNING.

For instance, if you put your money in a tax-free Individual Savings Account, or if you're a company and you invest in research, you're taking advantage of tax breaks which the government actually wants you to use.

The tax AVOIDANCE the authorities condemn is when you seek out loopholes in the law to pay less.

At one time workers in the City of London were paid in crates of wine to avoid having to pay National Insurance - it was legal, but not at all what parliament intended, so the loophole was closed.

But the worst the perpetrators risk is having to pay the tax they owe, along with interest and, if there's a delay, a penalty.

Tax EVASION is the deliberate flouting of the law in order to get around tax - and hiding money in an offshore tax haven in a way specifically designed to escape scrutiny is a likely first step towards evasion.

It might be income tax, capital gains tax or corporation tax that's rightly due in the UK.

The fines range up to twice the amount of tax owed and the evader can be prosecuted and sent to prison.

In one recent case the sentence was 5 years.

Tax avoidance "a problem" says Carney

The future governor of the Bank of England, Mark Carney, has commented that tax avoidance is "demonstrably a problem" in the UK and other countries.

Mr Carney currently heads Canada's central bank but will take the helm at the Bank of England in July.

Speaking in Washington, he said:

"If there's an ability of companies or individuals to persistently avoid tax, then the burden of fiscal adjustment falls on those who pay their fair share.

"They end up paying more than their fair share."

Deadline for tax evaders

Tax evaders who have hidden money and investments in Jersey, Guernsey or the Isle of Man are being given three and a half years -- until 30th September, 2016 -- to own up or face prosecution.

HM Revenue and Customs has announced details of the new voluntary "disclosure facilities", which were promised after the three Crown Dependencies agreed to start handing over the names of people with offshore accounts.

The Chancellor revealed in the budget that he hopes to realise £1bn in extra tax from the islands over a 5 year period.

Tax evaders manage to skirt around UK income tax and capital gains tax by parking their assets in overseas accounts and investment schemes.

Those who ignore the opportunity to come clean could face criminal prosecution, significantly bigger penalties, and having their names published.

Even people who own up in time could face penalties ranging from 10% to 40% of the sum owed, depending on the behaviour of the tax cheat.

Penalties for those who fail to come forward could rise to 100%, doubling the amount to be paid.

The new disclosure facilities come after a similar arrangement was drawn up to encourage tax evaders with accounts in Liechtenstein to come forward.

£50 gain from new tax allowance

Detail on the impact of the new £10,000 Personal Allowance - the level at which you have to start paying 20% income tax.

From the Treasury:

The increase in the personal allowance to £10,000 will take 257,000 
individuals out of income tax altogether in 2014-15. 

By April 2014, the cumulative effect of this Government’s increases in the 
personal allowance will lift 2.7 million people out of the income tax system. 
In 2014-15, the increase will provide 24.5 million individuals with a real 
terms gain (over and above that from normal indexation) averaging £50. 

Of these, 20.4 million will be basic rate taxpayers and 4.2 million higher 
rate taxpayers (figures may not sum due to rounding). 

0.47 million individuals will have an average loss of £50 in 2014-15. All of 
these have incomes above the breakeven level near £120,000 at which 
the personal allowance is tapered to zero and so no benefit is derived 
from the personal allowance increase.