HM Revenue and Customs has sent notices to tax avoidance scheme users to pay over £250 million of disputed tax under the Accelerated Payments regime introduced in this year’s Finance Act.

The Financial Secretary to the Treasury, David Gauke, told MPs scrutinising the National Insurance Contributions Bill that over 600 Accelerated Payment notices had been sent since late August.

Despite recipients having 90 days to pay the tax demanded in the notices, avoidance scheme users have already begun to contact HMRC to arrange to make payments, covering over £25 million of disputed tax.

Many more users are also choosing to contact HMRC about settling their tax affairs rather than wait to receive an Accelerated Payment notice.

Financial Secretary to the Treasury David Gauke said:

Accelerated Payments are changing the economics of avoidance by removing the cash-flow advantage that avoidance scheme users have had until now. It is only fair that those who use avoidance schemes should have to pay their tax upfront, like the vast majority of other taxpayers who don’t try to shirk their responsibilities.

Jennie Granger, Director General of Enforcement and Compliance, HMRC, said:

HMRC is making good progress in tackling marketed avoidance as today’s figures illustrate. If anyone is concerned about being able to pay the notice they should contact us as soon as possible to discuss their options.

By January 2015, HMRC will be issuing 2,500 Accelerated Payment notices per month and it is on track to deliver notices to 43,000  tax avoidance scheme users, covering £7.1 billion of disputed tax, by the end of March 2016.

There can be savings, particularly for employers, if a worker can be paid as a self-employed person. This is particularly so in the construction industry where most workers are engaged by contractors as self-employed subcontractors.

What many contractors fail to realise is that they are required to reach a judgement on a worker’s tax status based on a rigid framework determined by HMRC. It is not sufficient to base this judgement on what produces the best tax and National Insurance outcome.

Getting this status issue wrong will likely result in an uncomfortable examination of engagement contracts by HMRC and expensive catch up payments if it is determined that certain self-employed sub-contractors are actually employees.

How then should a contractor make this judgement: employed or self-employed? We have listed below HMRC’s published criteria:

 Common indicators of employment

• The contractor has the right to control what the worker has to do – where, when and how it is done – even if the contractor rarely uses that control.
• The worker supplies only his or her own small tools.
• The worker does not risk his or her own money and there is no possibility that he or she will suffer a financial loss.
• The worker has no business organisation, for example, a yard, stock, materials, or workers. (These examples are not exhaustive.)
• The worker is paid by the hour, day, week or month.

Common indicators of self-employment

• Within an overall deadline, the worker has the right to decide how and when the work will be done.
• The worker supplies the materials, plant or heavy equipment needed for the job.
• The worker bids for a job and will bear the additional cost if the job ends up costing more than the worker's original estimate.
• The worker has a right to hire other people who answer to him or her and are paid by him or her to do the job.
• The worker is paid an agreed amount for the job regardless of how long it takes.

To make a decision on an individual case, you will need to consider all the details, and your overall judgement should not rely solely on the above notes. Determining status can be a complex process and one that should be undertaken rigorously.

Paid annual leave is a legal right that an employer must provide. Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.

Self-employed workers aren’t entitled to annual leave.

Most workers who work a 5-day week must receive 28 days’ paid annual leave per year. This is calculated by multiplying a normal week (5 days) by the annual entitlement of 5.6 weeks.

Part-time workers

Part-time workers are also entitled to a minimum of 5.6 weeks of paid holiday each year, although this may amount to fewer actual days of paid holiday than a full-time worker would get.

For example a worker works 3 days a week. Their leave is calculated by multiplying 3 by 5.6, which comes to 16.8 days of annual paid leave.

Statutory paid holiday entitlement is limited to 28 days. Staff working 6 days a week are only entitled to 28 days’ paid holiday and not 33.6 days (5.6 multiplied by 6).

Bank holidays

Interestingly, employers do not have to give bank holidays or public holidays as paid leave. An employer can choose to include bank holidays as part of a worker’s statutory annual leave.

Apart from the retail trade and internet traders most of us send an invoice when we provide our goods or services to customers and then wait for the period of credit to expire before we get paid.

During this waiting time we still have our own bills and wages to pay so the working capital we have to accumulate to finance monies owed by customers can be considerable.

And then, of course, there is VAT…

If we sell or provide standard rated supplies and are registered for VAT we have to add 20% VAT to our invoices.  The VAT added, in normal circumstances, has to be paid over to HMRC (less any VAT input tax we have been invoiced by suppliers) on a quarterly basis.

Accordingly, it is possible that we have to pay over VAT to HMRC before we receive the equivalent payment from our customers.

Acknowledging this injustice, especially for smaller concerns, HMRC allow registered traders to use their Cash Accounting Scheme (CAS). Simply put, if you qualify to use CAS you only have to pay VAT added to your invoices when your customers pay you. On the flip side, any VAT charged to you by suppliers can only be reclaimed from HMRC when you pay your supplier.

The scheme is only available if your expected taxable supplies in the next year will be £1,350,000 or less. Taxable supplies are defined as the value excluding VAT of standard, lower and zero-rated supplies you make.

There is no formal election required to use CAS but it is well worth crunching the numbers to ensure that you get a positive cash flow impact from doing so!

If you have been trading for some time before you register your business for VAT don’t forget to consider your option to reclaim VAT on goods and services purchased prior to your registration date.

For example, if you are required to register for VAT from 1 January 2014, you only need to pay VAT on taxable supplies you make from that date. However, if you had bought goods or services prior to 1 January you may be able to reclaim the VAT you paid on them. You can generally reclaim VAT on goods you bought up to four years before you registered for VAT, and services you bought up to six months before you registered.

You can reclaim VAT on goods you bought or imported no more than four years before you were registered for VAT if all the following are true:

• the goods were bought by you as the entity that is now registered for VAT (for example, the individual, business or organisation)
• the goods are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply
• the goods are still held by you or they have been used to make other goods you still hold

You can't reclaim VAT on any of these goods:

• goods that you've completely used up before you registered for VAT (such as petrol, electricity or gas)
• goods that you have already sold or supplied before being registered, or have used to make goods you have sold or supplied before being registered
• goods that relate to supplies you make that are exempt from VAT

The word 'goods' includes goods that are intended for resale, and also goods that you keep as assets, such as computer systems, shop fittings, office equipment and furniture, tills, vans and other equipment. It also covers anything else you've bought that isn't a service, so it includes consumables such as stationery.

You can reclaim VAT on services you bought during the six months before you registered for VAT if both the following are true:

• the services were bought by you as the entity (for example, the individual, business or organisation) that is now registered for VAT
• the services are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply

You cannot reclaim VAT on any of these services:

• services that relate to goods you disposed of before you were registered for VAT – for example, repairs to a machine you sold before you were registered
• services that relate to goods or services you supply that are exempt from VAT

Examples of services you might have paid for when starting your business are legal and accountancy fees, services relating to setting up your computer and other equipment, and fees and services relating to your premises.

Don’t forget that if you make a claim to recover past VAT paid, the input tax recovered will effectively reduce the cost of goods and services that you have claimed tax relief on in past years. This will effectively increase your taxable profits in the year you make your claim. Even taking this tax adjustment into account it is still worth making a claim.

The government has announced a clamp-down on the decade-long use of ‘hybrid mismatches’, a technique commonly used by multinational companies to significantly reduce their tax bills.

It is the latest in a series of steps the government has taken to tackle aggressive tax planning and is expected to bring tens of millions of pounds per year of additional revenue into the Exchequer once implemented.

Hybrid mismatch arrangements exploit differences between countries’ tax rules to avoid paying tax in either country, or to obtain more tax relief against profits than they are entitled.

The UK has worked with G20 and OECD member countries as part of the BEPS project to agree a solution that prevents companies from taking advantage of this and proposals were endorsed by G20 Finance Ministers at their meeting in Cairns last month.

More information on the steps the government would like to take will be published when a consultation on the implementation of rules to prevent hybrid mismatches is included as part of the Autumn Statement on 3 December.

 If any of your Construction Industry (CIS) returns are filed one day late, HMRC will charge an initial fixed penalty of £100.

 Additionally, if they have still not received that return:

• two months after the date it was due, they will charge a second fixed penalty of £200
• six months after the date it was due, they will charge a further penalty of £300 or 5% of any liability to make payments, that should have been shown in the return
• 12 months after the date it was due, they will charge a second further penalty. The amount of this penalty will depend on why your return was late. The amount charged will be either £300 or 5% of any liability to make payments, or a ‘higher’ penalty of up to 100% of any liability to make payments, or a minimum penalty of £1,500 or £3,000.

 Confused?

There are also occasions when HMRC will consider a reasonable excuse for not filing a CIS return, and if they accept your reason for the late filing then penalties will not be applied.

HMRC will not normally accept that lack of funds to pay (unless due to circumstances outside your control) or reliance on someone else to file your returns, as a reasonable excuse.

To further complicate matters there are circumstances when penalties may be capped at a lower amount.

Obviously, the best way to avoid penalties is to file your CIS returns on time. If you are presented with a bill for penalties it is well worth getting your tax advisor to check it out for you, and if necessary, appeal.

This month sees the launch of a new service that provides a personalised written estimate of what you can expect to receive under the new State Pension system. This will be based on your work history and National Insurance (NI) contributions to date.

Initially, the estimate will be available to the approximately 2.5 million people who reach State Pension age in the first 5 years of the new scheme – currently between April 2016 and August 2021 – the service will be expanded gradually over the next 18 months, eventually becoming available to all working age contributors.

Minister for Pensions, Steve Webb MP, said:

“The new statement service means that for the first time we can give those people closest to State Pension age personal information on how they will be affected by the reforms. Over the next 18 months, this will be rolled out further until eventually it is available to everyone of working age.

The introduction of the new State Pension marks the biggest reform of the State Pension in a generation. At its heart is the concept of a clearer, fairer, single-tier payment, the full rate of which is set above the basic means test, but which remains contributory in nature.

Over time, the various complexities which have built up in the present system will be swept away and replaced by a much more straightforward weekly payment. Those people with 35 qualifying years of National Insurance contributions will receive the full rate, which will be set above the basic level of means-tested support (currently £148.35 a week).

In future, the option for people to ‘contract out’ of paying full NI contributions will be removed, so that everyone pays a standard rate. Those who have contracted out in the past will have an appropriate deduction made to their starting amount.”

Farm animals are usually dealt with for tax purposes as trading stock: the costs of animals are deducted from monies received when the animals are sold and any resultant profit taxed as income.

However, farmers can elect to treat qualifying “herds” of animals in a more tax efficient way, they can apply the Herd Basis (HB).

HMRC advise:

“Some farm animals are kept by farmers not primarily for resale but for the sake of the products (for example, milk or eggs) or offspring (for example, lambs or piglets) which they produce. These are in many ways more like the farmer’s capital assets. Tax law recognises this by giving farmers the option of dealing with such `production animals' under the herd basis.”

From the farmer's point of view, the main benefits are likely to be that:

• the cost of maintaining the herd can be charged against tax, and
• any profit on its eventual disposal will be tax-free.

Once an election to adopt HB is applied it cannot be revoked and farmers who make an HB election cannot calculate profits using the cash basis.

If an election is made basic rules apply. In summary they are:

• The initial cost of the herd is not an allowable deduction, nor is the cost of any subsequent increase in herd size.
• The net cost of replacing animals in the herd is an allowable deduction.
• Where the odd animal, or just a few animals, are sold from the herd and not replaced, the resulting profit or loss is taken into account in arriving at the farming profits.
• Where the whole herd, or a substantial part of the herd, is sold and not replaced, the resulting profit or loss is not taken into account.

The last point covers the major tax advantage. Effectively, any profit made when a herd is sold is tax free. Without a HB election this profit would be taxable.

The legislation, although expressed in terms of farmers, applies to any person who keeps a production herd for the purposes of a trade even though that trade may not be farming. Accordingly, the herd basis also applies, with necessary adaptations, to animal or fish breeding.

Not all production herds are covered by this election. Farmers are advised to seek advice to see if this would be a strategy they could employ and, of course, we would be delighted to do this for you.

A move by the US Treasury to close loopholes that encourage US companies to merge with foreign firms and relocate their tax residences offshore could stifle takeovers announced this year worth hundreds of billions of dollars. In particular, it will probably throw into doubt the agreed £32bn takeover of UK listed Shire by AbbVie of the US and it is less likely that Pfizer will revive its interest in AstraZenica.

The Treasury said it was moving after Congress failed to act on the issue.

The measures aim to counter schemes that allow a company, after an inversion, to avoid US taxes on earnings accumulated and held by the US partner offshore. Currently many US companies retain substantial foreign earnings offshore to avoid taxes they would have to pay upon repatriating them into the United States.

The “Inversion” process allows the US company to re-domicile itself to the home of the other partner in the deal, ostensibly allowing the new "foreign" firm to take control of those earnings and use them, even in the United States, without paying taxes on them.

The new rules aim to block this process. The new foreign parent of the company will be deemed as owning shares in the former US parent, making it liable for taxes on the old offshore earnings.