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New tax evasion plans revealed

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HMRC has released further details about how it plans to crackdown on offshore tax evasion.

Treasury officials announced plans to create a new strict liability offence for offshore tax evasion following Budget 2015 in March. Strict liability refers to a criminal offence where proof of intent is not required to convict the suspected individual.

Under current laws, taxpayers can only be found guilty of tax evasion if HMRC is able to prove that the failure to pay was deliberate. Under the new rules, failure to declare income and gains will alone be sufficient to convict taxpayers.

Under the draft legislation:

  • the offence will only apply to income and capital gains tax
  • it will apply to all offshore income and gains
  • it will only be used if the amount of undeclared tax exceeds £5,000
  • the threshold will not roll over into multiple tax years
  • convicted people will face a maximum 6 month prison sentence.

HMRC is currently consulting stakeholders about the viability of the draft legislation.

The Chartered Institute of Taxation (CIOT) has warned that the use of strict liability will result in criminal convictions of people who did not intend to evade tax and merely made mistakes on their tax returns.

Patrick Stevens, tax policy at the CIOT, said:

“It is easy to see why this is attractive to the tax authorities. But UK and international taxation is a minefield of complexity and, while some taxpayers do actively seek to hide their income by intentionally failing to declare it, there are others who simply make mistakes in their financial affairs without intending to act wrongly.

“It is not reasonable for someone to be convicted, let alone imprisoned, for offshore tax evasion without an intention to evade tax being proved beyond reasonable doubt.”

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Dividend tax credits replaced by new allowance

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Dividend tax credits will be replaced with a new £5,000 tax-free allowance from April 2016, the Chancellor George Osborne announced during his Summer Budget statement.

Under current rules dividend income is reduced with tax credits. Basic rate taxpayers currently pay no tax on dividend income while higher rate taxpayers are charged 25% and additional rate taxpayers 30.55%.

From April 2016, investors will pay no tax on dividend income below £5,000 but income exceeding the allowance will be taxed at the following rates:

  • Basic rate taxpayers: 7.5%
  • Higher rate taxpayers: 32.5%
  • Additional rate taxpayers: 38.1%.

The dividend allowance will be in addition to the £1,000 personal savings allowance for income such as bank interest.

Sean McCann, chartered financial planner at NFU Mutual, urged investors to review their stocks and shares portfolio:

“A new £5,000 tax-free allowance on dividends sounds great but there will be winners and losers. Basic rate taxpayers won’t be any better off. In fact, basic rate taxpayers with more than £5,000 in dividend payments will start paying tax on their dividend income.

“What is clear from today’s announcement is that anyone with stocks and shares should review their investments to make sure they aren’t paying any more tax than they have to.”

However, Anthony Thomas, chairman of the Chartered Institute of Taxation’s Low Incomes Tax Reform Group, welcomed the move:

“For some the new dividend allowance will offer a useful simplification, although it is possible that some people on modest incomes will now have to start paying tax on their dividend income and be brought into self-assessment in order to collect what is due from them.

“That apart, the dividend allowance together with the £1,000 personal savings allowance will encourage more individuals to save outside of the constraints of an ISA.”

Contact us to discuss what the Summer Budget 2015 means for you and your business’ finances.

 

 

HMRC relaxes PAYE late filing penalties

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HMRC will begin relaxing automatic late filing penalties for people who send PAYE information late, officials have indicated.

The revenue said it would take a ‘proportionate approach’ instead of issuing automatic penalties in the event that an employer reports PAYE information late.

Investigations will now be concentrated on ‘the more serious defaults on a risk-assessed basis’. The move will allow HMRC to focus on serious cases of non-compliance, and to invest resources in educating employers on compliance issues.

The decision reflects the conclusions of a policy document published by HMRC in February 2015. The report argues that small automated penalties are costly and resource intensive for the revenue to pursue, and detract from its ability to pursue serious compliance failures.

The news comes after a leaked HMRC memo revealed that the revenue would no longer be investigating each individual late filing of self-assessment returns. Officials will now waive the £100 late filing penalty if people provided a ‘reasonable excuse’ on appeal.

Colin Ben-Nathan, chairman of the Chartered Institute of Taxation’s Employment Taxes Sub-Committee, welcomed the announcement:

“The requirement on employers to send PAYE information in ‘real time’ has proved difficult for some employers to comply with, especially the smallest and those whose employees have unpredictable working hours. It has imposed new and sometimes onerous obligations on employers.

“HMRC are right to have taken a pragmatic approach so far to the levying of penalties, initially not imposing them at all for smaller firms and now promising to concentrate on the most serious defaults.”

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