Tax
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Seek early advice if you receive an accelerated payment notice!
Andrew Rosler, ICS Managing Director and licensed Insolvency Practitioner talks about Tax Avoidance Schemes and Accelerated Payments following new powers granted to HMRC, by which they estimate to rec ...

Andrew Rosler, ICS Managing Director and licensed Insolvency Practitioner talks about Tax Avoidance Schemes and Accelerated Payments following new powers granted to HMRC, by which they estimate to recover £7billion in avoided tax payments.

Avoidance Schemes

HMRC will now start issuing follower notices and accelerated payment requests to individuals and companies they consider have participated in tax avoidance schemes. Generally avoidance schemes will be given a unique coding to insert on corporation tax return DOTAS.

Company Directors ought to get advice should the Company not be in a position to repay any Tax that should have been paid in the absence of the avoidance scheme.

Therefore a key question is whether the Director’s decision to enter into an avoidance scheme is a breach of their duty to creditors, if the Company subsequently went into an Insolvency process because it was unable to repay the tax it avoided?  Will Directors be subject to tax on any benefit they received under the avoidance scheme?

The answer to these questions depends on a number of factors including the:

• type of scheme

• advice of the professionals the Directors relied upon

• level of insurance cover sold with the scheme

• general conduct of the Directors

• level of deficiency ultimately facing the Company.

If the Company has been dissolved it is most likely it would have come to the attention of HMRC who could have objected to the striking out process.

If the Company had already gone through an Insolvency process then the contingent claim from HMRC ought to be held as being part of the Insolvency and hence the debt would die with the Company (subject to various Insolvency offences mentioned below.

Recovery/Insolvency Process

The first principle is that a Dissolved Company cannot be pursued for Tax due nor can it receive any repayments of Tax.  The necessary action would be for the Company to be restored to the register and then formal recovery can begin.

A creditor has 6 years from the date of dissolution to apply to restore a Company through the Courts.

If the Company cannot repay the debt then the creditor might instigate winding up proceedings to recover the debt.  Once/if the Company goes into Compulsory Liquidation a Liquidator can challenge certain transactions that the Company Directors caused the Company to enter into prior to its Dissolution. Such transactions include;

Transaction at an undervalue:  Assets being transferred at less than market rate – this period can be 2 years from the date of the winding up petition if to a connected party –remedy may overturn the transaction.

Preference: The payment to a creditor to put such creditor in a better position that other creditors – 2 years period of claw back if a connected creditor.

Misfeasance: Action against a Director who has acted contrary to their fiduciary duties –no time limit.

Transaction to defraud creditors – A transaction at an undervalue with the intention of putting assets outside the reach of creditors.

It must be borne in mind that the Court will look at contingent creditors when determining whether the actions taken by Directors are valid or not.  Both misfeasance and transactions to defraud creditors are likely to be claimed against the Directors personally. Should the Directors defence fail, then they might face Bankruptcy proceedings should they not be in a position to repay the claim.

Taking advice

This is a new area facing Directors, HMRC and Insolvency professionals so it is premature to determine how aggressive HMRC will be in taking retrospective action against dissolved companies.  It is likely this will depend on the type of scheme and the size of the tax loss. The attitude of the Insolvency Practitioner might also dictate how aggressive the insolvency offences are litigated.  These are both unknowns at this stage however, it is important that Directors take advice on either their current Company duties and also what remedies might be taken on previous Directorships or Dissolved companies.

I would recommend that the principle of tackling Directors retrospectively (including the restoration of companies) be looked at by instructing specialist Insolvency counsel. Alternatively or in addition to, an Insolvency Practitioner might advise on a case by case basis and provide a letter of advice to the Director on the potential issues that might arise together with suggestions of various options.

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Disputed tax payments to be paid upfront using accelerated payments
The Finance Bill 2014 requires taxpayers using tax planning arrangements, that were issued with a disclosure of tax avoidance schemes (DOTAS) reference number and HMRC has opened an enquiry, to pay th ...

The Finance Bill 2014 requires taxpayers using tax planning arrangements, that were issued with a disclosure of tax avoidance schemes (DOTAS) reference number and HMRC has opened an enquiry, to pay the disputed tax upfront using accelerated payments.

The aim is to remove the cash advantage of sitting and waiting during a dispute with HMRC concerning the efficacy of the tax planning and we believe HMRC will issue these demands from mid July 2014 (following Royal Assent to the Finance Bill 2014).

Individuals using tax planning arrangements that were issued with a disclosure of tax avoidance schemes (DOTAS) reference number and where HMRC has opened an enquiry will likely receive issue of a payment notice from HMRC for accelerated payments of the disputed tax.  Taxpayers will have 90 days to pay the disputed tax.

The notice issued will be a simple recalculation by HMRC of the additional tax owed based on removing the effects of the avoidance arrangements previously declared. The application of payment notices to DOTAS arrangements does not require any predicating tribunal or court judgment. E.g. in terms of DOTAS a payment notice could be issued and payment demanded before the outcome of the investigation or substance of the tax avoidance arrangements is known.  If the disputed tax isn’t re-paid on time a 5% penalty will be imposed for each six month period that the payment remains outstanding. Should the tax planning implemented ultimately be proven to be successful, then any ‘disputed tax’ paid under the accelerated payment provisions will be repaid with interest.

Anyone affected by accelerated payments is urged to take advice both in terms of ability to meet payments and options to support any short-term cash flow situation and also to consider the most tax efficient distribution of funds using members’ voluntary liquidation options. This advice can be sought from your Accountant and a licensed insolvency practitioner to minimise cost implications wherever possible.

To find out more contact our team on: 0800 731 2466

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Free Taming the Taxman seminar – Warrington 10th June
Are you looking for advice on how HMRC deal with debt issues? Then come along to our free "Taming the Taxman" seminar on Tuesday 10th June 2014 at Halliwell Jones Stadium, Warrington. Are you lookin ...

Are you looking for advice on how HMRC deal with debt issues?

Then come along to our free “Taming the Taxman” seminar on Tuesday 10th June 2014 at Halliwell Jones Stadium, Warrington.

Are you looking for advice on how HMRC deal with debt issues?

With HMRC getting tougher on ‘creative’ tax schemes and delinquent payers, business owners and their advisers need to be quick on their feet to deal with the body’s no nonsense enforcement action.

Our free seminar will highlight the debt recovery methods used to collect unpaid tax and to walk advisers through the defensive options available to their clients.

The seminar is being held on June 10th at the Halliwell Jones Stadium, Warrington at 12pm until 2.30pm, with lunch being provided.

To enrol for this critical seminar, simply email us at ICSseminar@idealcs.co.uk

Please remember to include the names of all guests due to attend the event as well as any specific dietary requirements.

If you are interested in the seminar, but are unable to make it on the day, please  email us and we will send the full information pack to you.

Hope to see you there.

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Free Tax Seminar
With HMRC getting tougher on ‘creative’ tax schemes and delinquent payers, business owners and their advisers need to be quick on their feet to deal with the body’s no-nonsense enforcement actio ...

With HMRC getting tougher on ‘creative’ tax schemes and delinquent payers, business owners and their advisers need to be quick on their feet to deal with the body’s no-nonsense enforcement action.

We are currently offering a free seminar to highlight the debt recovery methods used to collect unpaid tax and to walk advisers through the defensive options available to their clients.

A seminar is being held on March 26, 2014, at the Holiday Inn in Bolton. The event is due to start at 12pm and will last until 2.30pm. Lunch will be provided.

To enrol for this critical seminar, simply complete the enclosed reply form and fax it back to us on 01204 663032. Alternatively, you can email us at: ICSseminar@idealcs.co.uk. Please remember to include the names of all guests due to attend the event as well as any specific dietary requirements.

If you are interested in the seminar, but are unable to make it on the day, please send an email to ICSseminar@idealcs.co.uk and we will send the full information pack to you.

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The real need for SME tax cuts
How a company deals with its pressing tax issues can go a long way to ensuring its long-term survival. For SMEs especially, tax can become a huge burden, with how they handle their tax affairs affecti ...

How a company deals with its pressing tax issues can go a long way to ensuring its long-term survival. For SMEs especially, tax can become a huge burden, with how they handle their tax affairs affecting their ability to continue trading.

It is estimated that there are 4.8 million firms making up the private sector, with about 14 million employees relying on these businesses to provide them with an income.

As about 47 per cent of the total workforce in the UK accounts for a turnover of £1,500 billion, this shows how much the economy relies on these firms. However, a tax incentive would be required for many of them to consider taking on more staff as tax can limit a company’s ability to keep on recruiting.

National insurance (NI) is one prohibitive factor which is hindering small businesses from investing in staff and thus stimulating the economy. Capital expenditure is in dire need of stimulus and would be welcomed by businesses throughout the country.

While there are some government-backed incentives out there, designed to encourage lending, many are still finding it difficult to even borrow the smallest amounts to aid in their plans for growth and investment.

SMEs are having to rely on other forms of help to keep going as they try to improve their cash flow.

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What typically leads to tax debt, arrears and liability?
Tax arrears arise when your business fails to meet its tax and duty liabilities to HMRC in full when they become due. The most common business tax arrears are VAT arrears and Pay As You Earn (PAYE) ar ...

Tax arrears arise when your business fails to meet its tax and duty liabilities to HMRC in full when they become due. The most common business tax arrears are VAT arrears and Pay As You Earn (PAYE) arrears, but it is also possible to be in arrears with your Corporation Tax and duty payments.

Tax debt, arrears and liability most commonly arise due to liquidity problems with your business. Put simply, it means you do not have the cash to pay your tax when it should be paid, and have fallen behind with your payments to HMRC as a result. Your business’s lack of liquidity may be due to:

Tax debt arising as a result of planning and management issues

  • Poor budgeting and cashflow management
  • Inadequate management structure and business controls
  • Major projects that go wrong, such as significant capital expenditure on assets or infrastructure, relocation or diversification
  • Over-trading and being unable to fund the resulting sales growth
  • Lack of adequate external funding or investment
  • An unexpected withdrawal of bank facilities, or loss of investment capital
  • Sudden or large bad debts
  • Loss of credit insurance
  • Internal fraud or theft.

Tax debt through financial and accounting systems issues

Your business may also find itself in tax arrears with HMRC as a result of failures in your internal accounting processes, such as:

  • Tax calculation errors when completing payroll and VAT returns
  • Incorrect use of VAT schemes
  • Delays in applying for and obtaining VAT registration
  • Poor tax advice from external advisers.

If your business is suffering from liquidity problems please contact us to find out how we can help you.

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What actions does HMRC take against businesses with tax debts?
If your business has tax debt, arrears and liability, HMRC has a range of options to recover the money owed by your business. And if you are a sole trader or in an unincorporated partnership, HMRC may ...

If your business has tax debt, arrears and liability, HMRC has a range of options to recover the money owed by your business. And if you are a sole trader or in an unincorporated partnership, HMRC may recover your business tax arrears from you personally.

HMRC will contact you by letter if it believes that your business has overdue tax to pay. It may also contact you by telephone to discuss what you owe and when you can pay. If you ignore HMRC, it will start debt recovery proceedings. At that point you really must take action, because not paying your tax arrears may result in the confiscation and sale of business and personal assets, court, insolvency or bankruptcy proceedings, as well as the forced winding up of your company.

Failure to pay your tax bills on time, or to negotiate a settlement and payment programme with HMRC could result in:

  • Distraint proceedings: HMRC may visit your business premises and identify assets it believes will pay your tax arrears. If you fail to pay within five days, your assets will be confiscated and auctioned to cover your outstanding tax bill.
  • Magistrate’s court: if your debt is below £2,000, you will receive a summons to attend a magistrate’s court hearing. The court is likely to order you to pay your tax arrears and costs. If you fail to pay, the court will send bailiffs to confiscate business and/or personal assets.
  • County Court: For tax arrears of £2,000 or more, you may be summoned to a County Court, where you are likely to be ordered to pay your tax bill and costs. Failure to pay may result in a County Court Judgement (CCJ) against your company or you personally. You will find it difficult to open a bank account and obtain finance with a CCJ.
  • Insolvency proceedings – personal bankruptcy: If you are a sole trader or unincorporated partnership and you fail to pay your tax arrears, HMRC may petition for your bankruptcy. This can result in business closure, investigations into your finances, your business and personal assets being sold to pay your debts, and future income being used to clear your tax arrears and costs. As a bankrupt, you will find it difficult to open a bank account and secure credit.
  • Insolvency proceedings – winding up your company or LLP: If you trade via a limited company or limited liability partnership (LLP), then HMRC can submit a winding up petition to a court. This is likely to result in your business closing, business assets being sold to cover your tax arrears and costs, an investigation into your and your company’s finances, and possible disqualification from acting as a company director.

Is HMRC taking debt recovery action against your business? Contact us to find out how we can help you.

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HMRC gets tougher on business tax arrears, but Time To Pay remains an option
There’s no doubt that HMRC being harder these days on businesses that owe it money. But even for those facing bleak trading conditions and mounting tax arrears, there are ways to dig yourself out of ...

There’s no doubt that HMRC being harder these days on businesses that owe it money. But even for those facing bleak trading conditions and mounting tax arrears, there are ways to dig yourself out of the hole – with HMRC’s support.

Business owners who can’t meet their tax liabilities on time with mounting Pay As You Earn (PAYE) tax arrears, VAT arrears, self-assessment (SA) income and corporation tax and capital gains tax (CGT) liabilities are experiencing an increasingly uncompromising stance from HMRC. However, with the right support, you can halt HMRC’s debt recovery processes and negotiate an achievable payment plan to clear your tax arrears by using a Time To Pay (TTP) arrangement.

There is mounting evidence of HMRC’s hard line with tax debtors. Its petitions to wind up businesses in tax arrears soared by 57% in the 2011/12 tax year, with petitions submitted to the courts increasing to 5,302 from 3,367 submitted in 2010/11.

Distraint orders, which entitle HMRC’s staff to enter your business premises and seize your assets to auction, have increased by 92% over the same period. In 2010/11, HMRC used its powers of distraint on 5,520 businesses, a figure that rocketed to 10,577 cases in 2011/12.

Furthermore, HMRC’s Annual Report and Accounts 2011-12 reveals that: “The number of time-to-pay arrangements agreed has decreased from 254,285 at 31 March 2011 to 222,071 at 31 March 2012.” Either the UK’s small to medium sized enterprises (SMEs) showed bumper performance during 2011/12 or, as is more likely, HMRC decided to restrict the number of Time To Pay arrangements

HMRC’s reduced options for businesses struggling to meet tax liabilities are worrying the Institute of Chartered Accountants in England and Wales (ICAEW). Time To Pay should be applied “sensibly and fairly”, says ICAEW, which will “combat the perception that HMRC has little interest in helping taxpayers to comply with their obligations”.

If you are struggling to meet a tax bill right now, the good news for your business is that, as of March 2012, HMRC’s annual report confirms that there were “nearly 600,000 Time To Pay arrangements in place amounting to £1.4bn in value”. And although the 222,071 Time To Pay deals struck by the end of March 2012 was 32,214 fewer than the previous year, that’s still a lot of businesses given breathing space by HMRC to sort themselves.

Assuming you have had a previously excellent tax payment history with HMRC, but are now struggling to meet tax liabilities, you have a good chance, with suitably skilled and experienced professional advisers, of securing a realistic Time To Pay arrangement. Even if you have had an arrangement in the past, you can still apply for a fresh one, as long as you stuck to the previous terms without default.

So, despite the worrying statistics, if your business has PAYE, VAT, corporation tax and, CGT arrear, or you have personal self-assessment income tax liabilities you can’t pay, then don’t wait for the distraint order to arrive, or for HMRC to launch bankruptcy proceedings. Get professional help now and you might find that a Time To Pay arrangement is an option that will keep enable your business to stay trading and to clear your tax debts.

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Game on to game over: Why running a sports club is likely to land you in tax arrears with HMRC
A unique combination of unrealistic sporting performance expectations, excessive media and fan pressure, and the unregulated actions of wealthy and powerful benefactors leaves negative implications an ...

A unique combination of unrealistic sporting performance expectations, excessive media
and fan pressure, and the unregulated actions of wealthy and powerful benefactors
leaves negative implications and ramifications for those responsible for running sports
businesses.

Because all too often there is so little interest in how the club performs as a business,
insolvency and tax arrears are inevitable for many clubs. Sports clubs pay inflated wages
to players, but cannot afford the Pay As You Earn (PAYE) income tax and National
Insurance Contributions (NICs) that must accompany salaries. This can be compounded
by the use of offshore avoidance schemes to reduce players’ tax bills.

The result is a massive back tax debt to HMRC.

With HMRC’s Real Time Initiative (RTI) now in force, and a taxman out of patience
with sports clubs unable to pay tax arrears, the situation is only likely to worsen for club
managers during 2013.

In only a single sport, Rugby Football League (RFL), a BBC Inside Out investigation has
revealed that 11 of the 14 Super League clubs have debts totalling £68.5m. Sheffield
Hallam University academic Rob Wilson told the BBC: “There are too many teams
generating insufficient turnover and generating too much cumulative debt.”

The Rugby Football League is not alone. Recently, football clubs such as Queens Park
Rangers have been reported as having ballooning debts in excess of £90m. The saga
of Portsmouth Football Club continues as it has entered administration twice in three
seasons, largely as a result of ever-growing tax arrears to HMRC, and it is about to have
its future heard in the High Court.

If you are under pressure to achieve sporting results by buying expensive talent
within over-specified venues and facilities whilst maintaining below market entry and
merchandise prices to appease fans, you’ll already know it is an unsustainable business
model.

Most sports clubs are trading insolvent and the only reason they continue to exist is
through cash injections from benefactors. These investors, whose motives are highly
variable and often transitory, are rarely likely to see a return on their investment, no matter
how successful the team is on the pitch.

The underlying flaws in the sports business model have been compounded by an
unsympathetic taxman. Our experience with HMRC when negotiating a company voluntary
agreement on behalf of our client, the RFL club Salford City Reds, is that HMRC had run
out of patience. It has had its fingers burnt by allowing sports clubs to do deals in the past,
on which they reneged.

HMRC wants to see clubs run as a viable business, and rarely gives its support to
proposals for an extension to time to pay arrangements. If you are to avoid the fate of
other clubs being closed down by HMRC because they can’t pay their tax arrears, this
means:

  • Accepting that in any conventional, viable business, there has to be an acceptable level of payroll costs as a proportion of turnover. Many sports clubs’ wage bills exceed turnover and they only survive through the intervention of benefactors.
  • Sports club managers need a plan B, an alternative business model that makes provision for a club’s life in the event that a benefactor withdraws their support. Otherwise the club depends entirely on the benefactor’s enthusiasm and the benefactor’s own financial health.

From April 2013, your club and its processes can expect to come under even greater
scrutiny as a result of RTI, and any tax arrears will be swiftly identified by HMRC. So,
should your club already be behind with its PAYE income tax payments and NICs for
player and staff wages, or even VAT arrears, seek professional help to negotiate with
HMRC and other creditors on your behalf before the taxman catches up with you.

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HMRC’s recovery of tax refund overpayments: how to generate tax arrears by paying your tax
When HMRC makes tax refund overpayments, it can leave you or your business facing tax arrears. Even though you may have been completely up-to-date with your tax affairs, suddenly you find yourself owi ...

When HMRC makes tax refund overpayments, it can leave you or your business facing tax arrears. Even though you may have been completely up-to-date with your tax affairs, suddenly you find yourself owing the taxman money. And HMRC can get quite nasty when it realises its mistake and demands you repay the overpayment.

Believe it or not, this situation can arise when you or your business have paid too much tax. Sole traders and limited companies can pay too much corporation tax and capital gains tax (CGT). Company directors and business proprietors can overpay their income tax, National Insurance Contributions (NICs) and CGT.

The tax overpayment may arise as a result of your circumstances changing, perhaps because you pay corporation tax or income tax on account mid-way through the year, and then suddenly your income drops sharply. Or the tax overpayment may have been as a result of a calculation error on your part, or on the part of your accountant.

You can normally ask HMRC to refund any tax overpayments you have made up to four years later. The speed of the refund can vary, but assuming your calculations are correct, eventually HMRC will cough up.

But every so often, HMRC can make a mistake and overpay your tax refund. This may be as part of a refund you are expecting, or it may come completely out of the blue. In either case, ideally best practice for you and your business is to confirm with your professional advisers that the amount refunded is correct before spending it.

Or you could end-up like one of our sole trader clients recently did, who received a demand that she repay her tax arrears which had arisen in the first place because HMRC overpaid her tax refund. Although a refund was expected, perhaps a little unwisely the client immediately spent the money without checking with her accountant whether the amount was correct.

Because her work had dried up by the time HMRC issued its demand that she repay the overpayment within a fortnight, she was unable to pay. This left her business with tax arrears, despite never having previously put a foot wrong with the taxman in the ten years that she had been trading.

Until we got involved, the situation had become quite messy. Not having had much experience of dealing with the taxman, as she had always been completely up-to-date with her tax paperwork and payments, she ignored the letters and phone calls from HMRC. She only took action when receiving notice that HMRC was about to take her to court to recover the overpayment.

Fortunately, at Crown Debt Rescue we specialise in helping businesses deal with their tax arrears. So, once appointed to create a tax arrears debt management plan, we were able to halt the court proceedings and negotiation a realistic repayment schedule.

The lesson from this case study is firstly to ensure that when you receive a tax refund from HMRC, you confirm the amount is correct. Don’t assume HMRC gets it right all the time – the reality can be very different.

And second, if you do find yourself in the unfortunate position of being aggressively chased for money by the taxman, seek professional help. In this case, as in so many others, we effectively halted HMRC’s recovery action against our client. And we can do the same for you.

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