LANDLORDS, online traders and other people who work from home could find the
taxman turning up on their doorstep unannounced demanding their records, as
the government seeks a big increase in the Revenue’s powers.
The radical move, planned for April 2009, will allow tax inspectors to pounce
on businesses with no warning to inspect “records, assets and premises”.
Accountants warn that many ordinary taxpayers who don’t necessarily think of
themselves as running a business – including up to 650,000 buy-to-let
landlords and tens of thousands of traders who make money from websites such
as eBay – could be targeted.
Ever since the Revenue merged with Customs & Excise in 2005 it has been
jealously eyeing the powers given to Customs officials investigating drug
and gun crime, say tax experts.
The powers of the departments are now being aligned. In December, the Revenue
was granted Customs-like powers to arrest people where they have suspicions
of criminal activity. They can also bug people’s homes and their phone
calls, and intercept e-mails and letters.
The new powers, detailed in last week’s budget, will extend these powers even
further enabling it to pursue ordinary taxpayers with renewed vigour.
Gary Ashford, director of the tax investigation team at Grant Thornton, an
accountant, said: “The Revenue has been set tough targets to bring in more
tax. The proposals will enable it to undertake a lot more investigations in
a shorter period of time.”
Under the current rules, tax inspectors usually have to provide evidence of
criminal activity and seek permission from a judge to carry out unannounced
spot checks.
From next year, life could get a lot simpler – for the taxman if not the
taxpayer. The new powers will give the Revenue the right to visit business
premises to demand access to records without warning. That could include
your home if that is where you work.
It appears that taxpayers will be able to turn them away at the door. However,
they could be punished if they do, as the government is threatening to
introduce tough new penalties for blocking an inspection.
Similar spot checks on taxpayers not involved in a business have not been
proposed, but accountants warn they could still fall victim to the Revenue’s
tougher approach.
Among last week’s proposals were new powers to enable the taxman to obtain
information more easily from third parties such as banks and building
societies.
During last year’s crackdown on offshore accounts the Revenue managed to
obtain details of 400,000 accounts, but only after court action forced the
banks to cough up. It wants extra powers to force outside agencies to hand
over details at will. How this will work has yet to be finalised.
John Whiting at Price Waterhouse Coopers, an accountant, said: “Until the
final rules are announced later this year it’s still unclear how the Revenue
expects its new powers to work, or what safeguards there will be for
taxpayers.”
What is clear, accountants say, is that a more imminent shake-up of the
penalty regime will mean bigger fines for many.
At the moment you can be fined up to 100% of the unpaid tax for an incorrect
return, but discounts for cooperation and disclosure cut fines to nothing
for many people.
From next month, there will be four categories of fine depending on your
behaviour. If you make a genuine mistake, there will be no penalty, provided
you were not “careless”.
If, however, you “fail to take reasonable care” there could be a 30% penalty.
This could include something as simple as not keeping records or not taking
advice on something about which you were unsure.
Taxpayers could even be fined for a mistake by the Revenue they fail to spot
in 30 days.
If the taxman gets in touch before you realise the mistake, but you admit it
promptly, the penalty could be halved.
If you deliberately understate your tax, the fine rises to up to 70% and if
you also conceal this, the penalty goes up to 100%. There are reductions if
you cooperate and act promptly. However, accountants say many who would pay
nothing under the current regime would face a fine under the new rules.
Hidden in the small print of last week’s proposals were plans to extend this
penalty regime to punish people who fail to register a new taxable activity
in time.
The rules state that you have three months to tell the Revenue after you have
started a taxable activity, such as renting out a property. If you don’t you
are hit with an automatic £100 fine. From April next year how much you pay
will depend on whether you owe the Revenue tax and why you failed to notify
it.
Under the new regime, taxpayers could be fined for carelessness even if their
accountant made the mistake. However, if the taxpayer can provide evidence
that he or she took reasonable care to ensure that the return was accurate,
such as checking it before submission, the penalty could be waived.
WHAT’S IN STORE
- Powers to turn up unannounced at business premises, including homes.
- Tough penalties for failure to allow an inspection.
- Banks, building societies and other third parties to be forced to hand over
customer records.
- Single penalty regime for all taxes, including inheritance tax.
- Taxpayers could be fined for carelessness even if their accountant made the
mistake.
- People will be able to pay their tax bill by credit card.
CHARITIES GET A GIFT AID LIFELINE
BRITAIN’S charities were handed a £90m-a-year lifeline last week, after the
chancellor’s decision to maintain current rates of tax relief on Gift Aid
donations.
The rates will be maintained at 22% for at least the next three years, instead
of being cut in line with the new 20% basic rate.
Gift Aid boosts donations for 190,000 British registered charities because the
government adds back the basic rate of income tax paid by donors.
With a 22% rate, each £100 donated becomes £128, but at 20% £100 becomes just
£125.
The chancellor said charities can claim “transitional relief” for three years,
allowing them to retain the 22% relief rate.
John Low, of the Charities Aid Foundation, said: “It is a huge relief as we
feared charities were going to lose in excess of £90m a year when the basic
rate of tax comes down next month.”
DELAY IN IHT CLAMPDOWN
FAMILIES who use so-called “interest-in-possession trusts” have got an extra
six months to change their arrangements to avoid inheritance tax (IHT)
before a clampdown takes effect.
New rules that subject the trusts to IHT were to come into force on April 6,
but the change will now occur in October.
Interest-in-possession trusts usually have one beneficiary entitled to income
and another to capital. They were widely used by people who wanted to
provide for their spouse, but make sure their capital passed to their
children if their spouse remarried.
Gifts into interest-in-possession trusts were exempt from IHT but will be
subject to 20% tax above its threshold, as well as ongoing 6% charges every
decade.
If you want someone else to get the income, the 20% tax charge would also have
applied from April although this has now been delayed.
MONEY’S ‘INVESTIGATOR’ WAS INVESTIGATED
DIANA WRIGHT, who spends her time investigating firms on behalf of readers,
was herself the subject of a Revenue investigation four years ago. She said
it was a thoroughly unpleasant experience.
‘It was a bolt out of the blue. Around four years ago, a letter from the
Inland Revenue arrived on my doormat, stating it had decided to investigate
my accounts for the year that ended two years prior to that.
‘The letter demanded I submit all my bank statements, with annotations to show
the source of each deposit and the destination of each withdrawal.
‘That was the start of a four-month nightmare. It is still engraved on my
brain that there was one single incoming payment, for £6.99, I could not
identify.
‘Eventually, the verdict came back – my taxman could not find that
I owed a single penny more of tax.’
