HMRC’s new powers on tax collection
There are a number of existing and new powers (as well as ongoing proposals and consultations) around at the moment designed to assist HMRC in collecting taxes: -
- This year HMRC was given the right to require settlement of disputes in line with similar court decisions. An unsuccessful challenge on this could lead to substantially increased penalties;
- HMRC was also given this year the power to collect the disputed tax on historical (and current) planning arrangements in advance of any court ruling on the matter. Any tax collected in error will be repaid once the dispute is settled;
- Regulations are being processed to allow HMRC to collect unpaid tax of up to £17,000 through employees’ tax codes - with a possible delay of up to 30 days before HMRC notifies the employee;
- There is a current consultation on allowing HMRC power to take monies owed to it direct from bank accounts;
- HMRC may ask businesses to pay a security deposit where it believes there is a risk of underpayment of tax (VAT and PAYE are the most common);
The number of winding up petitions issued by HMRC in the year to 31 March 2014 rose to 4,147 from 3,733 in the previous year, an increase of 11%.
As well as recovery powers HMRC also has substantial powers to increase the amount of tax that can be collected. An exhaustive list is outside the scope of this article but some of the more common areas are: -
- The General Anti-Abuse Rule (introduced in 2013) under which HMRC has the power to overturn tax planning arrangements;
- The transfer pricing regulations which require transactions to be restated on arms length terms;
- Negation of the tax saving from repayment and replacement of company loans to shareholders;
- The restriction on certain personal income tax reliefs (eg loan interest) to £50,000 or 25% of income;
- The re-categorisation of capital transactions as income;
- Income tax charges on employee share awards
The newer provisions have been featured in the press, generally with celebrity tags, but potentially will affect a lot of people and businesses. HMRC’s powers are increasing and care needs to be taken to avoid falling foul of the legislation. It is becoming increasingly necessary to plan carefully for the future and now you may also need to revisit the past.
This is complicated and we will be issuing further information. In the meantime, if you do have any concerns over historical tax planning or future possibilities please do contact us.
Date: 16th October, 2014
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