HMRC Announces Latest "Research & Development Tax Credit" Annual Statistics

HMRC has just released its annual report looking at the statistics behind Research & Development ("R&D") tax credit claims by businesses, and the numbers make fascinating reading.

For the uninitiated, R&D tax credits are a tax relief introduced some years ago by the Government some years ago, designed to encourage greater R&D spending, leading in turn to greater investment in innovation. They work by reducing a company's tax bill by an amount equal to a percentage of the company’s allowable R&D expenditure. A company can only claim R&D tax credits if it is liable for Corporation Tax.

HMRC report that between 2000-01, when the R&D tax credit schemes were launched, and 2014-15, over 141,000 claims have been made and almost £14.0 billion in tax relief claimed. This is a huge amount of money.

The total amount of R&D support claimed rose to £2.45bn in 2014-15 – an increase of £675m (38%) from the previous year.

R&D claims and the amount claimed continue to be concentrated among companies with a registered office in London, the South East or the East of England (47% of all claims and 63% of the total amount claimed). This is interesting in the light of recent talk about a "Northern Powerhouse". Perhaps awareness of the scheme needs promoting more in the North?

The ‘Manufacturing’, ‘Professional, Scientific and Technical’, and ‘Information and Communication’ sectors continued to have the greatest volume of claims, making up a total of 75% of claims and 77% of the total amount claimed for 2014-15.

We at Outhwaite Associates have helped a number of businesses to submit successful R&D claims. Interestingly, a number of those businesses were unaware that their activities qualified for a successful claim until they spoke with us. If your business is involved in any innovative activity, or is developing innovating processes then please do contact us for a no-obligation discussion to see if there is any merit in formulating a claim.
 

Brexit from EU - Some Thoughts Regarding VAT

Well, as things stand in September 2016 we do not yet know when our exit from the EU will actually happen and neither does the Government. It may be late 2019, which seems to be the current opinion but until negotiations are concluded we do not know what the actual effects will be to the UK’s VAT system.

It may mean less paperwork, such as not having to submit EC Sales Lists and Intrastat declarations on a monthly basis but it could lead to more physical checks and controls on goods coming into and leaving the UK as far as the other EU Member States are concerned. Goods heading for the rest of the EU will once more almost certainly have to be treated like exports elsewhere.

Customs duties may have to be re-imposed on certain goods entering the UK and the same could apply in the rest of the EU when goods are sent there from the UK. Import VAT on goods entering the UK could also be re-introduced taking us back to the pre-2003 position when the Single Market was formally introduced.

But there could be other more complicated changes required. The MOSS system, for example, only recently introduced throughout the EU for many services rendered to private individuals in a different country than the provider may have to be amended for UK businesses. Some suppliers may be required to register for the first time in another or multiple EU Member States.

All will no doubt become clear in due course and, until Brexit actually happens, UK businesses will have to comply with existing VAT legislation both here in the UK and in the rest of the EU. After that, the UK should have more flexibility when it comes to changing the VAT rules, which are currently supposed to mirror those imposed by the EU.

So, it may be a while before we can actually start planning but businesses do need to be aware that some VAT changes will come about as a result of the UK’s leaving the EU.

Outhwaite Associates are here to help and provide guidance as and when necessary and do feel free to give us a call now, without prejudice!

Better Late than Never! HMRC Announce New Disclosure Facility

Having prematurely closed all its pre-existing facilities to disclose tax irregularities on 31 December 2015, we have been waiting for news of the facility to replace them that was first announced by the then Chancellor last year. Finally, we have news to report.

We have been a supporter of previous HMRC disclosure facilities as they offered individuals and businesses with tax irregularities a chance to make their peace with HMRC, in return for certainty and a “softer landing” than could otherwise be expected. The lack of a facility has been bad news for both HMRC and individuals and businesses.

HMRC have now announced (with little notice) a new disclosure facility tied in with the introduction of worldwide reporting of assets and investments by financial institutions under the newly implemented Common Reporting Standard (“CRS”) as well as a proposed new set of rules to introduce new legislation requiring any person who has undeclared UK tax liabilities in respect of offshore interests to correct that situation by disclosing the relevant information to HMRC. This will be ahead of the widespread adoption of the CRS in 2018. 

HMRC are proposing that the disclosure would include the outstanding tax, interest and penalties due for offences committed on or before 5 April 2017. The disclosure can be made through the Worldwide Disclosure Facility (“WDF”) and via the new online Digital Disclosure Service, both of which go live on Monday 5 September 2016.

Under the terms of the CRS (and other financial exchange of information agreements in place) HMRC is collating information about overseas accounts, insurance products and other investments, including those held through overseas structures such as companies and trusts. This will include details of who the beneficial owner of such assets and investments is. HMRC will be matching this information with what has been declared, and will be acting to investigate cases of under-declaration, both using civil means, and criminal investigatory means where it feels this is appropriate.

So how will the Worldwide Disclosure Facility (“WDF”) work?

The WDF will launch on 5 September 2016 and will be available to anyone who is disclosing a UK tax liability that relates wholly or in part to an offshore issue. This includes: -

  • income arising from a source outside the UK
  • assets situated or held outside the UK
  • activities carried on wholly or mainly outside the UK
  • where the funds connected to unpaid tax are transferred outside the UK

Anyone who wishes to disclose a UK tax liability that relates wholly or in part to an offshore issue is eligible to use the facility under the terms.

The individual or business concerned will be able to make a disclosure from 5 September 2016 via the online Digital Disclosure Service and will first need to notify its intention to disclose.

From 5 September, the individual or business only needs to tell HMRC that you will be making a disclosure. Once an intention to make a disclosure has been made, there is a 90-day period to: -

  • collate the information needed to complete the disclosure;
  • calculate the final liabilities including tax, duty, interest and penalties; and
  • complete the disclosure, using the unique disclosure reference number provided when notifying.

We would advocate seeking suitably qualified professional advice before making any disclosure, and at Outhwaite Associates we have a wealth of experience in managing disclosures to HMRC and securing excellent results for clients. We also support advisers acting for clients who may not have experience of managing disclosures to HMRC.


What if I have Tax Irregularities to Disclose, but they do not Relate to Offshore Issues?

We can still help you make a proactive disclosure to HMRC, resulting in the best possible outcome for you. Please contact us if you have any concerns.

 

Tax Planning and the Duke of Westminster

We were sad to hear about the death of the Duke of Westminster today. It brings to mind his predecessor and the famous ‪#‎tax‬ case regarding the legality of legitimate tax planning. Baron Tomlin, in the UK House of Lords case of the Inland Revenue Commissioners v Duke of Westminster in 1936 said: -

"Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax."

It is a fascinating backdrop against HMRC's continuing attacks on the tax planners.

Please feel free to contact us if you have any issues with HMRC over the legitimacy of tax planning.

Steve Outhwaite’s Marathon Effort

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Steve is very proud to have raised £2,500 for a national children’s charity by taking part in – and completing – this year’s London Marathon.

Steve ran the 26-mile race for a charity close to his heart - Caudwell Children. The charity provides family support services, equipment, treatment and therapies for disabled children and their families across the UK. They also run the “Enable Sport” programme for talented disabled athletes and a “Destination Dreams” holiday programme for children fighting life threatening conditions.

Steve said: “This was one of the toughest challenges I have ever undertaken, but it was worth every painful step to raise this money for this wonderful charity.

“This is the first time I’ve competed in the London Marathon and the atmosphere was absolutely fantastic. The crowd carried me along and gave me the strength to continue, particularly when I got cramp in my calf muscle at 18 miles.”

“I would like to say a big thank you to everyone who sponsored me, and whilst I am the first to admit it wasn’t a particularly fast time, I now have a target to beat if I ever do it again – and I hope I will next year!”

Kirsten Greaves, the Challenge Coordinator at Caudwell Children, said: “We are incredibly grateful to Steve for raising this superb sum for us. 

“It was both a marathon and Herculean effort on his behalf and very much appreciated by everyone here.”

Even though the event has finished, you can still donate to Steve’s Just Giving page at www.justgiving.com/fundraising/stephen-outhwaite and you can also find out more about the brilliant work of Caudwell Children at www.caudwellchildren.com 

How to Survive a Tax Investigation – Helpful Clients (part 1)

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Particularly for practitioners, we thought it would be helpful to run a series of articles aimed at giving you practical advice to pass on to clients in the form of questions and answers to guide as to what to do if clients receive the dreaded letter from HMRC advising you they or their business is under investigation (or “enquiry” as it is called by HMRC). This may also be of general interest for both business owners and individuals. So here we go…

Q. Can I ignore the letter?
A. No – they won’t go away! But don’t panic – most investigations can be resolved satisfactorily with a bit of organisation and professional help if necessary.

Q. So what should I do with the letter?
A. Read it carefully – ensure it is addressed to the correct person or business, and if it is make a note of the deadline for a reply. If you do not reply in time, HMRC can issue financial penalties. If you feel the deadline is unreasonable then ask the enquiry officer for an extension – they are generally happy to allow this. But do this as soon as possible – don’t wait for deadline day as this just annoys them!

Q. Do I need an accountant?
A. If you have an adviser such as an accountant, ensure they have received a copy of the letter, and decide whether you need their help to deal with the investigation (we would always advocate seeking suitably qualified professional advice).

Q. The letter is asking for a lot of information – do I need to supply it all?
A. HMRC are only entitled to ask for documents and information that are “reasonably required” to enable them to conduct their investigation. If you believe they are exceeding their powers, then raise your concerns with your adviser or the enquiry officer. Also, HMRC can only ask for documents or information that are in your “power or possession”, so if it is beyond your power to obtain a particular document or piece of information then again refer your concerns to your adviser or the enquiry officer.

Q. The Enquiry Officer is asking to meet me – do I have to attend?
A. Unless HMRC are conducting a criminal investigation, they cannot force you to attend a meeting, but a refusal to attend can result in HMRC alleging non-cooperation with their investigation, which can lead to financial penalties. This is an issue to discuss with your adviser before deciding whether to attend. If you do attend we would recommend that your adviser attends with you.

Q. Can HMRC inspect my business premises?
A. Yes – with certain restrictions. Unless it is a Criminal Investigation HMRC can only inspect financial records – they cannot search. If part of your home is being used for business purposes, HMRC can inspect that too, but they cannot inspect non-business premises.

A Final Thought from us
The above guidance is intended to answer some common questions in the event of an HMRC investigation, but we would always recommend seeking suitable professional advice. We at Outhwaite Associates Ltd offer a free, no obligation, initial consultation on any tax matter, so please do feel free to contact us if you have any questions, by email on stephen@outhwaite-associates.co.uk or ilyas@outhwaite-associates.co.uk or by telephone on 07949 929663. Our website is at www.outhwaite-associates.co.uk We commonly work in conjunction with businesses or individual’s regular accountants, who value our specialised services.

Next month, we will look in more detail at exactly what documents and information HMRC can request, and how far back in time they can ask for records for. In the meantime, please do contact either Ilyas or myself if you have any questions.

Introducing Ilyas Satia

 Ilyas SATIA

Ilyas SATIA

We have been looking to strengthen our links with the North West of England for some time now (particularly as Steve is an inveterate Preston North End supporter!) and are delighted to announce that in conjunction with opening an office in Blackburn, we now have a really high quality addition to our ranks in the form of a new consultant – Ilyas Satia.

Ilyas lives in Blackburn and has a wealth of experience in the accountancy sector. Ilyas specialises particularly in looking after the accountancy and taxation needs of owner-managed businesses, the provision of management services, dealing with HMRC investigations, business planning and budgetary forecasts and due diligence work in connection with significant acquisitions.

Ilyas is ACCA and AAT qualified (holding fellow status with both organisations), and has 18 years of experience in the accountancy profession.

Away from work, Ilyas particular enjoys volunteering in the Charity sector, particularly with the Child Poverty Action Group. On the sporting front Ilyas is a keen local Lancashire League cricket follower.

Ilyas supports clients with particular taxation needs – especially issues with HMRC – from the North West of England alongside our current diverse client base.

If you would like to contact Ilyas he can be reached on his mobile 07788 725107 or by email at ilyas@outhwaite-associates.co.uk 

 

HM Revenue & Customs Disclosure Facilities – Where are we now?

We live in interesting times as far as HM Revenue & Customs (“HMRC”) disclosure facilities are concerned!

Historically, since the late 2000’s, we have had a succession of disclosure facilities made available by HMRC, to offer a “light touch” route with which to make disclosure of tax irregularities to HMRC in return for more favourable treatment than would generally be on offer. In chronological order we had the Offshore Disclosure Facility (or “ODF”), the New Disclosure Opportunity (or “NDO”), the Liechtenstein Disclosure Facility (the “LDF”) and the Crown Dependencies Disclosure Facilities (or “CDF”). Each of these was supposedly the “last chance” to submit disclosures to HMRC before they got tough! And each was then superseded by another opportunity.

The ODF and NDO ceased several years ago. The LDF and CDF were supposed to run into 2016, but were closed unexpectedly early with effect from 31 December 2015 to tie in with what the Chancellor announced would be one “final, final” disclosure opportunity originally due to start in January 2016 to tie in with the introduction of much greater exchange of financial information between jurisdictions following the introduction of the Common Reporting Standard (“CRS”).

In a move that has both practitioners and HMRC scratching their heads, the introduction of the new CRS-related disclosure facility has been delayed and delayed and we are still no nearer its introduction. We await further news with interest!

We practitioners are advocates of disclosure facilities as they offer great opportunities to clients with issues to disclosure to HMRC to do so in a safe environment. For example, in the LDF, in return for a full disclosure, clients were offered certainty as to a favourable penalty loading, a restricted “look back” period for tax irregularities, a dedicated single point of contact within HMRC and – most importantly – immunity from prosecution provided certain criteria were met. Whilst the Chancellor has stated that the new facility will be on less generous terms, there are likely to be similar inducements.

In the meantime, during this period of uncertainty, there are still routes in to HMRC if there are issues to disclose, and if you have any such issues that are troubling either your clients or yourself please do contact Steve for a no-obligation discussion. Steve can be reached on 07949 929663 or by email on stephen@outhwaite-associates.co.uk