Working Together Issue 13

Contents

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Viewing Issued Statements of Account over the Internet

To help you keep track of your clients' Self Assessment accounts, we currently provide you with paper Clients' Account Information sheets (SA327). Due to the volumes involved - and in the case of the December issue, the time of year we produce these sheets - some of you do not receive these until well into July/January. Where this happens, some of you have told us that this is too late to make effective use of them before your clients' Statements of Account are issued.

We are therefore pleased to announce that we have introduced a new online facility called `View Statements'. This enables you to use the Internet to view copies of issued Statements of Account (SA300). The benefits for you and other customers include:

  • Access to the latest issued SA300s - you can view them within a few days of their issue. You will no longer be reliant on the receipt of SA327s, which should be especially helpful following the issue of the December SA300s.
  • Access to the same view and format of Statement information that all users can see. This removes the current anomalies between the SA327 and SA300 (such as not showing Accrued Interest on the SA327)
  • SA customers, tax advisers and Revenue staff can view Statements of Account issued to individuals since 1 December 2002.

To take advantage of `View Statements' SA customers and tax advisers must be registered to use our Internet services. If you are not already registered you can find out how to do this and more about Internet services by going online at www.inlandrevenue.gov.uk/ebu/age_index.htm

Please also note

  • We are currently unable to include Trust Statements of Account in this new service. (We will look at ways of including these at a later date).
  • We will continue to issue Clients' Account Information sheets to you for the time being.

What Next?

`View Statements' is the first step towards our aim of providing SA customers and tax advisers with the facility to view over the Internet the latest liabilities and payments position on an SA account. Work is currently underway on a new service, called SA View Liabilities and Payments On Line, and we will keep you up to date through Working Together later this year.

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Joint Self Assessment Enquiry Workshops

The Revenue and the representative bodies involved in Working Together are committed to building better working relationships in enquiry work. We can only do this if we understand each other and the issues that are important to us all. We need to understand each other's perspectives, business pressures and priorities.

Inland Revenue Head Office & the representative bodies are encouraging enquiry workshops to be delivered jointly by Revenue compliance staff in Area Offices and local tax advisers involved in Working Together in their area. In these workshops, people can get together to discuss issues frankly, constructively and openly, in a safe environment.

To help people plan their own local workshops, Inland Revenue Head Office, in conjunction with Working Together agent partners, has designed a toolkit in the form of a CD-ROM. Whether local Working Together groups hold a structured event with presentations and syndicate activities, or a small discussion group to look at particular issues, the CD-ROM will provide guidance on how to promote an event, suggested content for both presentations and discussion groups and provide a library of relevant reference material.

The toolkit is being distributed to Area Offices towards the end of June. If you would like to be involved in workshops near you, contact your representative body, or get in touch with your local Revenue Working Together Contact.

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June 2003 Clients' Account Information Sheets

For business reasons, we have had to start the process to produce the June 2003 issue of the Clients' Accounts Information sheets (SA327) earlier than usual. The initial process was run over the weekend of 24/25 May 2003. This will result in the SA327s showing account transactions up to 23 May 2003. All sheets will therefore be dated 23 May 2003.

In recognition that we started the production of the SA327s earlier than usual, we are making a change to the way in which we show `unallocated credits' on the SA record.

Our usual practice is to set unallocated credits against all amounts shown as `Becoming Due' on the SA327. To do this we have to extend the period in which we allocate payments from our usual 45 days to approximately 65 days in advance of the due date of the liability.

But for the June 2003 SA327s, we have decided not to extend the 45-day period. You will therefore see some cases where a credit is shown on the SA327 as `unallocated' and at the same time an amount will be shown as `Becoming Due'. The `Balance of Account' however will continue to show the amount left to pay after taking into account the credit on the SA record. The payslip will also show the balance left to pay.

Please note that this change only affects your June SA327s. Your clients' June Statements of Account will not be changed and will continue to show unallocated credits as set against all `Becoming Due' amounts as usual.

Finally a reminder that whilst we started the process to produce the SA327s on 24/25 May 2003, due to the sheer size of the operation some of you may not receive your sheets until early/mid July. So if you have access to the Internet, why not view your clients' Statements online and see what they see? We expect the June 2003 Statements of Account to start appearing on `View Statements' during the last week of June and the final ones by the end of the first week of July.

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Agent Authorisation (Form 64-8)

There have been some complaints from agents about Area Offices and Contact Centres refusing to discuss their clients' tax affairs even though a 64-8 authority had been sent to the Revenue some time ago.

On 28 January we explained on the "What's New?" pages of the Working Together website that we understood that not accepting replacement 64-8s by fax from bona fide agents who already act for the taxpayer had caused real frustration. We are sorry for the difficulty this caused. We said we would accept a replacement 64-8 by fax if at the same time the agent could fax a copy of recent correspondence from us in respect of that client. But we would not accept faxed copies of the 64-8 form where it is a new authorisation by a taxpayer for a particular agent to act on his/her behalf.

There have been some further complaints from agents that 64-8 forms that they have already sent to us, have still not been recognised by Revenue offices. We have looked again at our logging system as part of continuous improvement. At Longbenton, for example where 64-8 and CWF1 (self-employment registration) forms are often sent in together, the system has been improved so that both forms are processed at the same time. We are ensuring that all frontline staff are aware of the action they need to take on receipt of form 64-8.

The SA View Statements service will allow agents to view their clients' SA Statement of Account and for individuals to view their own. View Statements is the first of a number of enhancements aimed at both encouraging agent take up of e-services and extending the range of services for agents and individuals.

Anyone who wants to take advantage of View Statements must be registered to use our Internet services. Agents who are not already registered can find out how to do this and more about Internet services by going online at www.inlandrevenue.gov.uk/ebu/age_index.htm

Agents will, of course, only be able to see statements for clients for whom we hold a 64-8 or, more precisely, for whom we hold and have actioned a 64-8. We know from existing agent client lists for SA filing and the CT View Liabilities and Payments service that agents have been surprised to find significant discrepancies between their client list and ours, for example the appearance of a number of ex clients. So please let your Revenue Office know if you cease to act for a client.

Other related articles in this edition you may find interesting are `Viewing issued Statements of Account over the Internet' and `Agent Authorisation - Internet service for PAYE'.

One final point about 64-8s, on which we still get queries. When we merged with the former Contributions Agency, we received legal advice that the then existing form 64-8 could only cover tax and Class 4 NIC. It could not cover other classes of NIC, tax credits or any other of the new areas for which the Revenue now has responsibility. In January 2000, we introduced a new print of form 64-8 to correct this situation. This was extensively covered in Working Together issues 1 & 2 at the time. If you need to correspond with the National Insurance Contributions Office or the Tax Credits Office about a client, you will have to ensure that one of the new-style 64-8s is in operation. You can download a copy of the current print from our website or contact any Inland Revenue Office.

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New Tax Credits - An Update

This is an update of the article on New Tax Credits which appeared in Working Together, issue 12. Regulations changed in April, which affected the type of changes to personal circumstances which need to be reported to the Revenue. This paragraph replaces that originally published:

Changes in Circumstances

Tax credits are based on personal circumstances, which can of course change. When tax credits are claimed, there are some changes that need to be reported, and others that claimants will want to report (either to increase their tax credits in-year, rather than waiting until the end of the year, or to avoid being paid too much tax credit and having to pay it back). There is a full list on pages 42 and 43 of the notes to the claim form and pages 5-8 of the notes that accompany award notices. The changes that must be reported are where:

  • someone claims tax credits as a single person, and then they marry or start to live with someone as if they were married
  • people claim tax credits as a couple, but they stop living together or separate
  • someone is receiving the child care element of Working Tax Credit, and their average weekly child care costs go down by more than £10 a week, or fall to zero, for at least 4 weeks in a row.

Any increase in tax credits can only be updated for up to 3 months, but reductions in tax credits are generally backdated to the date when the circumstances changed, so it is better to notify changes as soon as possible.

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Inheritance Tax - New Form IHT100

We have introduced a new form IHT100 to replace the earlier forms IHT100 and IHT101. These forms were used to tell Inland Revenue, Capital Taxes about all non-death Inheritance Tax chargeable events.

The events for which the form IHT100 is to be used are:

  • Gifts and other transfers of value (including failed potentially exempt transfers).
  • Ending of interests in possession in settled property.
  • Proportionate charges on non-interest in possession (discretionary) trusts.
  • Principal charges on the ten-year anniversary of a discretionary trust.
  • Flat rate charges arising when assets cease to be held on special trusts such as temporary charitable trusts.
  • Recapture charges arising on the ending of a conditional exemption on heritage property.

The form of account for death cases continues to be the IHT200.

The new form IHT100 is the lead form of a set of forms consisting of

  • IHT100
  • Supplementary pages D31 to D40.
  • Event forms IHT100a to IHT100f.
  • Worksheet IHT100WS.

The new form IHT100 follows the style of the form IHT200 with which many of you will be familiar. It is the form that must be used to account for all non-death inheritance tax chargeable events. In the IHT100 we ask our customers to provide details about the assets on which Inheritance Tax arises or could arise. We also ask for details about the person who is chargeable and where appropriate the settlement involved.

The supplementary pages closely follow the supplementary pages that go with the IHT200 and perform the same role. They ask for more detailed information about certain assets included in the form IHT100 as well as reliefs that are being claimed.

In addition to the usual information about the chargeable person and the assets on which tax is chargeable we need further information in order to work out the tax that is due. This information differs depending on which chargeable event is being considered. To gather this information we have introduced separate forms, known as event forms. There are six of these. Each is tailored to ask for the additional information that relates to one of the six chargeable events the form IHT100 deals with. The appropriate event form must be returned with the form IHT100.

We have also introduced a worksheet, form IHT100WS. This is offered as a facility for those who wish to work out the tax themselves. There are no plans to make Inheritance Tax on non-death events a self-assessed tax. It follows that use of the worksheet is optional.

The worksheet can be used to calculate the Inheritance Tax on any of the chargeable events catered for by the form IHT100 in most situations. Where it is not possible to work out the tax using the worksheet the guidance notes with the forms say so.

By introducing the new forms our aim is to make our requirements clear and so make it easier for our customers to comply. We also aim to gather all the information we need at the outset. The benefit of this to our customers should be a greater level of certainty about what we need and a reduction in the number of enquiries we need to make after we receive an account.

The new forms will be available on the Internet at www.inlandrevenue.gov.uk

Copies of the new forms may be obtained from our Orderline. The numbers are:

  • Telephone 0845 234 1000 Fax 0845 234 1010 or by E-mail

If you want more information about the new forms contact Edward Watts on 0115 974 2755.

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Leaflets SA354 & SA357

Some of you have told us that it is unnecessary to include leaflets SA354 ("Understanding your Tax Calculation") and SA357 ("How to Pay") with the agent's copy of the SA302 Tax Calculation.

We may be able to stop sending these with the agent's copies but continue to send them with the taxpayer's copies. If you have any views on this, please let the Working Together Team know by the end of June. Contact details are shown below.

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National Insurance Contributions

Following Working Together issue 11, here are two more frequently asked questions on NICs.

Deferment Form (CA72B)

Question: I have not been able to locate a deferment of Class 2 and Class 4 National Insurance Contributions form (CA72B) for the 2001-02 tax year on the Inland Revenue website. Please can you include such forms for previous years as well as for the current tax year?

Answer: We had considered including deferment forms for earlier years, but originally decided against the idea because retrospective deferment only applies in certain circumstances to Class 4 NICs and not to any other classes of NICs.

However from April 2003 we have included both the current and previous year's CA72B applications on the site. We will only show the CA72A (Class 1) for the current year to avoid any possible confusion. In the meantime (and for any earlier years) tax advisers should simply print off a copy of the CA72B for the current year and amend it to show the tax year to which the Class 4 deferment relates.

Small Earnings Exception - Certificate Renewal Exercise

Question: I have a number of clients whose earnings have been below the Small Earnings Exception Limit for three years. When will the National Insurance Contributions Office renew these certificates and will they do this automatically?

Answer: All self-employed people who expect to earn below £4095 for the 2003-04 tax year can apply for a Small Earnings Exception (SEE) certificate to exempt them from paying Class 2 National Insurance Contributions. Unless people hold a certificate, they remain liable to pay.

A SEE certificate issued on registration of self-employment expires at the end of that particular tax year, but subsequent certificates are valid for three years. When a certificate expires, we automatically invite existing holders to apply for renewal and the renewal exercise started during the first week in March.

The exercise, allowing time for the issue of approximately 46,700 invitations, processing applications and issuing new certificates, covers a period of three months. We aim to complete the renewal exercise by the first week of July, before the Quarterly Billing run. During this period, clients may receive their invitations and new certificates at different times. Due to the scale of the exercise, we would ask you please to be patient and not chase up any certificates until after Monday 7 July.

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Contact Centres - Extended Speed Dialling Facility

In Working Together issue 11 (December 2002) we announced that we would be extending the temporary speed dialling facility for agents telephoning our Contact Centres until 31 March 2003. We are pleased to tell you that, owing to popular demand, we can offer a further extension to this service and will continue to provide these numbers for the foreseeable future. We would like to thank agents for bearing with us at a very busy time for all our Contact Centres.

For more details of the service offices grouped with each Taxes Contact Centre, the speed dialling numbers and the types of issue we can handle by telephone, please see the full article in issue 11.

Following a request through Working Together, Inland Revenue Contact Centres' Customer Service Team is looking at the feasibility of producing a Frequently Asked Questions (FAQ) page aimed at tax advisers to mirror the guides provided for Contact Centre advisers. We will keep you posted on progress.

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Cumbernauld Payments and Paying Electronically

A growing number of Self Assessment taxpayers are paying electronically and as a consequence we have changed the way we handle payments by post.

If you normally deal with our Cumbernauld office and send cheques there, you will notice the printed payment envelope we issue with the Statement of Account is now addressed to `Cumbernauld Dept', Bradford. We would be grateful if you would destroy any Cumbernauld envelopes you have showing a Glasgow postal address.

If your client is dealt with by our Shipley office, there are no changes to payment arrangements.

Payment Enquiries

Please contact the office shown in the `How to Pay' section on the reverse of your Statement of Account if you have any questions about payment. Although our Cumbernauld office will no longer be processing payments they continue to deal with payment enquiries. Any correspondence that you (exceptionally please) enclose with a cheque payment will be sent to them overnight.

Switching to e-Payment

There are several ways to pay electronically. The most popular methods are:

  • BillPay: Visit www.billpayment.co.uk and follow the instructions on how to pay by Debit Card over the Internet
  • Telephone Banking: Telephone your bank or Building Society with payment details
  • Your Bank's Internet facility: Use your PC to enter payment details

For more information please go to www.inlandrevenue.gov.uk/howtopay/self_assessment.htm or contact

Cumbernauld Tel: 01236 783717 or by E-mail

Shipley Tel: 01274 539328 or by E-mail

To ensure your payment is entered on your client's record accurately and without delay, please provide the 11-character reference printed on the payslip and ending with letter `K', for example, 5432123456K. Please do not add other characters or symbols to the reference or leave any spaces.

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Agent Authorisation - Internet Service for PAYE

(The following article uses the term `agent' to mean both agents and payroll bureaux.)

Background

Agents can send a variety of PAYE forms and returns over the Internet on behalf of their employer clients, including End of Year P14s and P35s. Before the HMRC will accept PAYE forms and returns from an agent using the Internet:

The agent must first obtain an online Revenue Agent Reference using the Deloitte, allow 4 working days, and then register and enrol as an agent for the PAYE service.

The employer must authorise the agent to send PAYE forms and returns on their behalf.

We must receive this authorisation before the agent sends us the employer client forms and returns.

Authorisation

There are two ways to let us know that an employer has authorised their agent. These are:

  • By post

Employers or agents can download and print off the authorising form FBI 2 at www.inlandrevenue.gov.uk/efiling/paye/fbi2.pdf When the employer has signed the completed form, either the employer or the agent should send it by post to the Electronic Business Unit - see contact details below.

Please note:

  • This paper option is not as quick as the online option below
  • Although a completed form 64-8 gives agents authority to use the Internet service for Self Assessment, it does not give them authority to use the Internet service for PAYE on behalf of employer clients.
  • Online authorisation

Employers who have first registered and enrolled for the Internet service for PAYE can authorise their agent online.

Full details about how employers register and how to authorise an agent online.

 

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Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003

Summary

Home Office legislation, the Proceeds of Crime Act 2002, has been brought into force in stages. This article concerns Part 7 of this Act, which reformed the law on money laundering and is expected to have a significant effect on professional advisers. This article is intended to:

  • raise awareness of this new legislation
  • cover its interaction with the Inland Revenue in the area of tax evasion.

Other parts of the Act, for example those concerning the establishment and operation of the Asset Recovery Agency, are not dealt with in this article.

Introduction

The Proceeds of Crime Act 2002 requires those in what the legislation terms the `regulated sector' to report where they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in laundering the proceeds of crime.

The existing regulated sector, which includes for example banks and investment businesses, is due to be expanded by the Money Laundering Regulations 2003 to include:

  • Estate agents
  • Casinos
  • Insolvency practitioners
  • Tax advisers (a person appointed to give tax advice about the tax affairs of another person)
  • Accountants and auditors (those providing by way of business accountancy or audit services)
  • Legal advisers (those providing by way of business legal services which involves participation in a financial or real property transaction)
  • Company formation agents
  • Dealers in high value goods, including auctioneers, whenever payment is made in cash, and in an amount of 15,000 euro or more.

These Regulations that expand the regulated sector are expected to be laid around mid June. The Government is however intending to allow a further 3 month period from when they are laid until the Regulations actually come into force. This will allow those affected by the Regulations time to implement training programmes and anti-money laundering procedures.

Previous money laundering legislation has principally concerned the laundering of drug or terrorist funds. The new legislation concerns the proceeds of all crime and this includes all acts of tax evasion and fraud.

For professional advisers (tax advisers, accountants, auditors and legal advisers) this means, as with others in the regulated sector, that if in the course of their business they know or suspect that their clients or others have committed a money laundering offence, including tax evasion, they are required to report their suspicions to the National Criminal Intelligence Service (NCIS).

This is without de minimis limit and thus covers all suspicions irrespective of the amounts involved. The wording in the legislation also captures not just actual knowledge or suspicion, but a more stringent test of whether there were `reasonable grounds' for such knowledge or suspicion.

Although this is not mandatory upon them yet, some professional advisers have already submitted reports in anticipation of the legislation taking effect.

Requirement for Professional Advisers to Report Knowledge or Suspicion of Tax Evasion

Professional advisers will be required to report their knowledge or suspicion of money laundering (including acts of tax evasion) on a Suspicious Activity Report (SAR) form as soon as is practicable after the information came to them.

The legislation states that a disclosure must be made `in the prescribed form and manner as set out by the Secretary of State'. The form or forms for this are currently under review. For the time being the existing SAR form should be used which is available from NCIS and can be downloaded from their website at www.ncis.co.uk.

All SAR forms must be submitted direct to NCIS. This is the case whether the report concerns the proceeds of tax evasion or any other form of criminal activity. NCIS is the government body to receive these reports as only they have the information to check whether there are links to wider criminality.

The Inland Revenue is not a receiving body for these reports. Where a voluntary disclosure about unpaid liabilities due to tax evasion is intended to be made to the Revenue the professional adviser is still required to make a SAR to NCIS at the earliest opportunity.

Reports that Concern Tax Evasion

Reports that relate to tax evasion will be referred within NCIS to an Inland Revenue team who will analyse and evaluate them. Where the only criminality identified from this analysis is tax evasion, the reports will be forwarded by NCIS to the Inland Revenue or HM Customs & Excise as appropriate. For offences of evading direct taxes or NICs the Inland Revenue will be the investigating body and, in England and Wales, the prosecuting body for these offences. In Scotland the Procurator Fiscal and in Northern Ireland the Director of Public Prosecutions are the prosecuting bodies. Reports forwarded by NCIS to the Revenue will be received by Special Compliance Office (SCO).

Effect on Inland Revenue Enquiries and Hansard

Any Inland Revenue enquiries that result from or are informed by disclosures forwarded from NCIS will be carried out in the same manner as any other Inland Revenue enquiry.

In particular reporting a case to NCIS ahead of notifying the Revenue will have no bearing on how the Revenue may treat a case, if the taxpayer is actively seeking to set their affairs straight. This also applies to cases dealt with under the Inland Revenue approach to civil settlements known as `Hansard'.

Confidentiality of information received by the Inland Revenue will of course remain of uppermost importance. In cases other than criminal investigations by SCO, procedures are in place such that investigators receive only the factual information from a SAR with no knowledge of who made the original disclosure.

Tipping Off

The Proceeds of Crime Act also contains an offence referred to in the legislation as "tipping off". This makes it an offence for a person who knows or suspects that a SAR has been submitted to NCIS then to make a disclosure likely to prejudice any resulting investigation or to disclose that they suspect that an investigation may be taking place. The most obvious example of this would be where a professional adviser made their client aware that they had sent a SAR to NCIS. This offence, as with others under this legislation, is a criminal offence.

Approaching the Inland Revenue to make a disclosure on behalf of a client about unpaid tax liabilities after the SAR has been sent to NCIS does not constitute tipping off.

Other Aspects of the Legislation

The Act defines the principal money laundering offences of concealing, making arrangements, acquisition, use and possession of what is described as `criminal property', Criminal property is anything situated anywhere in the world and is defined as money; all forms of property, real or personal, heritable or moveable; other intangible property; property obtained by a person who has an interest in it; things in action.

Where criminal conduct occurs outside the UK it is still within the scope of the Act if it would constitute an offence if it occurred in the UK.

The legislation also contains provisions whereby consent may be necessary from NCIS to proceed with a transaction. Where before a specific transaction takes place it arouses suspicion that it would result in a money laundering offence being committed, consent from NCIS is required before proceeding with that transaction. An example might be where a professional adviser was involved in advising on an arrangement for transferring funds overseas, which the adviser suspected resulted from crime (i.e. from tax evasion).

In such circumstances NCIS have 7 working days from submission of the SAR to give or refuse consent, so early notification to NCIS is vital. If NCIS refuse consent, law enforcement has up to a further 31 days in which to decide what action to take, e.g. to apply for a restraint order.

The legislation also acknowledges professional privilege in certain circumstances where legal advice is given by a professional legal adviser.

Further Information and Help

Further information can be obtained from the Treasury website at www.hm-treasury.gov.uk/Documents/Financial_Services/money/fin_money_index.cfm

The legislation itself can be found at http://www.legislation.hmso.gov.uk/acts/acts2002/20020029.htm

In addition the accountancy and taxation bodies are in the process of preparing authoritative guidance in this area for approval by the Treasury. The Revenue is also planning to tell you more on the website.

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Automation of CTSA Late Filing Penalties

From the beginning of June, our Corporation Tax computer system (COTAX) will automatically issue flat rate and tax-related penalty notices shortly after the date the penalty is incurred. Additionally, tax-related penalty determinations will be automatically amended when the amount of tax payable recorded on COTAX is revised.

Currently flat rate penalty notices are not issued until after the Return is actually delivered. When a Company Tax Return is not delivered on time, a computer-generated penalty warning letter is issued. That letter will no longer be issued. Instead, the letter reminding the company to file its Return, which is issued about one month before the filing date, now contains a specific warning about late-filing penalties. A company that then fails to file its Return before the last business day within 7 days following the filing date, will receive an initial flat rate penalty notice approximately 3 weeks after the statutory filing date.

A further flat rate penalty notice will be issued automatically when incurred after 3 months unless the initial flat rate penalty is under appeal. Usually, as at present, a Revenue Tax Determination will be the trigger for the automatic issue of a tax-related penalty notice.

We have identified certain situations where the automatic issue of a penalty notice may not be appropriate, such as companies within group payment arrangements, and these cases will be individually reviewed by the Office responsible for the company. An Area Office can also stop the automatic issue of a penalty notice for other cases where there are good reasons not to make a penalty determination. This action can be taken by an Area Office before a penalty determination is made if it is satisfied that a reasonable excuse prevents a company from submitting its Return.

Effectively the main change that will be visible from outside the Revenue is a first flat rate penalty determination notice being received rather than the current warning letter. However, although the change is being introduced from the beginning of June, the current process will continue to operate for those companies that have previously received a penalty warning letter. Those companies will still receive the flat rate penalty notice only after the Return has been delivered. So for some time the two processes will operate side by side.

Problems can arise with late-filing penalties when a company prepares accounts for more than 12 months. If we are not aware of the longer period of account, COTAX will automatically issue penalty notices for an initial 12 months accounting period (the `initial period') assuming a 12 months period of account, whereas the true filing date might be up to 6 months later. In Working Together issue 6 we encouraged companies and their tax advisers to help us to avoid wrongly issuing these late-filing penalty notices by telling the Revenue as early as possible about any Returns that are affected by a long period of account. With automation, unnecessary notices can still be avoided by informing the Area Office of the new dates within 12 months of the end of the initial period.

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Discretionary Treatment of Members' Clubs etc. as Dormant

In Working Together issue 4 we published an item on the discretionary treatment of certain members' clubs and similar organisations as dormant even though they receive small amounts of investment income. Following the introduction of a zero starting rate band for Corporation Tax purposes this discretionary treatment has been reviewed.

Where profits are not expected to exceed the limit to which the zero starting rate applies (currently £10,000), the club, etc. may, at the discretion of the Inspector, be treated as dormant.

Subject to periodic review (which will occur at least every 5 years, and in some cases more frequently), a Company Tax Return will not normally be required every year under CTSA. If the Inland Revenue requires a Return then it must be completed.

Such a club would be expected to notify the Inland Revenue if it had profits on which tax was due (for example, if its level of profits increased, or it had exceptional chargeable gains) or there were changes to its rules or constitution or to the way its financial affairs were controlled.

Where it is proposed to apply this treatment, the Inspector will write to the club to say so. If a club has not had such a letter, then the treatment does not apply.

Where the club is treated as dormant in this way, a separate annual claim for repayment of income tax deducted from interest income may be avoided by it notifying its bank or building society that it should have interest paid to it without deduction of income tax.

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Enquiries into Accounting Matters

The intention of this article is to give guidance on the approach by accountants employed by the Revenue in determining the acceptability for tax purposes of the accounting policies adopted by taxpayers in a particular case. It has been seen and approved by the Tax Faculty of the ICAEW and originally appeared in the February 2003 edition of "TAXline".

As noted in the article in Tax Bulletin 58 published in April 2002, Revenue accountants advise and assist Inspectors on the accountancy and commercial aspects of all matters that have a bearing on the tax position of entities and individuals. With better and faster understanding of taxpayers' businesses, the Revenue will increase its efficiency in dealing with taxpayers' affairs.

Even though auditors may have signed a true and fair view opinion, the Revenue is entitled to make enquiries. The starting point for the computation of taxable profits is the entity's accounting profit. The Companies Acts require accounts to give a true and fair view and the foreword to accounting standards make clear that compliance with accounting standards will normally be necessary for financial statements to give a true and fair view (para 16). For unincorporated businesses section 42 of the Finance Act 1998 as amended by the Finance Act 2002 requires profits to be computed in accordance with generally accepted accounting practice. In the Revenue's view this requires compliance with accounting standards with such modifications as may be necessary. The note agreed by the Revenue with the ICAEW Tax Faculty, TAX 30/98: "Withdrawal of Cash Basis: Guidance Note on a True and Fair View", gives some guidance on the adaptation of accounting standards to unincorporated businesses. Accordingly the Revenue need to consider whether accounts have been prepared in accordance with accounting standards in order to satisfy itself that they reflect the proper measure of profits.

Where a specific accountancy point arises in an enquiry into a Self Assessment Return, the Revenue Officer responsible for the enquiry will normally involve one of the Revenue Accountants. As indicated in the Tax Bulletin article, the hope is that such involvement will save time and money for everybody, as the taxpayer's agent will not then have to explain accounting issues to the Inspector but will be able to deal with somebody (either directly or via the Inspector) who is familiar with accounting concepts and accounting standards.

Where the Revenue Accountants believe that the Financial Statements may not be in accordance with generally accepted accounting practice they will give specific details of the accounting standards, UITF Abstracts, SORPs or industry practice that led them to that view. Clearly a Revenue Accountant has to form a view on the basis of the accounts and whatever other information is available to the Revenue. It is accepted that the accounting practice that is appropriate will depend very much on the particular facts of an individual case and whether alternative accounting treatments can properly be applied to those facts. FRS 18 makes clear that an entity needs to adopt the accounting policies most appropriate to its particular circumstances, which probably limits the circumstances in which there is more than one appropriate accounting treatment for a particular transaction. It is of course essential that both sides apply the spirit and reasoning of the standards.

Where there is no specific UK standard a relevant international or US standard may throw some light onto currently accepted best practice. In particular, if a company has correctly followed an international or US standard which does not conflict with UK GAAP (including the requirements of FRS18), and this accurately reflects the facts, the accountancy treatment adopted will be accepted.

Revenue Accountants will be guided by the principles in the FRSSE for those entities for which it is appropriate. However, it is important to realise that the FRSSE is not totally self contained. The FRSSE points out that for transactions or events not dealt with in the FRSSE smaller entities should have regard to the accounting standards and UITF abstracts, not as mandatory documents, but as a means of establishing current practice. The ASB's view (FRSSE Appendix IV paragraph 25) is that such practice should be followed unless there are good reasons to depart from it.

It may be helpful to indicate these sorts of areas in which Revenue Accountants have found particular problems so that practitioners are aware of these.

Post Balance Sheet Events

Insufficient or no attention paid to adjusting post balance sheet events (SSAP 17 paragraph 22) e.g.

i) Stock obsolescence provisions, which in fact value the stock at below net realisable values actually achieved.
ii) Specific bad debt provisions where debts are recovered in full.
iii) Provisions for claims against an entity that were settled for less in the post balance sheet period. For example, £1 million claim was settled for £400,000 in the post balance sheet period.

Stock and Work in Progress

i) Stock provisions not supported by the facts.
ii) Long-term contracts not identified and accounted for as such (SSAP 9 paragraph 22).
iii) Stock and work in progress valued at net realisable value on the theoretical basis that it would have to be sold as an emergency sale in its current condition, rather than being sold in the normal course of business. (SSAP 9 Appendix 1 paragraphs 19 and 20)
iv) Work completed before the year end but invoiced afterwards not being correctly accounted for (FRS 18 paragraph 26).

Provisions

i) Provision incorrectly made for recurring periodic expenditure on assets owned by the entity (FRS 12 paragraph 19 and example 11).
ii) Excessive provisions made for onerous leases, in particular where no account is taken of expected rental income or surrender or sale of the lease (FRS 12 paragraph 73).
iii) Provisions made where the facts show that there is no real likelihood of having to pay, for example where the creditor company has already been wound up and the liquidator has decided not to pursue the debt. (FRS 12 paragraph 23)
iv) Provisions made to smooth profits. (FRS 12 paragraph 14)

We hope that the above information will be helpful to practitioners in preparing returns and accounts and that an understanding of the duty of the Revenue to satisfy itself that the accounts form a proper basis for calculating taxable profits will be beneficial to practitioners in preparing returns and accounts and will go some way towards reducing instances of conflict arising concerning interpretation of accounting standards.

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The Future of Electronic Lodgement Service

Last year we announced our continued support for our Electronic Lodgement Service (ELS) for Self Assessment until at least April 2004 (i.e. for 2002-03 returns). We also communicated our longer term strategy to change to an Internet-based service and invited comments on the possible migration options from users and software providers.

The overwhelming message was that, whilst many saw the benefits in moving to an open Internet-based platform, there remained concerns that the current Filing by Internet (FBI) service did not provide the breadth of coverage and functionality of ELS. Many existing ELS users wanted FBI to be capable of doing what ELS does and evidence of it working in a stable manner before they would be happy to change to FBI.

We have been actively addressing these concerns, in particular

  • We have recently launched a service which allows agents to access their client's Statement of Accounts via the Internet
  • We are working with the tax preparation software vendors to provide the facility to file Trusts and Partnership Returns this tax year.
  • We are updating our systems this year to reduce the number of size restrictions on complex returns.

We also accept the need to demonstrate the stability and reliability of the extended FBI service. We are therefore extending our support for ELS until at least April 2005 (for 2003-04 Returns). During the intervening period we will continue to monitor uptake, reliability and stability of the Internet-based services and will develop a migration plan and timescale.

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ITSA - S33/S42(9) TMA 1970 Error or Mistake Claims & Schedule 1A Claims Made After the Time Limit for Amending the Return.

Previously when a claim for error or mistake relief or a claim made after the time limit for amending the Return was processed, any interest, penalty or surcharge for the claim year remained unaffected.

Following representations from taxpayers and agents the treatment of these charges has been reviewed and Solicitor's Office have now confirmed that the current legislation does allow for these charges to be amended in line with the relief granted under the claim.

Therefore with regard to any new claims and any claims currently being processed, these charges will be mitigated to the amount due as if it had been possible to amend the Return.

For claims already processed that relate to the 1996/97 income tax year or later, taxpayers and agents are invited to submit requests to revisit these claims in order that any interest, penalties and surcharges can be mitigated as appropriate. Requests should be submitted in writing to the office currently responsible for the processing of the taxpayer's Return.

Where mitigation results in an overpayment of a penalty or surcharge, repayment supplement will be payable on the overpaid amount. Repayment supplement is not payable on an overpayment of an interest charge.

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editorial

    Working Together is a partnership with the CIOT, ICAEW, ATT, ACCA, ICAS and AAT. Although the material in this publication obviously reflects discussion and consultation with these bodies, the Revenue is solely responsible for its contents and for the views expressed in it.

contact details & back issues

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