The Kafkaesque outcome of the HOK case, Business Records Penalites, New Year-End Planning checkists and much more.

The Upper Tier Tribunal decided in HOK Limited v HMRC that the First Tier Tribunal does not have the power to reduce a penalty for the late filing of a PAYE return if a return was actually filed late. The fact that in HOK's case HMRC decided not to send out a penalty notice until some four months had elapsed after the filing deadline meant that what should have been a £100 penalty, for a genuine mistake, was in fact a £500 penalty. This does not seem to many people to be what was intended, otherwise surely Parliament would just set a £500 penalty. HMRC conceded that the practice was unfair in March 2012 and so changed it: a PAYE penalty notice will be sent within one month of the deadline.

So what can anyone who is affected by the HOK decision and who also feels as if they have been mugged by HMRC do about their penalty? Well, the short answer is not a lot without incurring a great deal of cost. In a scenario that would have appealed to the late Franz Kafka the only route is to apply for Judical Review (on the grounds of procedural unfairness and legitimate expectation). As the Judical Review process follows the highly complex Civil Procedure Rules the majority of taxpayers just don't have the expertise or resources to take their case any further.

Barrister Philip Ridgway has pointed out that the Bar does have a Pro Bono unit, and so taxpayers like HOK could try their luck there, but why should the Bar be funding an application? My thoughts are that HMRC should be funding the cost of Judical Review on the basis that it had accepted HOK as a test case.

Of other interesting news in recent weeks, please scroll on down to read more. We have updates and several briefings which I hope summarise the key issues for you.

Best wishes


Nichola Ross Martin FCA
Tax Director
Your online Virtual Tax Partner®: practical support for accountants, tax advisers and their clients

News round up:

Business Records Checks: re-start & penalties
They are back following a review, with new details of how HMRC will apply penalties.

PAYE: Real Time Information (RTI)
UPDATE: are your ready? Our quick guide to RTI.

HOK shock: PAYE penalties stand
See comments in editorial above

Employee Owner Status consultation
Tax planners windfall? The Chancellor proposes that new employee-owners will exchange some employment rights for shares in their employer. Gains on which will be exempt from capital gains tax.

Fines: tax relief allowed on non-statutory fines
The McLaren Racing team were fined £32 million by their sport's regulatory body for cheating. The fine was tax deductible because the activities of F1 racing are not in the public interest. Do we now presume that if a footballer is fined for swearing at the ref' he will get tax relief on his fine too?

Don't miss

Tax planning for income at marginal tax rates
Strategies to avoid unexpected tax charges: from 2012/13 following the introduction of the High Income Child Benefit Tax Charge (HICBC) many tax payers have to navigate the effects of several different tax bands when tax planning. Marginal tax rates can be as high as 70% of income.

National minimum wage rates
Increase from 1 October 2012.

Directors' loan accounts: toolkit
HMRC's instruction to its staff is that they examine directors' private expenditure during the course of an enquiry into a close company's books and records.

Essential reading

Subscribers only (locked content)

High Income Child Benefit Tax Charge (HICBC)
UPDATE: more worked examples.

Tax planning for the 2012/13 year-end
UPDATE: this year's version is pending any surprises announced by the Chancellor in his Autumn Statement. We have published it now by popular demand as it is a handy guide and update to have when you are talking to clients.

Seed Enterprise Investment Scheme (SEIS)
UPDATE: HMRC have issued e-form SEIS1 to allow companies to provide it with their Compliance Statement under the SEIS rules.

Negligence by an adviser
Two cases with contrasting results. The extent to which delegation of responsibilities to an adviser is possible depends on the nature of the error and the individual circumstances of the situation.

Extra Statutory Concession A19
Where now? HMRC is consulting on revising the wording.

Latest disclosure opportunities

Direct Selling Campaign
HMRC's latest tax disclosure opportunity targets party planners, agents and distributors.

Home improvement sweep up
Another disclosure opportunity is being planned for later this Autumn, this one is aimed at the building and allied trades.

Recent guides and updates

Finance Act 2012: index & summary
What's new and where to find it.

Clothing and work wear - self employed
HMRC recently re-wrote some of their Business Income Manual - we explore 'what's new'.

VAT: trading in the EU and abroad
UPDATE: a mini-guide to explain the basics.

NEW: a briefing explains the key issues for directors.

PAYE late payment penalties buster
UPDATE: this guide is essential reading if you are having cashflow problems or do not understand these penalties.

Tax masterclass: running an LLP & Co structure
Sample our Masterclass guide to business combinations. This one is ideal for trading companies and professional practices.

Land and Property - Adviser Update
This is one of our periodic CPD updates for subscribers.

Student Loans
HMRC guide on how to report under SA.

NICs on dividends
Key issues for those in tax schemes.

How do you tax ABC or alphabet shares?

For share awards outside family companies, see:

For a run down on the basic rules on taxing awards of shares and securities see:

If you are dealing with family companies and shares are being issued to family members, see:

Furnished Holiday Letting
Including examples on Averaging and Period of Grace reliefs.

Retirement: purchase of own shares
Menu and summary.

Capital reduction: tax treatment
This guide examines the position where a capital reduction is used to return excess share capital or capital reserves to shareholders and trading is ongoing. Not to be confused with a purchase of shares out of distributable reserves.

Valuation (of goodwill) on incorporation
Guidance and examples, including for small & lifestyle businesses.



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