HAPPY NEW YEAR!
We hope you all had an enjoyable festive break.
Some individuals had a very enjoyable Christmas break! The number of tax returns filed on Christmas Day was 4,409, a small decrease from the previous year. 386 individuals filed between 3pm and 4pm. 38,000 taxpayers filed returns on New Year’s Eve, and almost 25,000 on New Year’s Day. 310 people rushed to file between 11pm and midnight on New Years Eve! 5.4m tax returns remain outstanding, with penalties for late filing and payment.
As Harbour Key enters one of its busiest months of the year with the 31 January filing deadline, together with other client compliance and advisory commitments, as per previous years, we will deal with clients’ tax returns in order of receipt. We have several clients who have not provided their information, and at this point we can’t guarantee meeting the filing deadline (31 January), where information has not been received. To help us prepare and file your tax return on time, please send in your information at the earliest opportunity, and when queries are sent out, again please deal with at the earliest opportunity.
In addition to those filing their tax returns, the politicians have been busy. Just before the Christmas break, the Chancellor set the Spring Forecast date, 26 March 2025. The Office for Budget Responsibility is required to produce two forecasts each financial year by the Budget Responsibility and National Audit Act 2011. The Chancellor will accompany the forecast with a speech to Parliament. However, since the Chancellor is committed to the stability of having only one major fiscal event a year, it seems that her speech is unlikely to include any major tax changes. There were enoughannouncements in the last Budget!
OVERDRAWN DIRECTORS LOAN ACCOUNT
31 March is a significant date for several of our business clients, being their year-end. Harbour Key will start towards the end of January and across February speaking with these clients regarding their pre-year-end financial and tax planning.
One area which continues to come up at our pre year end meetings, and in general, is overdrawn loan accounts. An overdrawn director's loan account is a situation whereby a director has taken money out of the company that is not classed as a dividend, salary or an expense repayment and the said figure exceeds any money that the director has put into the company.
Overdrawn loan accounts cause tax issues for both the Company and the individual, which are explained in more detail in our Overdrawn loan account Article.
In addition to the tax implications, these loans are also causing issues for a business which is looking to close, or has to close company due to its financial situation. These loans to directors must be recovered, as they are company liabilities, and creditors will be looking to establish if the loans can be recovered to settle their own liabilities, and if the director as not been seen to have acted correctly in respect of the loan, running the business etc, this can have legal obligations.
If you are concerned about, or want to discuss an overdrawn loan account, please do not hesitate to contact us.
VAT PENALTIES DECEMBER 2024 / JANUARY 2025
HMRC believes that approximately 3,500 taxpayers were affected by the error, which is around 0.5% of those required to file on or by 7 December 2024. Late VAT submissions result in penalties based on a point-based system, receiving one point for each failure, until the threshold for that period has been reached. After the threshold has been reached, a penalty of £200 is applied. For those who filed their returns on time, and making payment will believe all is fine, but late filing penalties may have been issued, which could be a penalty point or if the penalty point threshold has been exceeded, result in a cash penalty.
HMRC has said it will remove the penalties, once those taxpayers hit with the issue have been identified, but it is worth checking your own VAT account, to see if penalties have been issued.
It has been reported that the "tax take" from April to November 2024 hit a record high of £537bn, with the latest figures reflecting a huge increase in Capital Gains Tax (“CGT”). As Harbour Key’s recent experience can support, HMRC has reported that there has been a surge in disposals resulting in CGT since October 2024, largely due to expectations that CGT would be increased in the Budget on 30 October 2024. There was huge hike in CGT disposals in October and November 2024, totalling £471m over the two months, up £125m compared with £346m the previous year. November CGT receipts were £222m, up from £172m; normally these figures are quite stable month to month with little fluctuation.
With Business Asset Disposal Relief (10% tax rate) increasing to 14% on 6th April 2025, there is expected to be another surge in business disposals in this quarter.
HMRC nudge letters convinced 22% more people to come forward with their offshore assets in 2024. In 2024, 5,643 taxpayers admitted to HMRC that they had untaxed offshore income, up from 4,630 in 2023. The behavioural science of “nudge” theory” has become an increasingly used weapon in HMRC’s arsenal, the idea that people can be better directed towards a desired course of action, through suggestion rather than obligation.
Lubbock Fine who completed the research, found most taxpayers made a disclosure to HMRC via the worldwide disclosure facility (WDF), meaning if a full disclosure is made then penalties and the possibility of criminal prosecutions being issued are reduced.
A few of these disclosures will have been made by Harbour Key, as we make about four to six disclosures a year. Most are not that serious, the client having paid local taxes in the country where the taxes are due, the individual not understanding, having moved to the UK, and becoming UK tax resident, they are taxed on their total offshore income, or gain in the UK, and then a credit is given for any offshore tax paid, to be offset against the UK tax. Even where the income has been reported in the jurisdiction that it has arisen and taxes paid, this is still failure under UK tax rules, and therefore the taxpayer is at risk to a 200% tax geared penalty, if there is additional UK tax to pay.
As more jurisdictions exchange information, and HMRC holds more data, and is able to source more information via its Connect IT system, hiding income or capital gains from HMRC is practically impossible. Overseas jurisdictions, such as the British Virgin Islands, Cayman Islands, India, and Spain now automatically share information on bank accounts with HMRC. Finding discrepancies by HMRC cross referencing the data provided by another jurisdiction with an individuals’ tax returns does not take place, as there isn’t the resource, it is the nudge letter that is used.
What is happening in the Offshore Income and Capital Gains space, will eventually become the case with cryptocurrency accounts, where HMRC believe is the new way of hiding assets.
Other nudge letter campaigns currently being ran by HMRC:
- Non submission of tax return for tax year 2022 – Letters are being sent to individuals who earn more than £200k annually;
- Payment of the remittance basis charge – Letters are being sent to non-UK domiciled individuals who don’t wish to be taxed on non-UK sourced income and gains, but HMRC suspect of not paying the remittance charge;
- Gas safety engineers – An example of the level of information that HMRC can access, as using the list of gas safe engineers registered with the Health & Safety Executive. Letters being sent to those registered requesting they verify if they are registered for self-assessment;
- Provisional figures used in 2023, or missing self-assessment returns for 2023 – Letters to accountants and tax advisors, whose clients have used provisional figures, or did not file a return for 2023;
- Company losses – Letters are being sent to companies who have tax losses, reminding the taxpayer of the change in the loss rules that took place in April 2017.
Any taxpayers who receive nudge letters, even those confident of their tax position, need to deal with the letter. Whilst nudge letters do not make specific accusations, and are rarely overtly threatening in tone, they are generally based on actual data held or received by HMRC. Failure to respond to a letter, risks HMRC opening an enquiry/investigation.
DATES FOR YOUR DIARY
- Key tax dates for the period December 2024 to March 2025 HERE!
- 31 January 2025 - Self-Assessment deadline!
- 26 March 2025 - Spring Fiscal Statement.
Should you wish to speak with us about a specific matter, or just to be a sounding board or for a chat, please do not hesitate to give us a call on 01452 713277
