March 13, 2009Spanish Tax Refunds

During the years to 31st December 2006 Spain treated capital gains tax paid under a clear discriminatory regime for non-residents. They were taxed at a flat rate of 35%, but local residents were taxed according to the Spanish Income tax local rates, for assets owned for less than 12 months, and a flat 15% rate if the assets had been owned for longer.
This system for taxing non-residents remained until 31st December 2006. In 2006 the Spanish government passed Law 35/2006, establishing an 18% flat tax rate for all capital gains (No wonder HMRC & Gordon Brown brought in 18% LOL) for both non-residents and local residents.
They did nothing to correct their previous misdemeanours and the European Commission referred Spain to the European Court of Justice “ECJ” in 2007, on the grounds that the system discriminated against non-residents. In 2008 the ECJ found that the system was discriminatory and Spain will therefore be forced to adhere to this decision.

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Tax Advice Network

March 5, 2009Helping clients avoid future penalties

The new penalties regime, which will apply to tax returns and other documents submitted to HMRC after 31 March 2009, starts from the expectation that taxpayers should take reasonable care. If the taxpayer has taken reasonable care in: making the tax related decision, completing the form, or keeping records, he should not be subject to a penalty even if the result is an error. Thus if the client show that he has taken reasonable care, this will act as a ‘get out of jail free’ card.

What reasonable care amounts to is not defined in the legislation, but HMRC have said it includes:

• keeping accurate records to make sure your tax returns are correct
• checking what the correct position is when you don’t understand something
• telling HMRC promptly about any error you discover in a tax return or document after you’ve sent it

Where the taxpayer fails to take reasonable care the penalty can be up to 30% of the potential lost revenue (generally the lost tax), or up to 70% where there has been a deliberate understatement of liabilities. Deliberate understatement and concealment (basically fraud) will attract a penalty of up to 100% of the lost tax.

HMRC guidance on taking reasonable care

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March 5, 2009Penalties for 2007/08 tax returns

The HMRC system has fouled up once again in processing the 2007/08 tax returns, and as a result it has issued incorrect penalties for late filing in two different circumstances:

Trust returns

The HMRC free tax return software does not include the facility to file tax returns for trusts and estates, so most accountants with trust clients have purchased commercial software to do the job. However, this software may now appear to be a bad investment, as the online fling of a trust return has not delivered the expected benefits. The HMRC computer was not configured to accept online filing of 2007/08 trust returns, so the returns had to be printed out by HMRC staff and re-keyed, (I am not making this up!).

This re-keying has inevitably introduced input errors, which will produce differences in the amount of tax shown as due at 31 January according to the HMRC statement, compared to the total calculated by the commercial software. This is another unnecessary hassle you will have to sort out for your clients.

More importantly all of the 2007/08 trust returns have been recorded by HMRC as paper returns, whether they reached HMRC in electronic or paper form. All clients with trust tax returns filed online after 31 October 2008 have received a late filing penalty, because the HMRC computer thinks the ‘paper’ return was late. The penalty has been reduced to nil where all of the tax due was paid by 31 January 2009, but only where the amount paid agrees with the HMRC calculation. What’s more the enquiry window for these returns has been incorrectly extended to 30 April 2010, when it should only run to 12 months from the actual date of submission.

Underpayments coded out
This affects taxpayers who filed a paper 2007/08 SA tax return between 1 November 2008 and 31 December 2008. These returns were late so would correctly generate a late filing penalty. However, where the tax due was paid in full by 31 January 2009 the penalty should have been reduced to nil.

The taxpayer may have thought he had ‘paid’ all the tax due by 31 January 2009 by asking for an underpayment of less than £2,000 to be included in his 2009/10 PAYE code. This coding-out was not always processed, which meant the taxpayer was left with unexpected amounts of tax still showing as due on 31 January and a late filing penalty.

HMRC has realised its system is at fault in both these cases and is sending letters of apology to all affected taxpayers.
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