Stunned by a big tax bill? Need to pay your tax bill late, but not sure of the consequences?
Tax can be a worrying and mind boggling field to navigate safely. But don’t worry. If you are looking for ways to win with tax rather than feel like a consistent loser with HMRC, then Marden & Co can help! Take a quick look through our below quick start guide to make sure you don’t end up a tax loser…
The annual tax deadline was 31 January 2018, and most of you will still be reeling from your recent submission. Some of you will also have paid 50% on next year’s tax on account. But there are a couple of tax planning strategies that can assist you in claiming the elusive tax refund.
What can you do? Well, investing in EIS or a Seed EIS (Enterprise Investment Scheme) company before 6 April 2018. Individuals are permitted to invest in qualifying companies under EIS and handle the investment as having been made in the 2016/2017 tax year. This offers tax relief of 30%of any invested amount. For example, a £10,000 investment can reduce the 2016/17 tax liability by £3,000. Even better. an investment in a Seed EIS qualifying company offers an even better 50% tax relief.
Seed EIS companies tend to carry higher risk that EIS companies and we would advise seeking our specialist advice to include an IFA or equivalent when considering such investment. It is certainly worth the endeavour, as investing in an EIS qualifying company also enables you to defer capital gains tax. How? It all comes down to reinvestment, with the amount of the gain needing to be reinvested within 3 years following the date of the disposal that gave rise to the gain.
What else can I do?
Well, increasing your pensions savings before 6 April 2018 will also allow you to reduce payments on account. This will not reduce your 2016/17 tax liability however investing before 6 April 2018 will allow such payment to be taken into consideration when calculating your 2017/18 liability and therefore you may be able to reduce payments on account if you are making them.
Do consider that the maximum pension contribution is set at around £40,000 each tax year (based on earnings).
Can I pay tax late?
In 2017 the First-tier Tribunal turned down an appeal against a penalty for late payment of tax, despite criticising HMRC’s hackneyed argument as wrong. How can the judge’s comments help you counter penalties in similar situations?
In 2008 HMRC started to align the rules for penalties for most types of tax. A common and welcome feature was the concept of a “reasonable excuse”. Where you have one for, say, failing to submit a tax return on time, no penalty applies. In NSF Utilities v HMRC 2017 the taxpayer used the reasonable excuse argument to dispute a penalty for not paying its VAT on time.
NSF was late paying its VAT and so HMRC charged a penalty (a “default surcharge”). NSF appealed saying that it had a reasonable excuse, which was that HMRC owed it money in respect of excess construction industry scheme (CIS) deductions.
HMRC accepted this, but said that NSF should have made other arrangements to pay its VAT. And while there was a long delay in refunding the CIS tax, this wasn’t unusual. NSF ought to have expected it and taken steps. However VAT rules specifically say that a lack of money can’t count as a reasonable excuse. However, some years ago the Court of Appeal ruled that it can amount to a reasonable excuse, but only where there are extraordinary circumstances.
So, while there is no statute preventing a lack of money being a reasonable excuse for other types of late payment penalty, again there must be exceptional circumstances.
At the First-tier Tribunal (FTT) HMRC trotted out its usual argument that for an excuse to be reasonable it must be “unforeseeable and inescapable” despite the first element of this statement being discredited by the courts. They take the view that just because a problem is foreseeable it isn’t avoidable. For example, the failure of a major customer might be predictable and result in significant cash flow problems, but knowing that won’t help you get around it. The proper test for a reasonable excuse is whether a problem it relates to is inescapable.
The FTT’s decision went against NFS, not because of HMRC’s questionable argument, but because it offered no evidence to show it couldn’t avoid the shortage of funds. While HMRC’s delay in processing the CIS refund created a problem, NFS seemingly took no steps to work around it and so there was no proof that it was inescapable.
Getting tax right and to your advantage can be a full time job! Marden & Co have the knowledge, skills and understanding to take the jargon out of tax and maximise the legal tax saving opportunities available to you. We are always willing to go that extra mile to offer advice on areas where you can restructure things just a little, to make a large saving.
Get in touch with Marden & Co today – you can give us a call on 01737 851 761 for a no-obligation chat or drop us an email on firstname.lastname@example.org