Can HMRC come after you personally for IR35 tax?

A recent decision by the First-tier Tribunal, involving a company set up by the BBC presenter Christa Ackroyd, has received a lot of press. Although this case relates to periods prior to the new rules which took effect in April 2017 and so isn’t a test of their effectiveness, the First-tier Tribunal’s decision raises an important question about where the liability for IR35 tax lies.

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Can HMRC investigate an earlier tax year?

HMRC is bound by a rigid timetable in which it can open an enquiry into your or your business’s tax returns. This is known as the “enquiry window”. If your return is submitted to HMRC:

on or before the normal deadline, it has up to twelve months from the date your return was submitted to start an enquiry.  After the normal deadline, the enquiry window runs until the next quarter day (30 April, 31 July and so on) following the first anniversary of when you submitted your return. For example, if you submitted your 2016/17 return on 1 March 2018 (a month and a day late), the enquiry window ends on 30 April 2019.

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If your business qualifies for the cash accounting scheme (CAS), it’s usually beneficial to use it. Its big advantage is that the trigger date for accounting for VAT on your sales, is when you get paid and not when you supply goods or services to your customers. So you’re not out of pocket (in terms of VAT) if a customer is a slow payer. Plus, you don’t have to deal with the tricky bad debt relief rules, which is all good news for your cash flow.

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“Unexplained wealth orders” (UWOs) - new powers for HMRC

There are strict rules that say when HMRC is entitled to start an investigation, or enquiry.  It is allowed to make a relatively small number of random checks into self-assessment tax returns, otherwise HMRC must have a reason to start an enquiry.  

Since 1 February 2018 UWOs can be used to allow government departments, including HMRC, to investigate an individual’s financial affairs if it appears their wealth isn’t backed up by sufficient income to justify it. However, UWOs will only be issued if:

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Businesses now to use the MTD system after April 2019.

Businesses will not be compelled to use the Making Tax Digital (MTD) system until April 2019 and then only to meet their VAT obligations, the Treasury has announced. This will apply to businesses that have a turnover above the VAT threshold. The smallest businesses will not be required to use the system, although they can do so voluntarily.

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