Cable fined £500 for failing to pay VAT

Business secretary Vince Cable had to pay around £15,000 in back taxes and a £500 penalty after failing to register and paying VAT due on freelance income during 2009-10, according to an investigation by The Sun.

In addition to his £65,738 salary as an MP, Cable earned £50,998 in freelance earnings in 2008-09 - below the £73,000 VAT registration threshold. But in 2009-10 his income for media work and speaking engagements shot up to more than six figures. From the register of MPs’ interests, The Sun estimated he earned another £127,000-£154,000 from outside work, including an appearance on ‘Strictly Come Dancing’, for which he earned a £10,000 fee that he gave to charity.

But he neglected to register for VAT and did not account for the tax on this income and related expenditures.

The oversight came to light when the minister’s accountants, Myrus Smith, prepared his 2009-10 Self Assessment tax return.

“When it became clear Mr Cable's earnings had breached the level at which VAT was payable, an offer to settle immediately and in full was made to HMRC and this was duly accepted,” the firm told The Sun.

“The matter was dealt with within a month of the Revenue being informed in the first instance and is now closed.”

The failure to register and pay VAT left the minister open to a potential penalty of 5% of the tax due, plus a failure to notify penalty. But agreeing a settlement of around £15,000 plus a £500 penalty - reduced by 50% for the unprompted disclosure and full co-operation.

Tim Subhan, a tax partner at Sutton-based Myrus Smith, was constrained by client confidentiality, but told AccountingWEB that the penalty was reduced as normal for full dislosure. The newspaper reports are worded to suggest that Cable earned“up to £192,000”  as a freelance, but the sums quoted are inaccurate, his accountant said.

His advisers may have minimised the financial damage for their client, but as The Sun made very clear, the political fall-out for a minister who has pushed for a crackdown on tax evasion will be devastating.

In its leader comment on the story, The Sun thundered: “Since he's so hopeless at managing his own affairs, what on earth is this buffoon doing in the government?”

Comments
memyself-eye's picture

Oh dear....

memyself-eye | | Permalink

Another gaff prone minister and an open goal for Balls and Co.

(i nearly printed 'gaol' which might have been a freudian slip!)

To think I thought the last lot were incompetent - PMQ's at noon should be fun....

Ha Ha Ha

fishfishyfishfish | | Permalink

What a hypocrite!

Oh Dear Oh Dear

wingco44 | | Permalink

I imagine his umprompted declaration of this 'error' will save him but his credibilty is now severely dented. 

Can I appear on Come Dancing for £10,000? And he wasn't even taking part!!!  At least he had the good grace to give the fee to Charity.

Must go and watch PMQs !!!!

It never ceases to amaze me that...

justsotax | | Permalink

when questioned about the expenses and pay mp's get they suggest that this job is a 24-7 and they have barely a minute to breath yet those who are in ministrial positions seem to find the time not just to make some additional earnings but earnings in excess of their annual salary!?!?

If you can't trust Vince to do the right thing then there really is no hope for the other 600+ who have their noses in the trough. 

jon_griffey's picture

Data protection

jon_griffey | | Permalink

The question arises as to how the Sun found out about details of someones private tax affairs?

How ?

The Black Knight | | Permalink

How does an accountant miss the threshold by that amount ?

and...........I thought Vince Cable was campaigning to have no business records for clients of that size in the future.. so his accountants would not have needed to pick up that tax liability.

No wonder Vince does not like accountants..... they make him pay more tax !!

penalty 5% ?? not 15% failure to take reasonable care..............be interesting to see if my clients get offered 3% too........ can I use this as an example at a tribunal ??

OR did he introduce/influence the vat amnesty so he could take advantage of it ?

 

steveporter's picture

Fail

steveporter | | Permalink

Fail

Blunder    4 thanks

JJFWilson | | Permalink

Cracking down on hidden millions relates to tax evasion not avoidance, but as Newton Dunn is the Sun's political editor he can be forgiven for not understanding that or indeed anything. But are they arguing that those hiding the millions shouldn't be lectured?

In any event it's hard to argue that Mr Cable's embarrassing blunder falls under either category because he would probably have been considerably better off if he had registered and could have charged VAT to some registered businesses. For the political fall out to be devastating would require willful ignorance of the facts. So he certainly isn't a hypocrite. Whether he is a buffoon as the Sun claims is a matter for personal judgement, but if that is the case surely they will offer him a job as that is an essential requirement for working for them.

They did the sums!

jamesashburton | | Permalink

All that was required was to add up the figures in the register of members interests. Sounds to me as though Cable didn't know the rules. After all haven't we all had clients who thought that the threshold related to each activity? VC would be better off doing some basic homework than pontificating.

PUREaccountants's picture

Confused    2 thanks

PUREaccountants | | Permalink

As I'm sure we're all aware clients are great at getting on and earning money. The issue of tax etc is dealt with at year end and usually some time after the financial year end. 

So whats the big issue. A businessman (regardless) has set out to make money and made a mistake. Like his accountants i'm sure we would all then advise our clients of the appropriate course of action. Which they have and Mr Cable has duly done as advised.

The only question it raises is should record keeping be compulsory (more red tape for small business) or should we let these guys get on and earn money (thats small business owners).

Be very clear that as professionals our view of the world will always be skewed and it is our role to educate, inform and through the accounting bodies advise clients and governments on policy/procedures. Not to judge or mock. 

Vince Cable made a mistake, so what, its rectified. He has not cheated us out of expenses or anything else similar. Before throwing stones be careful to make sure that we or any of our clients are not in the same glasshouse.

Red tape wins again

plega | | Permalink

But that's the whole point about the complexity of the tax system and too much government intrusion in business. We all know that Vince would have saved money had he spent more time with his accountant. Perhaps he will now understand the perverse incentives of our present regulatory environment, where businesses need to spend more time paying attention to red tape and less time actually doing business ?

John Stokdyk's picture

Background for The Black Knight    1 thanks

John Stokdyk | | Permalink

My short conversation with Tim Subhan was quite instructive. "Client confidentiality" was the first thing he said to me, so there wasn't much point in pushing him on why they didn't become aware earlier of Cable's ballooning freelance earnings in 2009-10*. Perhaps he's one of those nightmare clients and they didn't find out until he turned up with a black bag of invoices and receipts in early January 2011?

The failure to notify and payment defaults occurred before April 2010, when the new penalty regime came into effect.

I'm not sure where your 3% estimate comes from - as you will see his accountants said the figures of "up to £192k" income were inaccurate and the £15,000 settlement figure suggests to me that his taxable income (after deducting input tax and charitable payments) was in the region of £85,000.

Rebecca Benneyworth has been lecturing on VAT penalties recently, so I've asked if she could come up with a worked example - entirely theoretical, of course - on how a case like this would be penalised under the new regime. Myrus Smith said that while the new penalty regime appears more onerous, in cases like this there is not that much of a difference.

You make a cute point about the VAT amnesty, but it was introduced in June 2011, four months after Cable reached his settlement with HMRC.

*NB: in an early draft the lead paragraph mistakenly put the events in the 2010-11 tax year. This was wrong and the error has been corrected.

unbelieveable    1 thanks

taxinfo | | Permalink

Try these two easy questions –

If you were Vince Cable earning UNDER the VAT registration threshold are you required to register for VAT? (Answer – No)

If you were Vince Cable earning ABOVE the VAT registration threshold are you required to register for VAT? (Answer – Yes)

 

Did you answer them both correctly?

 

CONGRATULATIONS!

 

You, too, can apply to be Chancellor of the Exchequer.

pembo's picture

Hmmm

pembo | | Permalink

Think if his earnings in 08-09 had been much lower then maybe benefit of the doubt but at £50k surely his accountants had warned him of the importance of keeping a cumulative 12 month totting up as you do ? Even the Suns lowest estimate of £127k can hardly be said to be "adjacent" to the threshold can it ?

Presumably he's had to do a backdated registration and issue VAT invoices to ensure commercial restitution where appropriate that also raises interesting questions unless theres different rules for MPs of course ?

point taken

The Black Knight | | Permalink

old penalties.

500/15000 =3% or 3.3333%

Is that the vat penalty ? ... is there also an income tax penalty ?

 

Business Mind?!

decredwood | | Permalink

I think the issue here should be how a man in such a high powered position within government could fail to notice that his earnings broke the VAT threshold. Is this the man we want making such important decisions if he cannot keep his own house in order!?

I'm sure that Mr Cable would have been much more 'on-the-ball' if there was an expense claim to be made!

johnjenkins's picture

I don't think the problem

johnjenkins | | Permalink

lies with VC although in his position he should have taken more care. He hasn't hidden anything. Perhaps the Sun should donate a similar amount they paid for the info to charity. I'm sure we have clients who sail close to the threshold some even make sure they don't go over. It's the low threshold that is the problem. Either all business is VAT registered or you take sme's out of the equation. This threshold is a money spinner for HMRC.

carnmores's picture

well done everybody    1 thanks

carnmores | | Permalink

for their vituperative comments

eagleaccountancy's picture

fallout!

eagleaccountancy | | Permalink

Personally, I cant wait to see how many more of the muppets have done the same!!

should_be_working's picture

Be fair ...    1 thanks

should_be_working | | Permalink

One can't expect Vince Cable to understand the sort of red tape that businesses have to deal with every day.

After all, it's not as if he's the minister for anything business relat .... oh.

"But in 2009-10 his income

drakeltd | | Permalink

"But in 2009-10 his income for media work and speaking engagements shot up to more than six figures.

More than six figures suggests to me 7 figures which would require a minimum of 1,000,000.

This is obviously quite inaccurate.

So either of the following statements would have been more accurate:

.   "But in 2009-10 his income for media work and speaking engagements shot up to more than five figures."

or

.   "But in 2009-10 his income for media work and speaking engagements shot up to six figures."

 

 

 

 

MartinLevin's picture

London Broadcasting Co (LBC)

MartinLevin | | Permalink

Nick Ferrari of LBC 97.3 (London Broadcasting - please spell it out, as otherwise it's not English), invited me on at 07.40am this morning (Weds 26.10.11).

A "fine" of £500 on £192,000 VAT-able turnover, say £30,000 in lost VAT, puts it in proportion. 

Moral:

1.Keep good records (example a free ABC Accounts Book, perhaps, as it's what I give all my clients). 

2. Keep up-to-date in advising your professional advisors on matters.  If the Minister did let his Accountant have his records late (January 2010?), he would be one of my "C" type clients - and given his P45

shirley

The Black Knight | | Permalink

the penalty is on the relevant Vat  £15,000 (nothing to do with the turnover figure)

and a straight 5% (no reductions ) VATA 1994 s.67.......old money !

I'm in the 'blunder' camp

ladylaff | | Permalink

This just goes to show you how easy it is for anyone to fall foul of the VAT rules.  I'm sure he wasn't trying to evade taxes but just made a mistake.  What this does illustrate though is that politicians shouldn't run for election on a platform of righteous indignation because as the incidents with David Laws, Andy Coulson, Liam Fox and now this illustrate no mortals are squeaky clean and perfect enough to behave like these mythical people that get invented during elections.  The coalition partners spent way too much time during the election talking about how they were going to clean up politics and be transparent so now due to the appearance of hypocrisy (whether the intention was there are not) we're having to debate an almost farcical series of ministerial crimes and misdemeanors.  I'd like to think that these people could achieve higher moral and administrative standards than the rest of us fools but frankly, right now, I'd be happy if they would just get the economy growing again.

hidden economy

The Black Knight | | Permalink

Seems to be doing OK .....why ? ......low taxes.

What hidden economy can't see it at all !

You will have to ask Vince about that, he is an expert now !

I any one convinced ? LOL

big deal!

ChaseBuckley | | Permalink

Entirely agree with "Confused".

The VAT threshold should be increased in any event.

The idea that income/takings of less than £3000 per week could attract this administrative, unproductive VAT accounting nightmare is utterly preposterous.

ShirleyM's picture

@Black Knight

ShirleyM | | Permalink

Did I post on this thread? I thought I had, but I can't see it now. As you responded I guess you saw it, too. I wonder what happened to it? Have I been 'moderated'?

Henry?????

LOL

The Black Knight | | Permalink

Surely was what I meant by Shirley not you ShirleyM.....now even I am confused. No post seen I checked after I posted and realised/anticipated room for confusion.

The Sun?

Red1960 | | Permalink

 

Not that I'm a particular fan of Cable but I too have to wonder how the Sun got hold of this story in the first place.

It can't have been leaked from Myrus Smith... surely not!

It can't have been leaked from HMRC... surely not with their fanatical committment to tax payer (sorry customer) confidentiality and data protection.

So, I do hope that the Sun hasn't been hacking phones and computers or bribing police officers or perhaps senior civil servants like it's former News International sister publication the News of the World.

Surely, we were told that such criminal activity didn't extend beyond the NOTW.

All the same I think we have a right to know wouldn't you say so messrs Cameron, Murdoch and Coulson?

Any comment in the interests of political transparency bearing in mind your personal animosity towards Mr Cable vis a vis the BSkyB bid would be welcome for the sake clarity.

I have to say that it certainly looks like someone is stitching up Mr Cable via that member of the "quality" press "The Sun" which is fair enough.

I'd just hate to think that any criminal activity were involved even if they do say "what goes around comes around" after all.... I mean it might prove just to be the tip of the iceberg.

How horrible!

perhaps

The Black Knight | | Permalink

He used the same bin as the other chap ?

Would be easy to bluff HMRC if you had been through someones bins or been on the internet.

Why the fuss?I can understand

KetcZ | | Permalink

Why the fuss?
I can understand why registering for VAT was not done before April 2011.
It is a pain unless you have to do it and there was a considerable (unexpected?) increase in his earnings for 2009-10.
It does highlighting the importance of keeping accounts up to date so you know the state of your business.
 

Black Knight

Red1960 | | Permalink

@ black knight

Cute...

Have you ever worked for News International you sound very familiar with their methods?

Tell me... how did the Sun estimate Cable's earnings?

Just curious because they seem to have a very detailed knowledge of Cable's affairs and quite possibly more detailed than his own accountant by some reports. Not that I'd suggest there's any possiblity of professional negligence there.

Like I say if it walks like a duck, quacks like a duck... it possibly obtains information by criminal means and is a corrupting influence on public life. Only I can't reconcile that with "the Sun" because it is a publication of such high repute.

I very much doubt Messrs Murdoch, Coulson or say Brooks would have the motivation or inclination to indulge in such criminal activity or indeed have a history of such activity.

Wouldn't you say?

 

 

 

 

who knows

The Black Knight | | Permalink

They all look the same to me....

If I was in charge.....I would make sure all those in a position of ultimate power had a brain scan to make sure the frontal lobes and the function of empathy was working... to make sure we were not run entirely by psychopaths....this section of society are adept at telling fibs so you will never know the truth... they seem perfectly plausible have bags of charisma and just love constant change.

I wonder what would be their ideal job ?

Business secretary who doesn't comply with the basics..

financialdirection | | Permalink

There have been enough wake up calls given all the other scandals. This is not just embarrassing, it's quite frankly a joke. Time to get them all checked out properly

Or perhaps suggest they concentrate on their day job?

justsotax | | Permalink

Isn't there already enough 'allowances' that they are eligible for....

memyself-eye's picture

Vince commented last night on Newsnight

memyself-eye | | Permalink

"I don't condone tax AVOIDANCE"

Err, avoidance?

So now he doesn't know the difference between avoidance and evasion...

Yee gods, what hope is there for business. 

Democracy

The Black Knight | | Permalink

Would be dangerous if you were allowed to vote for someone other than an Irriot !

Can someone remind me why we need any of them ....surely Anarchy is what we have anyway.

Simplify government....just get rid.

 

johnjenkins's picture

Looks as though

johnjenkins | | Permalink

that's what Greece and Italy will be doing. Perhaps we should send all our dodgy ministers over there "on loan" so they will realise what a cushy time they have here. 

MartinLevin's picture

Politics

MartinLevin | | Permalink

Under the Representation of the People Acts, we are SUPPOSED to vote for a PERSON not a PARTY ROBOT.  So to all you "posters" who "complain" - you get what you vote(d) for.  Can we (INDEPENDENTS) help that the Candidates are hand-picked by the Party, and are mostly legally trained?  When I asked about this, I was told that "they give a good account of themselves in a debate".  How else do we get a former Chancellor of the Exchequer (Mr Darling) who was not an accountant, etc?  I rest my case

Not alone

tonycourt | | Permalink

I have little doubt it was a genuine oversight and I'm pretty sure I know why it would have happened. How do I know? Well all I can say is  Vince isn't the only minister to have had money thrown at him in the form of "consultancy income". The trouble is if you don't do much, or perhaps even nothing for your money you don't tend to think about it as business income so VAT registration doesn't appear on your radar until your accountant fills in your tax return.

 

  

MarionMorrison's picture

What tax lost?

MarionMorrison | | Permalink

If his turnover is in the range of £100-£175K then this is unlikely actually to have resulted in any tax loss to the exchequer at all.  If his accountants are in any way competent, they will have registered him, back-dated his registration a good way, invoiced the Beeb etc for VAT at the appropriate rates, registered him for Flat Rate VAT and only had to hand over roughly two-thirds of what he would then have collected in back-VAT.  

His penalty should have been substantially less than the amount by which he will profit from it.

Now that's tax avoidance!

Is Vince Cable guilty of transgressing IR35, as well as VAT?

dstickl | | Permalink

Q1: Is Vince Cable guilty of transgressing IR35, as well as VAT?

A: Let's apply 3 tests:

MOO: HMRC could argue that he has to be paid for turning up AND if he re-billed for VAT left out from earlier speaking, then there was an on-going element of mutuality.

Control: The organisers of the speaking events - and not Cable - would decide when the speach was to be given, where it was to be given, and to what audience.

Substitution: The organisers of the speaking events - and not Cable - would insist that Cable made a personal appearance; therefore no substitution was allowed at all.

SUM-UP: In my humble opinion, it would appear that Cable is subject to VAT.

 

Q2: Does any one out there agree or disagree - with reasons - to the above conclusion?

carnmores's picture

eh whats all that piffle

carnmores | | Permalink

who mentioned a ltd company

IR35 - not a chance!

tonycourt | | Permalink

 

At MarionMorrison - Like your thinking!

Ar carnmores - good point!

Just for the record - my experience of these "consultancy" deals is that the MP/Minister does virtually nothing - it's all about having the name on the company notepaper. I hasten to add this isn't always the case, but for the sake of argument assuming it is and that Mr Cable's "services"  were provided through a company dstickl is, in my view at least, barking up the wrong tree.

"MOO: HMRC could argue that he has to be paid for turning up AND if he re-billed for VAT left out from earlier speaking, then there was an on-going element of mutuality."  For mutuality of obligation to exist the employer in the arrangement has to provide work and the employee is bound to carry it out. Where this arrangment is simply a one-off  HMRC might argue that the work is in the nature of employment as an ad-hock employment but as a single event there is clearly no mutual obligation recognisable in the same way that a true employment arrangement offers.

"Control: The organisers of the speaking events - and not Cable - would decide when the speach was to be given, where it was to be given, and to what audience."  . An argument often used by junior to middling officers in HMRC. Some jobs are necessarily carried out at a particular venue and in a particular way - they are inherent to the work and not the worker and so should be given very little weight in the IR35 test. For example if you want your house painted it necessarily has to be done where the property is situated, and if you want it painted red you wouldn't expect the decorator to turn up and say "I'll tell you what I'll paint it green 'cos that's what I want to do".  

"Substitution: The organisers of the speaking events - and not Cable - would insist that Cable made a personal appearance; therefore no substitution was allowed at all". - Much the same argument as for control. Not saying substition isn’t an issue here, it’s just that it’s not a major one givien the nature of the work.  For example if you commission some art from a particular sculptor you might reasonably expect they would do the work or at least some of it themself - would this make them your employee? I think not

To quote an HMRC homily - each case has to be viewed in the light of the facts.  

Thanks chaps, but on IR35 ...

dstickl | | Permalink

Thank you carnmores, but I'm not sure your kind remark "who mentioned a ltd company" is the full story: what I understand - rightly or wrongly - is required is 'an intermediary'. In Cable's case, could the intermediary have been an agent of his, or perhaps an officer of his local Lib Dem association in Twickenham, South West London, or perhaps someone else? (I think we should be told.)

I ask this because I note that "The Sun" reported in part:'A further quarter went to his local Lib Dem association in Twickenham, South West London, to help fund his re-election. But according to the register, he kept around half.'

 

Thank you also tonycourt, but I'm not yet convinced of your rationales for MOO, Control and Substitution, as I note below:

For mutuality of obligation: HMRC could perhaps argue that Cable was only selected to speak because of his reputation, or notoriety, and was engaged as an employee to speak on this basis, i.e. to deliver work based on his past reputation, or notoriety. The reasson for this rationale is that attendees would probably be most disatisfied if the work did not meet this obligation, for which the organiser was mutually obliged to pay.

For Control: Your house painter argument certainly notes that the client can specify where to paint and what colour to paint, but HMRC could perhaps argue that Cable was under the client's control in the sense that Cable would be obliged to start speaking at a time to be determined by the client, and Cable would also be obliged to stop speaking at another time to be determined by the client.

For Substitution: Sorry, but I disagree with your assertion that  "Not saying substition isn’t an issue here, it’s just that it’s not a major one givien the nature of the work."  In my humble opinion: given the nature of the work it is THE major issue that Cable himself made the appearance to speak!

RE your: To quote an HMRC homily - each case has to be viewed in the light of the facts, I wonder if Vince Cable could - in the noble spirit of OPEN GOVERNMENT thet the LibDems are allegedly noted for - kindly given us the full facts in order to set us a good example, please?

 

As orbiter: Those who can remember back to the introduction of IR35 by Brown may remeber that his wife was allegedly offering personal services through her PR company jointly owned with her friend. When I pointed out that "the Chancellor's wife" might be caught by IR35, guess what happened? YES, that's right, Mrs Brown stopped working!

If Vince Cable - as Business Secretary - wishes to get Britain working for GDP growth again, then perhaps he might consider promoting a new SI, to amend SI 2000/727 section 7 (1) step one, to  allow an "allowance" of the VAT registration level to over-ride the current very mean "5% of revenue" allowance.

Over to you ...

carnmores's picture

when you are in a hole stop digging

carnmores | | Permalink

this is all nonsensical

Can of worms

decredwood | | Permalink

Ever wish you hadn't posted a comment to set off a string of email notifications every time someone posts a response!?!?!

If it was a genuine mistake

Alice White | | Permalink

If it was a genuine mistake then thats fine. If he did it on purpose then he needs to be exposed and dealt with accordingly. Whilst there is always going to be distrust of polititians you have to bare in mind when it came to the expenses scandal several MP's were jailed for commiting fraud, so i think they have proven the ability to punish, accordingly, those who have done wrong. I dont like MP's at the best of times, but i dont understand the need for blood for a simple error, which by all accounts he picked up and rectified promptly. Let me repeat, i do not like MP's in general but i just hope if i make a mistake in life, for example with payday loans repayment, i am not judged by some of those putting comments on here, otherwise i would be hung drawn and quartered and my body parts spread to the 4 points of the country like in the old days! Im sure there will be an enquiry if there is any sign of wrong doing.