1. Appeal the penalty within the deadline given (30 days? can't remember offhand and I don't have any to look at) - with as precise a set of facts (and they need to be facts) and explanation of what you understood was happening.
2. If the appeal fails, consider making a complaint to HMRC complaints if you think/ know that HMRC failed to do something that led to the incurring of penalties. (for example, penalties don't reach £1.6K without at least a few pieces of paper being issued, you need to look into whose fault that was - did you tell HMRC your changes of address? have redirections in place? or did HMRC not issue any interim notices).
3. Sometimes if the fault lies wholly/ partly with HMRC you can reclaim any professional fees incurred to sort it out.
4. Eventually, when all else has failed, go to Tribunal. Preferably having taken some paid for professional advice at a much earlier stage. Make sure you do file whatever HMRC think is missing re paperwork asap.
5. consider making payments, stating clearly they are not final payments and only being made to minimise the incurrance of further penalties/ interest.
It's not clear to me if you have any actual tax liabilities, nor if you've now filed the missing paperwork - in case there are: alternatively look into the possibility of buying a Certificate of Tax Deposit - http://www.hmrc.gov.uk/payinghmrc/cert-tax-deposit.htm - not sure if it works just for penalties incurred, you'd have to look into it, but in effect you pay to HMRC, but they can't use it to settle any tax liabilities owing until you say so, with the benefit that further interest/ penalties on the tax owing are stopped.
minimising repetitive error catching through automation & macros
If you've a lot of them to convert and once converted there's a lot of manual checking to do - try spending some time thinking about whether the errors are repetitive and whether you can automate some of the error checking using excel macros. In particular if you're gifted at macro writing, it is possible to check for duplicate entries and also to amalgamate data from several rows (if you've worked out the common denominators for 100% of instances of whatever you are checking).
Takes time to set up, but saves time on large checking jobs.
We used a firm called Data2Impact a few years ago to write specific macros for us to automate error catching after taking inadequate CSV files into Excel during one huge data checking exercise at a contract I was doing.
Not sure why this thread has revived after 2 years?
I am not surprised BW LLPs response to an HMRC enquiry was first rate: any firm promoting aggressive tax schemes has a lot of practice in that area!
Since the original post (and it would be interesting to know what's happened since) there has of course been this: the demise of Rangers relating to Mr BW's EBT
And the outrage over Jimmy Carr's legally valid mitigation scheme (nothing to do with Mr BW as far as I'm aware but I didn't really pay much attention at the time).
i know that each STEP branch has access to funding/ bursaries to help students in financial need through exams etc.
Perhaps CIOT has the same thing. It's worth asking.
CIOT also has links with the Tax Advisers Guild. I am pretty sure they have a fund for bursaries for exams/ hardship etc. Again, it's worth asking.
On the issue of the cost of exams, CIOT is a charitable body. Whilst exams seem expensive, I very much doubt they are doing any more than breaking even on it.
Don't forget that once you enroll you will be entitled to a student discount on the legislation you'll need which will help with costs.
As to the actual exam - I took mine in the mid-90s, it remains the only set of exams that gave me mouth ulcers for 6 mths! It's tough!! As an earlier poster said, try and make sure you take the exams within a single Finance Act. It will seriously cut down on your costs & need to rework/ relearn areas . Also, if you do take the exams, there's no substitute for doing a major amount of work spread over a decent period of time, it's not an exam you can just cram for a few weeks before and float through. And Question Practice is what sorts the sheep from the goats. You need to know the technical in the bone, and be able to have the technical at your fingertips so that all you are doing is fitting technical to the questionto get your answer, not fighting to remember the technical and worrying about what you've forgotten in the exam. The CTA is a tough exam, but approached with respect & hardwork it's entirely passable with the syllabus books, questionbanks and preferably an investment in at least one revision day per paper.
When I started studying for STEP I asked them if they could register for this government scheme so I could use the financial help. Apparently it was just a form from CLT/STEP and not much if any cash outlay. They refused. So I paid for my STEP on credit card and transferred to 0% which made it cheaper than the help anyway - the costs of the scheme may not suit all, but it should be available.
Nevertheless, I am concerned generally that the costs of professional exams are not easily raised by small firms/ individuals, particularly in the recession. At one of the the CIOT conferences two years ago, a CIOT board member came to ask the break out groups for ideas, I asked him to make sure that the CIOT exams were as accessible as possible for everyone who would wish and has the intellectual capacity to undertake them - but may lack the financing.
Whether or not he took it forwards I don't know, but it's worth finding out Eve, and if CIOT haven't embraced the availability of governmental loans or any other, I for one am prepared to help chase them up - because it's important that tax as a career is not merely available to the well off or those lucky enough to be sponsored by employers.
its easy to transpose numbers when you key them in. get a fresh pair of eyes to cross check your spreadsheet against the receipts. Grand totals, totals, subtotals then individual items in that order helps narrow it down.
Because a friend came to me in what turns out to be a similar position two weeks ago.
Except in this case, HMRC had told him that he didn't need to file returns for TY2008 et seq, and sent him one of those 'three years have passed so we'll have a return please', which is what made him realise that his income wasn't all covered by PAYE (as it should have been as he has no other income sources). So HMRC haven't worked this out for themselves yet.
He too has received a ridiculous number of notices of coding - BR for his correct employer, the correct code to the wrong employer - and the coding notices came from two different offices, the ones to the wrong employer sometimes involved K codes and temporary NI nos and the wrong NI no.
My friend also didn't realise the significance either (although at least he opens and keeps his HMRC correspondence these days).
So far he's just filed the TY10 return based on his actual figures and paid the tax due (on the basis it is actually due as just because it wasn't deducted under PAYE doesn't mean he doesn't owe it, and he's not paid the Payment on Account HMRC online calculator came up with on the basis he shouldn't need to if the coding is correct for TY11 which it seems to be (more or less barring any future HMRC erroneous coding activity). No action has been taken yet on earlier years or anything else.
I wonder how many others are in this position? In fact I am currently trawling the net to see what action if any people have taken on such issues. I'm rather concerned to find it's not an isolated incident.
It's very comforting that the responses have confirmed my wobble was groundless.
Most of these guys don't have accountants and are not represented by agents. As sole traders, they also tend not to do formal accounts (unless they have to, say for bank finance etc). And have varying levels of financial knowledge (& interest in it).
It's true we appear to have moved onto stock valuation
But the starting point wasn't about stock per se. That said, if the query string goes in the direction of discussing valuing stock, I'm not going to argue, as it's not an area of expertise for me - my blog's sticking to what I know about (tax) rather than accounting - and I'm always willing to learn!
With regard to Mr Crafty's stock - you might be surprised at the thriving market that exists in craft supplies (as specific businesses) as well as reselling (or 'de-stashing' as its known) amongst craftspeople. These days with manufacturing virtually moribund in the UK, to get the quality Mr Crafty wants, he often has to buy a minimum amount, often more than he needs from overseas at genuine wholesale prices - which he then resells at retail prices - so rarely at a loss, although often with a long time lag. Many raw materials have longevity and so planned overbuying & subsequent 'destashing' doesn't have the same impetus it might have in a mass-market serving business; and if stored under the correct conditions metal, fibre, paper etc can remain sound for years. Also, Mr Crafty tends to take pretty good care of his supplies, so he can actually still use them when inspiration eventually strikes.
You might also be surprised at the size of the market: on an individual basis the numbers are tiny but collectively they're not so small: for example, if you take the single example of the Etsy handmade online marketplace (one of several similar internet sites), they have around 250k active sellers (of around 400k registrations, the difference being buyers only) - mostly in the USA but with a growing UK crafters presence. Etsy regularly release statistics - in the month of October 2010 US$37.3m of goods were sold, representing 2.055m individual transactions. The CraftCult site, which tracks Etsy statistics, consistently shows dedicated 'supplies' sellers as the top Etsy sellers.
Realistically, if Mr Crafty is following the rules (rather than doing what he wants and hoping HMRC don't enquire), I imagine he has to take reasonable reselling opportunities into account when valuing his stock?
As it's that very issue that caused the 'omg maybe they can do cash basis if they're little' wobble on my part - the blog readers shrieked at the sheer hassle of following Accruals Basis for stock per HMRC's standard format of stock added plus opening stock less closing stock (ie annual stocktake) equals what you can claim as an expense. What that boils down to is - if Mr Crafty has bought a load of raw materials and made them into product, he still only gets tax relief to the extent the raw materials purchased have been used, mainly through sales (or annual write downs for deterioration etc).
You're right that generally there's not a time lag between the sale & the receipt of cash, but there can be a big lag between raw materials acquisition, creation of finished product ready for sale & the actual purchase by a buyer - stock is often very slow moving, but doesn't deteriorate as it's not quite as subject to fashion or obsolescence as other manufactured goods.
So, no the accruals basis doesn't accelerate raw materials expenses as much as you'd expect - it increases the stock levels faster, but the tax efficiency of that acceleration in stock level is determined by the sales volume - because that's the driver for claiming the eligible expense - the raw materials used in products sold. Effectively the accruals basis 'slows down' the tax relief on the raw materials expense to the actual sales rate - and raw materials are generally Mr Crafty's largest expense.
Mr Crafty's common habit appears to be to claim for supplies expenses in the relevant tax year on a cash basis - 'I spent it so I can claim it'. I've some sympathy with that approach especially if they pretty much replenish at the same speed they use the raw materials, but not if there's no link in that calculation with actual sales: I can see that the fiscal consequences of HMRC allowing all businesses (even if restricted to tiny ones) to claim for raw materials without tying the tax relief to actual output & therefore genuine taxable profit makes my toes curl!
I think i'm going to suggest Mr Crafty-types consider a move towards the Japanese 'just in time' method of stock control and sustained pre-year end efforts to shift finished product to minimise the impact.
My answers
TaxPayer Charter
It's worth checking out the TaxPayer Charter. It lays out the obligations & promises by HMRC on how they'll deal with your tax affairs. (link halfway down this page https://www.gov.uk/government/organisations/hm-revenue-customs/about)
So, the steps are:
1. Appeal the penalty within the deadline given (30 days? can't remember offhand and I don't have any to look at) - with as precise a set of facts (and they need to be facts) and explanation of what you understood was happening.
2. If the appeal fails, consider making a complaint to HMRC complaints if you think/ know that HMRC failed to do something that led to the incurring of penalties. (for example, penalties don't reach £1.6K without at least a few pieces of paper being issued, you need to look into whose fault that was - did you tell HMRC your changes of address? have redirections in place? or did HMRC not issue any interim notices).
3. Sometimes if the fault lies wholly/ partly with HMRC you can reclaim any professional fees incurred to sort it out.
4. Eventually, when all else has failed, go to Tribunal. Preferably having taken some paid for professional advice at a much earlier stage. Make sure you do file whatever HMRC think is missing re paperwork asap.
5. consider making payments, stating clearly they are not final payments and only being made to minimise the incurrance of further penalties/ interest.
It's not clear to me if you have any actual tax liabilities, nor if you've now filed the missing paperwork - in case there are: alternatively look into the possibility of buying a Certificate of Tax Deposit - http://www.hmrc.gov.uk/payinghmrc/cert-tax-deposit.htm - not sure if it works just for penalties incurred, you'd have to look into it, but in effect you pay to HMRC, but they can't use it to settle any tax liabilities owing until you say so, with the benefit that further interest/ penalties on the tax owing are stopped.
minimising repetitive error catching through automation & macros
If you've a lot of them to convert and once converted there's a lot of manual checking to do - try spending some time thinking about whether the errors are repetitive and whether you can automate some of the error checking using excel macros. In particular if you're gifted at macro writing, it is possible to check for duplicate entries and also to amalgamate data from several rows (if you've worked out the common denominators for 100% of instances of whatever you are checking).
Takes time to set up, but saves time on large checking jobs.
We used a firm called Data2Impact a few years ago to write specific macros for us to automate error catching after taking inadequate CSV files into Excel during one huge data checking exercise at a contract I was doing.
Remuneration Trusts
Not sure why this thread has revived after 2 years?
I am not surprised BW LLPs response to an HMRC enquiry was first rate: any firm promoting aggressive tax schemes has a lot of practice in that area!
Since the original post (and it would be interesting to know what's happened since) there has of course been this: the demise of Rangers relating to Mr BW's EBT
http://www.bbc.co.uk/news/uk-scotland-glasgow-west-18169502
And the outrage over Jimmy Carr's legally valid mitigation scheme (nothing to do with Mr BW as far as I'm aware but I didn't really pay much attention at the time).
http://www.bbc.co.uk/news/magazine-18537051
And didn't CIOT issue some sort of document about tax avoidance/ tax evasion shortly afterwards?
Times are a'changing!
Further thoughts on funding
i know that each STEP branch has access to funding/ bursaries to help students in financial need through exams etc.
Perhaps CIOT has the same thing. It's worth asking.
CIOT also has links with the Tax Advisers Guild. I am pretty sure they have a fund for bursaries for exams/ hardship etc. Again, it's worth asking.
On the issue of the cost of exams, CIOT is a charitable body. Whilst exams seem expensive, I very much doubt they are doing any more than breaking even on it.
Don't forget that once you enroll you will be entitled to a student discount on the legislation you'll need which will help with costs.
As to the actual exam - I took mine in the mid-90s, it remains the only set of exams that gave me mouth ulcers for 6 mths! It's tough!! As an earlier poster said, try and make sure you take the exams within a single Finance Act. It will seriously cut down on your costs & need to rework/ relearn areas . Also, if you do take the exams, there's no substitute for doing a major amount of work spread over a decent period of time, it's not an exam you can just cram for a few weeks before and float through. And Question Practice is what sorts the sheep from the goats. You need to know the technical in the bone, and be able to have the technical at your fingertips so that all you are doing is fitting technical to the questionto get your answer, not fighting to remember the technical and worrying about what you've forgotten in the exam. The CTA is a tough exam, but approached with respect & hardwork it's entirely passable with the syllabus books, questionbanks and preferably an investment in at least one revision day per paper.
Professional Career Development Loans
I have no idea if this will help!
http://www.direct.gov.uk/en/EducationAndLearning/AdultLearning/FinancialHelpForAdultLearners/CareerDevelopmentLoans/DG_10033237
When I started studying for STEP I asked them if they could register for this government scheme so I could use the financial help. Apparently it was just a form from CLT/STEP and not much if any cash outlay. They refused. So I paid for my STEP on credit card and transferred to 0% which made it cheaper than the help anyway - the costs of the scheme may not suit all, but it should be available.
Nevertheless, I am concerned generally that the costs of professional exams are not easily raised by small firms/ individuals, particularly in the recession. At one of the the CIOT conferences two years ago, a CIOT board member came to ask the break out groups for ideas, I asked him to make sure that the CIOT exams were as accessible as possible for everyone who would wish and has the intellectual capacity to undertake them - but may lack the financing.
Whether or not he took it forwards I don't know, but it's worth finding out Eve, and if CIOT haven't embraced the availability of governmental loans or any other, I for one am prepared to help chase them up - because it's important that tax as a career is not merely available to the well off or those lucky enough to be sponsored by employers.
transposition error?
its easy to transpose numbers when you key them in. get a fresh pair of eyes to cross check your spreadsheet against the receipts. Grand totals, totals, subtotals then individual items in that order helps narrow it down.
How strange....
Because a friend came to me in what turns out to be a similar position two weeks ago.
Except in this case, HMRC had told him that he didn't need to file returns for TY2008 et seq, and sent him one of those 'three years have passed so we'll have a return please', which is what made him realise that his income wasn't all covered by PAYE (as it should have been as he has no other income sources). So HMRC haven't worked this out for themselves yet.
He too has received a ridiculous number of notices of coding - BR for his correct employer, the correct code to the wrong employer - and the coding notices came from two different offices, the ones to the wrong employer sometimes involved K codes and temporary NI nos and the wrong NI no.
My friend also didn't realise the significance either (although at least he opens and keeps his HMRC correspondence these days).
So far he's just filed the TY10 return based on his actual figures and paid the tax due (on the basis it is actually due as just because it wasn't deducted under PAYE doesn't mean he doesn't owe it, and he's not paid the Payment on Account HMRC online calculator came up with on the basis he shouldn't need to if the coding is correct for TY11 which it seems to be (more or less barring any future HMRC erroneous coding activity). No action has been taken yet on earlier years or anything else.
I wonder how many others are in this position? In fact I am currently trawling the net to see what action if any people have taken on such issues. I'm rather concerned to find it's not an isolated incident.
Thanks Nichola
It's very comforting that the responses have confirmed my wobble was groundless.
Most of these guys don't have accountants and are not represented by agents. As sole traders, they also tend not to do formal accounts (unless they have to, say for bank finance etc). And have varying levels of financial knowledge (& interest in it).
It's true we appear to have moved onto stock valuation
But the starting point wasn't about stock per se. That said, if the query string goes in the direction of discussing valuing stock, I'm not going to argue, as it's not an area of expertise for me - my blog's sticking to what I know about (tax) rather than accounting - and I'm always willing to learn!
With regard to Mr Crafty's stock - you might be surprised at the thriving market that exists in craft supplies (as specific businesses) as well as reselling (or 'de-stashing' as its known) amongst craftspeople. These days with manufacturing virtually moribund in the UK, to get the quality Mr Crafty wants, he often has to buy a minimum amount, often more than he needs from overseas at genuine wholesale prices - which he then resells at retail prices - so rarely at a loss, although often with a long time lag. Many raw materials have longevity and so planned overbuying & subsequent 'destashing' doesn't have the same impetus it might have in a mass-market serving business; and if stored under the correct conditions metal, fibre, paper etc can remain sound for years. Also, Mr Crafty tends to take pretty good care of his supplies, so he can actually still use them when inspiration eventually strikes.
You might also be surprised at the size of the market: on an individual basis the numbers are tiny but collectively they're not so small: for example, if you take the single example of the Etsy handmade online marketplace (one of several similar internet sites), they have around 250k active sellers (of around 400k registrations, the difference being buyers only) - mostly in the USA but with a growing UK crafters presence. Etsy regularly release statistics - in the month of October 2010 US$37.3m of goods were sold, representing 2.055m individual transactions. The CraftCult site, which tracks Etsy statistics, consistently shows dedicated 'supplies' sellers as the top Etsy sellers.
Realistically, if Mr Crafty is following the rules (rather than doing what he wants and hoping HMRC don't enquire), I imagine he has to take reasonable reselling opportunities into account when valuing his stock?
Funny you should mention stock....
As it's that very issue that caused the 'omg maybe they can do cash basis if they're little' wobble on my part - the blog readers shrieked at the sheer hassle of following Accruals Basis for stock per HMRC's standard format of stock added plus opening stock less closing stock (ie annual stocktake) equals what you can claim as an expense. What that boils down to is - if Mr Crafty has bought a load of raw materials and made them into product, he still only gets tax relief to the extent the raw materials purchased have been used, mainly through sales (or annual write downs for deterioration etc).
You're right that generally there's not a time lag between the sale & the receipt of cash, but there can be a big lag between raw materials acquisition, creation of finished product ready for sale & the actual purchase by a buyer - stock is often very slow moving, but doesn't deteriorate as it's not quite as subject to fashion or obsolescence as other manufactured goods.
So, no the accruals basis doesn't accelerate raw materials expenses as much as you'd expect - it increases the stock levels faster, but the tax efficiency of that acceleration in stock level is determined by the sales volume - because that's the driver for claiming the eligible expense - the raw materials used in products sold. Effectively the accruals basis 'slows down' the tax relief on the raw materials expense to the actual sales rate - and raw materials are generally Mr Crafty's largest expense.
Mr Crafty's common habit appears to be to claim for supplies expenses in the relevant tax year on a cash basis - 'I spent it so I can claim it'. I've some sympathy with that approach especially if they pretty much replenish at the same speed they use the raw materials, but not if there's no link in that calculation with actual sales: I can see that the fiscal consequences of HMRC allowing all businesses (even if restricted to tiny ones) to claim for raw materials without tying the tax relief to actual output & therefore genuine taxable profit makes my toes curl!
I think i'm going to suggest Mr Crafty-types consider a move towards the Japanese 'just in time' method of stock control and sustained pre-year end efforts to shift finished product to minimise the impact.