Penalties Cheques and Blessed IT!

“This tax tip covers a few important issues that have come up over the last few weeks and where we think it would be wise for you to keep an eye on things.

Penalties where there’s no tax involved
HMRC are issuing penalties for failing to submit ESL’s and failing to submit them on time. ESL’s record the supply of goods and reverse charge services to customers in other member States of the European Union. Whilst it is fair to say that the submission of ESL’s was not always at the top of HMRC’s list of priorities in the past, because of the emphasis on the anti-fraud role of the ESL, there is clear pressure upon HMRC to ensure that this important cross border trade information is submitted and submitted on time.

What is also clear is that the Tax Tribunal seems unwilling to be sympathetic to taxpayers who pick up penalties. In a recent appeal against a £500 penalty for failure to submit an ESL on time, the Tax Tribunal dismissed the taxpayer’s appeal (Corriform Limited [2010] UKFTT 52 (TC)).

Action Points: -

1 Check whether your client is required to submit ESL’s

2 If so, confirm whether your client is required to submit monthly ESL’s for goods

3 Determine whether procedures are in place to submit ESL’s on time – 14 days after the period end for paper and 21 days for electronic submission.

4 If clients have already run into compliance problems, they need to be resolved. This will usually mean bringing ESL’s up to date. Accompanied by an apology, it is possible that this would be sufficient to avoid, at least, a monetary penalty. In the light of the new penalty regime, this is not an occasion for taking the ostrich approach.

Cheques - VAT
The due date for payment by cheque is the date when the cheque clears from 1 April 2010. It is absolutely essential that clients who continue to pay by cheque are aware of this and get their payments off in good time. Given the lack of reliability of the postal system, this probably indicates mailing up to ten days before the due date. We suggest that proof of posting is retained – the main issue with this new basis is that it relies upon the efficiency of HMRC, as well as their bankers, in processing the cheque once received, something outside the control of the individual taxpayer.

Online VAT returns – don’t ignore the junk mail
From 1 April 2010 any business with a turnover of £100,000 or more, as well as new VAT registrations, will be required to submit their VAT returns online.

HMRC has written to many taxpayers to inform them of the requirement to submit VAT returns online. However, the mailing has not been particularly discriminatory, in that businesses with a turnover less than £100,000 have been included, as well as businesses already submitting online.

Our key action point is: - DO NOT IGNORE THIS SET OF HMRC JUNK MAIL.

We are fans of online VAT filing, as well as online Intrastat and online ESL. Once set up, which is not too difficult, it is pretty simple to use. However, please remember to make a note of: -

1 username
2 password
3 “shared secrets”

Where access by Government Gateway password is required (for example, amending VAT registration details), once the password turns up, confirm access immediately (you have up to 28 days from the date of mailing, but we have found that in practice you just need to get on with it).

If you are going to sign up, sign up early.

Online VAT returns – direct debit option; late payment penalties
If submitting online, you can also pay by direct debit. The money comes out of your bank account later than it would if you do not use the direct debit facility. We have seen NO instances of HMRC abusing the direct debit mandate.

To explode a myth – if you submit your online VAT return early, this will not bring forward the date payment is taken by direct debit.

However, provided you have submitted your online return promptly, the great thing about payment by direct debit is that it is impossible to get a late payment penalty provided that: -

1 you have sufficient funds in your account; and
2 (and we’ve seen this), you don’t forget to tell HMRC that you have changed bank account.

Online VAT returns (and possibly other online returns) – pdf copy of the return
The new online VAT return suite offers the facility for a submission receipt (always take one) and also the provision of a pdf copy of the VAT return. Once again, we strongly recommend that this option is utilised.

However, standard settings on Internet Explorer send the pdf created to some great unknown part of the computer, never to be found again, rather than the pdf popping up on your screen to enable you to save it in the right place. HMRC is aware of the problem and currently working to find a solution. In the meantime, there is a fix which gets round this problem, but only use this fix with your system administrator’s permission (i.e. we take no responsibility for this – its own your own head!). Open Explorer, click on “tools” and then “internet options”. Click the “advanced” tab, and you will then see a list with boxes to the left, some of which are ticked and others have been left blank. Go down the list until you get to “Security” under which you have an option called “Do not save encrypted pages to disk”. Ensure that there is a tick in that box, and the pdf’s will print/save as required. Don’t touch anything else! If you have problems, see your IT specialist – we pass this on in good faith, but readily admit we are IT naive.”

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