Until recently, an HMRC investigation usually meant one of two things. Either someone, possibly disgruntled business partner or spurned spouse, had tipped off the taxman or you were unlucky enough to have had your tax return picked at random.

All that changed with the advent of HMRC Connect, an £80m software system designed to join billions of dots to create a picture of who may not be entirely honest when it comes to assessing their tax liabilities. 

HMRC Connect obtains data from different sources including other government databases such as the Land Registry, DVLA and private sector financial information from credit card issuers and companies such as eBay, PayPal and Airbnb.

Years ago, inspectors and their assistants would take loads and loads of time manually cross-checking all of that information and then comparing it to the returns that came in from taxpayers to determine whether or not there was a risk those taxpayers were not paying the full amount of tax.

Nowadays that cross-checking takes practically no time at all, the preliminary work is done in seconds. What that does is to see if there are anomalies in the information that they’ve got from different places that flag up there is a risk on the taxpayer. The risk department then identifies those with highest risk and then investigates those people.

It quickly establishes links that enable experts to identify suspicious businesses, individuals and transactions for further investigation. It allows HMRC to see more information in one place for a single taxpayer and has the capacity to find anomalies between information such as bank interest, property income and other lifestyle indicators and compare it to what a customer is paying us in tax. Manually interrogating such data would take weeks or even months.

Whilst being extremely happy with Connect’s impressive successes date, HMRC is keen to develop the system further, particularly when it comes to reducing the burden on its staff. ‘Connect is not the sole deciding factor in beginning or deciding the direction of a tax investigation, it is simply a powerful tool that enable lots of different data sources to be brought together that will inform an overall picture. Other factors are brought in, including human insight to make the final judgement’ HMRC says.

Another opportunity for Connect is to use its capabilities for pre-fill tax returns based on data already known about the individual. By confronting taxpayers with information that they are merely asked to check and confirm, HMRC hopes to significantly reduce fraud and increase the tax take, and no doubt the rollout of mandatory Making Tax Digital will be a trigger for even more compliance activity as digital data pours in.

It’s always interesting to have a peek behind the scenes, so we’ve asked members of the team to let us know what a typical day in the office is like for them. It’ll help you to get to know us better and give you a better understanding of the work we do. This time, we’d like to introduce you to one of our Directors, Karen Chase.

As a Director, my job involves: managing, training and helping the audit/accounts team, overseeing and reviewing audits and accounts, dealing with clients, preparation of accounts, personal and corporate tax returns. I also help to run the office and oversee Charlotte, our business administrator, as well as attending networking meetings and seminars.

A typical day

5.45 am – Woken up by the alarm. I had enough time to get ready before I woke the kids up to get them ready for school. Mum arrived at 7 o’clock to look after my daughter Brooke, then take her to school, and I left with my son Keaton at 7.15. After dropping Keaton off, I got a peaceful half hour drive to work.

7.50am – The first thing I did when I arrived at work was check my emails, then I drew up a list of things I had to do and work I needed to delegate, e.g. analysing figures in a different format for a client with a German parent company. I then reviewed the work our trainee accountants Ryan, Ben and Angelo had done the previous day, and set them new tasks. Our manager Catherine Hill usually helps me with these things, but she’s just started maternity leave – I’m already missing her loads!

When the rest of the team arrived, we discovered that Brad, another trainee accountant, had passed his exam and had brought in cakes to celebrate. However, there were none for me as I’d just started a 12-day detox – Karen with no coffee is not ideal!

9.00am – I had a meeting with one of our accountants, Barrie, about a current audit. They had a new provision in their accounts, so we needed to talk about what the audit approach would be.

9.30am – I then reviewed a client’s audit files and emailed them to arrange a post-audit meeting.

10.45am – I spent a few minutes setting up a new client on our system who I’d had a meeting with the previous day, making sure we had all the correct documentation on file and asking for any we still needed.

11.00am – I reviewed a small accounts file that our manager Karen had done, then passed it back to her so she could send final accounts to the client for signature.

11.30am – I had a quick catch-up with Charlotte about all the events HB Accountants are involved in: the Ambition 2017 sales and marketing conference for SMEs; the Teens Unite stall at Hoddesdon Loves Christmas (25 November); the Hertfordshire Business Awards evening (23 November); and also to check on the progress of our office Christmas lunch and Secret Santa.

Tax Tips for Individuals

In this month’s tax update, we will discuss some tax tips for individuals.

Please note that the rates referred to throughout the blog are noted for the 2017/18 tax year which runs from the 6^th April 2017 – 5^th April 2018.

It will be key to think about any of the options discussed in this blog prior to the end of the current tax year, being 5^th April 2018.

Use of Yearly Allowances

Everyone gets a range of allowances to use each tax year as below:

The Personal Allowance (Income Tax)

Everyone receives a personal allowance for income tax each tax year, the current personal allowance is £11,500. The personal allowance is the level of income an individual can receive before they suffer any income tax and therefore is effectively tax-free income.

Please note that the personal allowance is restricted if you earn over £100,000 during the tax year

The Dividend Allowance

Everyone also receives a £5,000 dividend allowance, dividend income within the dividend allowance is taxed at the dividend nil rate of 0%.

The Personal Savings Allowance

From 2016/17 a savings nil rate (0%) applies to taxable interest income within an individual’s savings allowance, the allowance received depends on that band of taxation that the individual falls into during the tax year as below:

Basic rate: £1,000

Higher rate: £500

Additional rate: nil

Capital Gain Tax Annual Exemption

Everyone gets a tax-free allowance of £11,300 to use against capital gains during the 2017/18 tax year.

Spousal Exemption for CGT purposes

Spouses may make transfers to each other on a ‘No Gain No Loss Basis’, meaning no Capital Gains Tax will be due. This can be an effective tax planning tool when using capital losses or annual exemptions that a spouse has remaining.

It is efficient tax planning to ensure that everyone makes use of the tax free allowances offered to them each tax year.

Tax Reducers

Transferable Personal Allowance/ Marriage Allowance (‘MA’)

The Marriage Allowance allows certain individuals who are married or in a civil partnership to elect to transfer some of their personal allowance to their spouse or civil partner. The election will be of help to couples where one of the spouses either has insufficient income to utilise his or her personal allowance or has income which is taxed at 0%, for example because it falls wholly within the starting rate band for savings income.

The amount of the personal allowance which can be transferred is 10% of the personal allowance. The recipient obtains a reduction in his income tax liability (a tax reducer) equal to 20% of the transferred amount. We therefore reduce the tax liability by £1,150 x 20% = £230. This reducer cannot result in a repayment of tax due.

The following conditions must be met for an individual to qualify:

• Must be married or in a Civil Partnership
• Neither spouse must pay tax at the higher rate (i.e. 40% rate)
• Election must be made within 4 years of the end of the tax year to which it applies

EIS/SEIS Investments

Investing in shares within the EIS and SEIS these schemes can result in a tax reducer as below:

EIS: 30% of the amount invested up to an annual limit of £1,000,000 (max relief £300,000)

SEIS: 50% of the amount invested up to an annual limit of £100,000 (max relief £50,000)

Losses

Rental Losses

Rental losses generated during a tax year can be carried forward against future rental profits.

There are many expenses which individuals do not realise they are able to deduct from rental profits during the tax year i.e. replacement of carpets, decorating expenses etc.

Capital Losses

Capital losses generated from the sale of a capital assets i.e. shares, property etc. can be carried forward to use against future gains arising.

Losses generated must be used against current year gains in priority during the tax year.

Maybe you’ve just set up your own business and are looking for a new accountant. Or perhaps your accountant has just retired and you need to look for a new one. What you need to bear in mind is that hiring the right accountant for your business isn’t a simple process. Who you choose to look after your accounts is crucial, especially if you have plans to expand as you will need to look for someone who will come with you on your journey to success – an accountant who will not just help you with your tax return, but also advise you on your business, and get more involved in the financial side of things the bigger your company gets.

Ask around

Word-of-mouth – sometimes called ‘earned advertising’ for a good reason – remains one of the most powerful marketing tools there is, with around 84% of people relying on it as a trustworthy source of information. So one of the best ways of choosing a new accountant is to ask your business contacts for referrals. If they’re happy with theirs, they’ll be happy to give you a recommendation. If you don’t get any joy from referrals, ask the people you meet at networking groups. Who knows, you may already know someone from an accountancy firm who’s a member of one of your groups – if you already like and trust them, then it’s definitely worth setting up a meeting to talk about how their company can help you.

Look at the website

However glowing the testimonials about possible future accountants are, you must always do your research. Start with the company’s website and look at the accounting services they offer with an eye on what you might need in the future. If you choose an accountancy firm now that doesn’t have the expertise to help you as your business expands, you’ll end up back at square one.

Keep your options open

However good you think one firm is – and you may well end up hiring them – always keep your options open. Choose a shortlist of three or four firms you think are a good fit and arrange face-to-face meetings with all of them.

What you’re looking for is a company that is a good fit for your business, so go armed with lots of questions. In addition to the fees, you need to find out about the services they provide, as well as their customer services. Ask questions about their turnaround time on jobs in order to get a feel for how they process and prioritise their work, and how they are likely to treat you as a client.

In addition to questions about fees and service levels, it’s important to ask questions about the qualifications and experience of the people who would be dealing with your accounts. When you reach the stage where you need extra help from the firm, who will you be dealing with? You need to know that you could work with them, always trust that they are on your side and are constantly looking for ways of adding financial value to your company.

If you have a growing business, you may well have taken on a bookkeeper to help you do the accounts. But grow the business a bit further and you will need to supplement the bookkeeping role with the services of an accountant.

The problem is that there is an in-between time when you need a management accountant, but cannot afford to employ someone on a full-time basis. This is when you need the services of a virtual financial director – a qualified accountant who will spend as much time and energy on your business as you need, but who will work only for the amount of time you need them.

Your virtual financial director is integral to your company’s growth

Even though they’re not directly employed by you, your virtual FD will have your business’s interests at heart. They will work on your behalf as though they are a valuable and trusted member of staff – it’s their job to help you increase sales and improve turnover and profitability, but they will also have an objective overview of the business, helping you to spot trends and new opportunities you may not previously have been aware of.

They will give you financial guidance and strategic advice, prepare your management accounts and forecasts, and attend meetings on your behalf wherever necessary, but without the expense of having to employ a full-time FD.

The additional benefit of a virtual financial director above is that they will help you with strategic planning to help you achieve your goals in the short- and long-term. You can also use them as a sounding board to discuss ideas to make sure you’re going in the right direction.

Having a virtual FD on board will also improve your credibility and raise the confidence of stakeholders and financial institutions. If there are any regulatory changes you need to be aware of, they will update you.  

Where to find a virtual FD

You’re most likely to source your virtual FD from your current accountancy firm – if you factored your business growth into the equation when choosing your accountant, you will hopefully have someone who can seamlessly take over because you’ve already got a good working relationship with the company.

Otherwise, look for a reputable accountancy firm that offers management accounting, advice and consultancy services.

If you run a charity, you’ll know that when it comes to doing the accounts, there are more complications than a ‘for profit’ business. Charity Accountants do understand these complications and the most effective ways to address these without any interruption to your operation. 

The accounting requirements for charities are onerous and apply to even the smallest charity. Visit the Charity Commission for England and Wales’ website for the rules around reporting, accounting and audits depending on the size and type of charity.

When it comes to finances, there is a basic requirement to submit accounts and returns to the Charity Commission, as well as a trustees’ annual report, a set of accounts and an annual tax return. The accounting process needed also depends on the type of charity, whether it’s a Trust, a Charity Incorporated Organisation (CIO) or a charitable company limited by guarantee.

Charity Accounting Specialists

Keith Grover, Director at HB Accountants, specialises in accounting for charities and understands the complexities and challenges this involves.

“All charities need proper disclosure in all areas, but, in the case of the smallest ones, their expertise tends to be limited. The rules are not easy to get your head around and lots of the smallest charities muddle along simply hoping that they get it right. When a charity’s income rises above £25k, the statutory requirements it has to follow in terms of accounting are huge. The main problem is that every charity, even the smallest, has to have a Trustees Report as part of its financial statement, yet the report is a very wordy document with prescribed formats. This is usually when charities turn to us for our specialist accounting services.”

If you would like certainty about financial reporting requirements as set out in charity law, as well as help with accounting systems and procedures, VAT management and operational advice, contact us to make an appointment to talk to one of our charity and not-for-profit accounting specialists.

As you drive across the border into the county of Hertfordshire, you’re greeted by a road sign which says “Hertfordshire. County of Opportunity”.

When Hertfordshire County Council (HCC) published its Corporate Plan for 2013-17, they explained why they came up with this slogan: “We want Hertfordshire to remain a county where people have the opportunity to live healthy, fulfilling lives in thriving, prosperous communities”.

In terms of prosperity, HCC stated it was working towards a “business-friendly environment where initiative is encouraged and celebrated” in order to create a strong, resilient and successful economy.

But the Corporate Plan went further than just making Hertfordshire a great place to do business, it also encompassed the community as a whole. The plan focused on giving residents the opportunity to maximise their potential by supporting those in difficulties, giving them a clean and green environment to live in, and tackling the overall health and wellbeing of everyone living in the county.

The current situation

According to the Council’s latest Annual Report, HCC is doing very well. According to its latest survey, 74% of residents were satisfied or very satisfied with the way HCC runs things and the Council has been shortlisted by the Local Government Chronicle for the “Best Council of the last 20 Years” Award.

To increase the opportunities available to businesses, HCC is currently working to improve transport links which will have a direct effect on local businesses. It has given the go-ahead to the Croxley Rail Link that will bring the London Underground system into Watford, making commuting more attractive at the same time as taking the strain off road links.

HCC is an active member of the London Stansted Cambridge Consortium (LSCC) which aims to promote the economic potential of the London to Cambridge corridor. The Consortium’s Growth Commission described the corridor as sharing “a set of advanced industries characterised by rapid growth and high productivity, supported by a global centre for business and financial services. Productivity is 16 per cent higher than the national average, and growing”. HCC is supporting the LSCC’s economic vision for 2036 with ambitious targets to create 400,000 new jobs – half of which will be tech, life sciences and knowledge-based – as well as growth in productivity and the creation of 10 new companies each worth in excess of £1bn. Business growth will be backed up by an education and skills system that provides a skilled, qualified workforce, as well as high quality housing and diverse and vibrant communities.

HCC is also a member of the West Anglia Taskforce which is recommending that the Government brings forward the four tracking of the West Anglia Mainline to Broxbourne as part of a strategy to bring Crossrail 2 into Hertfordshire.

If you would like to explore the opportunities offered for your business, we offer full accountancy services for companies of all sizes. Contact us to find out more or to make an appointment.