A pilot introducing a new way of resolving disputes between SMEs and HM Revenue & Customs (HMRC) was launched today.

The Alternative Dispute Resolution (ADR) is a pilot for small and medium enterprises. It uses independent HMRC facilitators to resolve disputes between HMRC and customers during a compliance check but before a decision or assessment has been made. ADR aims to find a fair and quick outcome for both parties, helping to reduce their costs and avoid a tribunal.

The pilot in North Wales and the North West follows a successful trial earlier this year, where 60 per cent of disputes were either fully or partially resolved.

HMRC’s, Jim Stevenson, assistant director, local compliance, said:

“ADR will help SMEs resolve disputes without having to go to a tribunal – saving them both time and money. It is a good opportunity for HMRC to work together with our customers to potentially resolve disputes much earlier than at present.

“The facilitators are HMRC members of staff who have been trained in ADR techniques and have not been involved in the dispute.

“We have found that often there are communication problems. So the HMRC facilitator will help all parties reach a shared and full understanding of the disputed facts and arguments. They will also ensure there is good communication, and help explain what each side is trying to say to the other. The aim is to resolve the dispute or, if not, as many issues as possible.”

ADR does not affect existing processes or review and appeal rights, and covers both VAT and direct taxes.

The Chartered Institute of Taxation (CIOT) has welcomed the announcement by HM Revenue and Customs (HMRC) that they will be trialling a new way of resolving disputes between small businesses and the taxman over the next six months.

Andrew Gotch, chairman of the CIOT’s Owner Managed Business Sub-Committee, said:

“This is a welcome move. ADR has the potential to be a valuable Gordian knot-cutter in investigations and technical disputes that have run into the sand. Anything which can help resolve disputes between HMRC and taxpayers to mutual satisfaction without the need to resort to expensive and time-consuming litigation has to be good news for all sides.

“There has already been a small-scale pilot of this new technique, using a few hand-picked cases which had already reached the stage of an appeal against a decision. Under this new trial, cases will be accepted at an earlier stage, where no appeal has yet been made, which is sensible. Additionally, taxpayers and their advisers will also be able to put cases forward for ADR, whereas in the first pilot HMRC did the selecting in most cases.

“It is very important that HMRC are able to gather reliable data from this next stage in the ADR pilot, so that an informed decision can be made as to whether the facility should be extended nationally. So, even though at this stage only those in some parts of the country will be able to participate, I would encourage all small businesses and their tax advisers who can take advantage of the facility to consider using it in situations where there are intractable disagreements with HMRC. This is an entirely voluntary process, from which neither side can possibly emerge worse off. In fact, evidence from the earlier phase of the pilot suggests that participants usually emerge far better off either in terms of getting a solution or understanding each others’ positions better, thus saving stress, time and costs all round”.

 

HM Revenue & Customs (HMRC) has issued an alert to VAT-registered businesses across the UK about important changes that come into effect this spring.

From 1 April 2012, all VAT-registered businesses must send their VAT returns online and pay their VAT electronically. Currently, only newly-registered businesses, and those with turnovers of more than £100,000, have to file and pay their VAT online.

The new rules will cover VAT returns filed for accounting periods beginning on or after 1 April 2012.

To file your VAT return online, you’ll need to register for HMRC’s VAT Online Service – visit www.online.hmrc.gov.uk and click “Register” under the “New user” section. Then follow the instructions.

Affected businesses will also need to set up their preferred electronic payment method. Visit www.hmrc.gov.uk/payinghmrc/vat.htm for more information on the various options.

In lean times, businesses need to be on top of their game, but when testing the financial fitness of 155 entrepreneurs, Intuit, the makers of QuickBooks accounting software, found many in dire need of a workout.

Intuit tested entrepreneurs thinking about starting or already running a business and found many are:

• Without a plan. The golden rule of business is have a plan and yet 16 per cent of aspiring entrepreneurs and 20 per cent of existing business owners do not have a plan or expect to have one by the time they start their business. A plan helps a business stay focused; it is also necessary when applying for external funding.
• Baffled by accounting speak. Entrepreneurs aren’t always financial experts and many find even basic accounting terms confusing. Almost half (47 per cent) do not know the correct definition of gross profit and 31 per cent do not know what turnover means. 19 per cent of respondents do not know what margin means and 16 per cent do not know the correct definition of cash flow.
• Confused by compliance. Only 61 per cent are aware that the VAT threshold is £73,000 and more than one in five (23 per cent) do not know the correct definition of VAT taxable turnover. Tracking, recording and reporting VAT is one of the biggest headaches for small businesses and getting it wrong can have a negative impact on cash flow and leave a business vulnerable to a penalty from the HMRC.

“We want to help Britain’s small businesses get fighting fit,” said Pernille Bruun-Jensen, managing director at Intuit UK. “Too many businesses run out of cash, manage it badly or just don’t have the time or the skills to help themselves out of financial difficulty. In addition to accounting software which can help business owners better manage their finances, entrepreneurs need practical advice and support to feel more confident and equipped to tackle the financial challenges of starting and running a business. Over the next year Intuit will be training more than 1,000 small businesses across the UK as part of a workshop initiative backed by the Department for Business, Innovation and Skills.”

From 1 April 2012, Low Value Consignment Relief (LVCR) will no longer apply to goods sent to the UK from the Channel Islands.

Currently items with a value of £15 or lower can be sent from the Channel Islands – which are technically not part of the EU – VAT-free. This has led to a number of large companies such as Amazon setting up subsidiaries in the islands to undercut local retailers.

At Budget 2011, the Chancellor stated the Government’s intention to take action to end the exploitation of LVCR, which in recent years has been used on an increasingly large scale to sell low value goods to UK customers VAT-free. Most of this trade is from, or via, the Channel Islands.

The Government took the initial step of reducing the LVCR threshold, below which items are imported free of VAT, from £18 to £15. The new threshold came into effect on 1 November 2011 and will apply to goods from the Channel Islands until 1 April next year.

David Gauke, Exchequer Secretary to the Treasury, said:

“These reforms will ensure that UK companies, especially small and medium sized enterprises, can compete on a level playing field with those larger companies with the resources to set up operations in the Channel Islands. We are also protecting a significant amount of tax revenue. By making these changes, we are striking the best possible balance between the costs of collecting small amounts of VAT and protecting the interests of UK taxpayers and businesses.”

Legislation to enact the change will be published in draft on 6 December 2011, for inclusion in Finance Bill 2012.

 

The British Property Federation (BPF) has joined retailers in urging Government to change the method of calculating commercial property tax, as September’s 5.6 per cent RPI announced hits retailers with an April tax increase they can ill afford.

Under the current system, September’s RPI is used to calculate the annual increase in commercial property taxes introduced next April. Today’s RPI figure of 5.6 per cent, the highest monthly rate since 1991, means an additional £350 million siphoned from the high street into Government coffers, according to research published today by the British Retail Consortium.

In its response to Mary Portas’s Government commissioned review of the High Street the BPF pointed out the compounding effect of linking business rates to RPI meant they had doubled over the past two decades, and if government wanted to provide certainty for retailers a better system would be to have a fixed uplift, of say two per cent – the UK inflation target.

If that was too expensive in the current climate, the Government should at least be using the rate of 5.2 per cent, which was what it had budgeted its own sums on in the Budget.

Ian Fletcher, director of policy at the British Property Federation, said: “This is bad news for retailers, landlords and the economy and comes at a time when many High Streets are fighting for their survival. At the very least the Government should not be making a windfall from business rates. It budgeted its sums on the basis of 5.2 per cent this year and should be giving the difference back.

“When finances allow the Government should also be considering two further reforms. The first to reinstate empty property relief – empty rates are an unjust tax on people deriving no income and who will be paying even more out now as a result of today’s inflation figure. Secondly, linking business rates to RPI has meant they have doubled over the last 20 years and Government should provide greater certainty for businesses by fixing the business rate uplift each year, which we have suggested should be at the rate of the inflation target, currently 2 per cent.”