Our February Tax Newsletter is available now

HMRC’s Affluent Unit was set up in October 2011 to examine the tax affairs of taxpayers who had wealth of at least £2.5 million and an annual income of £150,000 or more. In 2013, the Affluent Unit doubled in size and grew to look at taxpayers whose wealth was over £1 million. The Affluent Unit is thought to look at the tax affairs of some 500,000 taxpayers. 

The Unit is separate to the High Net Worth Unit (HNWU) which targets taxpayers with wealth in excess of £20 million. However, both initiatives are designed to target the wealthiest taxpayers in the country.

A recent information request by the international law firm, Pinsent Masons revealed that the Affluent Unit collected £137.2 million in additional tax from investigations in 2013/14, up from £85.7 million in 2012/13. This represents an increase of some 60%. HMRC is also making extensive use of the database system ‘Connect’ that gathers real time data to help it identify tax avoidance. The system draws data from multiple public and private sources and is able to help identify taxpayers that seem to be living beyond their means.

The way that VAT is applied on the sale of certain Business to Consumer digital services in the EU changed on 1 January 2015. The place of supply is now determined by the location of the customer who receives the service rather than the location of the supplier.

The new rules have been introduced mainly to stem the growing problems of large multi-nationals locating their businesses in low tax jurisdictions. For example, many large US electronic service providers were based in Luxembourg which historically had the lowest VAT rate in the EU. It is interesting that the main VAT rate in Luxembourg increased from 15% to 17% with effect from 1 January 2015 to try and counter some of these VAT advantages.

The changes are also proving to be a significant problem for micro digital businesses that are struggling to adapt to the complex changes in the EU VAT rules. Businesses supplying e-services with a turnover under the current UK VAT registration limit of £81,000 are now required to register and use the MOSS for sales to other EU customers. (See below). The campaigning website EUVATaction.org has recently reported that more than 200 UK businesses have closed because they cannot deal with the administrative burden of the new rules. There are also reports of many UK businesses turning away customers in other EU countries.

To remove the requirement for businesses affected by these changes to register for VAT in other Member States, a Mini One Stop Shop (MOSS) has been introduced. The MOSS scheme is an electronic system that will allow businesses to register in only one EU member state and submit a single VAT return and payment each quarter for all their cross border supplies of digital services.

The Government has announced it will fund a pilot scheme, to the tune of £150,000, to set up savings clubs in primary schools in a bid to help prevent children racking up debts later on in life. This follows a proposal by the Archbishop of Canterbury’s Task Group on Responsible Credit and Savings to launch a pilot scheme where savings clubs will be set up in primary schools. The savings clubs will be setup in partnership with credit unions and will encourage children to save small, regular amounts of money.

Research has shown that many financial habits are formed by the age of seven years old with evidence showing that children engage with the financial services sector from a young age. The LifeSavers project will seek to instill children with good financial habits by educating them about the benefits of saving at an early age. The project is also intended to help push the development of alternatives to pay day lenders in conjunction with credit unions.

The project will pilot in six schools in its first year in south-east London (Lewisham/Bromley), Bradford and Nottingham, before rolling out to up to 100 schools over the next four years, benefitting up to 30,000 pupils.

The Economic Secretary to the Treasury, Andrea Leadsom said:

'A key part of our long term economic plan is to secure peoples’ financial futures. And at a time when young people are exposed to financial decisions earlier than ever, LifeSavers is a welcome initiative from the Church of England and the credit union movement. The project will help to tackle the root cause of money problems and develop good savings habits as early as possible.'

The money laundering rules are designed to protect the UK financial system and put in place certain controls to prevent businesses being used for money laundering by criminals and terrorists. Failure to comply with the money laundering regulations could result in a civil financial penalty or criminal prosecution.

A recent criminal investigation by HMRC focused on a husband and wife team that ran three bureaux de change, ostensibly to serve the London tourist market. However, this was merely a front and the main trade of the business was exchanging large amounts of Sterling for high denomination Euro notes for organised crime groups.

When HMRC officers raided the company offices in September 2011 they found more than £100,000 in cash on the premises, plus a set of keys to safe deposit boxes at Harrods containing more than £250,000 in cash and valuable gold jewellery.

An astonishing £145 million of cash was laundered and the husband and wife team have been jailed for a total of 19 years. Two sisters who were involved in transporting the money were also found guilty and sentenced to jail terms.

Peter Millroy, Assistant Director, Criminal Investigation, HMRC, said:

'This gang of criminals were under the delusion they could escape detection – they were wrong and are now paying the price behind bars. Their activities bore no relation to what is expected from high street bureaux de change. Instead they used their business as a front to launder the profits made by many of the UK’s most serious and dangerous crime gangs.'

The Scotland Act 2012 came into law on 1 May 2012 and gives the Scottish Parliament the power to set a Scottish rate of Income Tax which will be administered by HMRC for Scottish taxpayers. The Act also fully devolves the power to raise taxes on land transactions and on waste disposal to landfill to the Scottish Parliament. Revenue Scotland will be responsible for taxes similar to the current Stamp Duty Land Tax and Landfill Tax which will be replaced with Land and Buildings Transaction Tax and Scottish Landfill Tax. The changes are expected to take effect from April 2015.

The new Scottish Income Tax rate is expected to apply from 6 April 2016. In practice, the Income Tax rates in Scotland will be reduced by 10% and the Scottish Parliament will have power to set the rate. If the rate is set at 10%, the Scottish rates would be the same as the rest of the UK. HMRC will issue tax codes to employers in the months before April 2016 which will identify those employees who are Scottish taxpayers, and employers will deduct tax at the appropriate rates, which may be higher or lower than or the same as those which apply in the rest of the UK.

This will be driven by a taxpayer's main place of residence. Employers across the UK will need to ensure their systems are updated to work within the new rules. HMRC has recently published an FAQ document on the implications of The Scotland Act 2012.

HMRC has warned of a new email phishing scam. Phishing emails are used by fraudsters to access recipients’ valuable personal details, such as usernames and passwords. Whilst these messages may appear to be genuine they are very dangerous and clicking on a link from within the email can result in personal information being compromised and the possibility of computer viruses affecting your computer or smartphone.

There are many examples of these type of emails included in a document recently published by HMRC. The latest email dated 13 January 2015 reads as follows:

Attention: Owner / Manager

We would like to inform you that you have made mistakes while completing the last tax form application (ID: 082883710734).

Please follow the advice of our tax specialists HERE (link).

Please amend the mistakes and send the corrected tax return to your tax agent as soon as possible.

Yours sincerely

Any of our readers who are unsure as to the authenticity of any email or other communication purporting to be from HMRC should be careful to check the validity of any such message. HMRC has clearly stated that it does not send notifications of a tax rebate by email, or asks recipients to disclose personal or payment information by email.

The European Commission (EC) has approved an extension of the Rural Fuel Duty relief scheme that has cut fuel duty in remote island communities by 5p per litre. The scheme currently applies to the sale of unleaded petrol, diesel, biodiesel, bioblend and bioethanol blend in the Inner and Outer Hebrides, the Northern Isles, the islands in the Clyde and the Isles of Scilly.

The Government wants to extend this to 17 of the most rural areas in mainland UK. Most of these rural areas are in Scotland but there are also areas covered in Northumberland, Cumbria and Devon. Commission approval means that the issue is now awaiting final agreement from other member states through the Council of the European Union. If all the areas receive final approval around 125,000 people will benefit from the scheme across the UK.

Chief Secretary to the Treasury, Danny Alexander said:

'While we have one more stage to go, I want to make sure we are ready to implement this as a top priority so we will press for this to be heard as soon as possible and are today publishing the necessary draft regulations. I’m determined to implement the rural fuel rebate in the current Parliament as part of this government’s drive for a stronger economy and fairer society.'