CheapAccounting.co.uk

Head Quarters

D Gauke MP

House of Commons

London

SW1A 0AA

Dear Mr Gauke

Tax and the National Curriculum

This month sees over 5 million letters being sent out by HMRC to taxpayers informing them that they have not paid the correct amount of Income Tax; an annual event and one where the errors in tax paid do not seem to be diminishing.

As you will know the onus seems to be on the tax payer to understand and make sure that they pay the correct amount of tax; ludicrous really given the complexities of the UK tax systems.

We both attended Northgate School in Ipswich and I am sure that, like me, as part of your studies you were not taught how to calculate your tax bill and make sure you paid the correct amount of tax.

Surely there is an unacceptable gap between the expectations of HMRC and effective tax education in this country?.

As Exchequer Secretary to the Treasury having ministerial oversight of HM Revenue & Customs I feel that it falls to you to address this gap; if HMRC demand that the public know how to calculate their tax bill then effective education must be made available to the public so that they can accept this responsibility.

I do hope that you agree and I look forward to hearing your plans for how you will address this gap in tax education in the UK to meet the expectations of HMRC.

Yours sincerely

Elaine Clark

Chartered Accountant

Managing Director CheapAccounting.co.uk

Over two years ago I wrote this blog, aimed at helping those who had received unexpected tax demands from HMRC:

Click to go to Persistence, Patience and Tenacity Required as HMRC Ignore their own Tax Payer Charter! – PAYE Fiasco

Two years on and, as highlighted in the story in the Daily Mail on Friday, another 2 million people, assuming that their tax affairs are in order, will be receiving a demand for underpaid tax.

We’ve handled many cases so far with demands from £1,000 up to over £9,000.

Our experience to date is…

• HMRC take an unnecessary and excessive amount of time to respond to correspondence
• They are not being consistent in their approach – cases with similar backgrounds are having tax written off whereas other similar cases are having to proceed to complaints
• HMRC will nearly always reject your case initially
• Their approach is to demand the tax without listening to facts
• Persistence through to complaint and adjudication is the only way to get your tax demand dealt with correctly

Here is my advice on how to deal with your letter from HMRC …..

What should you do if you receive a tax demand?

Stage One

The first thing to do is to check that the calculation is correct.

Assuming it is correct then for 2012 / 2013 HMRC will be within their time limit to collect any underpaid tax unless you can show that the error was not your fault.

The main reason for the underpayment not being your fault is where your employer or pension provider has not followed the PAYE procedure correctly and has made an error.

In this case the law states that HMRC should seek the underpaid tax from the employer or pension provider and not the individual.

However you must be certain that it is your employer or pension provider that did make the error.

Did you tell HMRC and / or your employer about a change in your circumstances e.g. a new or second job, additional income, a pension ? If this is the case, and you have paper work to show this to be the case then the error is not your fault.

I am not going to re-invent the wheel on letters to send to HMRC regarding the underpayments of tax as the Low Incomes Tax Reform Group has prepared sample letters and these can be found on the Guardian Web Site here:

http://www.guardian.co.uk/money/2010/sep/07/tax-error-letter-templates

(I shan’t copy them in case of copy right).

Use the text for letter two “If your employer/pension payer made an error” and send this to HMRC.

No doubt HMRC will reject your request to reclaim the tax from your employer or pension provider.

So then move onto ……

Stage Two

If HMRC rejects the write off then do not give up.

The next stage is a complaint. You can read more about how to make a complaint to HMRC at:

http://www.hmrc.gov.uk/complaints-appeals/how-to-complain/make-complaint.htm

Here is the text for your complaint letter …

————————-

Dear Sir / Madam

Your Name here

National Insurance Number – your NI number

HMRC reference number – the reference on the letter

Complaint – Handling of Underpaid Tax

Thank you for your letter of (enter the date of the letter from HMRC).

I would like to raise a formal complaint regarding this matter.

I had provided all relevant information to my employer / pension provider [delete as applicable]. The underpayment arose because of a failure by my employer / pension provider [delete as applicable] to operate PAYE correctly. Given this you must reclaim the underpaid tax from them and not me.

To tell me that I should repay the underpaid tax is incorrect and I do not agree with your decision.

Can you please:

• acknowledge receipt of this complaint letter, by return
• advise me of the complaints procedure and how long it will take for you to review this matter
• let me know your outcome and the reasons for reaching your decision

I look forward to hearing from you and hope that this matter can be resolved very quickly.

Yours faithfully

—————————————————

Stage Three

If that doesn’t work then you should take the matter to the Adjudicator.

Whilst this may seem very scary do not be deterred – it does work; we received a letter from a tax payer who did just that and had over £2,500 written off by the Adjudicator.

If you are right – fight and fight hard.

Of course no one likes a tax evader but that is NOT what you are – you did the right thing and “the system” let you down.

Having helped well over 100 individual cases unfortunately we are no longer able to provide any free help on this matter. The above covers what you need to do – please follow it, it does work.

Although I think it may have been meant as an insult, a post on Accounting Web claimed I was “evangelical about my business model”.

Spot on – absolutely right

I am loud and proud about my business model; although I will point out that I have never claimed that this is the only model that works, as the poster seemed to imply.

One definition on the web for evangelical describes it as being “zealously enthusiastic”. I think that this is a great description.

Can it be so wrong to be zealously enthusiastic about your business?

What do you think?

A recent article on Accounting Web hailed the end of the mid size accountancy practice with fee income of £500,000 through to £3m. An utterly depressing article seemingly suggesting that the number of SMEs was in decline due to the costs of setting up any business.

Read the full article - click here

Luckily we and many others, such as Lord Young do not share this view; in fact Lord Young’s report “Growing Your Business” proclaimed that record numbers of people are starting a business each year.

So why should the number of midsized accountancy firms need to decrease if there is an upsurge in UK businesses; quite baffling.

Times are changing

The world is changing and all businesses, including accountancy practices, need to change as well. We’ve seen enough evidence of failing business models that did not take note of their changing environment and adapt; Jessops and Blockbusters amongst the big name failures in recent times.

Merge isn’t the only answer

When the going gets tough accountancy firms jump to merge but this brings along a whole host of problems such as culture, power, duplication and so on.

Adapt, change and grow

Of course the real answer is to adapt, change and grow in line with the business world around you. Nothing ever stands still and those that rest on their laurels of having a successful & profitable business always come unstuck in the medium to long term as new entrants and competitors overtake them.

Lessons for Accountancy Practices

Anyone with even half an eye open to the changing world of accountancy practices would realise that the traditional high street model of “the brown paper bag” yearend work accompanied with high accountancy fees will be all but extinct in a few years time. In fact for many that model already is dead.

Businesses are becoming savvier about finances and what constitutes good value for money on their accountant’s bill.  Much of the accountancy work is done in house by finance teams or bookkeepers. Traditional accountancy systems such as Sage are being replaced by more efficient and current Cloud Accountancy system giving access to real time company finance data. All of this means that the SME business owner is demanding serious fee reductions and / or a more proactive  and responsive accountancy service delivered at the point of need otherwise they are voting with their feet and taking their business elsewhere.

But rather than moan about the fee reduction or jump into panic merger talks, accountancy practices should look to the future and how their business can shape up to tackle the new world.

O’Neill Strain Smith doing this

One such firm doing just that is O’Neill Strain Smith based in Omagh, Northern Ireland. They have joined CheapAccounting.co.uk as a franchisee. Tommy Strain who heads up the practice explained:

“We knew the world was changing, we’ve seen it in our fees. The business world in Northern Ireland was hit hard by the recession and that has hurt us and I’m sure, many other accountancy firms. I could see this Cloud world on the horizon but I just didn’t know anything about it, where to start or how to adapt our traditional high street practice to operate in the cloud. Joining CheapAccounting.co.uk seems like such an obvious thing to do; we all get to learn about the new world of practicing in the Cloud under those that have done it before. There is no need to re-invent the wheel and make mistakes along the way. The Cloud world doesn’t seem quite as scary when someone is holding your hand along the way.”

Elaine Clark, Managing Director of CheapAccounting.co.uk says:

“Tommy and his team will be a great addition to our CheapAccounting.co.uk franchise team and prove that franchising is not just for start up practices. O’Neill Strain Smith join at a  very exciting time with the launch of our Accountant Business School giving much more focus on how to practice in the cloud. The future doesn’t have to be bleak for accountants just as long as they have their head in the clouds.”

One of our accountants has just reported an RTI failure because, according to HMRC, they have the payroll as ceased on 5 April 2011.

Funny thing is that P35s for 2011/12 and 2012/13 were successfully filed.

Apparently HMRC do not know how this can happen but they don’t seem surprised.

Anyone else experienced similar?