taxation 49


Innocent taxpayers at risk of investigation


HMRC’s investment in a £45 million database that collects information from multiple sources delivered £1.4 billion of additional revenues in its first year, according to the National Audit Office. However, there is a risk that it is resulting in innocent taxpayers being targeted for investigations, writes Chris Denning of MHA MacIntyre Hudson


The Revenue’s powerful computer system, ‘Connect’ was launched in 2010 and is said to hold more data than the British Library. As well as helping HMRC to identify broad groups where underpayment of tax may be more common, they also use it to identify individual suspects by drawing data from multiple sources, including: banks, local councils, the Driver & Vehicles Licensing Agency, insurers, hospitals, online sales and purchase records, and even social media.


Bank data allows HMRC to track an individual’s spending and savings, as well as the sales and investments of a business. If these are out of kilter with the income or profits stated on their tax- returns, it raises a red flag.


With access to the Land Registry database, Connect also holds details of every property bought in the UK. This has proved instrumental in the Revenue’s recent crackdown on buy-to-let landlords.


HMRC also reportedly uses social media to research


an individual’s lifestyle. For example, social media boasts about expensive cars or even holiday pictures could trigger an enquiry if they do not fit with the individual’s reported income.


Data on e-commerce transactions is the latest addition to HMRC’s information arsenal, used to identify traders making significant undeclared revenue through auction and community selling websites like eBay and Etsy. This strategy was highlighted by the criminal conviction of an eBay


What’s the deal with holiday pay?


It's been hard to escape the news over what must now be included in holiday pay, writes Julie Taylor, associate in the employment team at Gardner Leader solicitors


In the summer we saw the European Court of Justice (ECJ) ruling that commission must be incorporated after a claim by Mr Lock, a British Gas employee. Then, more recently, the Employment Appeal Tribunal (EAT) decision in the case Bear Scotland v Fulton & others that holiday pay should include non-guaranteed overtime.


But where does this leave businesses when calculating holiday pay?


Under current EU regulations, workers have the right to 5.6 weeks of paid leave at the statutory rate of “a week’s pay” for each week of leave. This has traditionally excluded payments such as working allowances, expenses, overtime, commission and bonus payments.


In Lock's case, around 60% of his salary was commission and paid in arrears. After a two week break in 2012, Lock received less pay in the month following and made an employment tribunal claim for lost holiday pay.


The case was referred to the ECJ. It found that Lock would be financially disadvantaged after


THE BUSINESS MAGAZINE – THAMES VALLEY – DECEMBER14/JANUARY15


taking holiday and this could deter him and others from exercising their right to paid holiday. Therefore, the intention of the EU directive had not been properly implemented.


The ECJ did not clarify how holiday pay should be calculated and the case has been referred back to the UK tribunals to determine the calculation and compensation for Lock next year.


Subsequently, in the case of Bear Scotland v Fulton before the EAT, it determined that, for the four-weeks’ holiday granted under the European Working Time directive, workers are entitled to receive payments in respect of non-guaranteed overtime. However, this does not have to apply to the additional 1.6 weeks leave granted under the UK Working Time regulations.


An important issue is how far back could claims for underpaid holiday go? This remains arguable, although the EAT stated that any claims with a break of three months or more between consecutive underpayments would be out of time. Employees also only have three months in which to make a claim from the date of the last underpayment.


Therefore, while we await further details or possibly legislation on holiday pay, employers should start factoring in commission and overtime into paid leave and should review their calculations to ensure that workers are not financially worse off while on leave or immediately afterwards. Holiday pay remains a grey area, so if in doubt, seek legal advice.


Details: Julie Taylor 01635 508080 www.gardner-leader.co.uk


trader who failed to pay tax on over 500,000 items he sold on the auction website.


Use of the Connect database is an example of the highly-focused approach taken by HMRC to identify underpayment of tax. While some of those targeted may be guilty of tax evasion, many more are likely to be innocent. Individuals and businesses may find themselves on the receiving end of a mass mailshot from HMRC asking them to review their taxes simply because they fit a particular profile. More unwelcome still, they may even find themselves singled out for a full investigation on the basis of a snippet of information for which there is a straightforward explanation.


Many taxpayers, wary of an unsolicited HMRC enquiry, are looking more closely at professional fee protection insurance as a way of mitigating against the potential costs of an investigation.


In the event of an enquiry from HMRC, you would be strongly advised to contact your adviser straight away for assistance and to ensure you are familiar with your rights as a taxpayer.


If you are concerned HMRC may be considering a tax investigation of your affairs or for support in dealing with a tax investigation, contact us.


Details: Chris Denning 0118-9503895 www.macintyrehudson.co.uk


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