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Are you registered for Data Protection? Maybe you should be?

Dated: Thursday, Nov 19th, 2009

Many small businesses will have failed to recognise that they have a legal obligation in relation to Data Protection.

All businesses are legally obliged to protect any personal information they hold, and may be required to register with the Information Commissioners Office (ICO). As you may know, the Data Protection Act (DPA) requires all organisations which handle personal information to comply with a number of important principles regarding privacy and disclosure. The eight principles are that this personal information should be:

- Fairly and lawfully processed
- Processed for limited purposes
- Adequate, relevant and not excessive
- Accurate and up to date
- Not kept for longer than is necessary
- Processed in line with your rights
- Secure
- Not transferred to other countries without adequate protection

The Act also provides individuals with important rights, including the right to find out what personal information is held on computer and most paper records. Failure to comply with the DPA allows the ICO to either:

- serve enforcement notices and \"stop now\" orders where there has been a breach of the Act; or
- prosecute those who commit criminal offences under the Act.

If you have any questions or would like an outline of the requirements, you should head to the ICO website www.ico.gov.uk, or seek professional assistance if that gives you insufficient information. I am obviously registered, so I may be able to help to some extent - feel free to give me a call too.

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A tougher penalty regime!

Dated: Tuesday, Mar 17th, 2009

The \\\"new\\\" penalty regime (from April 2009) replaced and expanded the previous regime. There are generous provisions allowing for zero penalties in certain circumstances - to encourage compliance - but these are counter-balanced by much heftier, statutory penalties otherwise. The new regime focuses on the behaviour of the taxpayer which led to the inaccuracy.

The first piece of good news is the new concept that when taxpayers take \\\'reasonable care\\\', they will never be subject to a penalty in relation to errors and omissions which result in an underpayment of tax. The definition of \\\'reasonable care\\\' is obviously vital in this context and it varies according to the circumstances. What is reasonable care for an individual will not be the same as for a multinational corporation; similarly what is reasonable care for a simple or routine transaction will not be the same as for a complex one, or one involving huge sums of money. Reasonable care is proportionate.

To be immune from penalties, the taxpayer has to take reasonable care even when they have appointed an accountant - keeping reasonable records, making sure to supply full and accurate information for the accountant to work with, implementing any professional advice given exactly as set out and checking the accountant\\\'s work to the best of their ability and competence - this means reviewing whether all the information supplied is reflected in the result produced and that this result seems at least reasonable. If all these conditions are met, there will never be a penalty.

If there is not reasonable care then a penalty of 30% applies, which can still be reduced to zero if a full unprompted disclosure is made by the taxpayer but only to 15% if the disclosure only comes after prompting (e.g. after the opening of an enquiry).

The second piece of good news is the introduction of the concept of suspended penalties (at the Revenue\\\'s discretion) dependent on complying with certain conditions for a period of suspension of up to two years. If these conditions are met then the penalty would be cancelled. Again, this is a move to encourage compliance and will only apply where there is failure to exercise reasonable care.

The more serious cases are \\\'deliberate understatement\\\' and \\\'deliberate understatement with concealment\\\'. The penalty for deliberate understatement would be 70% with a maximum reduction to 20% for full unprompted disclosure and 35% for prompted disclosure. Deliberate understatement with concealment would be penalised at 100% with a maximum reduction to 30% for full unprompted disclosure and 50% for prompted disclosure.

The actual reductions applied to the maximum potential reduction will depend on various \\\'quality factors\\\'. \\\'Telling\\\' (admitting, disclosing and explaining) can earn up to 30%, \\\'helping\\\' (in quantifying the amount understated) can earn up to 40% and \\\"access\\\" (allowing access to records and documents) can earn up to 30%.

For example, if a taxpayer has made a deliberate (but not concealed) understatement which he discloses, but only after a general enquiry opens into his tax return, you can see from the above that he would have a basic statutory penalty of 70% with a maximum reduction to 35% (i.e. a maximum 50% reduction in penalty). If the Revenue consider that he has been cooperative in \\\'telling\\\', earning the full 30%, no more than reasonable in \\\'helping\\\', earning 20% and not very willing to provide \\\'access\\\', earning just 10%, they would apply the total of these quality factors i.e. 60% to the maximum 50% reduction in penalty (60% of 50% is 30%), so they would reduce the penalty by 30% i.e. to 49% of the tax underpaid. You may have to read this example several times to seize the point fully (or you may not get it even then!) but it does actually show that it is more scientific and with less room for manoeuvre on the part of the Revenue than previously.

Clearly it is most important that information submitted to the Revenue is accurate and that submission should be prompt. Information supplied in late January does not imply reasonable care, as it does not give the accountant sufficient time to prepare accurate accounts, returns etc. And it is most important that the taxpayer checks not only the information they supply to the accountant but also the result produced by the accountant. There is usually a 1-2 page summary computation provided with tax returns, which the taxpayer could check to see if it looks correct (or at least reasonable) and complete, and a detailed profit and loss account is always provided with accounts, which should enable similar non-expert checking by the taxpayer.

All taxpayers are expected to keep sufficient records on which to base their return and to ensure that any return prepared is correct. \\\'Returns\\\' include personal tax returns, corporation tax returns, PAYE returns and VAT returns - the new regime applies to them all, so now is the time to review the records you produce (and keep) to see whether they are up to scratch. Accountants have similarly been considering these things to maximise the chances of all the reasonable care conditions being met in the case of any enquiry.

Finally, given that the advent of this system has, as expected, been followed by an increase in the number of enquiries, now is perhaps also the time to think about taking up some tax enquiry professional fees insurance (see separate News item).

A simplified summary of all this is available on demand as a pdf file or as a printed document for those without Internet access. Please do request one - they are freely available without charge!

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Company accounts - filing at Companies House - deadlines & penalties!

Dated: Monday, Mar 16th, 2009

The deadline for filing accounts for private companies at Companies House is nine months.

And the penalties for late filing are:

Up to 1 month late = £150
1-3 months late = £375
3-6 months late = £750
> 6 months late = £1,500

To avoid being caught out, we need your help, by getting everything ready for us as promptly as possible after the year-end. Thank you!

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Tax enquiry professional fee protection insurance now available!

Dated: Monday, Feb 16th, 2009

SATS has had a policy in place for a number of years now. The cost is very reasonable in our view for what is offered. Given the penalty regime now in force (see separate News item), it is more important than ever to protect yourself against high enquiry fees.

We will remind you of this regularly, so you have not heard the last of it!

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