HMRC has this week announced a major new clampdown on private tutors who it believes are avoiding or paying the incorrect amounts of tax. This latest clampdown from HMRC follows similar campaigns targeting doctors, plumbers and restaurants, and will, according to accountants James Cowper, include riding instructors who give private lessons.
The campaign, which is looking at both VAT and income tax, will use sophisticated new technology, including a web robot, to help HMRC pinpoint more accurately people who have failed to pay the correct tax. It can, according to HMRC, help ’uncover anomalies between such elements as bank interest and lifestyle indicators before homing in on unexplained inconsistencies’. This campaign will not only be looking at those who earn a living from riding tuition and but also at those who supplement their income by giving regular lessons.
Equine tax affairs are notoriously complicated, and often the dividing line between hobby and business can be difficult to draw precisely. It is all too easy to move from enjoying a hobby with the occasional lesson to help fund it, to running a business. The best way to ensure that tax affairs are up to date and to fend off HMRC enquiry is to maintain records and keep them up to date.’
VAT is equally complex, sole traders and self-employed tutors and exempt from VAT, but employees of a business are not. A self-employed tutor giving lessons to or on behalf of a business will incur VAT, but a partner in partnership business giving lessons is exempt. Mistakes are easily and inadvertently made.
This announcement from HMRC will undoubtedly trigger a response from people who know or suspect that they have not been paying the correct amounts of tax; this is the very reason for the announcement. I would always recommend that individuals who believe they owe tax seek advice from their accountant or tax adviser and look to take advantage of these opportunities to bring their tax affairs up to date.
Do not approach HMRC directly without first speaking with your accountant or tax adviser. HMRC are increasingly tough negotiators and without detailed knowledge of the tax system a larger tax bill and penalty than necessary could be charged.
Do not ignore this clampdown. It is possible that HMRC is already aware of your financial details and so, having publicly drawn attention to this area, it is likely that future penalties might be higher.