It seems HM Revenue & Customs (HMRC) may be planning an assault on the entertainment industry, perhaps in the form of a Campaign later in the year.
The HMRC Risk & Intelligence Service based in Cardiff has begun to issue letters to media agents within the last 10 days telling them, in the opening paragraph, that ‘A statutory notice will be sent to you in November 2013 requiring you to send me a return under paragraph 1, Schedule 23 of the Finance Act 2011.‘
The letters go on to say:
‘The notice will require you to make and deliver to me a return of the following type of payments:
All payments you received which were for or belonged to another person (including individuals, partnerships and limited companies).
You will need to give the following particulars in your return:
- the names and addresses of the person for whom the payment was received (‘care of’ addresses are not acceptable)
- the total amount of the gross payments received for that person for the year.’
Further into the letter, the recipient is told ‘This is not a check of your tax affairs. HMRC needs this data to check that the people for whom the payments were received have paid the right tax.’
The letters enclose a questionnaire for completion, which has to be returned to HMRC by 9 September 2013. The questionnaire asks for details concerning the person on whom the statutory notice is to be served.
Our ReSource Tax & VAT Consultancy Team saw virtually identical letters issued by HMRC when the Department was busy collecting third party information concerning online traders as part of the e-Marketplaces campaign, direct sellers as part of the Direct Selling campaign and tutors targeted under the Tax Catch Up Plan.
If the pattern continues, once HMRC has received the completed questionnaires, statutory notices will be issued along with a spreadsheet for completion. The spreadsheet HMRC uses generally has several columns asking for the names and addresses of the individuals or businesses receiving the payments, as well as supporting details such as who the payment has been made by, the gross amount involved and the date of payment.
HMRC is targeted to launch four campaigns every year. The chosen targets usually include a mix of traders and professionals, as well as individuals and businesses who have fallen behind with the submission of their tax or VAT returns.
Why the entertainment industry?
Campaigns are adopted by HMRC when there is a perceived risk of tax being lost to the Exchequer, either through income being under declared and/or expenditure being over claimed.
Several actresses, actors, music producers and musicians were selected for Business Records Checks (BRCs) last year. It may well be that HMRC discovered elements of poor record keeping during the BRCs which gave it concern that income is being missed. Entertainers typically have several streams of income during any given accounting year including one off fees, royalty payments, repeat fees, advertising and endorsement monies and writing payments to name just a few.
From an expenditure point of view, HMRC is always watchful of clothing, hairdressing and make up, travel and subsistence and use of home claims, which are all contentious areas of cost.
At the time of writing, we have not seen enough of these letters to establish a pattern, or to determine whether these are just isolated cases. The purpose of this blog post is simply to raise awareness for fellow tax agents. However, it would be good to hear from any other tax advisers who may have seen similar letters and whether there are more specific clues as to which sector of the entertainment industry HMRC is seemingly gathering information on.
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax & VAT Consultancy Team.
E mail: firstname.lastname@example.org