|
|
News |
Tax
Illegal dividends and loans unexpectedly riseAn increase in the number of directors awarding themselves illegal dividend payments or loans from their company has risen ‘at an alarming rate’, according to a leading accountancy firm.
HMRC is so concerned at the number of company directors awarding themselves illegal dividends that they are asking insolvency practitioners to look into this. Keith Stevens partner of the accountancy firm Wilkins Kennedy and a licensed insolvency practitioner told Payroll World: ‘The Revenue is never slow in looking at ways it can recover tax.
They highlighted this practice as a cause of concern and actively encourage us as insolvency practitioners to look at this.
‘In many cases we investigated the directors said that they are only acting on advice from their accountants.
This will be a minefield for lawyers who will make a fortune out of this as directors will sue them for giving them incorrect advice.’
Mr Stevens believes directors had previously been able to finance their living by taking money out of the account and
then voting their dividends to reconcile the account at the end of the year, confident in the knowledge that their
accounts were robust enough to cope with this.
However, as a direct result of the economic downturn directors are continuing to take the money only to find that they no longer have the money in the account at the end of the year.
Wilkins Kennedy believe that the temptation by directors and owners of businesses to pay themselves an abnormally large special dividend before the increase in the highest rate income tax band to 50% on April 6 2010 is another factor which has triggered this spate of illegal dividends.
Mr Stevens warned: ‘Directors need to be careful not to treat their business as a personal piggybank.’
A spokesperson from HMRC told Payroll World: ‘There is no crackdown on directors. But HMRC has a responsibility to ensure everyone pays the correct amount of tax.’
02/09/10Planned reform of PAYE ‘will not save money’The Government’s planned overhaul of the PAYE system ‘will not save money’, the institute of Payroll Professionals (IPP) has warned as it gathers feedback from members.
Head of policy Karen Thomson welcomed the planned switch to real-time information, shared between employers and HM Revenue & Customs.
But she added: ‘Based on anecdotal evidence,the IPP at this stage supports real-time data, although there will be operational issues that need to be resolved; however, we do not at this time support central collection as we do not
believe it will save business money, nor will it save HMRC money.
In fact, we believe it will increase costs for both as the main issue for employers is determining what is subject to tax and NI, not calculating the tax and NICs.’
Jeanette Hibbert, payroll manager at food giant Kerry, said that the gross-to-net calculation, which is the part the government wants to move from employers to a central system, is only a small part of what payroll and HR systems do. She added that the annual P11D means that real-time information would not be complete, unless this system is reformed and benefits are payrolled.
There will be a deadline of 23 September for consultation on a radical plan to overhaul the Pay As You Earn system.
The plan is that gross-tonet calculations would be carried out by HM Revenue & Customs and processed through the banking infrastructure, rather than by individual employers, under a system called Centralised Deductions (see exclusive interview with David Gauke MP, cover feature, Payroll World April 2010).
The Government argues that this would make it easier to ensure individuals pay the right tax, possibly removing the eed for P45/P46 system; more accurate payment of means-tested benefits and tax credits, plus other administrative benefits, the Treasury says. Administration for people with more than one job should be simpler, as there would be one central record for each individual.
02/09/10Banker bonus tax collects £2.5bn more than expectedAn estimated £3bn is expected to be received from the tax of banker’s bonuses – over £2bn more than forecasts from last year’s pre-Budget Report initially suggested.
Initial forecasts indicated the one-off bonus tax would raise £550m when introduced by the previous Labour Government.
But this figure was revised in April by the Office for National Statistics (ONS) which estimated the figure to be closer to £2bn.
Figures quoted in HMRC’s 2009/10 accounts revealed that £2.5bn will be collected.
The Wall Street Journal, undertaking its own analysis of company reports and press statements, revealed that the figure is closer to £3bn.
It estimates that the highest contributions will come from US banks, with Goldman Sachs the largest contributor reportedly paying $600m (£381m) in tax.
JP Morgan was the second biggest contributor, owing $550m (£349m), while Deutsche Bank was the biggest European contributor after paying out £335m.
Largely Government-owned Royal Bank of Scotland is set to be the UK’s highest contributor at £277m, with Barclays coming in second with £276m.
While estimated amounts were recorded in the Government figures in April, HMRC is set to collect the actual funds at the end of this month.
A spokesperson from HMRC declined to comment on the expectation that the one-off tax will yield more than originally anticipated and expressed uncertainty over when the final figure would be published.
The bank payroll tax (BPT) was effective from the time of the announcement on 9 December 2009 until 5 April 2010 for all discretionary and contractual bonus awards, and applies to retail and investment banks (including building societies) and to banking groups.
It does not apply to non-banking companies otside of banking groups.
Financial institutions seeking information about whether the BPT applies to them should refer to the HMRC guidance on
the BPT (accessible through the HMRC website), or consult their customer relationship manager or the tax office that eals with their tax affairs.
The previously quoted estimate of £550m is net of losses from other taxes, but the latest figure is gross.
02/09/10Increase to personal allowance next yearThe Liberal Democrats and Conservatives plan to take significant numbers of taxpayers out of income tax from next year, but are constrained by the deficit from achieving a starting threshold of £10,000, as promised in the Liberal Democrat manifesto.
The parties, in their coalition agreement, stated: ‘We agree to announce in the first Budget a substantial increase in the personal allowance from April 2011, with the benefits focused on those with lower and middle incomes. We also agree to a longer term policy objective of further increasing the personal allowance to £10,000.’
Regarding the planned 1% rise in National Insurance Contributions, scheduled by the last Government for April 2011, only the employees’ element would be implemented, not the employers’. This was publicly denounced as a ‘tax on jobs’, featuring prominently in the party leaders’ television debates prior to last month’s General Election.
Advice group Towry Law, quoted in the FT, said there are likely to be changes to the basic-rate tax threshold so that higher-rate taxpayers do not benefit.
Deloitte calculated that those earning up to £90,000 will see a saving. But higher earners are unlikely to pay less, as the Labour measure that withdraws the personal allowance for those earning £112,950 or more will be retained.
03/06/2010IT contractor wins IR35 tribunal appeal in 'borderline' caseAn IT contractor has won an appeal against HMRC Commissioners on the interpretation of the controversial IR35 law governing employment status of individuals claiming self-employed status.
A tribunal decision last month ruled on the Novasoft case brought by Novak Brajkovic against HMRC. Between August 1998 and December 2002, Mr Brajkovic worked as a self-employed computer analyst/programmer with Avecia, under the name Novasoft, in a deal arranged through the agency Lorien.
Under the IR35 legislation introduced in April 2000, HMRC served formal notices on Novasoft in 2005 under the Income Tax (Pay As You Earn) Regulations 2003 and formal decisions under Section 8 of the Social Security (Transfer of Functions) Act 1999 based on its determination that Mr Brajkovic was effectively a ‘disguised employee’.
Novasoft used HMRC’s IR35 assistance service to check whether the IR35 legislation applied to its circumstances in January 2002. HMRC officials undertook further enquiries – including interviewing managers at Avecia – that ultimately led to the assessments issued in 2005.
HMRC’s view was that ‘Mr Brajkovic did not present an image of a businessman offering his services to the marketplace; rather, of someone comfortable working for the same client on terms equivalent to employment.’ As the two sides could not agree, the case eventually ended up in front of the Commissioners.
But the tribunal ruled that Mr Brajkovic had no rights to any typical employee benefits or statutory protection based on the fact that he was able to take on other clients that did not conflict with the work he did for Avecia, though it described the case as ‘borderline’.
Tribunal Judge Peter Kempster concluded: ‘We consider that the overall picture painted is one of a contract of self employment.’
IT contractors have waged a long campaign against IR35. Online magazine contractorcalculator.co.uk called the verdict ‘staggering’, but warned of a possible win by HMRC on appeal.
03/06/2010HMRC to outsource key functions to BangaloreHM Revenue & Customs has announced the launch of a pilot project for outsourcing certain functions to India. The contract in Bangalore, with the technology giant Capgemini, will track the agency’s imports and exports. HMRC has been quick to point out that no taxpayerrelated data will leave the UK.
But Peter Tucker, a researcher at Research 4 PAYE, said he had several concerns over this pilot. He told Payroll World: ‘Even if taxpayer-related data won’t leave the UK, they can still use test data, which then raises the question of whether or not the system can operate to requirements.’
He added: ‘There was a clear indication with the situation arising from this year’s annual coding problems of a failure to understand the core business requirement of PAYE. Despite the fact that all systems development on this was carried out in the UK, there was a critical failure to understand the basic requirement that an individual always has one main source of income.’
Mr Tucker also warned that the project could end up being a false economy.
‘Business process outsourcing in the past has been offshored on the grounds of cost, only to find that all the expertise has disappeared from the UK. In those instances, it is a great expense to reinstate the expertise to take back the core function.’
The pilot will last up to two years and HMRC hopes to bring IT costs down by 50%.
HMRC has also stated there will be no job losses in the UK as a result of this because it is a new project.
04/05/2010HMRC looks for swift resolution on codingsHMRC says it hopes to clear the bulk of remaining incorrect coding notices by the start of the new tax year, amid fears the saga will cause chaos for payroll managers at the start of 2010/11.
An HMRC spokesperson told Payroll World: ‘We are applying automatic repairs where possible, or manually reviewing if necessary. These reviews will continue until the start of the new tax year, when we hope to have cleared the bulk of the remaining cases.’
Payroll expert Kate Upcraft had earlier warned that the situation ‘would come to a head in April because these [incorrectly issued] codes apply to the next tax year’.
Ms Upcraft called on HMRC to release a timetable for issuing all the correct tax codes to employers for the next tax year and said HMRC could do ‘very little’ to solve the situation because of the protracted system of sending tax codes to employees through the post.
In its defence, HMRC said it had taken measures to cope with the amount of calls to its helpline relating to the issue. The Revenue explained: ‘Our contact centres have rescheduled non-essential activities to maximise the number of advisers available to take coding calls, as well as using the interactive voice response to direct callers to our website where appropriate.’
Helen Harvey, a member of the Inland Revenue Electronic Exchange Network, said: ‘There are a lot of problems out there with works numbers; in particular, the pensions payrolls.’
She explained that her company, Nannytax, had avoided the brunt of disruption by tackling the problem early and establishing good contacts with a particular tax office.Tories promise plan will be pilotedDavid Gauke MP, Shadow Treasury Minister, has promised full consultation and piloting of controversial plans to take PAYE calculations out of the employer’s remit and replace it with a single national system.
In an exclusive interview with Payroll World, he said: ‘Our position is, it’s an interesting idea. As with anything such as this, there are significant consequences. One needs to pilot it properly. We need to be able to understand some of the difficulties that may arise.’
The provider would take over the gross-to-net calculation, based on information by the employer. The NI number would operate as the identifier of each employee’s personal account.
‘As the employers make a payment to the bank account, they will identify that payment through the system by attaching the NI number. That payment goes through the bank account system, and because the account is identified with each employee it will calculate how much income tax and NI to pay.’
Mr Gauke said initially it would be confined to income tax and NI, but that some payrolls are complex, and that there are other deductions to consider, such as court orders and student loan repayments.HMRC in rethink on new tax agent rulesThe Government is considering fining and publicly ‘naming and shaming’ payroll managers as part of proposals to clamp down on any ‘deliberate wrong-doing’ by tax agents that could result in lost revenue to the Treasury.
These plans triggered strong protests, so HMRC has pushed back the legislation’s consultation period to April 28. This means that measures are unlikely to be introduced before the General Election, which is widely expected to be held on 6 May.
The definition of what constitutes deliberate ‘wrongdoing’, who qualifies as a tax agent, and the threat to ‘name and shame’, have caused particular unease.
Head of tax legislation at Pinsent Masons, Ian Hyde, told Payroll World: ‘If you’re a payroll manager and you’re helping the directors with a share scheme that reduces their tax liability, does that qualify as a tax loss [for the Treasury] as it’s a tax-efficient share plan?
‘The Revenue says that genuine tax planning is not intended to fall under this legislation [...] but the definition in the document doesn’t actually cover that.’
The Institute for Payroll Professionals’ associate director of policy, research, and strategic visibility, Karen Thomson, called for clarity on who would be named within a company if it was found to have contravened HMRC regulations deliberately.
She said: ‘It would be grossly unfair for a payroll manager to be named if they had actually stood up to their employer. The cost in reputation could be huge.’
Mr Hyde said HMRC would have the powers to prosecute, but fines, which could be as much as £50,000 per tax agent, are more likely. ‘These penalties are a deterrent. The HMRC likes scaring people.’Audio helpHMRC has launched its first ‘super podcast’. The audio programme, hosted by tax experts Stephen Banyard and Don Macarthur, aims to alert businesses to major changes in the way they file and pay VAT, PAYE and corporation tax. It will highlight the main VAT changes, which came in on 1 April 2010. www.hmrc.gov.uk/podcastsBuilders worried over HMRC statusContractors in the construction industry will be forced to pay more tax, but will not receive employment rights in return, under a controversial reform proposed by HM Revenue & Customs and The Treasury.
If legislative action is taken, the Government will reclassify the income of self-employed workers, forcing them to pay higher rates of National Insurance and PAYE.
Construction firms will be required to pay a NI rate of 12.8% on payments made to workers who come within the remit of the proposals. But Rosemary Beales, national director of the Civil Engineering Contractors Association (CECA) said this was not the right time to be introducing the proposals. She told Payroll World: ‘The current recession is hardly the moment for adding significant additional cost to construction projects. Many companies are struggling and the cost implications for this proposal are deeply concerning to many CECA members.’
The organisation’s members are nervous of the implications if it goes ahead. ‘A significant number of our members have expressed concern at the prospect of further legislation, having already, over several years, worked to ensure their workforces have been employed on terms in line with HRMC’s policy to combat false self-employment,’ Ms Beales said.
Self-employed contractors caught by the proposed changes will also have to pay NICs at a higher rate. But this form of policing will not be effective, Ms Beales added. ‘CECA believes more rigorous policing of the existing legislation would deliver much of what HMRC is seeking to achieve without penalising, by way of administrative cost, those who are currently complying with the law,’ she said.
03/11/09Concern over tax take as HMRC makes cutsCuts in the HM Revenue & Customs workforce and tax office closures could cost far more in lost revenues than they save in reduced operational costs, the Public & Commercial Services Union (PCS) has warned.
Graham Steel, senior national officer at the PCS, said the Revenue’s redundancy plans were having a detrimental effect on service levels: ‘How will the proposed cuts in IT services and jobs help close the shameful multi-billion pound shortfall in tax/VAT collection?’
A spokesman for the union added that the Revenue’s own figures indicate £25bn in lost revenues, and that a compliance officer is worth, on average, £600,000 each over the course of their time with the Revenue. Even after adding pension commitments to salary cost, they gain more than the cost, he argued.
‘The department has to stop job cuts and closing offices, and invest in chasing the £25bn of tax that is uncollected,’ the spokesman said. ‘HMRC will have cut 25,000 staff by 2011, as well as closed over 200 offices.’
The PCS union had led a successful campaign to prevent closure of the Derby tax office. The spokesman acknowledged that some of the office closures ‘made sense’, but said the programme was going too far.
‘Closures include offices where people can go in and talk to officers about their tax affairs. That’s having an impact on service delivery.’
Compliance officers who are made redundant tend to become independent tax advisers. While there is no evidence that any have been hired to advise companies on minimising their tax contributions, this would remain a theoretical risk.
An HMRC spokesman said that tax debt was a consequence of the recession and that there is ‘no simple correlation or “cause and effect” link between the rise in tax debt and HMRC staffing reductions.’
01/09/09HMRC highlights tax avoidance schemesA new policy by HMRC to publicise which tax avoidance schemes it believes are ineffective could create extra risks for accountants and their insurers, warned London based lawyers, Reynolds, Porter, Chamberlain.
HMRC has published its first edition of Spotlights in which it highlighted tax schemes which it claimed were ineffective. It said that its intention was to warn customers that it would challenge these schemes and seek the maximum possible payment of any underpaid tax, interest and penalties.
Although, said RPC, Spotlights merely sets out HMRC’s views which may not be correct, taxpayers who have used any of the schemes referred to are likely to face enquiries.
RPC said that this new policy could have the unfortunate consequence of encouraging demands for compensation from the users of schemes via their professional legal advisers who might have recommended the schemes.
Ian Gordon of RPC’s professional risks group said: ‘Clients often make the incorrect assumption that if HMRC challenges a tax planning scheme, then it must be ineffective and the professional adviser must have been negligent. However, HMRC’s view on the effectiveness of the scheme may be incorrect.’
Mr Gordon continued, ‘Indeed, even if the scheme is later shown to be ineffective, this does not necessarily mean that the adviser gave incorrect advice or that the client did not at the time appreciate the risk of the scheme failing.’
He made the point that nothing is certain with tax avoidance schemes: ‘Most large firms make it clear in their letters of engagement and advice letters that they cannot guarantee the efficacy of the scheme and that there is a risk of an HMRC challenge.’
30/06/09Year-end progress but delays continueThe 19 May deadline for submitting year end filing electronically for most payrolls to HM Revenue & Customs (HMRC) passed, and was up to the agency’s expectations.
‘There was no sign of a late rush and electronic filing is broadly in line with our expectations,’ said a spokesperson.
HMRC did say there were interruptions of the online service with only a few ‘minor live service issues’ during the peak. These are listed on the HMRC’s service issues page and have affected ‘a very small minority of employers’, he assured.
As of midnight 17 May, HMRC had received 51.1 million P14s – 23.6 million by internet, and 27.5m by Electronic Data Interchange – and 1.2 million P35s (99% via the internet).
As Payroll World went to press, the Revenue was expecting 58.4 million P14s and 1.6 million P35s electronically by 31 May with 2 million P14s and 220,000 P35s due in the last two days before the 19 May deadline.
However, some payroll managers are unhappy with their submission of electronic data which becomes particularly acute at pressure points like the end of the tax year.
Richard Rowell, managing director of payroll provider Dataplan Payroll, expressed frustration about lack of capacity for electronic filing at HMRC: ‘Why can’t HMRC create more capacity? What is the problem here?’
‘We don’t think that HMRC’s electronic filing service is sophisticated enough for software providers. We wait for a payroll desk top view but meanwhile sometimes it is actually quicker to turn the electronics off and make thousands of manual changes to clients’ tax code changes.’
Stewart Waddell, Dataplan payroll manager, said he was ‘disappointed’ with the speed of the year-end submission: ‘It’s slow every year end and we file hundreds of P35s so speed really does matter.’
02/06/09Blears stays within HMRC rules (just)Hazel Blears, the Communities Secretary, appears to have stayed within the law despite appearing to mislead HM Revenue & Customs over the designation of her ‘second’ home - tax and expenses expert Keith Cossey has advised.
Ms Blears last month volunteered to pay the equivalent of the £13,000 Capital Gains Tax on the dwelling which she described as her second home to House of Commons officials, but as her primary residence to HMRC.
She has repeatedly stated that she has ‘acted within the rules’. But if she has complied with Commons rules, this gave the impression that she was in breach of Revenue rules. The intention of the second homes allowance is to help with running costs of MPs needing a second residence in the capital.
But Mr Cossey said: ‘You have two years to elect which of the two properties is to be your Capital Gains Tax property. It’s just an election – which property you want to be exempt. There is no quantum of residence.’
However, another tax adviser who spoke with Payroll World indicated that the statement of the dwelling as the second home to the Commons authorities, could be used as ‘evidence’ if HMRC were to pursue the case aggressively.
In a recent case, Edward Fowler, an Aberdeen-based businessman, lost his recruitment company six years ago after HMRC began court proceedings over a £37,000 VAT bill, which it subsequently transpired had already been paid. In January this year Ann Abraham, Parliamentary and Health Service Ombudsman ruled: ‘HMRC pursued Mr Fowler with a reckless disregard for his rights and the consequences of their actions.’
02/06/09Tax squeeze puts huge pressure on payroll staffThe desperate need for more tax revenues will put payroll teams under pressure in a variety of ways, Kate Upcraft, independent payroll commentator, told the Payroll World Annual Update Conference.
Speaking directly after Financial Secretary Stephen Timms, she called for more support and information from the Treasury for payroll teams: ‘The amount of support for agents is considerable. You [the delegates] are just as important as agents.’ Earlier Mr Timms had acknowledged a need for access to more specialist, individual help for payroll managers from HMRC.
Turning to the different areas, Ms Upcraft said that the recession could cause an increase in false self-employment in the construction sector. ‘It becomes more attractive in the current climate. But it’s a very short-term fix. If reclassified [as employee] there will be penalties, interest and all the unpaid tax and National Insurance to pay. There is a commitment from HMRC to crack down.’
She criticised recently announced changes by HMRC on the P46(car) from April 2010 dropping the requirement for employers to file when a car is changed. It has been presented as a deregulatory measure, but the real reason could be HMRC’s cash flow: ‘It’s about keeping more tax for longer,’ she said. Most changes are likely to be moves to lower-emissions, lowertaxed cars, but the amendment notifications will have to wait until the P11D.
In other measures, she reminded delegates:
Get used to the ‘mixed economy’ in P45s, as old formats are phased out, a new format is phased in and then there’s the plainpaper version.
New forms for 2009/10: The P46(Pen) – for all pension new starters; and the P46(Expat). Here, ‘expat’ refers to foreign nationals working in the UK who are subject to PAYE, not British workers overseas.
On entitlement to non-cash benefits for those on Statutory Maternity Leave, there will be an employment law version of guidance, published by the Department for Business, Enterprise & Regulatory Reform.
01/05/09SNP drops local income tax after HMRC's letterThe Scottish National Party has ditched its plans for a local income tax after HM Revenue & Customs refused to collect it.
The Scottish Authority, led by a minority SNP administration, had made the local income tax a flagship policy, but was forced to concede it would be inoperable without HMRC’s co-operation. In a letter to the Scottish Executive, David Hartnett, director-general (business) of HMRC said the devolved authority did not have the powers to impose a local income tax, only to use its tax-varying powers under the Scottish Variable Rate.
‘There is some suspicion that the Treasury leaked it [Hartnett’s letter] deliberately,’ said Kate Upcraft, independent payroll expert.
‘I’m surprised there hasn’t been more discussion about it, as it is a constitutional Westminster versus Scotland matter. However, it’s great news from the point of view of the payroll profession.’
The move would have added yet another tax collection duty on payroll teams, for which employers are not paid.
Politically, this is a tactical victory for Westminster over Holyrood, but it raises a constitutional controversy that could strengthen longer-term moves towards more tax varying powers for Scotland, and ultimately independence.
A spokesman for Scotland Finance Minister John Swinney said: ‘Scrapping the unfair council tax and introducing a fair local income tax based on ability to pay is a matter for the Scottish Parliament to determine - through the proper procedures that apply to every Bill - not for the Treasury to dictate from London.
‘The Scottish Government and Parliament is not a Whitehall department that can be bullied by the Treasury. We represent a country, and we have every right and ability to scrap the council tax and replace it with a local income tax.’
05/03/09HMRC issues online reminderHM Revenue & Customs (HMRC) has issued a reminder to large employers about compulsory electronic filing of in-year forms, due to begin at the end of this tax year.
From 6 April 2009, employers with 50 or more employees must send the following in-year PAYE information online:
Form P45(1) – details of employee leaving;
Form P45(3) – new employee details,
Form P46 – employee without a form P45, and
Similar information for people receiving a pension.
Once registered, there are several ways to file: HMRC’s free ‘Online Returns and Forms’ software; commercial payroll software; or the Electronic Data Interchange (EDI) – a secure phone line suitable for large numbers of forms. Many employers use an outsource provider.
HMRC’s Simon Lidster said electronic filing had many advantages for employers. ‘As well as avoiding postal delays, the information is processed much faster by HMRC. This means employees’ records and tax codes are updated more quickly, and they are much more likely to have paid the right tax at the end of the tax year.
‘If you’re a large employer, it’s a good idea to get online now, so you’ll be well prepared for the changes.’
02/01/09Self Assessment to be extended in scopeThe Self Assessment process is likely to be needed to gather unpaid taxes for higher earners affected by the reduced personal allowance from 2010. Karen Thomson, head of policy at the Institute of Payroll Professionals, is still pushing the Revenue for a coding solution to enable the higher income tax to be collected through Pay-As-You-Earn (News, December 2008, page 5).
In his Pre-Budget Report, the Chancellor Alistair Darling announced that from April 2010, for those whose earnings rise above £100,000 for every £2 earned the, personal allowance is reduced by £1.
‘The individual concerned will be hit with a tax bill at the end of the year,’ said Ms Thomson. But she added: ‘A lot of people earning over £100,000 tend to be in the Self-Assessment process anyway.’
Any PAYE solution would need to be finalised soon, to give software developers enough time to prepare. ‘That is our preferred option,’ she said. ‘But for the moment for 2010/11 we have no choice but for the Revenue to use Self-Assessment.’
She strongly recommended payroll managers to inform their higher earners of the possibility of an extra tax bill at the year-end, in the event of an absence of a PAYE-based solution. Ms Thomson added that uncertainty is introduced by the possibility of a General Election being held before April 2010.
But Matt Boyle, an expert on Pay-As-You-Earn, said that it is the responsibility of the individual to pay income tax, not the payroll.
02/01/09Labour breaks taboo to make tax election issueIncome tax is set to be one of the most controversial and high-profile campaigning points of the next general election now that the Labour Party has ended its 16-year taboo on proposing increases in the top rate. Last month the Chancellor Alistair Darling announced a planned 45% rate on earnings over £150,000.
The planned 45p rate would come into force in 2011 – a year after the latest date for the next election. Over the medium term taxes will almost certainly have to rise, and public spending be cut, as public borrowing was predicted by the Chancellor to reach a massive £118bn next year.
The Government is gambling that a short-term fiscal stimulus will help prevent a deep recession. By proposing later increases on top earners, it is anticipating that public attitudes to the rich have been altered by the credit crisis, with high-earning investment bankers being blamed for recent economic problems.
The top rate of income tax was cut to 40% by Nigel Lawson, the then Conservative Chancellor in 1988. Four years later, election manifesto promises by Labour to increase tax for higher earners were perceived to have contributed to the party’s defeat in the 1992 general election. Since then, Labour has not dared propose higher rates, for fear of appearing to put a cap on people’s aspirations.
In the new climate, the Conservatives may find it difficult to go into the next election campaign promising to reverse the planned increase. One Conservative source indicated that such a pledge was “not a priority.”
But shadow chancellor George Osborne consciously evoked the campaign of 1992 in his response to the Chancellor. He told the Commons that Mr Darling’s plans represented ‘a huge, unexploded tax bombshell timed to go off underneath a future economic recovery’.
He pointed to the fact that rises would not be introduced until after the next election, adding: ‘This Budget is all about the political cycle, not the economic cycle.’
Liberal Democrat Treasury spokesman Vince Cable called for more tax cuts for the lower paid. ‘The Government have at last, after 11 years, acknowledged that there is a problem of inequality relating to the tax system. What is needed, is a comprehensive approach which involves cutting income tax for lowpaid middle-income families and removing the tax reliefs that benefit the wealthy.
02/12/2008National Insurance rises by 0.5%There will be a 0.5% increase in all rates of National Insurance Contributions from 2011, the Chancellor Alistair Darling announced in his Pre-Budget Report.
He also announced a plan to increase the starting point of NICs to the same point as income tax, reintroducing the alignment that was removed with the impact of his mini-Budget in May. This change would also take place in 2011 – after the date of the next general election, which cannot be held later than June 2010.
Increases in tax and NICs over the medium term are all-but inevitable given the considerable increase in Government borrowing. Mr Darling told the House of Commons that it will reach £118bn next year – more than twice the amount forecast as recently as March 2008 – and that the budget will not be back in balance until 2015. To jeers and laughter from the Opposition benches he said: ‘We will then be able to return to borrowing only to invest.’ The blanket nature of the rise-across all classes of National Insurance- drew strong opposition from the business lobby as a ‘tax on jobs’.
Ron Hewitt, the chief executive of Edinburgh Chamber of Commeerce told the Scotsman that the Government should re-think its plans: ‘Businesses are appalled that the Government wants to increase the taxation on jobs at a time when we are facing major job losses,’ he said.
02/12/2008Public sector deficit puts the squeeze on PAYEA growing public sector deficit and increased commitments following the banking bailout have put the focus on tax collection, said Kate Upcraft, keynote speaker at the autumn Payroll World conference.
She was due to tell the sell-out event – held as this edition went to press – that HM Revenue & Customs will toughen up its collection of revenue gathered by employers through PAYE. ‘They are owed about £20bn at any one time by employers. It would help if you could reduce that.’
She said that around 60% of employers do not hand over PAYE money in full at the end of the month, and a few do not pay by the end of the year. ‘For some companies, it’s a cash-flow lever.’
There is no automatic penalty, though HMRC will impose a surcharge on companies that appear to be paying too little. The Revenue is considering three options. The first is expanding the range of companies to be subject to electronic payment and potential surcharge – from those with over 250 staff to those with more than 50. This may be introduced in association with a switch from surcharges to a fixed penalty scheme. Such an extension may be politically difficult as the banking crisis is affecting cash flow for small businesses.
A second option is that HMRC could require the money to be paid over with a detailed statement of how the deductions were calculated.
‘I would like to think this is aimed at those that have been non-compliant,’ said Ms Upcraft. ‘For all employers to have to do that would be very burdensome.’
Finally, HMRC could levy a bill based on its estimate of what the employer should pay.
Government borrowing hit a record £8bn in September, reaching £37.6bn for the year.
Last month, Prime Minister Gordon Brown came under fire at Commons question time over the deficit. Opposition leader David Cameron said he had ‘left the cupboard bare’ by failing to save money during the boom years.
Another area being addressed, Ms Upcraft said, is the question of interest rates charged and paid by the Revenue. ‘They have to harmonise – it’s one area where they haven’t done that since the Inland Revenue- Customs merger.’
03/11/08Early day motion criticises 'false' self employmentSome 15 Labour MPs have signed an early day motion condemning ‘false’ self employment which the statement says is encouraged by unscrupulous employers.
The statement reads: ‘That this House is aware that false self-employment, where workers are registered as selfemployed but have all the characteristics of an employee but none of the employment rights which accompany such a status, is endemic in a number of industries in the UK, notably the construction industry.’
It was sponsored by Alan Meale MP. The MPs commend research commissioned by the trade union UCATT, The Evasion Economy, prepared by Professor Mark Harvey which ‘estimated that there are at least 400,000 false selfemployed construction workers in the UK, which costs taxpayers approximately £1.7 bn per year.
The MPs call on the Government to act to end such practices. The statement does not refer to the reformed Construction Industry Scheme, designed to clamp down on such practices with the use of monthly returns.
http://edmi.parliament.uk/EDMi/EDMDetails.aspx?EDMID=36446&SESSION=891
01/10/08Delay to PAYE process improvementThere has been a delay to HM Revenue & Customs’ planned improvement to PAYE processes, due for this autumn. The Revenue informed software developers of the delay in a letter dated 16 July, which stated: ‘It [the change] will introduce higher levels of automation, improve accuracy and efficiency of processing, and enhance our management information and workflow management.
‘This has generated higher internal transaction volumes than we originally forecast. We have decided it would be sensible to defer implementation while we make some design changes to accommodate the higher volumes.’
At this stage, HMRC has not decided a new implementation date.
The reform sees the replacement of the 12 regional computer systems, set up in the 1980s, with a single database in HMRC’s Newcastle office. This will enable every individual’s tax and NI details to be viewable together.
The Revenue added: ‘We will not implement the new PAYE system until we can be sure it will meet the demands that will be placed upon it.’ It is almost certain that the demands on HMRC officers’ time, caused by the emergency change to income tax thresholds due for September, has been a factor behind the delay. This followed the controversial scrapping of the 10p starter rate of income tax.
Independent payroll consultant Kate Upcraft said it was ‘sad’ that such a promising reform had been deferred.
The Prime Minister is almost certainly behind the delay, as he would be fearful of any negative publicity of potential disruption surrounding the changeover, she added. ‘He is worried about a backlash, but HMRC had managed expectations really well, explaining how it was shortterm pain for long-term gain.’
The Revenue stressed that the timetable for transfer to electronic filing for in-year forms remains on schedule, due for larger businesses from April 2009, and for all other employers from April 2011.
01/08/2008All-party call for tax consultationJohn McFall, Labour chairman of the Treasury Select Committee, has joined the Conservatives in calling for more consultation on tax, following the 10p debacle. ‘The Government can and must use the Pre-Budget Report more as a tool for consultation. The outcome would have been better if that approach had been adopted in respect of capital gains tax, inheritance tax and non-doms.’
He said that with fuller consultation, ‘People will not be surprised or disappointed by the contents of the Budget when it is announced, because the appropriate consultation will have taken place.’
He made his comments to the Commons Committee last month, as it published a report criticising the Government over its handling of the 10p starting rate of income tax, and subsequent U-turn. ‘I hope the Government will learn lessons and that our experience of… the abolition of the 10p tax rate will not be repeated.’
The Conservatives also called for effective consultation prior to the Budget.
All changes to tax law with a technical content would have to be proposed no later than the Pre-Budget Report, before the Finance Bill in which they are to be included, concluded a committee chaired by former Chancellor Lord Howe. This measure ‘would have avoided many of the problems we have seen over the last year, with badly thought-through proposals produced with little consultation’, it concluded.
In other proposals from the Howe Report, the Conservatives called for the creation of an Office of Tax Simplification, which would operate in a similar way to the National Audit Office, reporting to a new joint parliamentary select committee.
See News Analysis,page 10
01/08/2008Tax change could force rise in payEmployers will end up footing the bill over the controversial 10p tax rate, an employment lawyer has claimed.
Although the Government has conceded a partial u-turn over its tax changes, it has also strongly hinted at a sizeable increase to the minimum wage, to compensate those affected by loss of the 10p rate.
Jon Taylor, head of employment at emw law, said: ‘It is a real shame that it may be employers that end up footing the bill for the Government’s u-turn via yet another rise in the minimum wage. This is a highly contentious proposal which may well cause yet another political storm. It is likely that any rise in the minimum wage to compensate those on low incomes will have to be a significant one.
‘Employers were already facing a rise in the rate for 18- 21 year olds from £4.60 to £4.77 per hour this October.’ He added: ‘The minimum wage for 18-21 year olds has increased by 53% since it was introduced in 1999 and there are signs that the rises are beginning to bite. Small high street retailers, manufacturers and the hospitality industry, who tend to have the highest proportion of staff on minimum wage, and operate in a very competitive environment on tight margins, will be very concerned.’
01/06/08Playing for tax breaksMillionaire foreign footballers are to avoid paying UK tax if the Champions League final is held in London in three years’ time.
Despite earning thousands for kicking a football for an hour and a half a week, top football stars will avoid paying UK tax if the 2011 final is contested at Wembley Stadium.
The FA had originally applied to stage the final in 2010, but Uefa awarded that final to the Bernabeu in Madrid because of the taxation system for overseas teams. However a U-turn by the Treasury relaxing the rules will mean that Wembley is a strong contender to host the final, and the FIFA World Cup in 2018. How much the UK economy will lose from the relaxing of the tax laws is unclear though.
01/06/08Debt and 10p change create payroll pressureThe credit crisis is adding to the politically devastating impact of the ending of the 10p starting rate of income tax, with payroll officers increasingly in the front line.
As millions of low-to-average earners experience a drop in take-home income from last month, many of those who also have unsecured debts are facing a financial disaster. An estimated 600,000 people will be unable to refinance their debts this year, according to a report by TDX Group, which provides debt-collection information to banks.
Many of those have been hit by higher income tax since last month, affecting those earning below £25,000 a year. The toxic combination of reduced take-home pay and debt problems now threatens the future of the Prime Minister.
Labour back-benchers have been pressing Gordon Brown and his Chancellor Alistair Darling to compensate for the impact of the ending of the 10p starter rate. Yet the change was voted through by the same MPs as part of last year’s Finance Act.
Independent payroll expert Kate Upcraft criticised MPs for failing to analyse last year’s Finance Bill, and called for more public debate over PAYE changes.
‘I just think it’s fascinating that something that is obvious to payroll professionals was missed by MPs,’ she said. ‘We knew what the impact would be. It’s very sad that issues on PAYE don’t make the headlines.’
She added that the Government’s ability to mitigate the impact of the Budget is almost nil. ‘They are not going to change the legislation, because they need the money. They couldn’t possibly revoke this in the middle of the tax year. It would be unprecedented.
They’re just going to have to live with it politically.’
Tax credits could be made more generous but the problem of affordability would remain, she said.
Payroll office phones were ‘already ringing’ with calls from concerned staff, she told the Payroll World Annual Update Conference, held in the first week of the tax year.
Kate Upcraft speech and full conference coverage, pages 8 and 9.
28/04/08Thank-you and sorry says HMRC chiefPayroll staff gather half of all Government revenue, some £220bn, or around twice the annual budget of the NHS, Don Macarthur, head of HM Revenue & Custom's Employer Programme, told the conference. 'The more we can do to help you, the better we can meet our objectives,' he said. 'We never hear from the vast majority of tax-payers. That is thanks to you.' He added: 'The more we can do to help you, the better we can meet our obligations to Government.'
Mr Macarthur said the HMRC is currently devising a new approach to penalties but said the updated version of the Employer's CD-Rom, which caused so much controversy among software providers recently, should help payroll departments. He said the new penalty regime targeted underlying behaviour, not accidental mistakes but said: 'Hopefully, the more you use the software, the fewer errors will be made.'
Speaking throughout without notes, he also gave an apology for the loss of personal data in the missing discs which held the name, address, date of birth, National Insurance number and bank details of 25 million people last November.
The discs were intended for the National Audit Office (NAO) in London, but never arrived from HMRC's office in Washington, Tyne and Wear.
'Our most significant failures surround data security,' he said. He admitted that further background work to shore up data security measures led to a dip in servicing capacity in the interim and an embarrassing pause in the servicing of new registrations.
21/04/07IPP rebuts accountants’ jibes over P11DThe payroll profession would comfortably be able to cope with administrating payroll benefits if the current P11D process came to an end, said Karen Thomson, head of policy at the Institute of Payroll Professionals.
In a spirited defence of the profession’s capabilities, she said ministers should ignore warnings from accountancy bodies that the process would be too complicated for payroll workers to manage.
‘Payrolling survey findings from some respondents suggested payroll staff didn’t have the necessary expertise to apply the tax, instead of sending forms off to HMRC and having to wait two years for it to be applied retrospectively,’ she said.
At present, Thomson said it can take Her Majesty’s Revenue & Customs two years to action these tax demands. By this time, she said, the tax demand has lost any relevance by the time it arrives on the employee’s doormat.
‘A number of staff already operate the system and IPP-qualified practitioners will have been taught about the expenses and benefits system. If they can run PAYE and NICs they already have the competency to learn. Let’s be honest, many payroll operatives have already navigated legalities like the National Insurance laws and the statutory payments laws, so to suggest otherwise is quite offensive,’ she added.
21/04/07IPP survey backs reform of P11DMost payroll staff would back a switch to moving benefits to the regular payroll, ending the annual P11D process, a survey by the Institute of Payroll Professionals indicates.
But respondents warned that changes would have to be made to ensure the reform led to genuine operational improvements, and that reform could increase, rather than reduce, the administrative burden.
Nearly 9 in 10 of the respondents said that the process of completing P11D expenses and benefits forms could be simplified. The Institute of Payroll Professionals (IPP) conducted research to highlight what it calls the ‘inadequacies’ of the current P11D procedure. HM Revenue & Customs is consulting on switching P11D processes to the regular payroll.
Currently, the tax treatment of benefits is calculated at the end of the tax year. ‘This leads to calculation of tax is so far in arrears that individuals always face a heavy tax bill/code more than a year after the benefit has been provided,’ said Karen Thomson, head of policy at the IPP.
In addition, the employer has to gather data during the year, and then duplicate it at year-end, she added.
But the problem with moving to the payroll is that there are efficiencies with reserving some tax calculations to an annual task. If the value of a benefit changes mid-year, the tax will change (News, page 6, March 2008).
One respondent commented: ‘For an employer who offers a sophisticated suite of flexible benefits, the P11D process represents a bulk job with established routines which has only to be done once a year. By contrast, payrolling benefits will require such an employer to access every month the database of each benefit provider to check whether the benefit for any individual has changed.’
• Including Benefits in Kind and Expense payments in the payroll (payrolling) survey, by IPP, March 2008. www.payrollprofession.org
02/04/08Company cars get a touch greenerAlistair Darling confirmed a strong ‘green’ shift in taxation on cars, including company cars. He announced a reform to capital allowances for business cars to increase the incentive to move to lower emitting cars, and promised uprating of the fuel benefit
charge.
From this April, the figure on which the company car fuel benefit is based is increasing from £14,400 to £16,900. The fuel benefit
charge will be increased at least in line with the Retail Prices Index from April 2009, ‘strengthening the incentive to drive fewer miles’, Mr Darling said.
Authorised Mileage Allowances Payments (AMAPs) rates and thresholds will be maintained at current levels. Norman Green of Logica, and a Payroll Worldcolumnist, said: ‘Given that AMAPs were fairly generous for people in fuel-efficient cars, I’m not surprised it hasn’t changed.’
The awaited review by Professor Julia King on lowcarbon cars was published on Budget day, and indicated that motorists could save 25%on fuel costs by switching to the cleanest cars. ‘Britain’s 30 million cars, vans and lorries together account for 22% of total carbon emissions,’ Mr Darling told the Commons.
28/03/08Ending P11D could put costs upPayrolling benefits and scrapping the P11d could be more expensive and bureaucratic than current arrangements, a payroll bureau director has warned.
Ian Whytside, director of Hampshire-based Management Payroll & Training Company, said calculations on a pay period-by-pay period basis will be complicated, as the cost of benefits such as company cars fluctuate.
HMRC, supported by the Institute of Payroll Professionals, backs the move to incorporate expenses and benefits into regular payroll calculations, and claims there would be up to £21m operational cost savings each year for employers (News January 2008, page 8).
But Mr Whyteside, who sits on HMRC’s advisory forum on payroll, argued there are advantages with the current P11D system: ‘This one-off calculation of tax value of benefits every year is quite efficient, because the alternative is the necessity to recalculate the benefit every pay period.’
He acknowledged the move would enhance the status of payroll teams at larger employers, but said the majority of small companies have outsourced payroll to local bureaux and accountancy firms.
‘Some accountants said they will have to do more work and charge their clients for doing this inyear instead of the normal calculation.’
05/03/08HMRC to investigate MPsHMRC has announced plans to investigate parliamentary expenses following revelations about the large number of MPs employing family members. The move follows growing concern that there is widespread tax evasion at Westminster.
In one example, Work and Pensions secretary James Purnell bought a London apartment before becoming an MP and then one in his constituency home in Manchester some years later.
He was able to claim thousands of pounds of MPs’ expenses on the London home and is accused of exploiting a tax loophole to avoid a huge bill on its sale. He received about £20,000 a year in allowances on the London flat because he had told the Commons authorities it was his second home. But when he sold the flat in October 2004 he told the Revenue that it qualified as his main home, according to The Times.
And in a further clampdown MPs will have to list any family members who work for them under the parliamentary register of interests by April 1.
One MP who employs his wife as his PA told Payroll World: ‘I think this move would be highly desirable, I would welcome the opportunity to say my wife works for me full time and has no other employment.
‘I think it is fair and appropriate to be asked to give this information and I think it would be important also to give details of whether they work full time or part time and if they have any other form of employment.’
He stopped short of endorsing a policy of revealing how much they should be paid. ‘There is a point where it becomes personal information,’ he said.
05/03/08HMRC delay on P11D reform consultationPayroll managers have had to wait until the New Year for an expected consultation paper on replacing the P11D. The Government has confirmed its intention to scrap the P11D and P9D end-of-year forms, but a consultation document expected in November had not been published by mid December.
The likely cause of the holdup was HMRC’s crisis over lost data that erupted in November.
The reform has been the subject of strong lobbying by the Institute of Payroll Professionals. The IPP has urged the Government to copy the Irish system, in which expenses and benefits go through the regular payroll.
They would then be incorporated into P14 and P35 reporting.
HMRC’s Administrative Burdens Advisory Board has identified the P11D process as a major ‘irritant’. Initial analysis suggests that the move could reduce the costs to employers by between £14m and £21m.
Karen Thomson, head of policy at the IPP, said processing through the payroll will increase accuracy, as it will always be handled by qualified payroll professionals.
It will also help employees, she added: ‘It will help employees manage money better if it is all taken at source and they’re not going to be hit by a tax bill at the end of the year.’
The Government will also consult on removing the £8,500 earnings threshold that distinguished which benefits are reported on form P9D and which on form P11D.
Keith Cossey, independent PAYE consultant and Payroll World contributor, warned that the current exemption of tax on small gifts is likely to be withdrawn following P11D abolition. ‘The administrative benefit to the Revenue in not pursuing the tax liability on small amounts will not arise.
As a result, the relaxation may also be abolished in the future.’
● A P11D guide, sponsored by KPMG, is published as a supplement to the January 08 issue.
04/01/2008Family firms face £485m tax billA proposed Government crackdown on income splitting could cripple small family firms, according to tax advisers.
Husband-and-wife companies and other firms face paying a combined £485m extra income tax under changes announced last month.
The rules would affect family firms who split profits equally even where one partner generates most of the income. Businesses will have to prove that their tax arrangements are ‘genuinely commercial’, and that the structure of the organisation would be the same regardless of whether or not it was a family business.
The Chartered Institute of Taxation raised concerns over the move. Vicepresident Andrew Hubbard said: ‘One partner might be the main income generator but may well be totally unable to run the business without the full support of their spouse.’
The ban on income splitting will come into force on April 6 next year after a consultation on the proposals. However, some firms may face a backdated tax liability.
The Government’s crackdown followed the House of Lords ruling over the ‘Arctic Systems’ case, where the legality of income-splitting was upheld.
A spokesman for HM Revenue & Customs said income-splitting arrangements were unfair to other small businesses.
04/01/2008HMRC gets roasting for wrong penaltiesHMRC’s chairman Paul Gray received a scolding from MPs and a request to publish a ‘lessons learned’ publication after the department was forced to apologise for sending out around 11,000 incorrect penalty notices for year-end submissions.
At the 10 October meeting of the Commons Public Accounts Committee, the Conservative MP Richard Bacon told Mr Gray: ‘This is the third year in a row in which there have been thousands of incorrect penalties levied on employers. Will your department publish a lessons-learned document?’
Mr Gray replied: ‘I am not sure we will be doing a lessons learned exercise. Whether it is appropriate to do a formal publication, it is certainly something I am more than happy to share with the Committee.’
He added: ‘We have already put in place a remedy for this. We are able to identify the employers who have been sent the incorrect penalties.
We have written to them. We have put information on our website to indicate that those employers need take no further action and those incorrect penalties will be automatically cancelled.’
The Revenue had already apologised to employers on its website. A bulletin at the beginning of October stated: ‘We are working to arrange for the penalties issued ... to be cancelled without the need for you to contact HMRC. We are very sorry for any inconvenience that this problem may have caused.’
Returns that were sent in by 28 May 2007 are not affected, HMRC said.
Matt Boyle of Reseach4PAYE, said: ‘This mistake has cost employers, agents and accountants some £1.2m, as they seek to rectify, through a formal appeal process, errors which simply should not have occurred.’
One accountant, Margaret Savage, told Accounting Web: ‘I had already appealed four and have now received another eight! I think we should all serve penalty notices on HMRC for late submission of this bulletin.’
A spokesman for HMRC said that the proportion of penalty notices that were in error was 6%, or around 11,000 out of 202,000. Asked by Payroll World if the Revenue should offer compensation, he said: ‘It is not the norm to pay compensation, but if someone has a complaint, we will look into it through the normal complaints procedure.’
Hansard transcript: www.publications.parliament.uk/pa/cm200607
31/10/07Demand for new NI numbers acceleratesThe number of migrants may be increasing much faster than official figures, particularly in London, some sources have indicated.
Migrants registering for National Insurance (NI) in the London Borough of Wandsworth alone have risen in number by nearly 60% in three years. The council is concerned that the real numbers are much higher – causing a massive strain on public services.
A council spokesman told the Local Guardian newspaper that the formula used to decide the amount of money boroughs should receive annually is flawed, and not reflective of the real number of migrants who live there.
‘The Office for National Statistics use GP registrations as one key source of data for revising population estimates. Yet the 20-34 age group is one of the slowest to sign up with a doctor.’ The council claims the population is growing all the time, and using these statistics does not indicate what the real population is.
Maurice Heaster, deputy council leader, said the Government needed to recognise the problem. He said: ‘Councils’ funding is linked to the size of the local population. It can’t be right to use the same calculations for updating population numbers in an urban area as for somewhere out in the country.’
Polish migrants account for almost one in four NI registrations in Wandsworth and more South Africans, Australians and New Zealanders registered for NI in Wandsworth than in any other London borough.
The concern is not specific to London. Introducing a report on the impact of migration last month, chief constable of Cambridgeshire Police, Julie Spence, said: ‘A dramatic change in the makeup of the population in the county had meant new challenges for officers.’
She said her officers needed more staff and resources to cope with the pressures caused by a sudden influx of migrant workers. Since 2004, some 83,000 east Europeans have registered to work in eastern England.
31/10/07CIS 'still has delays'Employers are experiencing serious delays in verifying sub-contractors under the new Construction Industry Scheme, it has emerged.
It took Bedfordshire-based company JI Property around six weeks to verify a subcontractor.
‘I received a call from our accounts manager [at HMRC],’ said JI Property’s financial controller Sue Eady. ‘He said they are having lots of major problems.’
Specialist software provider Evolved Software also reported delays in responses from HMRC on CIS matters. But a spokesman for HMRC said that problems are isolated.
01/10/07Health screening attracts taxHM Revenue & Customs has made regulations to limit the tax-free status of medical check-ups provided by employers to cases where the screening is available to all employees.
The new restriction could have a major cost impact on employers, according to Norman Green of LogicaCMG: ‘Health screening and medical check-ups are usually done within the private health sector, making it a considerable cost to employers,’ he said.
‘Most employers restrict the facilities to employees of a certain age or length of service and to key workers such as executive directors.’
Although such practice is common, it will now fall outside the exemption and the provision will be deemed to be benefits in kind with a tax and National Insurance Contributions liability. The regulations came into force in August. But they have a retrospective effect which goes back to the beginning of this tax year.
Employers could make the facilities available to all employees to overcome the liabilities, but this would add a considerable amount to employers’ costs, Mr Green added. Alternatively, employers could pick up the costs in a PAYE Settlement Agreement (PSA); again a new, additional cost to employers.
As the regulations apply from the start of the 2007/08 tax year, it is too late for inclusion in the 2007/08 PSA. It is also too late to change any existing contractual arrangements with employees and with the healthcare providers. Both are likely to be in annual agreements.
‘Routine preventative maintenance on plant and machinery is seen by HMRC as an operating cost and the costs allowable against tax liabilities,’ said Mr Green. ‘Yet for employers to seek health checks on their most important assets, employees, it is a benefit in kind.’
For more information visit http://www.hmrc.gov.uk/si/2007-2090.pdf
01/10/07New CIS 'messes up', developer insistsPayroll software developer Mike Wilson has hit back at claims by HMRC that errors with the new Construction Industry Scheme are caused by sub-contractors’ inputting mistakes. He insists that there is a problem with the Revenue’s systems. ‘New CIS messes up sometimes,’ he told Payroll World. ‘And when it does, there’s no recourse, no plan B.’
In the August issue of Payroll World, an HMRC spokesperson said that Revenue officials ‘had investigated each case put to us and found that the information given to the online and telephone helpline has been different’.
This is directly contradicted by Mr Wilson, director of Evolved Software. He said he regularly has cases where identical information given online to an earlier successful telephone application resulted in an ‘unmatched’ categorisation. This can mean automatic deductions of 30%.
Although this is a credit against future tax and NI bills, it can create cash-flow problems.
Mistakes by the inputter account for only around one half of cases, he said. ‘I would be very happy to be proved wrong; if these discrepancies didn’t exist I wouldn’t need so many support staff.’
Evolved Software has begun direct conversations with the technical team at HMRC to discuss the issues raised. He added that the company has written software for hospitals and for the Ministry of Defence with extremely tight accuracy requirements.
He said: ‘The failure rate in these industries of even 0.2% would mean deaths and we wouldn’t get paid.’
A spokesman for HMRC said: ‘We have followed up each case notified to us, and found the responses given have been appropriate. We are more than happy to receive details of any further cases so that we can look into them.’
30/08/2007Olympics ‘threatened’ by errors in new CISThousands of construction sub-contractors may be paying excessive deductions under the new Construction Industry Scheme, because of errors in HMRC systems, a software provider has claimed.
And the head of a payroll bureau has said that the new regime could force suppliers out of business, creating serious delays over housebuilding and the Olympics construction programmes.
Mike Wilson, director of Evolved Software, a specialist IT provider to the construction sector, said that there are frequent errors in HMRC’s online system. Some subcontractors with a verification number obtained under the phone system, come back as ‘unmatched’ and suffer the higher 30% deduction, rather than 20%, under new CIS rules, in force since April.
He said he is trying to establish with the Revenue the reasons for the discrepancies. ‘They won’t give us the criteria – how they match people is a mystery.
‘For example, today I had a customer, where one of their sub-contractors is unmatched, and having deductions at 30%. But they have phoned with the verification number. And we have a huge number of examples – probably one or two a day, so around 60 since May. Thousands of people are being deducted at 30% when they shouldn’t be.’
In some cases, the contractor calls the CIS helpline on behalf of the subcontractor and gets the status re-established, but there is little incentive for larger contractors to question any 30% deduction. It only affects the bottom line of the subcontractor, and processes are automated.
Carolyn Walsh, director of construction payroll specialist bureau insite123, said: ‘Smaller companies are often not paid on time. Cash flow is already tight. This just makes it tighter. Business failures in the construction sector could have a huge impact; they could affect the Olympics and house-building.’
She added: ‘The Revenue has sent out letters and emails to say that they have done rolling compliance tests on 105,000 companies. They say that under the new rules 40% would fail,’ she said.
Stakes were massively raised last month when the Prime Minister Gordon Brown announced plans to build 3 million new homes by 2020. ‘To be paid gross you have to satisfy certain tests: There is a whole list of things that cause instant failure,’ said Ms Walsh. Fines for serious failure to comply can be £3,000 a month per sub-contractor.
A spokesman for HMRC said that the new system provides for greater clarity over whether a sub-contractor qualifies for gross payment, replacing a scheme where status was checked every three years.
He added that the 40% failure rate included many sub-contractors with one or two minor breaches. ‘A small improvement in each would result in a large reduction in that failure rate.’
And he disputed Mr Wilson’s claim that the HMRC phone tests and online tests do not tally: ‘There has been a persistent rumour to this effect but it’s not the case. We have investigated each case that has been put to us with identifiable details and in each instance we have found that the information given to the online and telephone helpline has been different.’
The 30% deduction is available as a credit against tax and NICs once the return is made, he added.
30/07/07PAYE payments uncheckedHMRC has failed to complete checks on the accuracy of tax payments from 11.5 million people in the PAYE tax system from 2005-06. The figure means that 32% of people have still not had their payments checked, over 12 months after the tax year ended.
The figures emerged in a report by the National Audit Office published last month.
30/07/07Bosses protest over online compulsionThe ‘creeping’ compulsion to file tax and year-end returns online has been condemned by the Forum of Private Business and the UK200 Group. The employer bodies have expressed concern that firms which do not have the capability to file online will be punished.
The federation and UK200Group believe that offering financial incentives for filing Pay As You Earn (PAYE) returns online, coupled with penalties for those who do not file their end of year P14s and P35s returns online, ignores the needs and capabilities of a large number of smaller companies. Penalising those who inadvertantly miss the deadline is unacceptable the organizations said.
‘HMRC’s job is to check that people pay the right amount, not to bully them into communicating that amount in HMRC’s chosen way and impose extra costs on them,’ said the federation’s chief executive, Nick Goulding.
He acknowledged the incentives for filing PAYE and year-end files online. But he said: ‘The £150 looks, at first glance, like good news. In reality, though, many smaller firms have been submitting paper returns for years, and do not have the resources to train new staff to file them online. Larger businesses do, and this £150 therefore becomes a gift for the already advantaged bigger firms.’
Concern was echoed by some payroll managers. Simon Wilson, payroll systems manager at Kingsmill Hospital Mansfield Nottinghamshire, said that missing the deadline can be easily done. ‘You have to register before you can do anything, and then you receive a PIN number, which is sent by post. Our number got lost in the internal mail sytem, and we ended up having to re-register and go through the system again,’ he said.
While the end of year online filing process has been more successful than previously, it is by no means perfect. Enrico Liverani, director of payroll bureau DCS: ‘When filing P35s and P14s I received a response from the Revenue with a reference number which referred to another client. We had to check this manually, which slowed the whole process down,’ he said.
He added: ‘When you have processed this you are sent an acknowledgement, but you don’t know exactly what it’s referring too, it could be a P14, P35 or a test. This is kindergarten stuff.’
But some payroll managers reported a smooth end to 2006/07. Sophia Baker, payroll supervisor at Reliance Security, said: ‘Everything ran really smoothly, to our relief. We have 14,000 employees with over 7,500 paid weekly, so we were expecting problems and spent a solid week on the process, but we have received receipts saying everything is OK. I have not filed manually for seven years and don’t miss the paper-laden version.’
And Yvette Lamidey, independent payroll consultant and director of Free to Change said: ‘This was the first time I managed to get through without any problems. A couple of years ago it took me hours and I ended up sending it four times by mistake, but this year it went through in seconds. It was a positively good experience, but after three years it should be.’
Following this year’s problems with PAYE online, HMRC announced that the filing deadline for end of year PAYE returns was extended for this year only to 28 May. In addition no penalties will be charged if returns are received later due to ‘reasons outside your control’.
The announcement goes some way to take the pressure off tax agents who have been complaining that the service is so slow that the only way to file a return is at 4am or weekends.
01/06/2007Form (R40) availableHM Revenue & Customs has redesigned its R40 Tax Repayment form, making it easier for customers to complete. Form R40 is used by around 600,000 people to claim back tax deducted from bank or building society interest, or other investment income. www.hmrc.gov.uk/forms/r40.pdf
01/06/2007HMRC sets record straight on recognition for CIS softwareHMRC has sought to quell a widely held notion that there is an accreditation process for software able to process Construction Industry Scheme monthly submissions. The move comes amid continuing complaints about delays in the new online system.
Mark de Brunner, CIS reform director at HMRC, wrote to Payroll World to state that there is a recognition process, not accreditation, and that the system was up and running on schedule since 6 April (see Writeback, page 16).
‘There are [at mid May] 68 CIS products from 53 third-party software suppliers listed on our website, and the products shown have gained HMRC recognition.’
But Carolyn Walsh, director of construction specialist bureau insite123, said her developer had been told by an HMRC official of a mid-2007 accreditation process at a meeting of the Revenue and software developers on 1 February.
Many website discussions refer to ‘accredited’ software – borrowing the term used for officially accepted systems for the Quality Standard for yearend filing. The accountingweb.com website, on its ‘any answers’ page, refers to the ‘The accreditation logjam’ of HMRC-approved CIS suppliers.
The CIS is aimed at cutting down on subcontractors that the Revenue claims are ‘disguised employees’.
Ms Walsh said: ‘It is recognition at the moment, but people were calling it “accreditation”, and my developer was told that there would be some form of accreditation process. They also told them about final aspects of specification at this meeting.
‘But there was mention of accreditation in mid 2007 [at this 1 February meeting]. A lot of people are saying “accredited software”. Now the Revenue is saying none of this software is accredited, accountants are going to go up the wall. They’re going to want accredited software.’
She also said that there has been a bottleneck in testing software. HMRC’s figure of 68 recognized systems is ‘just not good enough’, she said. Some 150 systems could potentially be passed, and testing capacity has been inadequate, she said. ‘There could be good software that isn’t on the list.’
This has left ability of a construction firm to use a recognised system something of a lottery, depending on which one has been purchased.
But she stressed she is not asking for CIS and online submissions to be shelved: ‘The system will be much better when introduced, but we need more information.’
01/06/2007Work-car tax hike worryA motorist driving 10,000 miles a year for an employer could face an additional tax bill of £500 to £1,500 a year, The Daily Telegraph reports.
But Government ministers have described the supposed plans as ‘pure speculation’. It was reported that HMRC was considering slashing the 40p allowance to 25p for those using cars with CO2 emissions above 185 grams per kilometre.
01/06/2007Employers want a simplified P11DAn overwhelming majority of employers want the P11D process to be simplified, according to a survey by the Institute of Payroll Professionals (IPP). The survey of 672 employers revealed that 86% of them blamed the complexity of the forms and the return deadlines in the P11D process.
The survey also highlighted that more than a quarter of employers felt that the fact that expenses and benefits complexities such as Income Tax and National Insurance Contributions were not aligned added to their problems. More than 30% of employers have difficulties gathering the data which could be explained by the fact that P11Ds are processed annually.
Karen Thomson, head of policy and research at IPP called for further government consultation over P11Ds and for expenses and benefits to be processed through payroll.
‘By removing the P11D process, there could be scope for removing the Class 1A National Insurance Process,’ she told Payroll World. ‘The alternative for the employer’s liability for Class 1A could be changed to employers Class 1 only if processed through payroll, therefore removing an additional payment procedure that currently exists.’
The survey found that 25.6% of employers currently combine ‘payrolling’ benefits and the P11D process as they found P11Ds ‘too much of a chore’.
Ms Thomson added that payroll professionals are ready to take on more responsibility by processing P11Ds through payroll. ‘This will enhance their role and they should not be afraid to take on additional work. There is a huge amount of benefit over the long term.’
01/05/07HMRC launches pod-cast to give advice on year-endHM Revenue & Customs is launching its first specialist employers PAYE podcast to ease the burden of 1.7 million employers across the UK filing their 2006/07 end-of-year returns for the deadline of 19 May 2007.
HMRC is one of the first Government departments to launch podcasts, which are between three and four minutes’ duration, and give listeners step-by-step instructions on who needs to file an employer’s annual return, what options are available, and advice about other sources of information so they can find out more.
‘Any medium that HMRC can use to reach employers and teach them their obligations must be worthwhile, and many organisations use podcasts as a way of getting key messages over. As HMRC has led the way in Government in using technology this seems a logical extension of that,’ said Kate Upcraft, consultant for ISIS support services.
The podcast is available via HMRC internet services and can be downloaded to iPods, MP3 players and personal computers. It is one of the subjects covered in HMRC’s new podcasting service, available at: www.hmrc.gov.uk/podcasts
01/05/07Scottish politics raise payroll chaos fearsTwo of Scotland’s main parties have entered this month’s parliamentary elections promising to replace council tax with a local income tax – prompting the Institute of Payroll Professionals to warn of serious practical dilemmas.
The Scottish National Party, which has consistently led in the opinion polls, and the Liberal Democrats, junior partner in the current ruling coalition, both back the plan.
The two could emerge as the new coalition after 3 May. A local income tax raises a raft of implementation issues for payroll managers and software providers, said Karen Thomson, head of policy at the IPP. ‘If the local income tax is based on where someone lives, how is it going to be operated? Is the Revenue going to be advised of someone’s address? Do you have to change the tax code? What about someone with two homes?’
Someone living in Gretna Green but working in Carlisle would have to pay the Scottish local income tax, indicating that many England-based employers will have to administer it.
She also criticized the Scottish Executive for failing to consult interested parties on major changes, in contrast with the Westminster Government. ‘The Scottish Executive is not good at consultation. Historically they bring things in without consulting, for example on the Debt Arrangement Scheme.’
The Institute for Fiscal Studies calculated that it would take a 5p in the pound increase in income tax to raise the equivalent revenue of the existing council tax. Both the SNP and the Liberal Democrats argue that it can be set at less than 4p.
The SNP favours a fixed national rate of 3p, rather than differing rates across the 32 councils in Scotland. This overcomes some of the problems of complexity, but means that the tax ceases to be local, and still leaves the issue affecting cross-border commuters.
The Scottish Parliament already has powers to vary national-level income tax.
01/05/07NI and income tax thresholds to alignGordon Brown delivered an essentially ‘no-change’ Budget for 2007/08, while announcing radical changes for 2008/09 and beyond.
The headline-grabbing reduction in the basic rate of income tax from 22p to 20p, and the abolition of the 10p starter rate will not come into effect for another year; indeed will not be subject to a Commons debate and vote until then – by which time we will almost certainly have a new Chancellor.
The announcement came at the very end of his 11th Budget speech as he proudly announced: ‘I will from next April cut the basic rate of income tax from 22p down to 20p. The lowest basic rate for 75 years.’
There will also be a change to National Insurance thresholds, bringing them into line with income tax. From April 2009, the threshold for paying higher rate income tax will be aligned with the Upper Earnings Limit (UEL) for National Insurance Contributions, at £43,000, ‘thereby creating a tax system for income that has just two rates and two thresholds’, Mr Brown said.
The announcements drew sceptical comments. Actuarial consultancy Watson Wyatt said that with the abolition of the 10 per cent starting rate of tax and an increase in the UEL that ‘vastly outstrips’ the tax threshold rise, ‘much of the cheering starts to wane’.
Karen Thomson, head of policy and research at the Institute of Payroll Professionals, said: ‘We are disappointed that one year on the main tax and NICs alignment received one brief comment that the review will continue.’
She urged payroll professionals to remember communication: ‘Employers will need to ensure that their staff are properly trained to implement this for their payrolls [and] there will also be a requirement to communicate what these changes mean to all taxpayers.’
There was a quadrupling of the Financial Assistance Scheme for workers who lost their pensions through the insolvency of their employers, from its present budget of £2bn to a total of £8bn.
02/04/07Revenue 'not ready' for CISThe new Construction Industry Scheme, due to come into operation this week, is complex and the HM Revenue & Customs is not ready for implementation, according to a payroll bureau director.
Carolyn Walsh, director of Southend-based bureau Insite123, which has around 20 construction clients, said: ‘The old CIS was very easy: anyone could make an 18% CIS deduction at the end of the month. Now you will have to use a computer; there are many construction companies that do not even possess a PC. The new system is more complex.
‘I asked the head of the online filing system [at the HMRC] how many CIS vouchers currently are filed manually and she said the vast majority are hand-written. For the new CIS there will be a monthly online filing voucher. If you have fewer than 10 subcontractors you can still use paper, but you have to phone the Revenue and get verification.’
She added: ‘Even some companies with turnovers of up to £2m are not computerised. They rely on their accountants. Those stories of builders turning up at the accountants with a plastic bag full of receipts are not a joke.’
But a HMRC spokesman said that it was aware that not all construction firms had access to computer equipment but added: ‘They can rest assured they will be able to do verification over the telephone and make returns on paper.’
The new CIS scheme becomes law this month.
02/04/07Huge rise in P14 rejections, Revenue figures showThere was a sharp rise in rejected end-of-year forms at HM Revenue & Customs, according to figures obtained by Payroll World under the Freedom of Information Act.
Those rejected at the Electronic Data Interchange shot up from around 20% to 40%. This was accompanied by a roughly three-fold increase in total traffic, from 13.4 million to over 60 million.
The HMRC letter reveals the total number of P14 forms received and rejected by the EDI Business Exchange facility for the years ending 5 April 2003, 5 April 2004, 5 April 2005 and 5 April 2006.
The HMRC letter states: ‘Note that the submission and rejection figures cover all traffic, including live accepted submissions, live rejected submissions, test accepted and rejected submissions and duplicate submissions.’
Matt Boyle of Research4Paye told Payroll World: ‘One would expect the rejections percentage to decrease over time, given the fact that HMRC frequently advises that it is the large employers and payroll bureaux that are making most use of the EDI route. These large organisations would not normally be expected to get worse over time, would they?’
HMRC told Payroll World that the figures quoted related to EDI submissions only, with 11% of those rejections coming from EDI tests and less than 1% from internet tests.
‘The error rate coincides with significantly increased use of the EDI service by firsttime users,’ said an HMRC spokesperson. He added that the Revenue is considering ways of improving education and assistance to employers.
‘We get ten times more internet submissions than we do by EDI.’ The spokesperson defended the number of tests needed, claiming that the service provides submitters with the opportunity to test their products and processes for a small sample of cases so that they can avoid problems later on when making their full submission.
‘This helps to ensure that submitters are able to file on time and to save them more costly resubmissions later on,’ said the HMRC spokesperson. HMRC declined to comment on the fact that private sector EDS allegedly charges the HMRC 20p per submission/resubmission.
‘Our contract for online services is with Aspire and it’s not for us to comment on any contracts they may have with other suppliers. While we accept that there are costs associated with EDI, we believe that it’s right to offer this method of online filing,’ an HMRC spokesperson told Payroll World.
28/02/2007Returns with errors were 120,000 for 2004/05Some 120,000 annual PAYE returns for the tax year-end 2004/05 were accepted with errors when they should have been rejected, the Paymaster General Dawn Primarolo told the Commons last month.
She admitted that, as a consequence, returns had to be manually processed and that not all were completed before updating the National Insurance Recording System (NIRS). As a consequence, thousands of NI-payers received incorrect Deficiency Notices, wrongly advising them that they had to increase contributions. Phil Nilson apologized for this error at last autumn’s Payroll World conference.
Last month’s Commons answer was the first indication of the scale of the error.
‘HMRC endeavoured to get all the 2004/05 data posted through to NIRS prior to the commencement of the Deficiency Notices exercise on 11 September 2006, but we did not succeed,’ Ms Primarolo told the Commons. ‘Some 4.7 million Deficiency Notices were issued to customers and although the vast majority of these letters were correct, some contained incorrect information due to the late processing of returns.’
Payroll World first exposed serious processing delays at year-end 2004/05, owing to difficulties establishing the Electronic Router Interface Component, or ERIC. Our report at the time stated: ‘Until it is fully operational, ERIC effectively acts as a firewall … This will mean delays in notifying employers as to whether their submissions reach the Quality Standard.’ (May 2005, pages 8-9).
Last month’s question was tabled by Vincent Cable, Liberal Democrat Treasury spokesman.
28/02/2007Penalties loom for online filing of in-year formsHM Revenue & Customs is proposing penalties for failing to file in-year forms such as P45 (1), P45 (3) and P46 online.
Under recommendations made by Lord Carter in his latest report, Carter II, employers with 50 or more employees must send these in-year forms online by April 2008. Employers with fewer than 50 employees must send these details online by April 2010. Lord Carter’s report sprang from an announcement by Paymaster General Dawn Primarolo to review HMRC’s online services for all the main tax administrations in July 2005.
It was not inevitable that fines would be imposed for failure to comply, in line with the existing penalties for year-end forms. An HMRC spokesperson told Payroll World that the Revenue is still working out the details of the penalties. ‘We will let employers and software developers have more information when the details are finalised,’ he said.
There will be no penalty for sending incorrect information, added an HMRC spokesperson, instead it would be for not using electronic submissions. ‘In-year submissions will be validated and any that fail the validation will be returned for correction.’
Employers will have to use the correct date of birth and not revert to mock date of births, explained Yvette Lamidey, director of Paris & Parks Consulting. ‘Mock dates of birth are not acceptable, first and foremost as the default one that is used on end-of-year returns would result in the employee not paying National Insurance Contributions (NICs),’ she said.
Ms Lamidey warned that incorrect data submitted by employers could result in the form having to be worked manually and at worst it could result in an incorrect tax code being issued. ‘Historically, employers have not always submitted correct data for their employees on these forms and this means that the Revenue data has become “dirty”, resulting in employee records not being matched to forms and a longer time to issue the correct tax code,’ Ms Lamidey said.
28/02/2007Primarolo confirms £225m incentives in first yearThe Paymaster General Dawn Primarolo has confirmed that payouts under the e-filing incentive scheme for small companies have totalled £225.2m for the year 2005/06; five times the initial estimate of £40m given by the Government in its regulatory impact assessment.
She made the announcement in a Commons written answer, replying to Liberal Democrat Treasury spokesman Vince Cable. The move followed the revelation of the higher payment in the December issue of Payroll World.
This is the first time that Parliament has been told that the total cost of e-filing incentives is set to be considerably more than the £420m estimate for the period covering 2005-2010.
She said that the original estimates of the cost of online filing incentives ‘have been regularly revised to reflect the success of converting small employers to filing their PAYE Employer Returns online’.
The announcement comes as the HMRC is looking to make savings of £30m a year from its running costs, through redundancies and its ‘Lean’ efficiency programme.
A spokesperson for the Public and Commercial Services (PCS) union told Payroll World: ‘This is a major cause for concern coming at the same time as the department signals an additional 12,500 job cuts and sweeping office closures which will only serve to undermine the ability of the department to function.
Questions need to be answered as to why the initial estimate was so low and what the consequences of this are.’
One of the reasons for the high payment under the incentive scheme is that HMRC systems recognize each PAYE reference number as being an ‘employer’ for tax and NI purposes, but some large companies have multiple PAYE reference numbers.
In her written reply, Ms Primarolo was unable to inform Parliament on whether powers to prevent scheme splitting had been used.
01/02/2007Inspectors' incentivesTax inspectors are being offered cash bonuses of up to £2,000 by HM Revenue & Customs to encourage them to collect more money from individuals and businesses.
01/02/2007'Son of HCI' may have potentialSmart use of tax breaks can make provision of personal computers for staff a highly efficient benefit, despite the loss of the Home Computer Initiative, according to a leading tax specialist.
The Government’s HCI, which enabled employees to acquire computer equipment with tax/National Insurance savings when allied to a salary sacrifice scheme, was abolished for new schemes last year.
But Karl Vernum, consultant at consultancy Chiltern, said that previous National Insurance and VAT savings that existed pre-6 April 2006 are still available. This gives rise to ‘son of HCI’ schemes.
‘For example, an employee is provided with computer equipment for private use with a market value of £1,000.
The employee enters into a salary sacrifice agreement for three years. If the employee is a basic rate (22%) taxpayer the tax due on the benefit over three years is:
£1,000 x 20% = £200 x 22% = £44 x 3 years = £132
‘If the employee was paid £1,000 in cash the tax due on this at basic rate would be £220. The potential saving accrued from this arrangement is therefore £88.’
04/01/2007E-filing payouts to top £750mAggregate payouts from HM Revenue & Customs through the e-filing incentive scheme for small companies are on course to top £750m by 2010, research by Payroll World has found. This is around 80% more than anticipated.
The seemingly trivial annual tax rebate of £250 is received by each small employer for the first two years of the scheme, 2004/05 and 2005/06, tapering to £75 by 2008/09. The incentives are received for electronic filing of end-of-year forms P14 and P35 by PAYE schemes with fewer than 50 individuals.
But the ‘small employer’ may in fact be a small payroll within a larger organisation. The £250 incentive is paid per-PAYE reference number, rather than per organisation – which is not identified by Revenue systems.
The Regulatory Impact Assessment, sent to Paymaster General Dawn Primarolo on 24 September 2003, indicated that the total cost of voluntary e-filing would be £420m. Figures obtained by Payroll World indicate that around this sum has been paid out in the first two years alone, with the total likely to top £750m.
o See Payroll World, December edition, for full story.
21/11/06HMRC gears up for fraudTaxpayers could face 10 years in prison for a failure to disclose information, as HM Revenue & Customs (HMRC) gears up to treat misdemeanors more seriously.
HMRC is to receive new powers to prosecute taxpayers for fraud for deliberately failing to disclose information where they have a legal requirement to do so, according to UHY Hacker Young, the national accountancy group.
At present, taxpayers can only be prosecuted for fraud for knowingly making false statements, rather than for failing to disclose information. The emphasis is shifting from making a positive wrong statement to failing to disclose knowledge.
The new definition of fraud is set out in the Fraud Bill (2006) which is at present before Parliament. The Revenue is continuing to strengthen its powers to obtain information and the new definition of fraud could result in a significant increase in the number of taxpayers successfully prosecuted for fraud said UHY Hacker Young.
31/10/06Tax-free bikes get goingEmployers and bicycle shops have registered a surge in provision of loaned bikes to employees as a tax-free perk, especially in London.
Britain's biggest bike retailer, Halfords, said it was providing more than 500 companies, including Royal Mail and Boots, and major banks with fleets of corporate bikes.
The HMRC stipulates that the bicycle must be used mainly for home-to-work travel. It has clearly become a favoured tax-free benefit, replacing home computers, concessions for which were ended in April. Halfords chief executive Ian McLeod said:
‘We're finding more people are cycling to work, either to escape commuting or to keep fit.’
And increasing numbers of employers are also providing a breakfast on ‘cycle to work’ days – another tax-free benefit. Employers can designate any number of such days (see Keith Cossey, page 15, October Payroll World).
The Revenue-approved scheme allows the bike to be used free over the course of the loan period - typically three years. At the end of the loan the worker can buy the bike at its market value - usually a nominal sum - again, free of tax.
Commuting by bike has grown rapidly, especially in London. Many commuters switched from the tube to the bike last year after the underground bombings on 7 July.
19/10/06HMRC raises funeral concernsThe funeral profession has received guidance from HM Revenue & Customs that could end years of uncertainty over the employment status of choristers, grave diggers and church organists.
The taxman has been concerned that cash payments made on behalf of the bereaved have been banked without tax being paid. In the past, funeral directors have also been lax in keeping records of these payments and some have now found themselves subject to inspections.
The Revenue has focused its efforts on ensuring that people who regularly work for a single funeral director are put on the payroll so that they pay their income tax and National Insurance Contributions immediately. Nigel LymRose, a former president of the National Association of Funeral Directors, has issued guidance explaining when organists, grave diggers and bearers are likely to be seen as self-employed. The guidance also reminds funeral directors that they have to substantiate all payments and use a records system that leaves an audit trail. Cash payments should be recorded using receipts containing names and addresses.
06/10/06Paying tax twice The Special Commissioners of the Inland Revenue have stated that an employer can be forced to pay full PAYE tax and National Insurance in respect of an employee, without giving credit for tax already paid by the employee because he believed he was self-employed.
In Demibourne Ltd v Inland Revenue, the Frensham Pond Hotel in Surrey allowed handyman Rodney Bone to stay on after retirement. They agreed it would be on a self-employed basis. Between 1993 and 2002, he stayed on at the hotel but PAYE was not operated. Mr Bone sent annual accounts to the Revenue and paid his tax and National Insurance directly. In 2002, the Inland Revenue (now HMRC) decided that Bone was an employee, and that the PAYE scheme should have been operated. It issued a tax determination for the full amount of tax and National Insurance to the employer, demanding around £15,200. The employer argued that it should have credit for the tax which Mr Bone had already paid.
The Special Commissioners decided that the Inland Revenue (HMRC) was correct in charging the full amount of tax. They suggested that the Revenue negotiate an appropriate settlement to give credit for the tax already paid, but they had no power to order such credit.
06/10/06More bandwidth needed for HMRCThere is a pressing need for HM Revenue & Customs to increase bandwidth on its Gateway internet connection, as delays are continuing for online filing, the Business Application Software Developers Association (BASDA) has said.
Dennis Keeling, BASDA chief executive, told Payroll World: ‘It has improved this year over last year, but it is still a major concern for us: on capacity and the outdated method of messaging.’
The Gateway still relies on ‘polling’ – repeated checking that a message has been sent or received – rather than on modern high bandwidth connections that can handle multiple simultaneous messages, he said. ‘The polling procedure is cluttering up the Gateway. We have had extensive talks with the HMRC about these problems, but there are no indications about what they are doing about them.
‘There is a huge volume. It’s not just payroll, but self-assessment and the Construction Industry Scheme [from next year] and this will have monthly returns. There is a huge amount going through the Gateway. They really have to get their act together.’
See feature, October issue of Payroll World, Performance & Technology Section.
21/09/2006HMRC seeks more powersHM Customs & Revenue is to seek views on how it can modernise the way it investigates tax crime. A consultation document has been published on provisions in the Police and Criminal Evidence Act (PACE). Currently, those powers are only available for specific taxes and duties. The Revenue said: ‘Existing powers for investigating suspected tax crime can be cumbersome. Modernising these provisions would give trained officers harmonised powers to apply for search warrants and production orders, and powers of arrest across all taxes.’ The deadline for submitting comments is 1 November 2006.
01/09/06Wrong helpline: HMRC correctionThe incorrect Employer’s Helpline number has been issued on the reverse of reminders titled, ‘Payment of Class 1A NICs’ at the end of June, said HMRC. The number quoted showed 0845 7143 149 but should have been 0845 7143 143. HMRC said this would be corrected on future re-prints of this form and apologised for inconvenience caused.
01/09/06New rates for company carsNew fuel rates came into force from 1 July, the HMRC has announced. The rates apply on all journeys on and after that date. The full announcement is at: www.hmrc.gov.uk/cars/fuel_company_cars.htm
The advisory fuel rates (guidelines on fuel only mileage rates for company cars) were first published in January 2002. It has been possible to use them since then to negotiate dispensations for mileage payments for business travel in company cars.
They are intended to reflect actual average fuel costs at the time they are set.
The rates only apply where employers:
• Reimburse employees for business travel in their company cars, or
• Require employees to repay the cost of fuel used for private travel.
04/08/2006Rise in NINOs to migrantsThe number of migrants given National Insurance numbers (NINOs) jumped by 51% in the 12 months to the end of March, according to official figures.
The rise to 662,000 was caused mainly by immigration from eastern Europe, particularly Poland. Only the UK, Ireland and Sweden initially allowed free access to workers to EU accession countries.
Foreign workers have filled important gaps in the labour market, easing inflationary pressures by restraining potential pay increases, according to the Bank of England.
In Berkshire, Slough Borough Council reported last month that 9,000 new NI numbers had been issued in the past 18 months, of which only 150 went to UK nationals.
04/08/2006Firms unaffected by HMRC mergerNearly 80% of directors, financial directors and senior directors of 500 small- and medium-sized businesses (SMEs) have noticed no difference at all in their relationship with the taxman since the merger last year, according to research by think-tank Tenon Forum.
Only 8% of directors have noticed a positive change in their relationship with Her Majesty’s Revenue & Customs.
However, some 9% feel their relationship with the HMRC has deteriorated.
Only one in five companies established for ten years or more had noticed a difference since the creation of the HMRC, while more than one in three of companies trading for five years or less reported that the change had affected them.
Nearly 90% of SMEs questioned about the Revenue said that they wanted to be consulted about significant changes to the tax system, while 88% said that it needed to take into consideration the specific needs of SMEs.
04/08/2006Treasury hits out at HMRCHer Majesty’s Revenue & Custom’s approach to tax credits must change if the regime is to be a success, warned the Treasury Select Committee in a report last month.
The report said HMRC needed to gain a better understanding of the reasons behind the high level of overpayments. A lack of analysis of the extent to which official error and IT system error had caused or contributed to overpayments was a ‘significant gap’ in HMRC’s understanding, it said.
The committee welcomed the Government’s recent package of reforms to improve the scheme’s operation, but raised questions about the Government’s estimate of the cost of the package and the effect on claimants of a ten-fold increase in the ‘income disregard’.
Liberal Democrat work and pensions spokesman David Laws has called on the Prime Minister to strip the Treasury of responsibility for tax credits and ‘put these means-tested benefits back where they belong – in the Department for Work and Pensions’.
10/07/2006
Payroll World
|
|
