HMRC have issued some further guidance on Real Time Information (RTI) which may be useful to employers with regard to the introduction of RTI.  RTI is a system of monthly/weekly PAYE returns which will replace the annual end of year forms.

The new web page entitled 'Improving the operation of PAYE: Real Time Information (RTI)' can be reached using the link below and the link includes access to some new Frequently Asked Questions which, HMRC advise may be added to from time to time.

HMRC have announced that they will now accept payments made using the Faster Payments Service. This will allow taxpayers to make faster electronic payments, typically via internet or telephone banking, enabling them to be processed on the same or next day.

HMRC advise that if you want make payments using this method you should contact your bank or building society to confirm the following:

• scrap metal dealers in Scotland 
• construction traders who are self employed or run their own company who suppress sales or over-claim expenses in the North West and North Wales 
• taxpayers not submitting their statutory returns across Corporation Tax, Income Tax Self Assessment, PAYE and VAT in the South East 
• fast food outlets deliberately falsifying their records and mis-declaring their true sales levels to avoid paying the correct taxes in Scotland, and
landlords – owning or renting three or more properties – evading their tax responsibilities in North West and North Wales.

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CAPITAL ALLOWANCES/EU VAT REGISTRATION SCAM - 9 JANUARY 2012

CAPITAL ALLOWANCES

Following the Autumn Statement at the end of November 2011, more information is now available in respect of the proposal to give 100% first year allowances on plant and machinery expenditure for use in some Enterprise Zone areas.

·         The relief will only be available to trading companies.

·         The plant must be new and represent an investment not a replacement of existing plant.

·         The plant must be used primarily in designated assisted areas within Enterprise Zones.

·         The allowance will apply for purchases made from 1 April 2012 up to 31 March 2017.

·         Some businesses and some types of expenditure are specifically excluded from the provisions.

EU VAT REGISTRATION SCAM 

HMRC are warning of a new scam letter which is being sent to businesses. The letter requests payment of a fixed fee by credit card and provides a website address to activate VAT registration.

HMRC are advising that these letters are not issued by HMRC and the registration should not be completed or payment made.

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SELF-ASSESSMENT DEADLINE APPROACHING - 3 JANUARY 2012

HMRC are reminding taxpayers that the deadline for filing self assessment tax returns is fast approaching. According to their website:

‘You must send your online tax return by midnight on Tuesday 31 January 2012.

The deadline is only later than this if you received your tax return, or the letter telling you to complete a tax return, after 31 October 2011. In this case you'll have three months from the date you received that letter.

If your online tax return is late, you'll have to pay a penalty. This applies even if you have no tax to pay or if you pay all the tax you owe on time.’

The following illustrates that missing the deadline and failing to submit the return online may result in significant penalties.

‘What happens if you miss the deadline? 

If you miss the 31 January deadline for online tax returns, you will have to pay a penalty. The penalty is £100. You'll still have to pay this even if

·         your return is just a day late

·         you have no tax to pay

·         you pay all the tax you owe before 31 January 2012.

The longer you delay, the more you'll have to pay. If your tax return is three months late, you'll have to pay a penalty for each additional day it is late. If it's six months late, you'll have to pay a further penalty and another final penalty if it's 12 months late. Together these could add up to a penalty of £1,600 or more. 

Don’t send a paper tax return now - the deadline was 31 October 2011. You'll have to pay a £100 penalty straight away if you do and the daily penalties above will start even earlier. Send it online instead.’

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PARTIES FOR EMPLOYEES - 19 DECEMBER 2011

With the season for office parties fast approaching we thought it would be a good idea to remind you of the tax implications. The good news is that, unlike entertaining customers, the costs of entertaining employees are generally allowable against the profits of the business.

But what about the tax consequences for the employees themselves? Is it a perk of their jobs and will they have to pay tax on a benefit?

Generally, as long as the total costs of all employee annual functions in a tax year are less than £150 per attendee (VAT inclusive) there will be no tax implications for the employees themselves. In considering this limit make sure you have included all the costs, which may include not only the meal itself but also any drinks, entertainment, transport and accommodation that you provide.

 If the costs are above the £150 limit then the full cost will be taxable on the employee.

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VAT AND DUTY ON XMAS SHOPPING - 12 DECEMBER 2011

Angela Shephard, Head of Customs Policy, HMRC is warning individuals not to get caught out by ‘unexpected charges when you are shopping for Christmas bargains this year’.

‘If you are going abroad to do Christmas shopping, or buying goods online from non-EU countries, you need to know how much you can buy before you have to pay import duty or VAT.’

‘We know many people like to go abroad at this time to buy their Christmas gifts, or buy online from non-EU countries, and think that the ‘cheaper’ price they see is always the price they finally pay. HMRC is keen to remind the general public how much they can actually bring back from abroad or buy from an online overseas seller without having to pay import duty or VAT.’

'You don’t want to be faced with unexpected extra charges, when you thought you had found a bargain.’

HMRC advise that: 

• Arriving in the UK by commercial sea or air transport from a non-EU country, you can bring in up to £390 worth of goods for personal use without paying customs duty or VAT (excluding tobacco and alcohol, which have separate allowances, and fuel). Detailed information on the non-EU limits can be found at http://www.hmrc.gov.uk/customs/arriving/arrivingnoneu.htm 
• Should you buy goods over the internet or by mail order from outside the EU, you will have to pay VAT if the value of the package is over £15. 
• If the goods are over £135 in value, customs duty may also be due, although this will depend on what they are and where they have been sent from. Where, however, the actual amount of duty due is less than £9, this will not be charged. 
• If someone sends you a gift from outside the EU, import VAT will only be due if the package is valued at over £40. To qualify as a gift, the item must be sent from one private individual to another, with no money changing hands. 
• Please note that excise duty is always due on all alcohol and tobacco products purchased online or by mail order. 
• The spirits or tobacco products, there are no limits on the amounts of duty and tax paid goods you can bring back personally from another EU country, as long as they are for your own use.

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BUSINESS STARTUP TAX BREAKS - 7 DECEMBER 2011

Do business startups offer better tax breaks than pensions?

In last week’s Autumn Statement, the Chancellor introduced “SEIS”.  The new Seed Investment Scheme rules have not been released in detail yet, but we know that they will offer investors income tax relief of 50% (regardless of their actual marginal rate of tax) plus capital gains tax relief of up to 28% (but only for one year) – adding up to a staggering 78% tax break.

SEIS will only be allowed to invest in small firms with gross assets of £200k and below, so they are likely to be businesses in the early stages of development.

The maximum amount an individual can invest in a SEIS is £100k.  The maximum amount of SEIS investment that a company can attract is £150k.

 The SEIS investment scheme will come into effect from April 2012. The annual limit for pension contributions that were eligible for tax relief dropped from £255k to £50k. For 2012/13 there are now three schemes available for potential investors in startups:

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HMRC DELAY IN ISSUING PENALTIES - 5 DECEMBER 2011

In a potentially wide-ranging case, HMRC have been criticised for deliberately issuing penalties for late forms P35 (Payroll end of year forms) several months late, which generated more penalties than were necessary. A summary of the case is reported below.

This case has potentially wide ranging implications for other employers. Please do get in touch if you would like further guidance in this area.

The case (TC01286: Hok Ltd) concerned an appeal against a penalty of £400 for late filing of the 2009/10 P35. The penalty was calculated at £100 per month for four months. In October 2010 a further penalty of £100 was issued, given that the filing had taken place on the 15 October 2010 once the company had been alerted to its default.

The company argued that it thought it did not need to file the appropriate returns because its only employee had ceased employment part way through the year. It acknowledged that it was wrong and that HMRC was entitled to levy a penalty. However, the company argued that, if HMRC had notified it of its default, it would have been remedied it a far earlier time, thus avoiding ongoing penalties. 

During the Tribunal HMRC stated that it runs a: 

‘…structured programme to enable penalties to be issued regularly throughout the year, rather than waiting for the late return to be submitted and then issue a final penalty. These penalties, although aimed at encouraging compliance and having the effect of reminding are not designed to be reminders for the outstanding return.’ 

The Tribunal was amazed by this and stated that:

 ‘….HMRC deliberately waits until four months have gone by and does not issue the first interim penalty notice until, as in this case, September of the year of default.’

 ‘There can be no logical reason whatsoever for HMRC to delay sending out a penalty notice for four months so that, in effect, a minimum penalty of £500 will be levied unless the taxpayer has unilaterally realised that it has failed to undertake the necessary filing.’

‘In our judgement it would be a very simple matter for HMRC to set its computer settings so that a default or penalty notice was sent out immediately after the 19 May in any year, instead of some four months later. That might generate less penalty cash for the State, but it would be fair and conscionable as between the taxpayer and the State (acting by HMRC).’ 

‘As, in our judgement, HMRC has neither acted fairly nor in good conscience, in the manner described above, we do not consider that any penalty is recoverable over and above the £100 penalty for the first month unless HMRC proves (the onus being upon it) that even if such a penalty notice, which would have acted as a reminder, had been issued, the default would nonetheless have continued. It has proved no such thing.’

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TAX CREDIT FRAUD - 30 NOVEMBER 2011

Following an HMRC investigation a West Midlands woman, Kerry Melia, a mother of six, has been send to prison for eight months for tax credit fraud. She wrongly claimed in excess of £62,000 in tax credits by fraudulently claiming for nine fictitious children. The woman first claimed tax credits for her five children in 2005 (she subsequently had another child).

From 2007 onwards, she began adding fictitious children to her claim, stating that she was their foster mother. She then unsuccessfully attempted to add another six non-existent children.

David Gauke, Exchequer Secretary to the Treasury, said:

‘The government will not tolerate dishonest people stealing public money which pays for vital services. This sentence shows that those who think they can cheat the benefits system should think again. The extra £900m we have invested in HMRC will allow them to carry on the fight against benefit cheats and tax fraudsters.’

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HMRC TRYING TO CASH IN ON ACCRUALS - 21 NOVEMBER 2011

One of our clients recently received a routine VAT inspection. HMRC found nothing wrong with the records but issued an assessment because the VAT returns didn’t tie up with the company’s accounts.

 HMRC visits

A visit by the HMRC is never a pleasant prospect, even where it’s just routine. Usually, when HMRC is unable to find anything wrong with your records you can breathe a sigh of relief in the knowledge that you won’t hear from HMRC again for probably at least another three years. That’s what our client thought, but his feeling of elation evaporated when a little while later he received a letter from HMRC saying that HMRC intended to issue our client with an assessment for extra VAT of nearly £15,000.

Mismatch

Obviously our client wanted to know what was behind the accusation that he had understated the VAT due on his return forms. HMRC’s response was that the turnover in our client’s accounts didn’t match those reported on his return forms and HMRC wouldn’t budge from this line of attack. So why was there a difference?

 Cash accounting

The VAT system includes several schemes designed to make it “easier” for businesses to account for VAT. Most of these require you to ask HMRC before using them. However the cash accounting scheme (CAS) doesn’t. Provided your annual turnover is less than £1.35 million, you can use the CAS to account for VAT on sales only when you receive payment from your customers. On the other hand, your financial accounts will be prepared using the accruals basis which shows sales based on invoices issued and also the value of work-in-progress, if there is any. So the VAT returns and accounts are never likely to agree.

 What’s the difference?

Once we pointed our client to the likely cause of HMRC’s problem he was able to tie up the figure for sales in his accounts to those shown on his VAT returns. This was enough to keep HMRC happy and they cancelled the assessment.

Before the HMRC arrives for a VAT inspection it’s a good idea to carry out the exercise of agreeing the sales figure in your accounts with that on your VAT returns even where you’re not using the CAS. This will alert you to any differences before the HMRC finds them. If you do find an error, it’s best to notify HMRC and make the correction before they arrive. If the error was innocent, this can save you from being charged a penalty.

 More differences

Apart from the CAS and work-in-progress, common reasons which can cause a difference between the sales figure in your accounts and VAT returns are:

• Deferred income, i.e. where you receive payment from a customer in advance. This will usually trigger an entry on your VAT return but not count as income in your accounts until the job is done or the service provided.
• Overseas sales on which VAT isn’t due. These may not show up on your VAT return but will show as sales income in your accounts.

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THE TAX CATCHUP PLAN - 17 NOVEMBER 2011

HMRC have launched a campaign to target private tutors and coaches who have undeclared tax liabilities.

The Tax Catch Up Plan (TCUP) is aimed at individuals who provide private lessons, or who profit from tuition and coaching, as a main or secondary income where the correct tax has not been paid. The types of tuition, instruction or coaching covered by the TCUP include tuition of traditional academic subjects, fitness and dance instruction, musical instrument tuition, art, services provided by life coaches and others.

Under the TCUP, tutors and coaches have until 31 March 2012 to advise HMRC about their outstanding tax for the years up to 5 April 2010, and pay what they owe.

HMRC have confirmed that those who come forward by the deadline are likely to receive the best possible terms for paying the tax owed. If they have to pay a penalty, it is unlikely to be more than 20%.

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PENALTIES - 14 NOVEMBER 2011

A fairer view on penalties 

HMRC has changed its mind on the penalty they’ll charge where they find a mistake in a tax return, but not in every case. When will the new rules apply?

Penalty charges. It was only a few months ago that the HMRC announced tough new penalties for sending in your tax return late. Now they’ve issued a surprise statement saying that they’ll reduce the amount of penalty where a mistake is made on a tax return, but only where a correction has been made on a subsequent tax return, or would have been made had they not spotted the error first. The statement gives the following examples:

“If someone reclaims £100,000 VAT on a purchase in period 1 when it should have been reclaimed in period 2, any penalty for the overclaim in period 1 is not calculated on the £100,000 but on a reduced amount to take account of the automatic reversal of the inaccuracy in period 2.”

Unclear message. We read the example as meaning that there wouldn’t be a penalty as the error was completely cancelled by the “automatic reversal”. However, the HMRC’s statement refers to the penalty applying to a “reduced amount”, but doesn’t say what this is or how it’s calculated. Plus, the statement begs further questions, e.g. what’s the penalty situation where you correct the original return rather than amend the next.

Which taxes? The new penalty rules apply to errors made on income tax, Capital Gains Tax, Corporation Tac, VAT, Class 1 and 4 NI and construction industry tax returns.

If you have been charged a penalty for a mistake made in a return covering a period from 6 April 2008 that was, or would have been corrected, in a later return, contact HMRC quoting “RCB 15/11” and ask for the penalty to be reduced in line with HMRC’s statement.

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HMRC EXTENDS BUSINESS RECORDS CHECKS - 9 NOVEMBER 2011

HMRC have announced that they are extending their Business Records Checks programme.

These checks were piloted earlier this year and involved checks on the adequacy of Small and Medium Sized Entities’ business records. The pilots apparently found that around 44% of businesses visited had issues with their record-keeping, while around 12% of those visited had seriously inadequate records.

HMRC are now extending this activity from mid-September to cover a number of key areas across the UK. As part of this, the number of full-time staff employed on the programme will rise from 30 to 120. 

HMRC are planning to complete up to 12,000 checks by the end of the current financial year, with 20,000 provisionally planned for 2012/13. HMRC are increasing the number of visits so it can refine the process, before final decisions on a national roll-out are taken in the New Year.

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CAPITAL ALLOWANCES - 7 NOVEMBER 2011

New AIA rules include a trap 

The annual investment allowance (AIA) is being slashed from £100,000 to just £25,000 from 1 April 2012. But the new rules contain a trap which means the new lower limit is already taking effect. Can you take steps to avoid this?

AIA recap

The AIA was introduced several years ago to speed up tax deductions for expenditure on machinery and other equipment bought by businesses. The idea is that the full cost of these so-called capital items, subject to some exceptions, would be allowed as a deduction from the profits for the year of purchase instead of being spread over many years (as per the normal capital allowances rules). The AIA is set at £100,000 per year up to 1 April 2012, but businesses which have financial years straddling this date could see this limit dramatically cut earlier than others.

The new rules say that where a business’s financial year starts before the new limit applies and ends afterwards, the amount of AIA it can claim must be apportioned to take the lower limit of £25,000 into account.

Example. A Ltd’s 2011/12 financial year runs from October 1 2011 to September 30 2012. It plans to purchase machinery worth £75,000 in January or February 2012 to make use of the current £100,000 AIA limit. However, A Ltd must use the transitional formula to time-apportion the old and new AIA limits as follows:

Even though A Ltd will have purchased the machinery before the new lower limit comes in, the formula has a retrospective effect and reduces the AIA it can claim to £56,148. A tax deduction for the balance of the £75,000 expenditure will have to be claimed under the normal capital allowances rules, meaning it will take over 20 years to claim a full tax deduction for this.

Is there a solution?

The bad news is that the transitional formula has to be applied without exception. However, one option would be for A Ltd to change its financial year so that the 2011/12 accounts end on, say, 31 March 2012. Because this is before the new AIA limit comes in, the current £100,000 would apply. The downside is that changing an accounting date can cost money and even accelerate tax liabilities, so this strategy isn’t ideal.

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UPDATED GUIDANCE FOR EMPLOYEES ON CHILDCARE - 3 NOVEMBER 2011

HMRC have updated their guidance on employers helping with childcare costs.

Leaflet IR155 which sets out the circumstances and the amounts of tax and National Insurance (NI) free childcare costs that an employer may provide has been updated. 

The update reflects the change to the rules which mean that where a new claimant enters into a scheme from 6 April 2011 the amount of exempt childcare is restricted

·         for higher rate taxpayers to £28 a week, and

·         for additional rate taxpayers to £22 a week.

The amount available to basic rate tax payers and those in relevant schemes prior to 6 April 2011 remains at £55 a week.

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ADVISORY FUEL RATES FOR COMPANY CARS - 31 OCTOBER 2011

New company car advisory fuel rates have been published to take effect from 1 September 2011. HMRC’s website states: 

‘These rates apply to all journeys on or after 1 September 2011 until further notice. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.’

The advisory fuel rates for journeys undertaken on or after 1 September 2011 are:

 Please note that only one rate has changed and that has been reduced and care must be taken to apply the correct rate after the one month period of grace.   

 Other points to be aware of about the advisory fuel rates: 

• Employers do not need a dispensation to use these rates.

• Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.

• The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

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NEW TAX RETURN PENALTIES - 28 OCTOBER 2011

HMRC are reminding individuals and businesses about new Self Assessment penalties for late returns and late payments, which come into effect this autumn.         

The changes will apply to Self Assessment returns for 2010/11 which must be submitted by 31 January 2012. As stated on the HMRC website:

 ‘The new penalties for late Self Assessment returns are:

• an initial £100 fixed penalty, which will now apply even if there is no tax to pay, or if the tax due is paid on time
• after 3 months, additional daily penalties of £10 per day, up to a maximum of £900
• after 6 months, a further penalty of 5% of the tax due or £300, whichever is greater; and
• after 12 months, another 5% or £300 charge, whichever is greater. In serious cases, the penalty after 12 months can be up to 100% of the tax due.’

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INHERITANCE TAX - 24 OCTOBER 2011

Flexible pensions and tax planning

In April 2011, the tax rates and rules changed in respect of money left in your pension fund when you die. This might leave your beneficiaries worse off. But could the new rules also offer a chance to save some tax?

Tail-end Charlie

Usually tax planning with pensions is concentrated on the front-end, i.e. maximising tax deductions for pension contributions. Tail-end tax planning for getting your money out was given second billing. We’ve always thought this was short sighted; after all, tax is tax whether you pay it now or later. But recently changes to the pension rules have highlighted the importance of the long-term tax effects on your pension fund.

Escape from IHT

In general, pension funds are set up so that any money remaining after you die can be passed to your beneficiaries without any IHT being paid. This would seem to make pension funds an ideal IHT avoidance scheme, but HMRC has other ideas. HMRC makes a special tax charge on funds which are transferred on death. Until April 6 2011 the tax charge was 35% of the fund value where the transfer occurred before any pension was drawn and 75% after. Since 6 April 2011 a single rate of 55% applies across the board. But further changes in the rules mean you might be able to mitigate this.

Flexible Friend

Since 6 April 2011, subject to conditions (see below), anyone aged 55 or older can opt for “flexible drawdown” from their pension fund. This allows them to take 25% of their fund tax-free; this isn’t new, but the right to take all or part of the remaining money in a single lump sum is. The main conditions for this drawdown are:

• You must be able to show that you have other pension income, which can include your state pension, of at least £20,000 before tax, per year.
• You stop contributing or adding value to other pension schemes.

 Money taken from the fund in excess of the 25% tax-free amount is subject to income tax in the year it’s received. But you don’t have to draw the remaining fund all at once. Spreading it over a few years can avoid the 40% and 50% rates. Once the money from the fund is in your hands you’re free to pass it on to those who would have benefited under the will. 

Example. Dave’s pension fund is worth £500,000 and he expects to get a state pension of £6,500 per year. He also has personal savings which means he’ll be financially comfortable in retirement. He takes 25% of his fund, i.e., £125,000, tax-free and uses £200,00 to buy a pension of £14,000 per year. The remaining £175,000 goes into a flexible drawdown fund. He takes £17,500 annually on which he pays basic rate income tax of 20%, leaving him with a net £14,000. He gives this to his two sons. His total tax bill on the £175,000 is £35,000 and his sons get £140,000. Had he left the money in his fund to go to his sons on death, the special 55% tax charge would have been £96,250, leaving his sons just £78,750. They would have lost £61,250.

If Dave took all his flexible pension fund in one year, he would have paid up to 50% income tax on this. And unless he gave the remainder away, it becomes part of his estate and potentially subject to 40% IHT when he dies. The tax position would be even worse that if Dave had left the money in his pension fund. Our view is that flexible pensions offer tax planning opportunities, but unless you’re sure of your ground we suggest getting professional pensions advice before signing up for one.

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BUSINESS RECORDS CHECKS - 19 OCTOBER 2011

HMRC has announced an extension of its Business Records Checks programme. Business Records Checks were piloted earlier this year in eight key areas, and involve checks on the adequacy of small and medium-sized enterprises’ business records. The pilots found that around 44% of businesses visited had issues with their record-keeping, while around 12% of those visited had seriously inadequate records.

HMRC will be now be extending this activity from mid-September to cover a number of key areas across the UK. HMRC plans to complete up to 12,000 Business Records Checks by the end of the current financial year, with 20,000 provisionally planned for 2012/13.

Initially, HMRC will only levy a record-keeping penalty in the most extreme cases of poor record-keeping. In the longer-term, HMRC intends to issue penalties of up to £3,000 for serious inadequacies in record-keeping. HMRC will issue guidance on this, and make a further announcement on when it will happen, in due course.

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ENTERPRISE ZONES - 17 OCTOBER 2011

The government has announced 11 new Enterprise Zones as part of the government’s ‘Plan for Growth’.  

The government had previously announced 11 Enterprise Zones in some of the country’s largest cities, including Manchester, Birmingham, Merseyside and Newcastle and had invited applications for 10 more in other areas.

According to the press release ‘the strength of the applications from Local Enterprise Partnerships was such that Government has agreed to increase this invitation to 11.’

The second wave of Enterprise Zones will be located in:

- Humber Estuary Renewable Energy Super Cluster

- Daresbury Science Campus in Warrington

- Newquay AeroHub in Cornwall

- The Solent Enterprise Zone at Daedalus Airfield in Gosport

- MIRA Technology Park in Hinckley Leicestershire

- Rotherwas Enterprise Zone in Hereford

- Discovery Park in Sandwich, Kent and Enterprise West Essex in Harlow

- Science Vale UK in Oxfordshire

- Northampton Waterside

- Alconbury Airfield, near Huntingdon in Cambridgeshire, and

- Great Yarmouth in Norfolk, and Lowestoft in Suffolk.

 The Chancellor of the Exchequer George Osborne, said:  

‘It is vital that we create balanced economic growth across the country. It is time for us to help every part of the country to grow and realise its potential.’

‘Enterprise Zones are a critical part of our Plan for Growth and will support economic development and create over 30,000 new jobs by 2015. The zones will benefit from over £150 million in tax breaks over 4 years, new superfast broadband, lower levels of planning control and the potential to use enhanced capital allowances.’ 

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NATIONAL MINIMUM WAGE RATES - 14 OCTOBER 2011

The adult rate of the National Minimum Wage (NMW) increased to £6.08 (£5.93) an hour from 1 October 2011. This is payable to those age 21 and over.

The rate for those aged 18 to 20 increased to £4.98 (£4.92) and for 16 and 17 year olds to £3.68 (£3.64) an hour.

The apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship, increased to £2.60 (£2.50) and hour.

Updated guidance available on the Business Link website includes specific situations such as those engaged on work experience or internships and their entitlement to the NMW. The guidance also includes a new worker checklist for employers and case study examples.

The press release confirms:

‘Entitlement to the NMW does not depend on a job title but on whether the arrangement they have with an organisation makes them a worker for NMW purposes. Where an individual is a worker - and no exemption applies – then they must be paid at least the NMW.’

 Employment Relations Minister Edward Davey said: 

‘Internships and work experience of all forms offer an excellent opportunity in helping to bridge the gap between education and the workplace. And for businesses it allows them access to a wide talent pool of some of our best and brightest who didn’t take the traditional route into a job.

 Fairness though is absolutely paramount with all placements. When a worker is entitled to the minimum wage, they should be paid it and we will continue to enforce the law. Today’s publication will help clarify this for employers and will also make sure that all interns and those on work experience placements have a better understanding of their entitlement to the minimum wage.’ 

HMRC are able to charge penalties to those employers found to be in breach of the NMW rules.

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REVISED CONSTRUCTION INDUSTRY PENALTIES - 14 OCTOBER 2011

From October 2011 the late submission Construction Industry Scheme monthly returns will result in revised penalties. The penalties are as follows:

• a basic penalty of £100 for failure to meet due date of the 19th of the month
• where the failure continues after two months after the due date, a further penalty of £200 will be charged
• after six months an additional penalty will be due, rising to the greater of 5% of the tax or £300
• after 12 months a further penalty will again be due being the greater of £300 or 5% of the tax but, where the withholding of information is deliberate and concealed, it will be 100% of the tax (or £3,000 if greater) and where information is withheld deliberately 70% of the tax (or £1,500 if greater).

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DATA PROTECTION BREACH - 10 OCTOBER 2011

The Information Commissioner’s Office (ICO) has ruled that cosmetics retailer Lush breached the Data Protection Act after the security of its website was compromised. The breach, which happened between October 2010 and January 2011, meant that hackers could access the payment details of 5,000 customers who had previously used the company’s website.  

Lush has signed an undertaking to ensure that future customer credit card data will be processed in accordance with the Payment Card Industry Data Security Standard.  

The ICO is warning online retailers that if they do not adopt this standard, or provide equivalent protection when processing customers’ credit card details, they risk enforcement action from the ICO.

Lush discovered the security lapse in January 2011 after receiving complaints from 95 customers who had been the victim of card fraud. On investigating, Lush discovered that hackers had managed to access their customers’ payment details. 

The ICO’s investigation found that Lush’s systems were not sufficient to prevent a determined attack on their website. The business’s procedures for recording suspicious activity on their website were also insufficient, causing a delay in identifying the security breach.

 Acting Head of Enforcement, Sally Anne Poole said:

‘With over 31 million people having shopped online last year, retailers must recognise the value of the information they hold and that their websites are a potential target for criminals.’

‘Lush took some steps to protect their customers’ data but failed to do regular security checks and did not fully meet industry standards relating to card payment security. Had they done this, it may have prevented the fraud taking place and could have saved the victims a great deal of worry and time invested in claiming their money back. This breach should serve as a warning to all retailers that online security must be taken seriously and that the Payment Card Industry Data Security Standard or an equivalent must be followed at all times.’

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HIGHER RATE TAX RELIEF FOR CHILDCARE COSTS - 5 OCTOBER 2011

From 6 April 2011, the amount of tax-free childcare that higher rate taxpayers can receive was cut by up to half. But a loophole in the rules might allow you to claim the full amount. What’s the full story?

Crisis Cuts 

A couple of years ago the then Chancellor, Mr Darling, came up with the idea of scrapping the exemption for childcare costs paid for by employers. But he hadn’t banked on the strength of support for this tax break and was forced to back down, at least part-way. In the end he settled for scaling down the tax exemption for those employees and directors who pay tax on their earnings at higher rates.

How much tax relief

The new rules from 6 April 2011 say that childcare costs will be tax-exempt only for employees who pay tax on their earnings at the basic rate, i.e. 20%. And because the tax-free amount is capped at £55 per week, the maximum tax saving is no more than £11 per week (£55 x 20%). The new rules work by reducing the amount of childcare payments a higher rate taxpayer can receive tax-free, so that overall the tax they save doesn’t exceed the £11 per week maximum. But the drafting of the rules has left the door open for some higher rate taxpayers to receive up to £27.50 per week tax relief. 

How the rules should work 

Example 1. Jane earns £60,000 per year as an employee. She pays tax at 40% on her earnings above the basic rate limit. In August 2011 she joins her company’s childcare scheme and starts to receive £55 per week in vouchers she can use towards her childminding costs. Because Jane is a higher rate taxpayer some of the vouchers (£17) lose their tax-free status. The remaining £28 will be exempt; so as she pays tax on her income at 40%, her saving is £28 x 40% = £11 per week.

The earnings loophole 

Example 2. Joe is the manager of A Ltd, he earns £40,000 in salary and benefits-in-kind (BiK). He also has a profit from his own business of £20,000 per year. His total income means that he pays tax at 40%, but it’s only 20% on his salary because it falls below the point at which higher rate tax is charged. Like Jane he also receives vouchers for childcare at the tax-free maximum of £55 per week. But even though he pays tax at the higher rate on his total income, because he is a basic rate taxpayer on his salary and benefits, the full £55 of childcare vouchers are tax-free. Despite Joe’s total income being the same as Jane, he’s better off than her by £11 per week because the full £55 is exempt, saving him £22 (£55 x 40%) per week.

The amount of tax exemption depends on the rate of salary and BiK you are sure of earning at the beginning of the tax year and not what you might eventually receive by the end of it. 

Example. If your basic annual salary is £30,000, but you top this up later with a bonus of, say £50,000, when you know how much profit your company has made, you’re entitled to receive the full tax exemption on £55 per week childcare costs. This is because at the beginning of the tax year you can’t be sure how much bonus your company will be able to afford, so the rules say that you only need to take into account your basic salary and BiKs. By setting these below the level at which higher rate tax applies, usually £42,475, you can receive the full £55 per week childcare costs as a tax-free perk even where you later take a bonus or other income which makes you liable to higher rate tax.

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SIMPLIFIED BUSINESS REPORTING / STATUS OF CAR VALETERS - 3 OCTOBER 2011

Proposals for simplified smaller business reporting

The Department for Business Innovation and Skills, along with the Financial Reporting Council, have issued a discussion paper outlining proposals to simplify the financial and corporate reporting requirements for the smallest businesses - so called 'micro-entities'. European Commission proposals currently being considered define a micro-entity as a company trading for profit and not exceeding two of the following criteria:

- a net turnover of Euro 500,000 (£440,000)

- a balance sheet of Euro 250,000 (£220,000)

- average of 10 employees during the financial year.

The paper proposes that micro-entities would be able to prepare:

- a simplified Trading Statement in place of the current profit and loss account on a cash receipts and payments basis;

- a simplified Statement of Position replacing the traditional Balance Sheet and reporting using simplified headings;

- a simplified Annual Return;

- use of this simplified information for tax purposes.

Other proposals include filing annual returns within 12 weeks of the financial period end and standardising the reporting year. The discussion paper is open for comment until 30 October 2011.

CAR VALETERS - AUTOCLENZ STATUS CASE  

A Supreme Court judgement has found that workers engaged as car valeters by Autoclenz were in fact employees and not self-employed as Autoclenz had contended.

The case was brought by a group of car valeters engaged by Autoclenz in an attempt to show that they were employees. Autoclenz claimed that a substitution clause in the workers contracts, which obliged the individuals to provide a substitute to perform the cleaning services when they themselves were unable to, meant that the individuals were self-employed.

The Supreme Court confirmed that these clauses were not a true reflection of the reality of the situation and that in fact no genuine right of substitution existed. They therefore concluded that the individuals were working under contracts of employment.

This case could have implications for other employment status cases. We will keep you informed of developments.

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£1,600 - THE COST OF A LATE TAX RETURN - 28 SEPTEMBER 2011

You could face a hefty fine even if you don’t owe HMRC anything.

Tax payers could face a fine of more than £1,600 for filing their returns late- even if they don’t owe a penny in tax- when harsh new penalties come into force this autumn.

There are some 9m self-assessment taxpayers and, in an attempt to crack down on the estimated 1m who file their tax returns late, HMRC has brought in a draconian new penalty regime.

Anyone who files a paper return for the tax year ending 5 April 2011, must ensure it reaches HMRC by midnight on the 31 October. The deadline for filing online is midnight on 31 January, which is also the date by which you must pay any tax due.

Under the previous system, there was a £100 penalty if you filed late, with another £100 fine if you still had not filed six months later. Crucially, however, the penalty could not exceed the amount of tax due- so if you owed no tax, there was no penalty for late filing.

Now, taxpayers who file late will incur an automatic fixed penalty of £100, which will apply even if there is no tax to pay or if the tax due is paid before the 31 January deadline. The clock will also start ticking on further penalties.

If you have still not filed after three months, daily penalties of £10 will start accruing, up to a maximum of £900. After six months, there will be a further penalty of 5% of the tax due or £300, whichever is greater. After a full year’s delay, there would be another 5% or £300 charge. In addition, interest at 3% is levied on the penalties.

This means that, in total, a taxpayer who failed to file their tax return for just over six months would face a penalty of £1,302, rising to £1,621 if they delayed for 12 months- even if they owed no tax. Under the old regime, they would have faced no penalty.

The amount stacks up even further if you owe money to HMRC as interest of 3% is levied on any sum due as well as on the penalties. For example, if you failed to file a return after six months and had £5,000 tax outstanding, the penalties would rise from £277, including interest, under the old regime to £1,377. After 12 months, it would be £1,771, against £455 previously.

If you failed to file a return after six months and owed £50,000, the penalties including interest would soar from £952 to £4,252. After a year, they would total £7,554 compared with £1,805 previously.

Key Dates:

• 5 October: If you think you should submit a self-assessment tax return for the 2010-11 tax year, but have not had a confirmation letter from the Revenue, you must register by this date.
• 31 October: Paper returns must be with HMRC by midnight. To ensure the calculations are done for you, your return must be with HMRC by 30 September. Tax must be paid by 31 January.
• 31 January: This is the deadline for online returns and to pay any tax due for the 2010-11 tax year. It is also when you make the first payment on account for the 2011-12 tax year, if applicable.
• 31 July: Deadline for paying your second payment on account for the current tax year.

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MORTGAGE APPLICATIONS / PENSION ONLINE TOOLS - 26 SEPTEMBER 2011

HMRC TO VERIFY MORTGAGE APPLICATIONS 

HMRC is offering mortgage lenders a new online service which will check details of applicants’ incomes as a way of combating mortgage fraud. Under the Mortgage Verification Scheme, mortgage lenders will be able to send details of applications where they have inadequate evidence of income and suspect fraud to HMRC, who will check the income details declared to lenders against information provided in income tax and employment returns.

HMRC has been working with the Council of Mortgage Lenders (CML) and the Building Societies Association (BSA) on a pilot of the scheme, which was originally announced in the March 2010 Budget and which came into effect on 31 August 2011.

PENSIONS ONLINE INTERACTIVE TOOLS

The Pensions Regulator has launched an online tool designed to help smaller businesses get to grips with their employer duties under the new laws, which start in 2012.  The tools cover issues such as:

·        Find out your staging date (this is the date from which these rules will apply to your business)

·        Your employer duties

·        How to automatically enroll your staff

·        Your minimum employer contributions

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FIVE PLUMBERS ARRESTED - 23 SEPTEMBER 2011

Five plumbers have been arrested and around 600 are under civil investigation by HM Revenue & Customs (HMRC) for failing to pay the right amount of tax.

The arrests and investigations have taken place during a campaign targeting plumbers which invited them to put their tax affairs in order. Some of those involved owe up to £150,000.

This is the start of co-ordinated action and more raids are expected to take place over the coming weeks across the UK, including Yorkshire, Kent, Cambridgeshire, Tyne & Wear, Midlands and South Wales.

John Pointing, Assistant Director, HMRC Criminal Investigation, said:

“These raids and arrests of ‘ghosts’ - people who have not declared income from the work they do - are the culmination of months of work by HMRC.

“We provided a chance for those we have arrested, and the 600 we are investigating, to come forward voluntarily and put things right. These arrests send a clear message that HMRC will take action against those who choose not to come forward and pay the tax they owe.”

Mike Wells, Director HMRC Risk & Intelligence Service, said:

“These arrests are just the start. HMRC is considering hundreds of further cases for criminal investigation in the plumbing and medical professions. Some people may have thought we were bluffing when we said we have information that we will use to prosecute tax evasion.”

Under the Plumbers Tax Safe Plan (PTSP), plumbers, gas fitters, heating engineers and members of associated trades who owe tax that they had not declared faced a penalty rate of only 10 per cent, with a maximum of 20 per cent if they disclose in full. They have until 31 August to arrange for payment.

Although the guarantee of terms within the PTSP are no longer on offer, HMRC has left the PTSP disclosure route open for those in the plumbing industry who have unpaid tax to disclose but who have still not come forward – telephone 0845 600 4507 or visit www.hmrc.gov.uk/trades-disclosure/

Notes

1. HMRC launched a campaign – PTSP - on 1 March this year targeting plumbers, gas fitters and heating engineers who were suspected of under-declaring tax. They had until 31 May to tell HMRC of their intention to disclose what they owed. The PTSP provided an opportunity for them to come forward voluntarily and put their tax affairs in order.

2. Information on campaigns for 2011, including how people can work with HMRC to influence the campaigns’ development, is available at http://www.hmrc.gov.uk/ris/hmrc-campaigns.htm.

3. A campaign targeting VAT cheats was launched this month and further HMRC campaigns targeting private tutors and e-marketplaces will begin during the next year.

4. Those who believe forthcoming campaign activity might apply to them and who want to come forward now and voluntarily disclose unpaid tax should call 0845 601 5041.

5. HMRC has instigated criminal investigations against a number of plumbers and have already carried out raids and arrested 5 individuals in London, Ringwood - Hampshire, West Ewell - Surrey, Twickenham - Middlesex and West Bromwich – West Midlands for suspected tax fraud.

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WORKPLACE PENSIONS REFORM - 12 SEPTEMBER 2011

The government has introduced measures aimed at encouraging greater private saving which includes workplace pension reforms. New legal obligations will require employers to automatically enrol their eligible jobholders into a qualifying pension scheme. 

A new workplace pension scheme called NEST (National Employment Savings Trust) will be one of the qualifying schemes and will be open to any employer who wants to use it to meet their obligations.

The initial roll out of the scheme will be October 2012 but this will impact on employers with 120,000 employees or more. For those with a more modest workforce the start date varies; for example, those with less than 500 employees the date is 1 January 2014 and for those with less than 50 employees the earliest start date is 1 March 2014.

Employees eligible for automatic enrolment will be:

• those who are not already active members of a qualifying scheme
  are aged at least 22 years and below the State Pension age, and
• earn over £7,475 gross a year.

 The qualifying scheme may be the existing employer pension scheme if it meets certain conditions or if an employer does not have a qualifying scheme, they will have to set one up or use a NEST pension scheme.            

Minimum contributions levels for qualifying schemes are as follows: 

Employees will be able to opt out of the scheme if they so wish. However, for those employees within the scheme it is expected that the employer will have to contribute at least 3% of ‘qualifying’ earnings. These earnings are the employees’ basic salary plus commissions, bonuses and overtime between £5,035 and £33,540 a year (in 2006/07 terms but to be uprated). Pension contributions are to be phased in. 

A great deal more information is starting to be released and can be viewed via The Pensions Regulator website.

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FIRST AID BOXES - 5 SEPTEMBER 2011

Peninsula Business Services have recently published the following article about First Aid boxes. Don’t get caught out!!

The Health and Safety (First Aid) Regulations 1981 require employers to “provide such equipment and facilities as are adequate and appropriate in the circumstances for enabling first-aid to be rendered to employees if they are injured or become ill at work.” The regulations do not explain what is adequate and appropriate. Guidance is given in an HSE published Approved Code of Practice (ACoP). Last revised in 2009 the ACoP says that the contents of the first aid box should be based on an assessment of what is necessary for the hazards and risks at the particular place of work. The code of practice suggests a minimum suitable stock of first aid items for places “where work activities involve low hazards.”

BS 8599 is an entirely new standard. It has its origins in and replaces BHTA (British Healthcare Trades Association) guidelines on the contents of first aid kits that were published in 1997. These guidelines are not mentioned in the Approved Code of Practice. The key legal requirement is to assess what is necessary for your workplace. In ‘low hazard low risk’ workplaces a first aid kit stocked to the new BS could be over the top, whereas in some higher risk premises the nature of the hazards present and the work done could make even a BS approved kit too small. 

Suppliers will tell you “As member of the BSi standards committee, the HSE have been heavily involved with the development of the new standard.” They seek to give the impression that, because of the HSE’s involvement, the new standard has some legal standing. 

That is not the view of the Health and Safety Executive. The Federation of First Aid Training Organisations recently sought the view of the Executive when they heard similar claims being made by BHTA members and first aid suppliers. The response confirms that the position set out in the Approved Code of Practice has not changed.

Confirming advice given in a telephone call, Andrew Moor of HSE’s Corporate Medical Unit wrote – 

“As I said in our telephone conversation from HSE’s perspective the contents of the first aid kit are dependent on the needs assessment. All L74 provides is a suggested minimum list of contents for a low hazard environment. It doesn’t matter, provided the needs assessment has been done whether a duty holder creates, purchases a kit of (sic) the shelf or a bespoke first aid kit, or purchases a kit that matches standard BS 8599. HSE will not be taking action against anyone who has a non-BS8599 kit but it meets the needs assessment of that workplace after the 31st December 2011. Obviously, purchasing a BS5899 kit could provide one means for a duty holder to discharge part of their first aid responsibilities but it is not the only way.”  IIf you have assessed your first aid needs and the first aid kit you have meets those needs you have complied with your legal obligation. Whatever the sales rep. says you do not need to replace it with one that meets the new British Standard. Do not be pressured into spending where there is no need to do so.

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TRENDS IN TAX INVESTIGATIONS - 24 AUGUST 2011

Throughout most of 2009 our tax investigation insurers reported a lull in HMRC activity, perhaps as they got to grips with the new powers granted by Sch36. However for the latter part of 2009 and throughout 2010 they report that there was a steady increase in claims levels. This has continued into 2011, with claim notifications in the first 6 months of 2011, 52% higher than the first 6 months of 2010.

Consequently, for every 100 businesses, two or more are now likely to be subject to an HMRC enquiry each year. These range from simple Aspect enquiries which cost two or three hundred pounds to deal with, to in depth Cross Tax Enquiries (a single enquiry covering Income Tax/ Corporation Tax, VAT and PAYE).

What has caused the increase? It goes without saying and there has been a lot of publicity surrounding the pressure on HMRC to increase tax yields, however this pressure is clearly translating into action by HMRC. In addition 30% of all claims are now PAYE or VAT related. You might want to ask us to do a mini audit of these areas!

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PATENT AND DESIGN RIGHTS / BRIBERY ACT 2010 - 22 AUGUST 2011

The government has announced that it expects small and medium sized businesses to benefit from a new law which gives them easier access to justice to protect their patent and design rights. The introduction of a  damages cap of £500,000 for claims made in the Patents County Court (PCC) means smaller businesses seeking damages up to that amount are less likely to have to resort to the High Court which could prove more costly.

The Patents County Court (Financial Limit) Order 2011 sets out to create a clearer definition of what disputes can be heard in the PCC and which ones should go to the High Court. Under the previous system businesses with a legal case worth less than £500,000 could face litigation in either court. This potentially exposed them to unknown levels of financial risk.

According to the press release: 

‘The change in law will ensure that lower value, less complex cases, which would typically involve small businesses, will automatically fall within the jurisdiction of the lower, cheaper PCC. Therefore the risk of having costly disputes over where the case should be heard will be reduced. In the past some companies were put off protecting their rights due to the uncertainty of how much it would cost.’ 

Minister for Intellectual Property, Baroness Wilcox said:  

‘Maintaining an effective and efficient intellectual property framework for businesses is not enough to drive innovation. We must offer businesses a more accessible justice system for them to enforce their rights. By making it easier for small firms and entrepreneurs to use the legal processes it will give them more time to concentrate on business activities.’ 

‘These changes will help small businesses and encourage them to innovate. It will also provide clarity over the legal processes, certainty over the risks and give small enterprises the confidence to stand on an equal footing with financially stronger companies.’ 

Bribery Act 2010

The Bribery Act 2010 comes into force on 1 July 2011.  The new Act replaces, updates and extends the existing UK law against bribery and corruption.  This important new legislation: 

• introduces a corporate offence of failure to prevent bribery by persons working on behalf of a business. A business can avoid conviction if it can show that it has adequate procedures in place to prevent bribery;
• makes it a criminal offence to give, promise or offer a bribe and to request, agree to receive or accept a bribe either at home or abroad.  The measures cover bribery of a foreign public official; and
• increases the maximum penalty for bribery from seven to 10 years imprisonment, with an unlimited fine.

The introduction into law of the new corporate offence of failure of commercial organisations to prevent bribery is an important development that essentially requires all businesses to consider the requirements of the new Act.  This new corporate offence is coupled with a defence where, if the business can show that it had 'adequate procedures' in place to prevent bribery, it can be protected from committing the new criminal offence.   

All businesses should familiarise themselves with the statutory guidance and assess the risk of bribery occurring in the business. The extent of any further action will be dependent on the results of this risk assessment.

The Act also requires the government to produce guidance on what constitutes 'adequate procedures' and the Ministry of Justice has produced this.

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AGENCY WORKERS GUIDANCE / CONSULTATION ON RESIDENCY - 16 AUGUST 2011

The government has published guidance to help employers and the recruitment sector prepare for the introduction of the Agency Workers Regulations.

The Regulations which implement the EU Agency Workers Directive come into force in the UK on 1 October 2011. These regulations give agency workers the right to the same basic employment and working conditions as if they had been recruited directly by the hirer. These employment rights will apply when they complete a 12 week qualifying period in a job.

As detailed in the press release the rights include key elements of pay, duration of working time, night work, rest periods and breaks, annual leave and paid time off for ante - natal appointments. The Regulations also include

new entitlements for agency workers from ‘day one’ of their assignment with regards to access to facilities at the workplace and the right to be notified of any relevant vacancies.

The Directive states that rights should apply from ‘day one’ of an agency worker’s assignment. However Member States are allowed some flexibility as to how this principle is applied including the possibility of a qualifying period before the right to equal treatment arises. The UK, following agreement between the government CBI and TUC, has agreed a qualifying period of 12 weeks.  

Employment Relations Minister Edward Davey said: 

‘The agency sector is a key part of the UK’s flexible labour market. It provides the flexibility needed for employers to meet surges in demand, cover temporary absences or cope with seasonal fluctuations and provides a route into employment for thousands of individuals.’  

‘The Agency Workers Regulations have been on the statute book since January 2010 and followed negotiations between the CBI and TUC. We looked carefully at the possibility of amending the Regulations to address employers’ concerns but were forced to conclude that we could not do so without putting the 12 week qualifying period at risk. This qualification period is something that is a key flexibility that we know is vital to business.’ 

‘Our focus therefore has been providing the best possible guidance to help everyone affected understand these regulations. We have collaborated with key organisations including employment agencies, employers, trade unions and representative bodies to develop this guidance and I believe the resulting document will help prepare everyone for the forthcoming changes.’

Separate guidance is to be published for the agency workers themselves.

CONSULTATION ON RESIDENCY

Over recent weeks, HMRC have issued numerous consultation documents totalling hundreds of pages. 

One of these details how individuals will be judged to be resident or not resident in the UK for tax purposes. 

The government proposes to introduce a statutory residence test (SRT) to take into account both the amount of time the individual spends in the UK and the other connections they have with the UK. 

There are parts of the test where a distinction will be made between:

• arrivers - defined as individuals who were not UK resident in all of the previous three tax years; and
• leavers - defined as individuals who were resident in one or more of the previous three tax years.

The SRT will:

• determine tax residence for individuals but not companies
• apply for the purposes of income tax, capital gains tax and inheritance tax
• not apply for non-tax purposes (including national insurance contributions), and
• supersede all existing legislation, case law and guidance for tax years following its introduction.

The SRT will have three parts: 

• Part A contains conclusive non-residence factors that would be sufficient in themselves to make an individual not resident.
• Part B contains conclusive residence factors that would be sufficient in themselves to make an individual resident.
• Part C contains other connection factors and day counting rules which will only need to be considered by those whose residence status is not determined by Part A or Part B.

The above is part of a consultation process at present. HMRC intend to implement the measures from 6 April 2012.

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HMRC's 'TAX CHEATS' AND 'TAX DODGERS' CAMPAIGNS - 8 AUGUST 2011

HMRC are introducing specialist teams which will undertake intensive bursts of compliance activity in specific high risk trade sectors and locations across the UK.

HMRC state that the first task force will focus on the restaurant trade in London over the coming weeks, with the restaurant trade in Scotland and the North West later.

Mike Eland, Director General Enforcement and Compliance, said:

‘These task forces are a new approach which uses HMRC’s resources to identify and tackle rule-breakers and evaders swiftly and effectively.’

'Only those who choose to break the rules, or deliberately evade the tax they should be paying, will be targeted. Honest businesses have absolutely nothing to worry about.’ 

‘But the message is clear – if you deliberately seek to evade tax HMRC can and will track you down, and you’ll face not only a heavy fine, but possibly a criminal prosecution as well.’ 

HMRC are planning a further nine task forces in 2011/12, with more to follow in 2012/13.

HMRC EXTEND 'TAX CHEATS' CAMPAIGN

HMRC have announced that they will be launching new campaigns over the next year targeting VAT defaulters, private tutors and e-marketplaces. HMRC will use more IT, such as ‘web robot’ software, to search the internet and find targeted information about specified people and companies. Using the software, HMRC feel that they can pinpoint more accurately people who have failed to pay the right tax. The software, used with HMRC’s Connect computer system, also helps find people who are trading without telling HMRC.

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CBI SURVEY ON SICK DAYS AND THE IMPACT OF FIT NOTES

/ FLEXIBLE WORKING CONSULTATION - 1AUGUST 2011

According to the CBI’s Absence and Workplace Health Survey fit notes have failed to deliver a reduction in sickness absence. This is the conclusion drawn from the new absence figures included in the survey.

The survey showed that the UK economy lost 190 million working days to absence last year, with each employee taking an average of 6.5 days off sick. This is an increase on 2009's figures, which showed employee averages of 6.4 sick days, despite the introduction of fit notes in 2010.

Fit notes were introduced in April 2010 and allow GPs to advise the employer whether the employee could return to work sooner if certain changes were made. Some examples of the changes which could be made would be a temporary reduction in hours or duties (such as lifting, driving etc). See the link below regarding fit notes for more information.

According to the survey employers have been disappointed by their experience of fit notes so far. With 66% of employers saying that fit notes had not yet helped their rehabilitation policy. More than 70% ‘were not confident that GPs were using the fit note differently from the old sick note’.  

Katja Hall, CBI Chief Policy Director, said:  

‘The substantial costs of absence to the economy put a premium on managing longer-term absence well. The fit note is a great initiative, which could play an important role in helping people back to work and stopping them slide into long-term absence. But employers are far from convinced that the scheme is working properly and don't think doctors are getting the necessary training.’

The government is still planning to introduce electronic fit notes and although these were originally expected in autumn 2010 this has been delayed and is now expected in autumn 2011. Katja Hall said:

‘The launch of the electronic fit note should be an ideal opportunity for the Department for Work and Pensions to extend the reach of its training programme and address GPs' engagement. There can be no room for complacency in addressing the so-called sick note culture.’

Flexible Working Consultation

The government has launched a consultation on plans to introduce a new system of flexible parental leave from 2015. This is part of the government’s plans to ‘create a modern workplace for the modern economy.’

According to the press release: 

‘Under the proposals, once the early weeks of maternity and paternity leave have ended, parents will be able to share the overall leave allowance between them. Unlike the current system this leave could be taken in a number of different blocks and both parents could take leave at the same time. Crucially employers would have the ability to ensure that the leave must be taken in one continuous period if agreement can not be reached. They will be able to ask staff to return for short periods to meet peaks in demand or to require that leave is taken in one continuous block, depending on business needs.’

 The Modern Workplaces consultation includes the following proposals:

• flexible parental leave
• 18 weeks maternity leave and pay – in one continuous block around birth
• four weeks of parental leave and pay exclusive to each parent to be taken in the first year
• 30 weeks of additional parental leave available to either parent - of which 17 weeks would be paid and can be broken in blocks between parents
• flexible working - extending the right to request for all workers who have been with their employer for 26 weeks

 Business Secretary Vince Cable said: 

‘Our proposals will encourage greater choice by giving employees and their employers the flexibility to find arrangements to suit them both. New parents should be able to choose their childcare arrangements for themselves, rather than being dictated to by rigid Government regulation as is currently the case. And employers should be encouraged to come to agreement with employees on how work and family responsibilities can be met simultaneously.’ 

‘These measures are fairer for fathers and maintain the existing entitlements for mothers – but crucially give parents much greater choice over how to balance their work and family commitments.’  

‘Of course I’m mindful of the need to minimise the costs, bureaucracy and complexities on businesses. This has been at the forefront of my mind throughout the development of our proposals. So we will ensure that businesses will still be able to take into account their needs when agreeing how leave can be taken. But I’m also confident that we have a good case to make on the wider benefits to business - not least from a motivated and flexible workforce and we will be making this case to employers over the next few years before these changes are introduced.’

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HMRC TRIAL SINGLE COMPLIANCE PROCESS

/ ADVISORY FUEL RATES FOR COMPANY CARS 25 JULY 2011

HMRC have announced trials of a single compliance process for enquiries across a range of different taxes.

According to the press release they believe that:

‘By simplifying and standardising the process for compliance checks HMRC will improve customer experience and reduce costs as the check will only take as long as the risks and behaviours encountered dictate.’

‘The trials of the new process will run for six months from 1 June in 10 different locations across the UK: Reading/Slough, Newcastle, Warrington, York, Exeter, London Euston and Southampton in England; Cardiff in Wales; Belfast and Edinburgh/Dundee.’

‘The new process will be rolled out nationally from January 2012, subject to the results of the trials.’ 

David Gauke, Exchequer Secretary to the Treasury, said: 

‘This Government is committed to relieving the burden on businesses. We know that agents, individuals and businesses find some of HMRC’s current compliance practices drawn out and costly. A single compliance process could help HMRC improve the customer experience and reduce costs.’ 

ADVISORY FUEL RATES FOR COMPANY CARS

New company car advisory fuel rates have been published to take effect from 1 June 2011. HMRC’s website states:

‘These rates apply to all journeys on or after 1 June 2011 until further notice, allowing them to reflect fuel prices more quickly. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.’

The advisory fuel rates for journeys undertaken on or after 1 June 2011 are:

Please note that not all of the rates have been increased, so care must be taken to apply the correct rate. The rate for diesel cars up to 2000cc was previously set at 13p per mile from 1 March 2011. This band has now been split into two, 1600cc or less, and 1601cc - 2000cc. The fuel rate payable for diesel cars of 1600cc or less is reduced by 1p per mile from 13p to 12p so please take care when amending the rates payable.   

Other points to be aware of about the advisory fuel rates:

• Employers do not need a dispensation to use these rates.

• Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.

• The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

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THE OFFICE OF TAX SIMPLIFICATION / BUSINESS REVIEW CHECKS - 18 JULY 2011

The Office of Tax Simplification (OTS) have announced that a review of tax administration for small business is the next task on the simplification agenda.

The OTS reports earlier this year found that tax administration is a key source of uncertainty and complexity for small businesses. Ministers have now asked the OTS to look closer at this issue, focusing on all aspects of the interaction between small businesses and HMRC, and come up with concrete recommendations for improvements.

In a letter to the OTS Chairman, the Exchequer Secretary to the Treasury, David Gauke MP wrote:

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HMRC 'LIGHT TOUCH' / PENALTIES FOR LATE PAYE - 11 JULY 2011

HM Revenue & Customs is planning a 'light touch' approach to inspection procedures designed to make investigations more streamlined.

HMRC has said it wants to avoid the common situation where multiple inspectors would make a compliance visits in consecutive months, according to the Daily Telegraph.

It is testing a new inspection process for six months from June which, if successful, will be rolled out nationally from January. Firms assessed as being at high risk for underpayment of one tax will now be automatically assessed for a full range of taxes.

However, honest traders will be treated with a light touch. An HMRC spokesman said: 'We want to get off the back of honest businesses'.

David Gauke, exchequer secretary, said: 'We know that agents, individuals and businesses find some of HMRC's current compliance practices drawn out and costly. A single compliance process could help HMRC improve the customer experience and reduce costs.

PENALTIES FOR LATE PAYE

Penalties for late paid PAYE and related liabilities began in April 2010. However, due to the way that penalties are calculated, none will have been levied until now. In addition, it is still not clear how the penalty regime will be applied within a tax year. This may not become fully clear until Real Time Information for PAYE is implemented in August 2014.

The new penalties for late payment of PAYE and NIC are determined by the number of defaults (ie late payments) in a tax year. The first default does not attract a penalty if it is the only late payment in the year. However if there are further defaults, the penalty is:

 - When there are 2, 3 or 4 defaults in a tax year the penalty is of 1% of the total of the defaults (including the first)

- When there are 5, 6 or 7 defaults the penalty is 2% of the total of the defaults,

 - When there are 8, 9 or 10 defaults the penalty is 3% of the total amount of the defaults, and

 - For 11 or more defaults the penalty is 4% of the total defaults.  

Any amounts that are unpaid more than six months after the penalty date are liable to 5%, and a further penalty of 5% applies after 12 months. Higher penalties are due when the amounts relate to periods of six months or more. 

Some businesses will be due to pay a penalty for late payments in the 2010/11 tax year, but it is not until after the last payment for the year was due (19th or 22 April 2011) that it is possible to determine the number of defaults in a year and therefore the rate of penalty. 

HMRC have indicated that the penalty would be applied on a risk assessed basis for 2010/11. However it is not clear what HMRC mean by this. For example, a business who has paid £100 per month for 11 months, followed by £5,000 in April to top up the year’s payments to the correct total could be deliberately under paying their PAYE. It is not clear, though, how much of the final payment relates to April. HMRC would not be able to identify the exact amounts that were paid late in the year without a detailed inspection of the records.  

For many businesses, it is possible that PAYE penalties could emerge several years later. For example, the business might have a compliance check and it is found that late payments have been made in earlier years. This could then mean that substantial penalties become due. 

Other PAYE penalties

From 1 April 2011, most employers must now file the in-year forms (P45/leavers and P46/joiners) as well as end-year returns (P14s and P35s) by internet. If you do not file online when required to do so, HMRC may charge penalties from £100 up to a maximum of £3000 depending on the number of forms that should have been filed online. Penalties can also be raised for those who fail to file nil returns.

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THE BRIBERY ACT 2010 - 4 JULY 2011

At the end of March 2011, the Justice Secretary, Kenneth Clarke announced that the Bribery Act 2010 will come into force on 1 July 2011.  The new Act replaces, updates and extends the existing UK law against bribery and corruption.  This important new legislation:

• introduces a corporate offence of failure to prevent bribery by persons working on behalf of a business. A business can avoid conviction if it can show that it has adequate procedures in place to prevent bribery;
• makes it a criminal offence to give, promise or offer a bribe and to request, agree to receive or accept a bribe either at home or abroad.  The measures cover bribery of a foreign public official; and
• increases the maximum penalty for bribery from 7 to 10 years imprisonment, with an unlimited fine.

The introduction into law of the new corporate offence of failure of commercial organisations to prevent bribery is an important development that essentially requires all businesses to consider the requirements of the new Act.  This new corporate offence is coupled with a defence where, if the business can show that it had 'adequate procedures' in place to prevent bribery, it can be protected from committing the new criminal offence. 

All businesses should now familiarise themselves with the statutory guidance and begin to assess the risk of bribery occurring in the business.  The extent of any further action will be dependent on the results of this risk assessment. 

The Act also requires the government to produce guidance on what constitutes 'adequate procedures' and the Ministry of Justice has produced this.

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NATIONAL MINIMUN WAGE RATES - 27 JUNE 2011

The National Minimum Wage (NMW) is a minimum amount per hour that most workers in the UK are entitled to be paid. The rates are reviewed each year by the Low Pay Commission and from 1 October 2011:

• the main rate for workers aged 21 and over will increase to £6.08 (currently £5.93)
• the 18-20 rate will increase to £4.98 (currently £4.92)
• the 16-17 rate for workers above school leaving age but under 18 will increase to £3.68 (currently £3.64)
• the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship will increase to £2.60 (currently £2.50).

Business Secretary Vince Cable said: 

‘More than 890,000 of Britain’s lowest-paid workers will gain from these changes. They are appropriate - reflecting the current economic uncertainty while at the same time protecting the UK’s lowest-paid workers. I would like to thank the LPC for doing a good job in difficult circumstances.’ 

Chairman of the LPC David Norgrove said: 

‘We welcome the Government's acceptance of our recommendations. The Commission was again unanimous, despite all the economic uncertainties. We believe we have struck the right balance between the needs of low-paid workers and the challenges faced by businesses.’  

Penalties for non compliance 

Since April 2009 HMRC have been able to charge penalties to those employers found to be in breach of the NMW rules. Automatic penalties are levied on employers where HMRC officers find NMW arrears.

The penalties range from £100 to £5,000 with 50% prompt payment discounts for employers who settle within 14 days of notification.

The penalty is payable in addition to arrears owed to the workers.  

In serious cases of non compliance the employer may be tried in a Crown Court and in those cases the fines are unlimited.

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LATE PAYE PENALTIES / CHEQUE GUARANTEE CARDS - 21 JUNE 2011

Penalties on late payment of PAYE

HMRC have been warning employers for some time that they may have to pay a penalty if they do not pay their PAYE deductions on time.  The penalties apply to PAYE deductions due for a period starting on or after 6 April 2010 include PAYE, Student Loan deductions, Construction Industry Scheme payments, Class 1 NICs, annual payments of employers' Class 1A NICs and annual PAYE Settlement Agreements payments.

Deductions of PAYE, NICs, Student Loan deductions and Construction Industry Scheme payments are generally due by 19 of each month (or 22 if paid by electronic means and cleared into HMRC’s bank account). Small employers are able to pay quarterly.

Although the penalties apply from April 2010 notices will not be issued until after the end of the tax year and are expected to be issued in April or May 2011. For the majority of late payments the penalties start at 1% increasing to 4% depending on the number of late payments in the year. Extra penalties will be added where liabilities are outstanding for a further six and then 12 months.

 Cheque Guarantee Card Scheme to end 

It has been announced that the Cheque Guarantee Card Scheme will come to an end.

The closure of the Scheme means that it will no longer be possible to guarantee a ‘domestic’ cheque using a card after 30 June 2011. The decision to close the Scheme was taken by the Payments Council as guaranteed cheque use is in decline.  The end of the Cheque Guarantee Scheme does not necessarily mean the end of cheques as businesses may continue to accept them if they choose to do so. However businesses that currently accept cheques with a guarantee card may wish to look into alternative payment methods.

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REAL TIME PAYE INFORMATION - 13 JUNE 2011

HMRC are planning to introduce significant changes to the way in which PAYE information is submitted to HMRC. Currently employers send details of employees pay, tax and national insurance deductions at the end of the tax year (forms P35 and P14). The deadline for the submission of this year’s forms is 19 May 2011. There are penalties, which apply to broadly all employers, for failing to submit the forms on time and electronically, so please get in touch if you require any help in this area.

HMRC are planning to introduce Real Time Information (RTI) a system of monthly/weekly PAYE returns which would replace the annual end of year forms.

As detailed in the HMRC consultation document:

 ‘RTI will collect information about tax and other deductions automatically each time employers run their payroll. This information will be submitted automatically to HMRC at the same time the employees are paid. Where employers pay their employees via BACS, the RTI data will form part of the BACS submission.’  

HMRC hope that this change to the system should mean that employees pay the right amount of tax and are paid the correct amount of state benefits where appropriate.

Following a consultation by HMRC, it has been confirmed that a pilot scheme will run from April 2012. The introduction of the scheme will be phased in and it is expected that all employers will move to RTI by October 2013. Large employers will be expected to use the system from April 2013.

The start date is slightly later than had been originally announced following a consultation with interested parties. 

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RESEARCH AND DEVELOPMENT (R&D) TAX CREDITS - 6 JUNE 2011

Tax investigation insurance specialists Abbey Tax have recently reported on an HMRC Consultation Paper.  Below is a summary of this report. 

HMRC published a Consultation Paper on 17^th December announcing that they intend to start a programme of Business Records Checks (BRCs) that will review both the adequacy and accuracy of business records within the SME sector. The Consultation has a closing date for comments of 28^th February 2011. This is something that could potentially affect almost every business.

• to abolish the rule limiting a company’s payable R&D tax credit to the amount of PAYE and NICs it pays

• to abolish the £10,000 minimum expenditure condition

• to change the rules governing the provision of relief for work done by subcontractors under the large company scheme

• to increase the rate of the additional deduction for expenditure on R&D for SMEs by a further 25% to give a total deduction of 225%

• Vaccine Research Relief will not be available for SMEs.

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