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EWIRES

We send out weekly email bulletins highlighting various issues which may affect you.

If you would like to be included in our weekly emailing list, please contact us at admin@harrisandco.biz.

CONTENTS

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This newswire is printed and published by Harris & Co, Chartered Accountants.  Harris & Co, whilst taking every care, cannot accept responsibility for opinions expressed or the accuracy of articles, and publication does not necessarily imply that they are in agreement with any views expressed.

Further, whilst every care is taken in connection with personal and financial information published in this newswire, Harris & Co cannot accept responsibility or any legal liability whatsoever in respect of any personal or corporate loss or other consequences which may arise therefrom.

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MATERNITY RIGHTS FOR THE SELF-EMPLOYED - 23 AUGUST 2010

KEEP PROPER RECORDS! - 16 AUGUST 2010

STANDARD RATE OF VAT TO INCREASE - 9 AUGUST 2010

CAPITAL GAINS TAX CHANGES - 2 AUGUST 2010

PERSONAL INSOLVENCY FIGURES - 26 JULY 2010

HMRC LAUNCH TAX CREDIT VIDEO - 19 JULY 2010

MOST POPULAR BENEFITS IN KIND - 12 JULY 2010

EMERGENCY BUDGET - 5 JULY 2010

NATIONAL MINIMUM WAGE RATES - 28 JUNE 2010

PENALTY GUIDANCE ON LATE PAYMENT OF PAYE - 21 JUNE 2010

ANNUAL INVESTMENT ALLOWANCE INCREASED - 14 JUNE 2010

CIS LATE PAYMENT PENALTIES - 7 JUNE 2010

HOW TO AVOID THE CGT INCREASES? - 1 JUNE 2010

EMPLOYER SUPPORTED CHILDCARE - 24 MAY 2010

STUDENT LOAN REPAYMENTS - 17 MAY 2010

MANAGED PAYMENT PLANS - 10 MAY 2010

HMRC OFFER ADVICE ON FRAUD EMAILS - 4 MAY 2010

FRAUD - 26 APRIL 2010

TAX CODES BEING ISSUED - 12 APRIL 2010

PAYMENT OF VAT - 6 APRIL 2010

FIT NOTE CERTIFICATIONS - 29 MARCH 2010

TIME LIMITS FOR CLAIMING TAX BACK - 22 MARCH 2010

STATE PENSION AGE IS CHANGING - 15 MARCH 2010

END OF YEAR TAX PLANNING - 10 MARCH 2010

MULTIPLE OR INCORRECT CODING NOTICES - 8 MARCH 2010

TAX CODE PROBLEMS - 1 MARCH 2010

ONE L OF A RECOVERY - SAYS IOD - 22 FEBRUARY 2010

DOES THE COMPANY PAY FOR YOUR CAR? - 15 FEBRUARY 2010

PAYE AND CIS PAYMENTS - 8 FEBRUARY 2010

PRE-BUDGET REPORT - THE UNANSWERED QUESTION - 1 FEBRUARY 2010

PAYROLL ISSUES - 25 JANUARY 2010

ONLINE FILING AND ELECTRONIC PAYMENT - 18 JANUARY 2010

TAXMAN'S POWERS OF ENTRY - 11 JANUARY 2010

PAYING PAYE ON TIME - 4 JANUARY 2010

TEN TAX TIPS TO BEAT THE TAX HIKES NEXT YEAR - 24 DECEMBER 2009

SRAPPAGE SCHEME - 21 DECEMBER 2009

IF YOU TRADE WITH OVERSEAS BUSINESSES - 14 DECEMBER 2009

VAT ONLINE - 14 DECEMBER 2009

IF YOU ARE VAT REGISTERED - 14 DECEMBER 2009

TAX RELIEF ON NURSERY VOUCHERS TO BE WITHDRAWN - 7 DECEMBER 2009

TIPS DON'T COUNT TOWARDS THE NATIONAL MINIMUM WAGE - 30 NOVEMBER 2009

SECOND HOMES - 23 NOVEMBER 2009

HM REVENUE WARN OF MORE SCAM EMAILS - 16 NOVEMBER 2009

HM REVENUE AND CUSTOMS ONLINE FILING - 9 NOVEMBER 2009

PAYROLL ISSUES - 2 NOVEMBER 2009

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MATERNITY RIGHTS FOR THE SELF-EMPLOYED - 23 AUGUST 2010

It appears as though the self employed will become entitled to maternity leave for the first time under new laws introduced by the European Union (EU).

The new rules provide equivalent access to maternity leave as for employees but on a voluntary basis. The EU is expected to adopt the legislation at the end of June and then EU countries will have two years to introduce it into national law. So…watch this space.

Back to contents  

Back to contents  

HMRC are advising businesses that from 1 April 2010 all cheque payments by post will be treated as being received by HMRC on the date when cleared funds reach HMRC's bank account. This change does not affect any cheque payments made by Bank Giro.

Affected businesses will need to ensure that they allow enough time for the payment to reach HMRC and clear into HMRC’s bank account. This needs to happen no later than the due date shown on their VAT return.

 
According to HMRC’s guidance:

“A cheque takes three bank working days to clear. Bank working days are Monday to Friday excluding bank holidays. 

To allow for possible postal delays (for which HMRC is not responsible) please allow at least three working days for the cheque payment to reach them and a further three days for the payment to clear HMRC’s bank account.If your cheque payment does not clear by the due date shown on your VAT return you may be liable to a surcharge for late payment.” 

From 1 April 2010 it will be mandatory for all VAT-registered traders with a turnover of £100,000 or more, plus any newly registered traders (regardless of turnover), to submit their returns online and pay electronically. For guidance about electronic payment methods go to HMRC's website.

FIT NOTE TO BE INTRODUCED FROM 6 APRIL 2010

The following is an extract from Peninsula Business Services regular newsletter called The Bottom Line:

On 6th April 2010 new fit note certifications will replace the current Med 3 sick notes currently filled in by GPs.

The fit note differs from its predecessor the Med 3 as it allows GPs to suggest a return to work with adjustments through the introduction of a new option: "May be fit for work taking account of the following advice". If the GP completes this option, they should also describe the functional effects of the employees condition, with the option of setting out suggested temporary arrangements which could help them back to work, such as a phased return, altered hours, amended duties or workplace adaptations.

If an employer is not able to facilitate a change or adjustment, the GP’s advice on the statement will be evidence that an individual is not fit for work.

Employers that work with occupational health practitioners may disagree with the GP’s advice. But if the employee’s condition constitutes a disability under the Disability Discrimination Act the employer will have a duty to make reasonable adjustments in any event. Employers duties under the Disability Discrimination Act remain unaffected and will continue to apply.

The new fit note will not give doctors the option to deem a patient “fit for work”. The doctor will indicate on the note whether or not they need to assess their patient’s fitness for work again, making the need for a ‘fit for work’ option unnecessary. A ‘fit for work’ statement is not generally needed for employer liability insurance reasons, and it is the employer’s responsibility to carry out a risk assessment when an employee returns to work to ensure there is minimal risk to the employee and others in the workplace.

The fit notes have already been subject to criticism on the grounds that GPs have not been sufficiently trained in occupational health to make an informed assessment of the employees work-related capabilities.

According to recent research, only one in 20 GPs follow government advice on sick leave, with employees often being signed off for far longer than the time recommended, and an enormous disparity between GPs in the amount of time signed off for the same conditions. Most GPs felt that patients and GPs have equal influence on the length of the period covered by the sickness certificate.

Many are sceptical about the willingness of GPs to change their practice, especially as doctors are being cautioned against giving anything other than the most general advice on medical fit notes.

It is unlikely that the new fit notes will make much difference in practical terms, so employers wishing to tackle sickness absence at work should continue to:

• encourage dialogue between the employer and employee;
• make it clear that they want to try to get the employee back to work;
• give support including, where appropriate, adjustments such as a phased return, to help the employee get back to work;
• consider referral for an independent assessment from a specialist doctor or occupational health expert where appropriate; and
• provide appropriate training for line managers.

 The time limits for claiming tax back are changing

Anyone who has overpaid income tax can claim it back but the time limits for doing so are changing. 

Most people claim what they are entitled to in the year they make their Self Assessment tax return.  However, if your circumstances change you may be entitled to claim back tax you have already paid in earlier years.

For people whose tax liability is fully dealt with under PAYE and who are not asked to make a return, the time limit will reduce from approximately 6 years to 4 years from 1 April 2012.

For those who make a Self Assessment return the time limit will change sooner - on 1 April 2010.  This means that if you have a claim for the tax year 2004-05 you need to make it by 31 March 2010.  If you have a claim for the tax year 2005-06 you must make it by 5 April 2010.

State Pension Age (SPa) is changing between 2010 and 2010

Equalisation of SPa

As a result of changes brought in by the 1995 Pensions Act, from 6 April 2010 the age at which women reach SPa will gradually rise to become the same as it is for men (65).  The changes will be phased in between 6 April 2010 and 6 April 2020 on a sliding scale, and will affect women born between 6 April 1950 and 5 April 1955.  All women born on or after 6 April 1955 will reach SPa at age 65.

Publicity 

Between April 2009 and January 2012, the Pension Service will write to all women affected by this change to advise them of their new SPa date and provide them with some general information about the Pensions Reforms.  Some of your employees may be included in the mailings. 

Recording National Insurance Contributions 

Currently, employees who are over SPa (60 for women and 65 for men) do not have to pay employee's National Insurance contributions (NICs).  The employer however has to pay Class 1 category C rate NICs. 

As the SPa for women gradually increases, you will need to deduct, record and pay both employee and employer Class 1 NICs for women over the age of 60 up to their new Spa. 

You will need to ensure that you have accurate dates of birth for all of your employees in order to determine when they no longer need to pay Class 1 NICs because they have reached SPa.  The current edition of booklet CWG2 - Employer further guide to PAYE and NICs - (page 65) gives further information, including the types of proof that you can ask your employee to provide. 

Class 1 category C rate NICs (employer only) will only apply to employees working beyond their SPa.

The Chancellor’s Pre-Budget Report in December 2009 gave the personal allowances, income tax band and NIC rates and thresholds for 2010/11. In light of these, you may wish to take action by 5 April 2010 to save tax. Some of the main issues to consider are set out below. 

Timing of income and tax rates

In 2010/11, if taxable income exceeds £100,000 there is a gradual reduction in the personal allowance, so that it is lost if income exceeds £112,950. The effect is a 60% tax rate on income in the band between £100,000 and 112,950.

It may be better for income that would otherwise fall after 5 April 2010 to be brought forward. Possible examples include dividends. Conversely, tax deductible expenditure might attract tax relief at the higher rate if deferred into 2010/11.  Although deferral of income until after 5 April 2010 may be worthwhile in some cases to delay payment of a tax liability, it is unwise of it then attracts tax at a higher rate; 50% or even 60%! Where appropriate, married couples and civil partners should ensure both spouses make use of their personal allowance and basic rate tax band.

Pension Contributions

 If tax relief is desirable for 2009/10, contributions must be made by 5 April 2010, but tax relief at 50% might be available for 2010/11. The provisions designed to confine income tax relief to basic rate have to be watched.

Tax-efficient investments

 Individuals should consider using their allocation of tax-aided investment opportunities.

ISAs

 £7,200 may be invested in 2009/10 if aged under 50, otherwise £10,200 – of which half may be invested in a cash ISA.   Venture Capital Trusts (VCTs) Income tax relief at 30% is available on up to £200,000 subscribed for shares in VCTs provided that the shares are held for a qualifying period of at least three years. Subject to limits on the size of holdings there are also exemptions from tax for dividends from VCTs and gains realised on disposal of shares in VCTs. 

Enterprise Investment Scheme (EIS) investments

 Income tax relief at 20% is available on up to £500,000 subscribed for shares in companies qualifying for EIS relief, with any gain on their sale exempt from capital gains tax, provided that the shares are held for a qualifying period of at least three years. Furthermore, capital gains tax on a gain realised up to three years earlier may be deferred by a subscription of the same amount for shares in EIS-qualifying companies.  

Charitable giving

 Unless your marginal will be 50% for 2010/11, it is better to give by 5 April 2010 rather than later. You may elect to treat gift aid donations made between 5 April 2010 and the date you file your tax return (but not later that 31 January 2011), as though they were made in 2009/10 for income tax purposes.

Pre-owned assets

 Action by 5 April 2010 could avoid or reduce the income tax liability on the benefit from ‘pre-owned assets’. This liability may apply if individuals continue to use land or buildings, or use or possess chattels (such as a yacht or painting) which they have previously owned but have transferred to another person.

 It can also cover the situation where the donor has contributed to the purchase of an asset he or she uses but does not own.

The tax liability for 2009/10 on land and chattels (but not intangibles) can be mitigated by paying rent by 5 April 2010 under a legal obligation. Alternatively, if the benefit first became changeable in 2009/10, any income tax liability may be avoided through making an election by 31 January 2011, the effect in some cases being to treat the affected property as still included in the estate of the previous owner and therefore potentially subject to inheritance tax ion their death. 

Capital gains

 Deferral of a disposal which gives rise to a capital gain until 2010/11 may be worth considering, as the capital gains tax (CGT) is then payable a year later.

Deferral may also mean that certain disposals become eligible for entrepreneurs’ relief, under which gains are taxed at 10% rather than 18%. This relief requires assets to have been owned for a minimum period. 

Inheritance tax

 There are a number of exemptions for gifts which do not depend on surviving at least seven years, which is normally the case with inheritance tax (IHT). 

An individual may give up to £3,000 each year ending 5 April, together with any part of that ‘allowance’ not used in the preceding year.

In addition, up to £250 may be given outright to any number of recipients each year. There are special exemptions for gifts made on marriage or civil partnership. The allowance is £5,000 for the parents of the couple, £2,500 for grandparents and remoter ancestors and £1,000 in other cases.  

One important exemption often overlooked is that for regular gifts out of income. Such gifts are exempt without upper limit provided the donor’s remaining net income is sufficient to maintain their usual standard of living. Despite the change in the IHT treatment of gifts into trust, a trust may be a suitable vehicle to receive such gifts. 

Lifetime gifts of assets likely to increase in value are also worth considering, as further growth in value during the donor’s lifetime escapes IHT even if he or she does not survive the requisite seven years.

HM Revenue & Customs has recently introduced a new National Insurance and PAYE system and is using it to issue notices of tax coding for the first time. The new system creates a single record for customers and this, together with increased automation, is resulting in many more people receiving coding notices this year and having more accurate codes than before.

The transition to the new system has, however brought to light discrepancies in HMRC existing records and this is resulting in a number of incorrect notices being issued. The vast majority of notices will be correct but there will be cases where, because the data carried over from HMRC old systems does not match employers’ data, some people receive an incorrect coding notice or more than one coding notice for the same employment because of these discrepancies. This is a transitional issue caused by data mismatches, rather than an IT issue and will be resolved once HMRC have cleared these from the system.

 HMRC are aware of the issue and have apologised for any inconvenience caused. There is plenty of time to put the codes right before the start of the tax year and HMRC are doing everything they can to rectify the position and ensure no one pays too much tax when the new tax year starts in April 2010.

However, anyone who is concerned that their code may be wrong should check it using the guidance included with the code and on the HMRC website.

If you cannot resolve their query, you can telephone 0845 3000 627 so HMRC can ensure the right tax code is applied in time for the start of the new tax year on 6 April 2010.

HMRC urged to take action over tax code problems

HM Revenue and Customs (HMRC) are being urged to do more to alert people that they may have been sent the wrong tax code.

The extent of the problem is shown by the fact that HMRC is issuing around 25 million tax coding notices this year, roughly double the number issued last year. It is clear that a significant proportion of these are wrong. Those affected have been sent a wrong tax code by HMRC as a result of an error in a new PAYE system. Many people with one job are receiving two (or more) tax coding notices with different codes shown. If not corrected by HMRC in the next few weeks, wrong information will be sent to huge numbers of employers and pension companies which will lead them to deduct the wrong amount of tax from many of their employees and pensioners.

Business leaders are pessimistic about prospects for the UK economy.

GDP growth is forecast at just 0.5 per cent in 2010 and 1.5 per cent in 2011. The most likely outturn, according to the IoD, is not zero quarter-on-quarter but an L shaped recovery with very weak quarter-on- quarter growth in 2010-11. The IoD also argues there is a significant risk of a double-dip or even a triple-tumble scenario.

There are 3 key swing factors underpinning these relatively pessimistic forecasts. First, broad money supply growth remains very weak and it is difficult to believe a sustained recovery can be established until money supply growth accelerates significantly towards 5-6 per cent or more and is maintained at this growth rate.

Second, the recession has been 'abnormal' and we see every prospect of the recovery being 'abnormal' as well. Continued balance sheet adjustment - both household and corporate sectors - and de-leveraging are likely to restrain consumer spending and business investment.

Finally, the post-election fiscal tightening will reduce growth, particularly in 2011. The fiscal tightening will be less negative if it comes via lower spending as opposed to higher taxation.

Commenting on the economic outlook in 2010-11, Graeme Leach, Chief Economist at the IoD said:

"We are very doubtful of a sharp bounce back in 2010. It would seem that de-leveraging and debt reduction are the priorities for consumers and companies and until this balance sheet adjustment process fully unwinds we don't believe sustainable growth will occur. Yes there could be an occasional spurt of activity, but the next 2 years look pretty glum."

It is quite common for companies to enter into leasing and HP arrangements and then charge the costs to the directors’ loan account. The director would then claim business mileage for any miles they travelled on the company’s business.

You wouldn’t think that this could give rise to any tax issues, but a recent tax case has shown that there are some hidden tax bills.

Whitby & Anor v R & C Commrs [2009] TC 00255; [2009] UKFTT 311 (TC)

Summary

The tribunal decided that an arm's length car leasing arrangement between an employer and its employees could give rise to a taxable benefit received by the employees; since the employees did not own the cars but had permission to use them, the cars came within the charge to tax under ITEPA 2003, s. 114.

Facts

The taxpayers were directors of a company. In common with a number of other employees of the employer they entered into car leasing contracts with the employer. Following a PAYE audit visit in April 2006 HMRC formed the view that there were income tax and National Insurance (NI) implications of the car arrangements that had not been properly reported. HMRC raised income tax assessments on the employees and NI determinations on the employer.

Around 2003 new arrangements the holding company bought around a dozen cars and leased them to the employer. The employer in turn leased them to certain employees including the taxpayers.There was no restriction on the use of the cars, so that they could be used by the lessees for private purposes as well as work duties, and they could also be used by spouses. The employees were entitled to claim a mileage allowance from the employer to cover business mileage. Mileage logs were kept to justify the claims. Only business mileage, not private travel, was eligible. Claims were paid at the approved mileage allowance payments rates allowed by statute.

Following the PAYE audit HMRC formed the view that the cars, notwithstanding the leasing arrangements, gave rise to a benefit in kind; that scale benefits for both the car and fuel were taxable; that the mileage allowances gave rise to further taxable benefits; and that some mileage allowance payments had covered private, as opposed to business, mileage in that they related to home-to-work travel. The taxpayers appealed to the tribunal as test cases for all the other employees.

Issue

Whether the provision of cars to the taxpayers by the employer gave rise to benefits in kind.

Decision

The First-tier Tax Tribunal (Peter Kempster and Mohammed Farooq) (dismissing the appeals) said that the cars had been made available to the taxpayers within the meaning of ITEPA 2003, s. 114. In Christensen v Vasili [2004] BTC 318, a case concerning a car jointly owned between employer and employee, Pumfrey J concluded that the words 'made available (without any transfer of the property in it)' were not to be construed in a manner which had the result that the conferring of any interest upon the employee sufficient to give the employee an independent right to possess and use the asset was sufficient to prevent the car from being 'made available'. If that was the case for co-ownership then it also had to be the case for a lessor/lessee relationship.

During the negotiations leading up to the issue of the assessments, HMRC had accepted that a deduction under s. 144 was available in respect of the car lease rentals paid by the employee. Accordingly, the cars fell within the provisions of ITEPA 2003, Pt. 3, Ch. 6 by virtue of s. 114 and the cash equivalent of the car benefit was taxable as earnings by virtue of s. 120 and was calculated according to s. 121, HMRC having agreed that the lease rentals paid by the employee could be deducted under step 8 of the calculation in s. 121(1). For all the employees the cash equivalent of the fuel benefit was taxable as earnings by virtue of s. 149.

For those employees who received no payment for their private use fuel, the amount of the fuel benefit was nil by virtue of s. 151. For those employees who inadvertently received payment for some private use fuel, the amount of the fuel benefit was calculated according to s. 150. The mileage allowance payments did not constitute approved mileage allowance payments (AMAPs) within s. 229, because the cars were company vehicles within s. 236(2) and thus excluded by s. 229(4), and so the relief afforded to AMAPs by s. 229(1) was not available.

The cash payments of mileage allowances constituted emoluments and thus earnings of the employees (s. 62) and HMRC had agreed that the taxable amount of the mileage allowances could be reduced by the advisory fuel rates. The taxable amount of the mileage allowances could not be further reduced by reference to the lease rentals paid by the employees

 CONCLUSION 

The conclusion from the case is that if you are a director, you must in no circumstances get the company to enter into a leasing or finance arrangement for a car, even if you pay for it, as you will be assessed on a benefit in kind.

PAYE and CIS payments – new penalty scheme from 6 April 2010 

At the moment, there is no penalty for paying your PAYE or CIS late. This will all change from 6 April 2010. The current aim of HMRC is to implement the new PAYE/CIS late payment penalties with effect from 6 April 2010.

The liability to a penalty will be based on a totting up procedure depending on the number of defaults during a tax year. A penalty will not be levied for the first default and will then rise as follows: 

• up to three defaults - 1% of total amount of those defaults;

• four, five or six defaults - 2% of the total;

• seven to nine defaults - 3% of the total; and

• ten or more defaults - 4% of the total. 

If any tax is unpaid six months after the penalty date, then a penalty of 5% is levied and a further 5% can be levied after 12 months.

Following Alistair Darling's December pre-Budget Report, we now have the Treasury Projections for the next few years.  From these figures, the Treasury will need about £76 billion to fix the public finances. 

The Institute of Fiscal Studies has looked at Darling's figures and calculated the following:

                                         £ Billion

Tax increases                         16

Current spending cuts            18

Investment spending cuts      13

                                              47

Unknown                              30

                                              77

The Chancellor's figures indicate a £30 billion black hole - and he hasn't announced how it will be filled.  The Chancellor did give an indication that spending levels would be maintained, so it is highly unlikely that the £925 per family black hole will have to come from more tax rises in the future. 

It is anyone's guess where these tax rises might come from but they'd have to be the equivalent of about a 2p rise in the basic rate of tax from 20p to 22p. 

We will be keeping a close eye on the Budget in March (depending on when the election is) but it looks like tax rises are guaranteed.

PROOF OF ENTITLEMENT TO WORK IN THE UK 

It is a legal requirement of the UK legislation that those legally entitled to live and work in the UK can commence employments, checks are to be made on all employees. 

It is an employer's responsibility to ensure they have received documentary evidence that employees have permission to work in the UK.  This should be done, either on or before their first day of work

Failure to have this information may result in the employer being fined. The penalties for employing migrants who are not entitled to work here are fines up to £10,000. 

Documents for evidence should be one of the following:

 -    documents or European Economic area passport

-    a UK residence permit siiued to a national from an EEA Country/Switzerland

-    a UK endorsed travel document

 Or

 -   a document with evidence of a permanent National Insurance number (P46/P60) and one of the following:

     -   birth certificate

    -   a certificate of naturalisation as a UK citizen

    -   an endorsed letter from the home office

    -   work permit issued by Works Permit UK

  And

one of the following:

 -    a passport or travel document endorsed by UK Home Office

-    an endorsed letter issued by UK Home Office.

Important changes for online filing and electronic payment are on the way.

In 2006, a government report recommended online filing for businesses and IT literate individuals by 2012.  Over recent years, HMRC have embarked on an ambitious programmed of creating online filing facilities.  HMRC will be changing the way businesses have to pay a number of taxes and, in addition, certain forms and returns will have to be filed online.

The taxes that are moving to compulsory online filing in the near future are:

-    in-year and end of year PAYE forms for employers;

-    VAT; and

-    corporation tax.

PAYE

Employers with 50 employees or more already have to file their end of year forms (P14 and P35) online.  From April 2009, they also have to file in-year forms (P45, P46 and the new forms P46 (Pen) and P46 (Expat)) online too.  Although the filing of these in-year forms is compulsory, HMRC have stated that the first penalties will not be issued until the quarter beginning 6 January 2010.

Employers with less than 50 employees must file end of year forms online by April 2010 at the latest and file in-year forms online from April 2011 onwards.

It is important to ensure that the payroll software you use has the necessary capabilities to file online and that relevant staff are aware of the requirements.  Where your payroll is small it is also possible to file year end and in-year forms via HMRC online services.

Where we deal with your payroll, we will ensure that the filing of these forms is dealt with on your behalf.

PAYE penalties for late payment

Provisions are being introduced to charge a penalty where tax is paid late.  For PAYE and CIS payments, the liability to a penalty will be based on a totting up procedure depending on the number of defaults during a tax year.  A penalty will not be levied for the first default and will then arise as follows:

-    up to three defaults - 1% of the total amount of those defaults;

-    four, five or six defaults - 2% of the total;

-    seven to nine defaults - 3% of the total; and

-    ten or more defaults - 4% of the total.

VAT

For businesses whose turnover is more than £100,000 (excluding VAT) they will have to file their VAT return online for accounting periods that start on or after 1 April 2010.  In addition, businesses which register for VAT on or after 1 April 2010 will have to file online, regardless of turnover.

In order to be ready for this change it is important that you register with either the Government Gateway or HMRC Online Services, both of which can be accessed from www.hmrc.gov.uk.

Finally, electronic payment will be compulsory from April 2010.

Corporation tax

The main changes to corporation tax will be that, for returns due after 31 March 2011, companies will need to send their tax return and supporting documentation in Extensible Reporting Language (XBRL).  We will ensure that your accounts are produced in the correct format prior to the change.

Companies House has also announced that it will accept company accounts in XBRL, the same format in which all company tax returns must be submitted online to HMRC from April 2011.

What to do now

These new rules may need changes to your business systems.  You can find more technical information about the changes and timescales at www.hmrc.gov.uk/online/index.htm.

If you would like to discuss any of the changes in more detail, please do get in touch.

The ICAEW have heard of a street in the North East of England where several businesses received a surprise visit from someone claiming to be an HMRC officer, in the same afternoon.

This is strange, as HMRC have already stated that its officers will only make unannounced visits to businesses where they suspect serious non-compliance.  This is not likely to be the case for every business on one street.

Where a visit has not been arranged in advance with the business owner, the HMRC officer must bring a notice stating that the visit has been authorised by either the First-Tier Tax Tribunal or by an authorised officer within HMRC.  The officer should also present the business owner with compliance factsheet CC/FS4.

You should be cautious of anyone claiming to be an HMRC officer who turns up without an appointment.  HMRC officers always carry identification documents and should agree to the business owner checking their ID by a phone call to their base office. 

The HMRC officer has no power to force entry to the premises, and the owner can ask the officers to wait outside until we arrive to support you through the visit.

HMRC are warning employers that from May 2010 they may have to pay a penalty if they do not pay their PAYE on time.  These are generally due each month, on time and in full.

HMRC will implement late payment penalties for payments due from May 2010. From then on, employers may have to pay penalties if they make more than one PAYE payment late in a tax year. The new penalties will apply to all employers, including large employers (those with more than 250 employees) who currently are subject to a Mandatory Electronic Payment surcharge.

HMRC are advising employers to let them know if they are likely to have difficulty making a payment on time, so that arrangements can be made and penalties can be avoided. Their guidance states that where employers enter into ‘time to pay’ arrangements, before the liability becomes due, no penalty will be charged. Penalties for late payment start at 1% increasing to 4% depending on the number of late payments in the year. Extra penalties will be added where liabilities our outstanding for a further six and then 12 months.

Tax rates are on the way up next year, so time to think about ways to reduce your tax bill.

1.     ISAS

The over 50's can now put another £3,000 pa into tax free ISAs.  As each couple has an allowance, it makes sense to use up each person's allowance.

2.    VCT'S

VCT's invest in unquoted and AIM-listed businesses.  The gains are tax-free as well as any dividends. 

Investments in VCT's attract initial tax relief at 30%.  The maximum investment is £200,000 a year. 

3.    EIS 

EIS is similar to VCT but the investment is only in one company rather than a portfolio.  Tax relief of 20% on the initial investment is available on up to £500,000 a year.  Gains are tax-free, but not the income.  The investments are not part of your estate for IHT purposes once they have been held for two years. 

4.    Pension contributions 

Any pension contributions reduce your earnings for tax purposes.  If you earn more than £150,000 pa you can only contribute a maximum of £20,000 pa. 

5.    Investment bonds 

Up to 5% a year of the original investment in an Investment bond can be withdrawn for 20 years without any additional tax liability. 

6.    Charitable Donations 

Income tax relief can be claimed as donations to charity. 

7.    Art or wine? 

These items are not subject to Capital Gains Tax so can be tax efficient investments. 

8.    Asset efficiency 

If your spouse is a lower rate tax payer, consider gifting income producing assets to her to reduce your overall tax bill. 

9.    Income splitting 

The rules on income splitting are complex, but if your spouse works in the business, it may be possible to pay your spouse for the work that they do and reduce your own earnings accordingly. 

10.    Timing of expenditure 

The first £50,000 of capital expenditure qualifies for 100% deduction against your profits.  Depending upon the profile of your earnings, it might be worth deferring major capital expenditure till next year. 

The Vehicle Scrappage Scheme is a voluntary scheme for motor dealers under which participating dealers give buyers a £2,000 discount off the purchase price of a new car (or certain types of small van) in exchange for scrapping their old qualifying vehicle. Funded by the government and manufacturers the scheme has proved very popular and according to the Department for Business Innovation and Skills (BIS) website 260,226 cars have now been scrapped under the scheme, which is set to run until February 2010.

An extra 100,000 (£100 million) has been added to the number of scrappage deals that the government will fund, taking it to 400,000 in total. In a change to the qualifying conditions, the age of the vehicle has also been adjusted to first registered on or before 29 February 2000 for cars or 28 February 2002 for vans.  

For general information on the £2,000 scrappage discounts and other conditions visit the BIS website link below. For HMRC’s views on the business tax and VAT implications of the car and van scrappage scheme use the HMRC link below.

If you trade with overseas businesses, you’ll need to know the new cross-border VAT rules.

Do you supply services to or receive services from overseas businesses? Do you supply goods to other EU countries? Do you reclaim VAT incurred in another EU country? If so, you need to know about the changes below, which take effect from 1 January 2010:

• The place of supply for the cross-border services to business customers will now be (under the new general rule) in the country of the customer. When these supplies are made within the EU, the customer will account for VAT under the reverse charge mechanism
• The time at which a customer accounts for VAT under the reverse charge mechanism is also changing
• There is a new requirement to file EC sales lists (ESLs) for supplies of services that are taxable in the customer’s country. These must be filed every calendar quarter, within 14 days for paper and 21 days for online
• The same deadlines will apply to ESLs for goods. ESLs for goods must be filed monthly if the value of the goods exceeds £70k (VAT exclusive) in the current or any of the previous four quarters
• A new online service will be introduced for reclaiming VAT incurred in other EU states instead of the current paper-based claims. You will need, first of all, to register and enrol for VAT online services at http://online.hmrc.gov.uk/registration - we suggest you do this in December 2009, to be ready for when the changes take effect.

If your annual (VAT exclusive) turnover is £100k or more, you’ll need to file your VAT Returns online.

Any business that’s registered for VAT in the UK and whose turnover is £100k or more (VAT exclusive) in the year ending 31 December 2009 or on a later date, must file VAT returns online and pay any VAT due on these returns electronically. This applies to all VAT returns filed by such businesses, covering a period beginning on or after 1 April 2010.

Online filing and electronic payment also apply to any business registering for VAT for the first time from April 2010, regardless of size of turnover.

All other businesses can continue to file on paper, at least for the time being 

Useful things to know

• Online filing is very similar to paper filing. The online for is the same as the paper one, and you can keep your records on paper or on the computer – it’s up to you
• There are some useful online functions – there’s a handy arithmetic checker to help make sure you’ve done your sums correctly, and an automatic acknowledgement of safe receipt.

Need more information? 

• HMRC will write to everyone who needs to do their VAT Returns online in February 2010, with full instructions on what to do. They’ll also be plenty of information in the VAT notes enclosed with your VAT return
• There’ll be regular updates on our website: www.hmrc.gov.uk/vat/vat-online/moving.htm
  The first step to online filing is to enrol for VAT Online services – do this as soon as you can, and sign up to receive an email reminder when your next online return is due. For more information on how to enrol, please go to www.hmrc.gov.uk/vat/start/register/signup-online.htm
  If you’d like to see a demo of how to register for VAT Online services and sending your VAT Return, please go to www.hmrc.gov.uk/demo
  For more information on electronic payment options and our new banking details, please go to www.hmrc.gov.uk/payinghmrc/vat.htm
• You can also talk to HMRC at our VAT Helpline (for queries about the detail of the changes) or you can email HMRC on enquiries.estn@hmrc.gsi.gov.uk  

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If you're VAT registered, you'll need to be ready to apply the 17.5% rate.

The standard rate of VAT is returning to 17.5% on 1 January 2010.  So you'll need to apply the 17.5% rate to all sales of standard-rated goods and services taking place on or after that date.

What you should apply the new rate to:

-   all takings received on or after 1 January 2010

-   all VAT invoices you issue to other VAT registered businesses    on or after 1 January 2010.

There are a few exceptions to the rule:

• you should account for 15% on all takings received on or after 1 January 2010 where they relate to goods customers took away with them or that you delivered before 1 January 2010
• you should also account for 15% on VAT invoices where you provided goods or services before 1 January 2010     but don't invoice customers until after that date
• there are also special rules that can be applied to services beginning before 1 January 2010, but completed after    that date
• for all other special cases, such as cash and annual accounting schemes, please check on the HMRC website for  more information (details of the new Flat Rate Scheme rates will also be published on the HMRC website).

Please note that if you make rate change errors in your first VAT return after the change, HMRC will take into account any difficulties you found in adjusting to the change.

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In his speech to the Labour Party Conference, the Prime Minister, Gordon Brown announced an extension of free nursery places, to be financed by the withdrawal of the tax and National Insurance (NIC) exemptions for childcare vouchers.

The proposal is that the provision of free nursery places will be extended to two year-olds (this would be on top of the existing free childcare available to three and four year olds). It is expected that 250,000 children will benefit from this by 2015/16.

However, the quid pro quo would be the eventual withdrawal of tax and NIC exemptions for employer provided childcare vouchers. Currently employees are exempt from tax and NIC on childcare vouchers provided by employers. The exemption is available on the first £55 a week of vouchers per employee, as long as a range of conditions are met. Any excess over the £55 is liable to tax and to NIC (both employees’ and employers’ contributions).

Under the proposals, it appears that from April 2011, employees who join an employer-supported voucher scheme will not be entitled to the current tax and NIC exemptions. Those already receiving vouchers will be unaffected until April 2015, when the exemptions for vouchers will be withdrawn completely.

More details are expected in the 2009 Pre-Budget Report.

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As you may be aware the National Minimum Wage (NMW) rates increased from 1 October 2009 to:

• an adult rate of £5.80 an hour. This is payable to those age 22 and over.
•  a development rate of £4.83 for those aged 18 – 21
•  and for 17 year olds a rate of £3.57 an hour.

A change was made from the same date, to the elements of pay which can count towards the payment of the NMW rate. Tips, gratuities, cover charges and service charges do not count from 1 October 2009 towards NMW in any circumstances.

This is a change to the previous rules which allowed such payments to count towards the NMW rate in certain circumstances.

As detailed on the Business Link website:

".. before 1 October 2009, tips, gratuities, service charges and cover charges did count towards the NMW as long as you paid them to your workers through your payroll. They no longer count towards the NMW, regardless of whether they are paid through your payroll or are given direct to workers by customers or a tronc master.” 

If you have any queries on the NMW, or how this change impacts on your employees, please do get in touch.

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Many MPs have avoided paying tax on profits from property sales, due to the ability to select which property is your principal private residence (PPR) – which is free of capital-gains tax (CGT), charged at a flat rate of 18%. 

MPs have attracted criticism for nominating one home as their second home for the purposes of their expenses, often refurbishing them at the tax payers expenses and then “flipping” that home to their main residence when they sell – thus qualifying for PPR relief.

While ordinary tax payers cannot change their main residence for the purposes of expenses, they can certainly do so for capital-gains tax.

The rules on your ability to change the property you elect as your main home was changed during the last recession to help those who had to move for work but struggled to sell their original properties.  It is these rules that MPs have been exploiting.

What is principal private residence relief?

Any profit you make when you sell your main residence is not currently subject to CGT at 18%.  If you have more than one property you may be able to change – or flip- which one should be considered your main home and is therefore exempt from CGT when sold. 

How could flipping help reduce my tax bill?

When a property has qualified as your main residence, the gain relating to the final three years of ownership is not charged to CGT.  The property is deemed to be a tax-exempt main residence for this final period, even though this may be contrary to the facts.  You can then flip your status back to your other home if you purchase another property. 

Say you owned a London property which you had elected as your main residence, but also had a Cornwall cottage you had owned for five years and which had gone up in value from £400,000 to £450,000 in that time. Without a bit of forward planning you could find yourself facing a CGT bill of 18% of the £50,000 gain on the Cornwall cottage, or £9,000.

 However, if you altered your PPR election in favour of the cottage, even for just a week and then flipped back to your London property, your cottage would be regarded as your main home and therefore qualify for the three year exemption.  This means that instead of having a CGT liability on £50,000, three-fifths of that, or £30,000, is not subject to CGT. This leaves you to pay CGT at 18% on just £20,000, (£3,600) when you sell.

Your annual CGT allowance, currently £10,100 (double that if you are married or in a civil partnership and the property was in joint names) would result in the taxable gain being a negligible amount. 

At present the rules state that when you sell the London home, you would lose the CGT relief on it, but only for the period you flipped for – in this case, a single week.  This should be covered by your CGT exemption for the year in which you sell. 

Does my main residence have to be the one I spend most time in?

No.  You can elect your choice of residence regardless of how you divide your time between the two properties, but the onus will be on you to demonstrate that it has been one of your homes.  This could include bank, postal or electoral details being registered to that residence while it remains your elected main home. 

Can a husband and wife claim two principal private residence reliefs?

No.  An unmarried couple may own one property each that qualifies as the principal residence but a married couple must jointly select only one property. 

How long must you own both residences?

You have to elect your main residence within two years of buying the second property.  If you fail to do so, the Revenue will determine your main residence, based on factors including how much time your spend there and where you post is registered, and the chance to minimise your tax bill is lost.  However, if you are purchasing a third home, and could buy it before selling the first one, this would open up another two-year window, and you could then elect as you wish. 

Do the rules apply to holiday homes and buy-to-let property?

Yes. You can elect a former holiday home or buy-to-let property as your main residence regardless of whether you have earned a rental income on the property. You need to have lived there at some stage to legitimately claim a formerly rented property as your main residence. 

How many times can I flip main residences?

Provided you first elect within the two year cut-off, you can change your principal private residence between your properties as many times as you like. There are no time limits on how long you have to maintain that election. 

Flexible definition of a main home 

Some of the difficulties in demonstrating which property is your "main home" are shown by the following peers. 

For Lord Paul the main home is a concept – a one bedroom flat in Oxfordshire he has never slept in, but could in theory turf the occupant out if he wished to stay there. Pockets £38,000. 

For Baroness Thornton the main home is a bungalow in Yorkshire where her mother lives, rather than the £1m family house near Hampstead Heath. Pockets £130,000. 

For Baroness Uddin the main home is an empty and unfurnished flat in Maidstone which she hardly every visits until she is quizzed by this newspaper. Pockets £180,000.  

For Baroness Morgan of Drefelin the main home is a welsh holiday cottage 250 miles from the home in London, where she has lived all her life.  Pockets £140,000. 

For Lord Taylor of Warwick the main home is his mother’s house in Solihull, which was sold to someone outside the family when she dies several years ago.  Pockets £70,000. 

For Lord Sheldon the main home is his former house in Manchester which he gave to his son six years earlier.  Pockets £130,000.

For Lord Bhatia the main home is a rented flat just outside the M25, which is occupied by his brother and the address of which he could not remember.  Pockets: £20,000.

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HMRC have updated their guidance on scam emails as they are aware that a large number of individuals are receiving emails offering tax rebates. HMRC have also confirmed that they would not inform taxpayers of a tax rebate via email, or request that they complete an online form to receive a rebate of tax. 

HMRC are stressing that individuals should not visit the website contained within the email or disclose any personal or payment information.

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Online filing of corporation tax returns

HMRC have written to half a million companies and their tax agents, to advise them of important changes to Corporation Tax (CT) return filing. The mail-shot contained a new HMRC leaflet on the changes, which will require all company tax returns delivered after 31 March 2011 to be filed online, for accounting periods ending after 31 March 2010. The leaflet explains how, after 31 March 2011, CT returns must be filed online in a specified data format (known as Inline XBRL or iXBRL).

Companies House has also announced that it will accept company accounts in XBRL, the same format as the CT returns. Companies House will introduce their XBRL service for unaudited full accounts by the summer of 2010, and then continue to develop their XBRL capability for all the main types of accounts they receive.

HMRC’s new XBRL service will be available from November 2009.

Online filing of VAT returns

HMRC are advising businesses that new rules on how VAT returns are submitted and payments are made will come into force next year. Paper VAT returns will be phased out from 1 April 2010.  As a start of this phasing out process, businesses with:  

• VAT (exclusive) annual turnover of £100,000 or more, and 
• all newly registered VAT businesses

will need to submit their VAT returns online and make payments electronically from April 2010. Those businesses that are already VAT registered, with a turnover below the threshold, will have the choice to use paper returns but this will be reviewed by 2012. 

Please do get in touch if you would like any further advice in this area.

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Additional minimum wage increases

The government has announced its intention to introduce Additional Paternity Leave and Pay for fathers of children due on or after 3 April 2011.

The government will consult shortly on new regulations that will give families greater flexibility in how they choose to look after their children.

As detailed in the press release: 

• Families will have the choice to transfer up to six months leave to the father should they want to, which can be taken by the father once the mother has returned to work.
• This new provision will be available during the second six months of the child’s life, giving parents the option of dividing a period of paid leave entitlement between them.
• Some of the leave may be paid if taken during the mother’s 39 week maternity pay period.  This would be paid at the same rate as Statutory Maternity Pay (generally £123.06 per week).
• Parents will be required to ‘self certify’ by providing details of their eligibility to their employer.  Employers and HMRC will both be able to carry out further checks of entitlement if necessary.

 Harriet Harman, Minister for Woman and Equality, said: 

“Mothers will be able to choose to transfer the last six months of their maternity leave to the father, with three months paid.  This gives families radically more choice and flexibility in how they balance work and care of children, and enables fathers to play a bigger part in brining up their children”.

National Minimum Wage increases

The adult rate of the National Minimum Wage (NMW) increases to £5.80 (£5.73) an hour from 1 October 2009. This is payable to those age 22 and over.

The hourly development rate increases to £4.83 (£4.77) and for 16 and 17 year olds to £3.57 (£3.53) an hour. 

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

If you have any queries on the NMW please do get in touch.

From 1 August 2009 the minimum wage for apprentices increased from £80 to £95 per week.  

The Low Pay Commission is to consider whether or not apprentice pay should come under the umbrella of the National Minimum Wage regulations. The Confederation of British Industry (CBI) has raised concerns about increasing the minimum wage level significantly. According to their press release, and in reaction to youth unemployment reaching its highest level since records began, Katja Hall, CBI Director of Employment Policy, said:

 “The rising level of youth unemployment is alarming and we cannot afford to lose a generation of young people. Apprenticeships are an excellent path to employment but their availability would be constrained if a minimum wage was set too high.”

“Young people must not be priced out of apprenticeships in a difficult jobs market. If apprentices join the national minimum wage system they must do so at the right level and in a way that employers can understand.”

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