Employment intermediaries, Share option gains, Tax free childcare scheme

Last week's Budget contained a few surprises which we will analyse as required in the future. Meanwhile there is a pressing deadline to worry about: 5 August - to submit the first quarterly report under the new employment intermediaries rules. Our newsletter also clarified the confusion created by share options and explained why there is good news for clients who operate childcare voucher schemes.

Employment intermediaries reporting

In our newsletter on 9 April 2015 we warned you about the new requirements to make quarterly reports under ITEPA 2003, s 44 (Agency workers). HMRC has reminded firms that the first quarterly reports are due in by 5 August 2015.  

The examples in the HMRC guidance on this new requirement all relate to employment businesses, but the legislation actually catches far more than just employment agencies. It covers any business that meets all of these conditions:

• has a contract with an end-user client (not just another intermediary in the chain);
• provides more than one worker's services to a client (single worker personal company is not caught);
• provides the worker's services in the UK, or if the services are provided overseas the worker is resident in the UK; and
• makes one or more payments for those services.

In summary these revised agency rules catch any business that supplies workers who will provide personal services to another business, who ought to be treated as employees of that business. However, the distinction needs to be made between the business who is contracting to provide the worker, and the final customer.

For example; a building firm that uses subcontractors to help with a project is unlikely to be within the scope of the agency rules. This is because the building firm is using the subcontractors to supply a service to its own customer, it is not supplying a worker to someone else's business. The customer of the subcontractor is the building firm; the subby is not providing a personal service to the person who commissioned the building project.

Some employment agencies are getting very jumpy about this and are asking contractors to sign declarations saying they work through a personal service company (PSC) and account for all the tax due on their remuneration receivable through that personal service company. They have possibly misunderstood the rules. As long as the worker is a director of his PSC, the worker's remuneration from the PSC will be employment income (dividends are not remuneration).

Our employment taxes experts will be happy to help you determine which of your clients need to make quarterly reports of their workers' details and payments under these new rules.

This is an extract from our tax tips newsletter dated 9 July 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

VAT FRS misunderstanding, Accelerated payment notices, RTI penalties

Last week we shared a cautionary tale about a taxpayer who misunderstood the requirements of the VAT flat rate scheme. We also looked at the facts surrounding Accelerated Payment Notices (APNs) as HMRC appear to be issuing them without due care or attention. Finally we offered further practical tips on dealing with RTI penalties.

Accelerated payment notices 
An accelerated payment notice (APN) allows HMRC to demand payment of disputed tax without concluding a tax enquiry, or waiting for the taxpayer's case to be decided by the courts. HMRC have recently been issuing APNs to taxpayers who used DOTAS registered tax schemes years ago, and who believed they had paid the right amount of tax. 

Many tax arrangements were registered under the disclosure of tax avoidance schemes (DOTAS) rules to minimise the risk of penalties for accidentally not disclosing. A DOTAS registered tax scheme is not necessarily “abusive”, and the tax scheme may well “work” in that the law allows the tax to be saved. 

HMRC has drawn up a list of DOTAS numbers for schemes whose users may receive an APN. This list is revised at intervals, so if your clients have declared a DOTAS number on a previous tax return, you need to keep an eye on that list.    

When an APN is issued the taxpayer has just 90 days to pay the tax demanded. He can't appeal against the APN, he can only object on the basis that one of the following conditions has not been met:

• HMRC has issued a GAAR notice or a Follower Notice to the taxpayer; or·    
• the taxpayer has used a tax scheme notifiable under DOTAS.

Unfortunately the HMRC department that issues the APNs doesn't appear to refer to the taxpayer's personal tax position first, so the APN may not take into account any losses available for off-set or tax already paid.    

If your client receives an APN you need to check the tax calculation carefully and quickly make a written representation to HMRC if you believe it to be wrong. Our tax investigation experts can advise you about other implications of the APN.

This is an extract from our tax tips newsletter dated 2 July 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Getting through to HMRC, Employee share schemes, Employer Bulletin

The start of last week saw a melt-down at the Government Gateway that allows tax returns to flow through to HMRC. In last week's newsletter we offered some reassurance about penalties that may arise and suggestions of other routes to contact HMRC. We also had a warning about the fast approaching deadline for registering employee share schemes, and a heads-up on useful information hidden in the Employer Bulletin.

Employer Bulletin 
The June 2015 edition of the Employer Bulletin (issue 54) is just out and it's well worth a read. This publication is now issued six times a year and it covers a wide range of tax and regulatory matters, not just payroll issues. 

For example this edition includes articles you may want to pass on to clients who will shortly reach state retirement age, who sell alcohol, or who are worried about pensions auto-enrolment.    

State pension 
People who reach state pension age on and after 6 April 2016 will receive the new flat rate state pension, but there is a lot of confusion about who will be entitled to what. A new You-Tube channel has been set up to answer questions about the state pension and how to prepare for retirement. It also includes videos about auto-enrolment.    

Individuals aged 55 or over can request a personalised state pension statement from the Pensions Service, which will give them an idea of their expected level of state pension. This service use to be open to anyone but it now seems to be restricted to those within 10 years of retirement age. 

Alcohol 
Clients who sell alcohol as a retailer or wholesaler need to prepare for a new alcohol wholesaler registration scheme which comes into effect from 1 October 2015. It's going to be administered by HMRC so no doubt there will be some cross-checking with VAT and Excise duty returns. 

The scheme is designed to stamp out sales of counterfeit alcohol and where duty has not been paid. There will be civil penalties and criminal sanctions for non-compliance with the scheme. 

This is an extract from our tax tips newsletter dated 25 June 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Tax refunds and forms P800, RTI penalties, HMRC forms

As the sun shines merrily outside, the temperature of thousands of accountants is raised by yet more incorrect tax computations, penalty notices and online HMRC forms. 

Last week we shared tips on how to deal with all of those: forms P800, RTI penalties and an outlet for your frustration with badly designed electronic forms.

Tax refunds and forms P800
HMRC has started the end of year reconciliation process for taxpayers taxed under PAYE. This involves sending a form P800 including a tax computation to those taxpayers who have underpaid or overpaid tax for 2014/15. Remember you won't receive copies of your clients' P800s, even if you have authority to act, so ask your clients to pass on any P800 forms they receive.

Where taxpayers are found to have overpaid tax for 2014/15 a cheque for the tax refund should arrive about two weeks after the P800. The taxpayer doesn't have to request the refund. However, before cashing the cheque the P800 calculation should be carefully checked against the taxpayer's form P60 or payslips for 2014/15.

You may remember that last year HMRC issued a huge number of incorrect P800s (our newsletter: 16 October 2014). The cause of the 2013/14 errors was never officially revealed, but many suspected the duplicate employment records created by the RTI computer. The problem with duplicate employment records has not been eliminated.

Taxpayers who have underpaid tax for 2014/15 will also receive a form P800, showing the amount of tax HMRC has calculated is due. It is even more important to check any underpayment as the information reported on forms P11D, and claims for business expenses to be deducted, may not have been processed before the P800 was issued.

The Low Incomes Tax Reform Group (LITRG) has reissued its guide on how to check a P800 calculation, which is very helpful. A key problem to look out for is the amount of state pension. If 2014/15 was the first year in which the state pension is received the amount on the P800 will be estimated, as the DWP won't have passed accurate figures to HMRC yet.

If you are completing R40 repayment claim forms for your clients, note the address for submitting those forms has recently changed (see link below). If the taxpayer is not resident in the UK a form R43 should be used for the repayment claim instead of an R40.

This is an extract from our tax tips newsletter dated 18 June 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. 

It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Group relief, Pre-registration VAT, Contacting HMRC

Tax law can be complicated - especially when claiming relief for corporate losses or pre-registration VAT. Last week we shared two examples of why you can't afford to let your knowledge fall behind in those areas. We also had a little moan about getting through to HMRC by phone and offered some constructive suggestions. 

Pre-registration VAT

The rules for reclaiming pre-registration VAT are fairly straight forward, or we thought they were until a change in HMRC practice came to light this week. Are you advising your clients correctly?

 

On registering for VAT the trader can reclaim VAT on goods acquired within four years before the date of registration, and on services provided with the previous six months. As long as the purchases were used for the business, and the goods were still held at the date of registration, all the VAT can be reclaimed.

 

This the impression you would get by reading paragraph 11 of VAT Notice 700, which is titled “VAT paid on goods and services obtained before VAT registration”. However, HMRC apparently changed their practice on this point from 1 January 2011, and the new approach is hidden deep within the VAT Input Tax manual at para VIT32000.

 

HMRC's new interpretation of the VAT regulations (SI 1995/2518) reg 111, says the use of the asset in the period before the VAT registration date should be taken into account. If the asset has been used in relation to supplies that have not had VAT applied, a portion of the input VAT should be disallowed to reflect that use.   

  

Example

Ken in the business of transporting racing pigeons to the point where they are released for a race. On 1 April 2012 he purchased a lorry for £90,000, including VAT of 15,000, which he expects to use for 10 years.

 

Ken registered for VAT with effect from 1 April 2015, exactly three years into the lorry's life. Under the new interpretation of VAT reg 111 Ken can only reclaim 7/10ths of the VAT incurred on the lorry: £10,500 rather than £15,000.

 

The new HMRC interpretation may be correct, but it is certainly not clear from the public VAT notices. If your clients have reclaimed VAT on the pre-2011 understanding of the rules, they should not adjust those claims. However, if challenged by HMRC they should be able to claim they had a legitimate expectation to rely on the guidance in the public VAT notices. Talk to our VAT experts if your client is affected by this. 

This is an extract from our tax tips newsletter dated 11 June 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

NIC avoidance, Late filing penalties, VAT MOSS TAN/newsletters

Tax was in the news again last week for all the wrong reasons: the BBC uncovered a blatant NIC avoidance scheme, and The Telegraph newspaper published a leaked HMRC memo concerning late filing penalties. We explain how both these issues could affect you and your clients. We also have news of developments relating to the operation of VAT MOSS.

VAT MOSS
New rules for applying local rates of VAT to digital services supplied across EU borders came into effect on 1 January 2015, but guidance on how to account for the VAT due under VAT-MOSS was released very late. A concession for UK traders who aren't VAT registered, to allow them to use VAT-MOSS without having to charge VAT to their UK-based customers, was issued almost at the last minute.
 
A second concession concerns the records required to determine where the customer is based. Small businesses are allowed to rely on the customer location information provided by their payment service provider (eg PayPal). This concession was announced as a temporary measure to apply to 30 June 2015, but it is now permanent for UK businesses who are not VAT registered.
 
The role of the tax agent in helping clients to comply with VAT-MOSS appears to have been added as an after-thought in the design of that system. As a tax agent you can't register your clients for VAT-MOSS, but you can submit VAT-MOSS returns on their behalf if you register as a VAT-MOSS agent. Details of how agents can register were published on the GOV.UK website on 21 May 2015. The first deadline for submitting a VAT-MOSS return was 20 April 2015.
 
If your clients are providing digital services they are likely to be invoicing electronically as well. Take a look at the new guidance on electronic invoicing in VAT Notice 700/63.
 
Finally for clients who are disgruntled about the VAT-MOSS regime, there may be light at the end of the tunnel. The EC has acknowledged in a report on the digital single market the administrative burden that VAT imposes, and has recommended there should be a common EU-wide VAT threshold to help small e-commerce businesses. 

This is an extract from our tax tips newsletter dated 4 June 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>

Lessons in CGT, Auto-enrolment, P11Ds and RTI

As a professional adviser you can't afford to stop learning, as the tax and regulatory landscape is constantly moving underneath your feet. Last week we shared a lesson to learn from CGT, and addressed the huge issue of auto-enrolment. We also had some tips for a painless P11D season.

Auto-enrolment
Auto-enrolment is not like VAT-MOSS, it can't be ignored on the assumption that no one will check whether such a small employer is complying with the rules (not that we would recommend that!). If the employer fails to implement a pension scheme for his employees he is messing with their future pensions, and the penalties are severe.  
 
There is a fixed penalty of £400 if the employer doesn't comply with statutory notices, which escalates up to £500 PER DAY for employers with up to 49 employees. Those same employers can also be subject to fixed penalties of up to £1,500 for not paying contributions or for encouraging employees to opt out of the pension scheme. Third parties such as payroll bureau can also be fined if the pension deductions aren't made correctly.     
 
The frightening part about auto-enrolment is that the Pensions Regulator, which is tasked with getting the 1 million small employers who are ignorant of their obligations to comply, believes that accountants and lawyers will bridge that knowledge gap. That means you.
 
You may protest that you don't “do” pensions so auto-enrolment is somebody else's problem. If you offer a payroll service you will have to process the pension deductions for your clients, who will expect you to get the calculations right. Clue: it is not a matter of deducting a straight percentage of net pay; there are options for the employer to choose which define pensionable pay in different ways.
 
The employees' employment contracts will be key to minimising the cost of the employer's contributions, but many employees in small businesses don't have detailed employment contracts. Someone (perhaps you) will have to help those businesses work with employment lawyers and human resource advisers to get suitable employment contracts in place.
 
Finally remember that auto-enrolment pension contributions will have to be made for employees who earn above £10,000 in 2015/16. The auto-enrolment threshold was not increased in line with the personal allowance, so employees will pay pension contributions before they become liable for income tax, unless the thresholds are aligned again in the future.

This is an extract from our tax tips newsletter dated 28 May 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>