UK Tax News

Real Time Information

 

Written by Ray Coman

 

What to report

Preparaing for payroll alignment

Implication for director of own company

Implementation

Objectives

 

The real time information (RTI) reporting system for payroll will be introduced from April 2013. Under the RTI regulations, Pay-As-You-Earn (PAYE) information should be reported electronically to HMRC on or before any payment is made. This replaces the current system, in which PAYE information is submitted once a year. RTI represents the most significant change to the PAYE system since it was introduced in 1944.


With real time reporting, it will no longer be a requirement to electronically file an employer's annual return to HMRC, which is currently summarised on forms P35 and P14. All the information, otherwise on the P35, would be relayed to HMRC on the payment reports for that year. An individual should still be sent a P60 which contains information that they may need to complete a personal Tax return. Similarly, there will no longer be an obligation to send HMRC P45s and P46s which are used to notify about starters and leavers. This is because information about starters and leavers will be automatically related to HMRC on the next payment occasion. Unchanged, however is the requirement for employers to provide P45s to leavers and use the P45 provided by a starter to update their payroll records.


Under the new regulations, most employers will have to start using Real Time Information (RTI) from April 2013, although employers with over 5,000 employees will have until October 2013 to be fully compliant. HMRC have indicated that they will notify employers when to start using the new system.


What to report

 

A Full Payment Submission (FPS) is the name given to the report which is required to be electronically communicated to HMRC on or before a payment is made to an employee. The FPS will include:

 

  • Full name, address, date of birth, national insurance number and gender of each employee.
  • The amount paid to every employee, including wages, overtime and bonuses.
  • Any deductions made for tax, national insurance and student loan repayments.
  • Statutory sick pay and all statutory maternity, paternity and adoption pay.

 

Under the existing system of e-filing for employers' annual returns, the above information is already reported to HMRC, however there are two additional pieces of information to be included on the RTI

 

  • Number of contracted hours (within certain bands) for each employee. This information is for the purpose of calculating entitlement to tax credits, in real time.
  • An indication that an employee has had an irregular pattern of pay, for instance, due to unpaid leave. This would confirm to HMRC that the employee is still employed, but not being paid for a while.

 

The FPS would also indicate the final payment before 5 April, as the year-end returns are no longer reported. Similarly, the leaving date and starting date are indicated on the following FPS, as P45s are no longer separately reported to HMRC. Form P11d for benefits-in-kind are still reported to HMRC under the existing arrangement. Payment dates will remain as 22nd of each month (or each quarter where the employer makes quarterly payments.)


Preparing for payroll alignment

 

It is a requirement of RTI reporting for PAYE information conveyed by the employer to be aligned with that held with HMRC. Consequently, employers should review the accuracy of all staff information, and summarise hours worked in time for when the first FPS is to be sent to HMRC. The first FPS may include information which would not be included on future FPSs, such as employees who have worked since 5 April of that year, but have since left. For most employers this may not be a practical hurdle, since the initial submissions will probably be shortly after April 2013.


It is the responsibility of employees to let HMRC know about any relevant change in personal details, such as change of address. HMRC may not automatically accept change of details related by an employer for data protection purposes. Nevertheless, the employer would still be liable to HMRC for any errors in the RTI. In practice, incorrect information on the FPS could lead to it being rejected, and therefore eventually late, and subject to penalties. It may therefore be prudent to review contracts to oblige employees to notify their employer in addition to HMRC regarding any change in details. It may be appropriate to review and update a new starter checklist. Name and address details for new employees should be externally checked with an official source, such as a passport. HMRC offer a national insurance verification process.


Implication for director of own company

 

An FPS would include all payments including those below the lower earnings limit for national insurance. Where no monthly returns have been submitted, HMRC would estimate any PAYE due, and pursue the employer for the outstanding amount, even if there is no tax due. However, as before, there is no requirement to register as an employer if all payments made to employees in the year are below the national insurance limit. In practice, therefore, it would make sense not to register as an employer, unless a director was in a position to make a monthly FPS with showing no deductions. Coman & Co. do not offer a monthly 'nil return' service. Voluntary national insurance contributions may be a suitable alternative for directors of one person companies. This is because the social security benefits (including the state pension) would not accrue to a person who is not being paid above the lower earnings limit or is otherwise paying national insurance. For entitlement to the universal credit, a director, in the one-person-company-minimum-salary scenario should notify the Department of Work and Pensions (DWP.)

 

Implementation

 

Employers can implement RTI reporting either through payroll software or via a payroll bureau. HMRC have published an approved list of software providers. HMRC also offer their own software, which by their own admission, has key limitations in dealing with many irregularities. The HMRC software does not produce payslips, P60s or P45s, or record any pay deduction which is not related to PAYE.


As the new RTI system will be heavily reliant on technology, employers should consider reviewing contingency arrangements, such as recourse to a separate payroll bureau. It is possible to send information to HMRC in advance of payday, where for instance computer system downtime is anticipated.

 

It is still the responsibility of the employer to submit a correct RTI, regardless of whether the service has been outsourced to a payroll bureau.

 

Most payroll software providers offer tax tables which automatically update, and a service which allows the pay information to be forwarded in real time.

 

Objectives

 

The objective of RTI are to:

 

  • Reduce the administrative burden for employer, by removing the requirement to file year end returns and P45s
  • Improve the currency of information held by the government.
  • To allow for the introduction of the Universal Credit, by providing real time information on working hours and pay. The government will be able to assess entitlement to social security benefits based on up-to-date information about income and hours worked.
  • Reduce overpayments and underpayments of tax made to individuals, caused by misalignment of PAYE information.

 

Our service

 

Coman & Co. are able to assist with your tax and accounting requirements as an employer. We can help with accounting software selection and payroll advice. We can offer payroll assistance to clients for whom we already provide a range of services, although we do not offer payroll as a stand-alone service. Please contact us for a consultation.

City meeting room offer

 

Written by

 

Coman & Co are pleased to open a meeting room facility in Minories, EC3. The city location offers convenience for central Londoners seeking a confidential face to face meeting with an accountant. At the same time, we will continue to operate a reliable and competitive service from our existing, Dulwich establishment.

 

The rooms are fully air-conditioned with hot and cold drinks, stationery and WIFI internet access provided on the premises.

 

The venue is run by facility manager And Meetings, and we can therefore meet at a variety of other Central London locations listed here: http://www.andmeetings.com/our-venues


Appointments can be arranged from our main office through an online booking process.

 

We are a forward thinking practice and through our client login it is possible to digitally sign an approval to most documents online. As such, the majority of communication can continue remotely, although we are available for further consultation if required.

 

The initial meeting at either the central London or East Dulwich office is free of charge. Please contact us to arrange an appointment.

Certified QuickBooks Proadvisor

 

Written by

 

We are pleased to let you know that Coman & Co are Certified Quickbooks ProAdvisors.  The Proadvisor certification is awarded to accountants who have demonstrated the required practical knowledge as assessed by a three hour examination.

 

For our clients who use the Quickbooks accounting software, we are therefore able to assist:

 

  • Tailor your QuickBooks file to work most effectively for your business.
  • Streamline processes for customers and suppliers leading to better credit control and enhanced profits.
  • Customise reports used to analyse your business performance.  For instance, profits by service line or by region.
  • Work with an accountant’s copy of QuickBooks, usually in preparing your year end, while you continue to update your file.  You can import the accountant’s copy without any data you have entered being overridden.  This system of transferring an accountants’ copy provides greater version control than many online accountancy software packages.

 

If you are not using QuickBooks, we are also able to assist, through our knowledge of other accounting software: Kasflow, Freeagent, Sage and Xero, among others.

 

Please contact us to discuss your accounting software requirements.

Pay accountancy invoices by card

 

Written by Ray Coman

 

Coman & Co are pleased to announce that we can now offer credit and debit card payments. We hope the new service will provide extra convenience and choice to our clients. Furthermore, to encourage our clients to take up the new facility, we will not be adding any charges for debit card payments.  (We would pass the 3.45% credit card charge onto you.)


The payment facility is powered by well recognised WorldPay . Payments can be made securely online, or via telephone saving our clients hassle. Your card details will be protected and safe.

Our card collection system offers two basic alternatives.

 

  1. When we send our invoice, you would receive a weblink, which directs you straight to a pre filled payment form. Simply select your payment method and enter your card details. You will receive a confirmation from our partner WorldPay of the date and amount of transaction.
  2. Provide us with your credit or debit card details and we will collect payment, according to your instructions. All card details held at our office are encrypted, and password protected by our payment software.

 

We would never proceed with payment collection without your express instructions, giving you full peace of mind.  We provide written estimates and invoice after completion of agreed work.  We would not take advance payments for work to be carried out.

 

We also continue to offer a PayPal alternative. If you prefer to pay using PayPal, please use our email [email protected] quoting your invoice number as a reference.

 

We accept payment from ViSA, Mastercard, JCB, Maestro and AMEX.

 

AMEX JCB maestro mastercard VISA visa debit visa electron

 

Please contact us if you have any queries on the above

PAYE payment overdue 2012-13

 

Written by Ray Coman

 

A reminder to pay tax is not generally welcome on the doormat.  Less so when it is scarcely possible to make sense of, and is unexpected or well overdue, as is often the case.  So , to set the mind at rest, this guide briefly outlines the rules for PAYE payments, and in particular the options available to self-employed people who are directors of their own company.

 

PAYE payments

 

For employers, PAYE is due seventeen days after the end of the tax month.  The tax month ends on 5th of each month.  Therefore payments are due by the 22nd of the month, relating to pay for the month ending on the 5th.  Where estimated payments of tax are less than £1,500 per month, an employer can arrange with HMRC to make quarterly payments of tax.

 

Reminder letter from HMRC, where no tax is due

 

Regardless of whether the business has a PAYE liability, HMRC havebeen routinely issuing reminder letters for payments of PAYE tax.  One response is to file a nil monthly PAYE Return.  However, this can be a time-consuming process, particularly where no PAYE payments are expected for several future months.  An alternative is to arrange with HMRC for an annual payment to be made.  At present the drawback here is that the transfer to an annual basis involves often less than straightforward arrangements with HMRC which have to be re-performed each year.  Furthermore, on account of the various and ever-changing HMRC offices which seem to administer PAYE, HMRC have not been effective in their response to arranging for an employer to be entered onto an annual payment basis.  In practice the outcome is typically that undue time and resources are spent by both employers and HMRC in responding to debt collection letters.

 

Reasons to register as an employer but make no payments of PAYE

 

Use of a company can save a self-employed individual considerable tax, where that person’s withdrawals from the company are treated as a salary no greater than the tax free personal allowance and as dividends thereafter.

 

The national insurance saved using a limited company rather than being a sole trader is at least 9% on any income between the Class 4 lower profits limit and upper profits limit.  Therefore, for 2012-13, profits between £7,605 and £42,475 per year made in a limited company will suffer 9% less tax than those made as a sole trader.  In money terms, up to £3,138.30 could be saved on a profit of £42,475 by operating the business through a company, rather than being a sole trader.

 

The savings are even higher when company income is compared with employment earnings.  In employment, national insurance is 12% for employees between the earnings’ threshold and upper earnings limit.  For 2012-13 the applicable limits are £7,592 and £42,484 respectively.  In addition, there is a further 13.8% saving for employers on earnings over the secondary threshold (of £7,488 for 2012-13.)  Where a contractor is prepared to forego their employment rights, and they consider that they can justify their self-employed status, the limited company option could save a lot of tax.

 

However, a key drawback is that the taxpayer’s national insurance record will not be updated and therefore social security benefits will not accrue.  In particular, each year that a taxpayer makes national insurance contributions (NICs) adds a qualifying year towards the total number required to secure entitlement to the basic state pension.  State pension accrual is explained in further detail later.

 

A salary up to the lower earnings’ limit (of £5,564 per year for 2012-13) will not require the business to register as an employer.  A salary above the lower earnings’ limit and up to the earnings limit (of £7,488 per year), will require the business to register as an employer, but will still not give rise to a national insurance liability.  Therefore, it is possible to accrue social security benefits by paying a salary equal to say £7,488 per year, which is above the lower earnings limit but not over the earnings threshold.  The advantage to the taxpayer is that a year is counted towards social security benefit, even though no liability to settle NICs has arisen.

 

Drawbacks of registering as an employer

 

However, as previously explained there is growing evidence of the practical obstacles in arranging to be an employer who makes no payments of PAYE.  As a consequence, considerable time and resources can be used by HMRC and the business owner in bringing about the intended outcome.  As a further drawback, an employer is open to penalties for late submission of an employer’s annual return, for missing the submission deadline.  The deadline is 19 May following the 5 April year end.  The late filing penalty is typically £100 per month for a company with only one director.  The penalties can be appealed against and often reduced to nil where there is no PAYE due.  Nevertheless, the appeal process can be bothersome and time-consuming for both business owners and HMRC.

 

Voluntary national insurance for business owners

 

Business owners wishing to benefit from the national insurance saved by operating through a company, but still wanting to contribute towards their state pension may consider voluntary NICs as a slightly dearer but less bureaucratic alternative.

 

Voluntary, or Class 3, NICs are a facility for individuals to contribute to their social security, and in particular their state pension, where the contribution would not otherwise be made.  No NICs would be made by a contractor using a company not registered as an employer.  Voluntary, or Class 3, NICs are currently £13.25 per week.  At the time of writing, the basic state pension is £107.45 weekly.  To receive the basic state pension, a taxpayer should have made 30 years of NICs.  The state pension age is currently 65 for men, and due to rise to 65 for women, with further plans afoot to increase the overall age to 67.  Evidently, the above is an overview only on the UK state pension, and you should seek further advice before taking any related action.

 

We are not authorised as financial advisers and therefore encourage you to draw your own conclusions from the above.  The above information is aimed at helping you to make a decision on whether to make voluntary contributions, where you are not adding to your state pension because you invoice from your company, and are not registered as an employer.

 

By most accounts, the basic state pension would not be sufficient to support a comfortable retirement, and therefore you should consider additional provisions, such as private pension contributions as part of a structured retirement arrangement.

 

To recap, a company is not required to submit an employers’ annual return until the director’s salary exceeds the lower earnings limit, which would still allow for most of the personal allowance to be used up.  As a result, there would be little or no gain in corporation tax by not registering as an employer.  To accrue social security, the route which is expected to be the least bureaucratic is reached by paying Class 3 NICs, and in the majority of cases the NIC payments would still be a lot less than that suffered by a sole trader.

 

Conclusion

 

In summary, for ‘one man band’ companies, not registering as an employer could prevent a lot of hassle dealing with HMRC reminders.  A state pension is likely to be only one component of a retirement plan, and the requirement can be fulfilled where necessary by delaying NICS or through a voluntary scheme.  In many cases, a voluntary scheme is a more ethical approach as well as making more commercial sense.  More broadly, a reduction in nil returns should prevent HMRC transferring PAYE administration to debt collection, often an outsourced service.  Please contact us for further advice relating to your intended plans as a business owner.

Simple situations. Complex situations. If it goes on a Tax Return we deal with it. Contact us for a free, initial meeting.

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