UK Tax News

HMRC offer incentive to bring Tax Returns up to date

Published: 25 Jul 2013

Updated: 25 Jul 2013

Written by Ray Coman

HMRC have this month put forward an incentive to taxpayers with overdue Tax returns. A new facility, 'My Tax Return Catch Up', has been made available for filing a tax return for any year up to 2011-12.

By taking advantage of the facility, penalties that would otherwise be due will be significantly reduced. Although late filing penalties, late payment penalties and interest would still apply, HMRC have offered the best terms available for those that file using the 'Catch Up' facility. In particular, HMRC have announced that they would not apply the highest penalty to those taking part in the campaign. This is a late filing penalty of equal to 100% of the tax due for Tax returns which are more than 12 months' late.

In addition to being spared the higher penalty, participants in the initiative would also avoid:

• Determinations. A determination is essentially an estimate of tax liability made by HMRC;
• Referral to debt collection which could result in unwanted telephone calls and visits; and
• Possible court action.

With the aide of intelligence gathering software, Connect, HMRC is expected to contact relevant individuals. The proposal is aimed at taxpayers who have received a notice to file a tax return for any tax year up to and including 2011-12. The 'Catch Up' offer will expire on 15 October 2013.
Coman & co can assist:

• Prepare your Tax Returns for outstanding tax years.
• Take advantage of the offer made by HMRC in the 'My Tax Return Catch Up' campaign.
• Calculate any tax payable or repayable, late filing late payment penalties and any interest thereon.

Please contact us to discuss how we can assist with the above

2013 Budget commentary

Published: 20 Mar 2013

Updated: 01 Apr 2014

Written by Ray Coman

In his first Budget since the loss of Britain’s credit rating, the chancellor has put forward accelerated plans for encouraging growth, spending and employment in the economy.  The personal allowance increase and the corporation tax rate cut will both occur a year sooner than previously announced.  Tax savings will also come to smaller businesses in the form of an employment allowance.

The most significant announcement came in the form of a new tax break for employers.  Starting from 6 April 2014, all businesses will be entitled to an Employment Allowance which will cover the first £2,000 of employers’ national insurance liability.

As an illustration, employers would pay no national insurance on a £22,400 salary paid to one of their employees.  This results from a rate of employer’s national insurance equal to 13.8% on any payments over approximately £7,900.  To provide another example, the effect of the allowance is the same as eradicating national insurance on the hiring of four staff at the minimum wage (of say £11,525 per year.)

The announcement will be particularly helpful to small business seeking to hire their first employee.  The incentive is well designed to relieve unemployment which remains stubbornly high among jobseekers in the 18-24 age band.

There was good news for larger business as well.  The full rate of corporation tax is now to reduce by a further 1% to 20% starting in April 2015.  In previous announcements the full rate of corporation tax was set to be reduced to 23% in April 2013, to 22% in April 2014 and 21% in April 2015.  Following the budget proposal of today, the rate will be further reduced to 20% in April 2015.

The overall rate has so far dropped 2% a year since the year starting in April 2010 when it was 28%.  Eventually, the most recent scheduled tax cut will put Britain’s rate of corporation tax the lowest in the Western world; lower than Luxembourg at 21%.

The personal allowance will increase from 6 April 2014 to £10,000.  As a result, the increase is now taking place one year sooner than previously announced.

From April 2015, parents will be able to have up to 20% of their childcare costs paid tax free, subject to a yearly maximum £1,200 per child.

With a triple dip looming in the economy, the further cuts announced today are hoped to re-spirit the economy over the remaining term of the coalition.  Opportunities will arise among individuals, families and small business to take advantage of these tax cuts.  Please contact us if you would like to discuss your tax plans in further detail.

High income benefit charge

Published: 09 Dec 2012

Updated: 20 Dec 2012

Written by Ray Coman

From 7 January 2013, a tax charge will be introduced for people on high incomes. The charge applies if either:

• you receive child benefit, or
• your partner receives child benefit, or
• another person receives child benefit on behalf of a child who lives with you.

In this case a partner includes your spouse, civil partner or any other person who lives with you as if they were a spouse or civil partner, even if they are not the parent of the child on which benefit is received.

The tax charge applies to whichever partner has an income exceeding £50,000. If both incomes exceed £50,000 the tax charge would apply to the partner with the higher income. If neither partner has an income exceeding £50,000 then no charge would apply.

The charge is an amount equal to 1% of the child benefit for every £100 that income exceeds £50,000. In effect, the child benefit is tapered away until it reaches nil for individuals with an income of £60,000 or above. Individuals with total income over £60,000 who receive child benefit would suffer a tax charge equal to the benefit received.

It is possible to notify HMRC that you no longer wish to receive child benefit from 7 January 2013 and therefore no charge would apply.
The income tax charge is collected via self-assessment and there is no option for it to be collected via a tax code. Therefore if the income tax charge applies, a Tax return should be completed which includes the amount of the charge. Alternatively, a Tax Return would not be required if you have opted out of receiving child benefit, unless you already complete a tax return for another reason.

There may be an advantage to completing a child benefit claim, even if the tax charge cancels any benefit. The reason could be that you would receive a national insurance credit which would help protect entitlement to state pension.

For the purposes of the tax charge income includes most taxable income. However, there are deductions available for trading losses, pension contributions and gift aid payments. The tax benefits of reducing income between £50,000 and £60,000 are greater for people claiming child benefit.

We are specialists in assisting individuals with personal and family tax matters. Please contact us for an initial consultation which would be free at our offices.

Real Time Information

Published: 26 Nov 2012

Updated: 01 Nov 2015

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

Published: 10 Nov 2012

Updated: 06 Apr 2014

Written by Ray Coman

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.