Pay Academy

Will I be better off in April?

Niki — Mon, 06 Feb 2012 14:13:15 +0000

After all the changes in the last couple of years we are looking forward to a new tax year of pretty much “as you were” with just the odd tweak highlighted below.

The steady march to £10,000 of tax free income by the end of this fixed term Parliament continues with another sharp increase in the personal allowance (up £630). However, higher-rate tax payers are not invited to this particular party – the increase on PA being entirely off-set by the lowering of the standard rate band.

A far more modest move in the annual NI-free threshold to £7,596 leaves this some way off the target of £10k of income without deduction. It is also slipping further behind the tax band – so much for tax and NI alignment then.

In short – if you are a standard rate tax payer you will be approximately a pint and a curry better off a month. If you are a higher rate tax payer – bag of peanuts? Maybe not even that.

HMRC starts issuing penalties for in-year paper returns

Niki — Thu, 02 Feb 2012 11:03:58 +0000

HMRC have begun to issue penalties to employers who did not file their starter and leaver forms online in the period between 6 October 2011 and 5 January 2012. The penalties will range from £100 to £3,000 depending on the number of forms that should have been filed online. The penalties are triggered where an employer has incorrectly filed more than two forms on paper during the quarter up to 5 January 2012. Employers can appeal within 30 days of the date of the penalty notice by writing to the address indicated in the notice stating why they think the penalty notice is wrong. If you are still filing paper returns – STOP! and give us a call.

Why talking to HMRC beats keeping quiet

Niki — Mon, 30 Jan 2012 13:50:31 +0000

The case of Sarah Cornes v HMRC [(TC01701], heard in November 2011) highlights what we are always saying to clients – if you have a problem paying your tax TALK to HMRC. This was a very sad case of a woman battling with personal and financial problems who tried to talk to HMRC in an attempt to arrange a Time to Pay Agreement before a surcharge was levied. HMRC made a commitment to contact her to discuss further before the surcharge deadline date. This they failed to do but then went ahead and levied the surcharge.

Ruling in favour of Ms Cornes, Judge Blewitt said: “The tribunal finds as a fact that the appellant made all reasonable attempts to arrange a time to pay agreement prior to the trigger date and cannot be held accountable for the delay in HMRC attempting to contact her when she had been told that HMRC would contact her to discuss the matter.”

In a further statement, the judge also said that the separation of Crones and her husband, taken together with her husband’s alcoholism, constituted a reasonable excuse for late payment of tax. So, while there is not a definitive legal statement of what constitutes a reasonable excuse, HMRC does give some guidance as follows:

life-threatening illness, for example a heart attack that prevents you dealing with your tax affairs
the death of a partner shortly before a payment or tax return deadline
unexpected or unforeseeable postal delays
important documents lost, through theft, fire or flood, that can’t be replaced in time
late receipt of your online Activation Code, User ID or password even though you asked for them before the tax return deadline

Real Time Information – what does it mean for employers?

Niki — Tue, 24 Jan 2012 12:26:25 +0000

RTI is coming soon; find out what it means for you as an employer and what ir might mean for your employees... yawn

The honest answer is everything. The introduction of RTI is the biggest change in payroll since PAYE was first introduced. Under RTI employers will be required to return personal and payroll information about each employee as they make a payment to them. This will allow HMRC to track employees’ individual tax and earnings information real time.

HMRC believe that this will improve the accuracy of tax taken and also provided much more meaningful information by which to assess benefit claimants. In simple terms, it will provide HMRC with a lot more information about your employees than they ever have before. It also means they will know exactly how much you as an employer owes on a month by month basis.

From a practical point of view there is still much to be done. Payroll software developers are busily working on the changes that will have to be made to allow the software to be able to pass this information via the Government Gateway. All employees paid via BACS will be given a unique reference that will be added to the BACS data. This will allow HMRC to cross-match the data. This is a massive change in practices and procedures for employers/payroll agents and there is still much we don’t really know.

HMRC are inviting employers to joint RTI from April of this year with compulsory RTI requirements coming in October. But be warned, HMRC have announced that employers may be required to join before that date.

Ghost of Christmas Past

Niki — Thu, 01 Dec 2011 10:37:32 +0000

Have you heard of the Office of Tax Simplification? Sounds like a joke doesn’t it, at best some clever oxymoron that someone made up in order to vent their frustration at the machinations of our tax system? Not even an original joke, you might think.

As soon as I heard of it, I thought of Charles Dickens creation in Little Dorrit of the “Office of Circumlocution”. This place, created by Dickens in the middle part of the 19^th century, was a world where public information, debtors’ petitions, disputes and settlements stayed for years, unresolved and unmoving, presided over by people who were “altogether splendid, massive, overpowering and impracticable”. It was a world where the public couldn’t approach other than via the official forms and where “upon my soul you mustn’t come into the place saying you want to know, you know”. Sound familiar?

Okay, so we move the clock forward one hundred and fifty years and find that the Office of Circumlocution has been re-invented by our new Government and called the Office of Tax Simplification without, as far as I can gather, a hint of irony. Not even a nod in the direction of the esteemed Mr Dickens who surely, as with his ghost of the Christmas To Come, saw the writing on the wall.

So, what is the Office of Tax Simplification? Formed in July 2010, it is made up of tax experts from HM Revenue & Customs and HM Treasury as well as external secondees from the tax and legal professions. The sort of people that you could never describe as “altogether splendid, massive, overpowering and impracticable”? No, never, of course not; these are accessible people, that live in the real world and understand the day-to-day burdens of running your own business…

And what is their purpose? The Office has been established to provide advice to the Chancellor on simplifying the UK tax system, with the objective of reducing compliance burdens on both businesses and individual taxpayers.

So, over to you; as users of this system – have you noticed a reduction in your compliance burdens? Have you found HMRC to be more accessible, more approachable (with or without the official forms)? No? Me neither. Still, it is early days; let’s look again in another 150 years.

Real Time Information – summary of responses

Niki — Wed, 12 Oct 2011 11:02:33 +0000

HMRC have fed back some of the conclusions that have emerged from the consultation process last year. Key facts are as follows:-

Timescale has moved backwards (what a surprise) likely introduction will be between April and October 2012
Information will not now be processed via BACS as was initially mooted. Information will be fed in via existing channels being Government Gateway or EDI
Additional employee information required will be passport numbers for those without NINOs and also disclosure about how many hours each employee works (likely to be in bands)
The have retracted the requirement to include details of holiday pay and strike pay due to adverse response in consultation.

The burning questions that have not been addressed by HMRC are what exactly will they do with all this extra information and who and when will it be processed into anything usable?

Removing red tape – I don’t think

Niki — Mon, 10 Oct 2011 13:28:49 +0000

In August 2011, the Department for Business Innovation and Skills (BIS) issued a discussion paper entitled Simpler Reporting for the Smallest Businesses. The BIS argues that small companies suffer from over-complex and burdensome reporting requirements that need simplification. The simplification proposals remain vague at the moment and are currently alongside the Office of Tax Simplification’s consultations on small business taxation.

The proposals are based around the concept that a profit and loss account with accompanying balance sheet are somehow burdensome to produce. So instead, small limited companies would file a simplified trading statement put together on a cash (not accruals) basis. This would be accompanied by a statement of position – which we think will basically be a list of assets and liabilities – and a simplified annual return. In order to make this system work however, there would be a requirement for returns to be filed within 12 weeks of the year-end (currently you get 9 months) and that all such entities will have to have the same year-end (date not yet determined).

Surely, this so called reduction in red tape only increases the burden on a whole host of small businesses – namely accountants who will have to introduce new procedures for cash reporting and no doubt buy more software add ons not to mention doing 12 months of work in 3. Like every other accountant out there, my training was based around certain principles; double entry book-keeping, balance sheets that fitted together with a P& L account and the accruals concept – cash reporting means nothing to anyone. You may as well do away with any reporting requirement as introduced this.

Incorporating a business comes with a bundle of burdens and responsibilities – another core plank of my training – if small entities feel this is too burdensome then don’t incorporate.

If the Government really want to help small businesses reduce red tape they should look at Money Laundering Regs, Data Protection, employment regulation and health and safety requirements. And don’t get me started on the new PAYE burdens – online filing, and coming soon NEST and real-time information. Clueless.

Update on in-year PAYE fines

Niki — Thu, 06 Oct 2011 13:51:30 +0000

According to an article in October’s Accountancy magazine HMRC have started issuing fines for late in-year PAYE/NICS payments in 2010-11. This is not about late payments after the year-end has been filed – these have always carried interest penalties. These new penalties have been raised where employers have consistently missed the monthly settlement deadline for all or most months in the 2010-11 tax year. HMRC are charging 4% of annual payroll deductions in these circumstances.

HMRC making excuses

Niki — Mon, 03 Oct 2011 13:54:19 +0000

As agents and employers we are at that time of year once again when HMRC’s £400 penalty notices drop through the letterbox for failure to file year-end PAYE returns due 19th May. And once again, we are all left somewhat bemused by HMRC’s inability to produce these on a timely basis. Why can’t HMRC issue these notices in June, when returns are just a month late and costing only £100? . (The penalties grow at a rate of £100 a month). This would act as a timely reminder, with a mildly painful and annoying penalty for your oversight. Instead, employers are left ignorant of their failing for nearly five months and then get a properly painful penalty hit.

This approach, which HMRC has been following for some years is now being criticised by the Courts in penalty apeal cases. One judge described it somewhat cynically as a “cash generating” exercise by HMRC.

HMRC have now chosen to defend their position claiming that the gap between the deadline closing and the issuing of notices is to allow people to file NIL returns . This explanation makes no sense at all as the deadline for filing a NIL return is no different to any other. The more realistic explanation is buried deeper in the statement; “This also provides time for HMRC to make sure all returns…received by the annual deadline are processed.”

So what we are actually saying is that HMRC cannot issue penalty notices any earlier because they are still processing the returns. So, despite the fact that over £800 million of tax payers’ money has been spent on new HMRC systems, and the fact that employers have all had to make their own investments in order to be able to comply with the online filing requirements, HMRC are still taking longer than ever to process returns. Which leads me on to my other gripe – come real time information – what exactly will HMRC do with all this additional information and when on earth will they get round to doing it?

50% tax – yes or no?

Niki — Tue, 13 Sep 2011 13:28:16 +0000

Plucking taxes...

Well, I have read and read and I still don’t know the answer to this one. Putting any moralising aside (I am rubbish at moralising) and looking simply at the maths it is kind of hard to argue against. Does a higher tax rate prove a demotivator for our “wealth creators” (whoever they are)? Well, probably not. My Grandmother always said that 50% of something was better than 100% of nothing and you really cannot argue with the maths.

Equally a high proportion of those effected will be employees (not wealth creators) what are they going to do – go part-time? Resign and get a lower paid job? Unlikely, let’s face it. So, that isn’t really the debate then – the debate is will the tax take go up or down as a consequence of the new higher rate? Perhaps too early to tell – one can only assume that it must go up in the short-term; the longer term effects are much harder to evaluate. I found the following on Wikipedia when exploring the Laffer curve which pretty much sums it up…

The Adam Smith Institute stated in a 2010 report that:

“The 1997 Budget in Ireland halved the rate of taxation of realized capital gains from 40% to 20%. The then Minister for Finance, Charlie McCreevy, was heavily criticized on the grounds that this change would reduce revenues. He countered by predicting that revenues would rise substantially as a result of the lower tax rate. Revenues rose considerably, almost trebling in fact, and greatly exceeded official predictions.”

The effects of the credit bubble in the Republic of Ireland have not been included in this research, although since the bubble burst the taxes collected have proven far from adequate to continue operating the Irish state or economy.

And we all know what happened next…