Archive for the ‘Uncategorized’ Category

IR35 to get a facelift in the private sector

Tuesday, May 22nd, 2018

HMRC is launching a new consultation to make sure that people who effectively work as employees pay the right amount of tax.

As announced at the Autumn Budget, the consultation will look at how to increase compliance with the existing ‘off-payroll’ working rules. These rules mean that contractors such as IT and management consultants who work through their own company, but are in practice employed by a third party, pay the right tax as employees.

Evidence suggests that the tax will be lost of up to £1.2bn a year by 2023 as a result of people getting the rules wrong, and incorrectly paying tax as if they were self-employed. The consultation will look at how to make these rules work better. The genuinely self-employed will not be affected.

Last April, the government reformed off-payroll working in the public sector, successfully increasing compliance. The change has meant £410 million in additional revenue. This new consultation includes the option of extending those reforms to the private sector, although no decisions have been made. It draws upon the lessons from the public sector change, by consulting on how the rules can be improved for the private sector and includes alternative options for addressing non-compliance.

Existing off-payroll working rules (IR35) were introduced in 2000 and are intended to stop individuals avoiding employment taxes by working through their own company. IR35 affects contractors including IT consultants, management consultants, and project managers.

HMRC estimates that in 90% of cases within the private sector, the IR35 rules are not applied correctly and we should probably expect that this consultation will result in tightening of the IR35 regulations.

Genuinely self-employed persons will not be affected.

Readers may remember that in April 2017, the government reformed the off-payroll working rules for engagements in the public sector. Public authorities are now responsible for determining whether the rules apply and deducting and paying the appropriate taxes.

Apparently, external research on initial implementation shows that the reform has had relatively little impact on projects or vacancy filling in the public sector.

The consultation will close on 10th August 2018 and we will add further commentary on this topic as and if changes are subsequently made.

Are you due a tax refund

Thursday, May 17th, 2018

There is something uniquely satisfying about a tax refund. Of course, you must first overpay tax before it can be refunded, but there is a universal joy in receiving a cheque or direct payment to your bank account from HMRC.

Occasionally, HMRC will volunteer the information, they may even send you a formal assessment and advise you that a refund can be claimed. A more likely prompt will come from your accountant as we have an eye for these things…

A selection of situations that may lead to an overpayment are published on HMRC’s website, and we have to say, the list is not complete. They include the following.

You may have overpaid tax if you:

  • are employed and had too much tax taken from your pay, perhaps due to inaccurate coding of your tax allowances, benefits or expense claims;
  • have stopped work;
  • have submitted a tax return that discloses that too much tax has been paid;
  • have paid too much tax on pension payments you have received;
  • or if you have bought a life annuity.

You may also be able to reclaim tax if you have:

You may also have been entitled to claim an allowance, say the Marriage Allowance, and were slow to make the claim – in our experience HMRC will advise you that such allowances exist, but not that you could make a claim.

More of HMRC’s systems are being computerised, and surprise, surprise, accidents do happen. Without the watchful human touch, it is down to taxpayers or their advisors to spot the faux pars.

If you have that itch, that maybe you have paid too much tax, we would be delighted to cast an eye over your numbers and fire off a few pointed questions to narrow down the possibility that maybe you too have paid too much tax.

Stop the Loan Sharks

Monday, May 14th, 2018

We have all heard of individuals who have been affected by the nefarious antics of loan sharks, lenders that breach the normal fiscal rules by taking advantage of needy persons who do not qualify for support from mainstream banking sources.

The government has announced additional funding to crack down on this activity. Their announcement, published 25 April, is worth a mention.

Loan sharks face a fresh crackdown today (25 April), with more funding to tackle unlawful lending, and an increase in the amount of money seized from loan sharks to support those most vulnerable to their nasty tactics.

  • over £5.5 million will be spent to fund the fight against loan sharks, helping to investigate and prosecute illegal lenders, and support their victims
  • £100,000 of money already seized from loan sharks will also be spent to encourage people in England at risk of being targeted by loan sharks to join a credit union, helping them to access a safer form of finance and get their lives back on track
  • and for the first time in Northern Ireland a new education project will be created to raise awareness of the dangers of loan sharks and to support vulnerable communities

In total, £5.67 million of funding will be provided to Britain’s Illegal Money Lending Teams (IMLT) and bodies in Northern Ireland to tackle illegal lending – a 16% increase compared to the previous year. The money will be used to investigate and prosecute illegal lenders, and to support those who have been the victim of a loan shark.

Since the Illegal Money Lending Team was established in England in 2004, they’ve made over 380 prosecutions, leading to 328 years’ worth of sentences, and have written off over £73 million of illegal debt, helping over 28,000 people to escape the jaws of the loan sharks. Similar teams operate in Scotland and Wales.

In Northern Ireland, the Consumer Council will lead its first ever education and awareness campaign to help prevent the most vulnerable from being bitten by loan sharks, and the Police Service of Northern Ireland (PSNI) will get funding for a specialised officer who will lead on illegal lending within the Paramilitary Crime Task Force.

Whilst government action in these areas is to be applauded, there seems to be no concerted action to assist organisations that do provide credit to individuals who would find it difficult to obtain credit from a High Street bank or other regulated sources.

Location is everything

Wednesday, May 9th, 2018

Now that Wales and Scotland have devolved powers for taxation purposes, residents that live and work in the border areas with England have more planning options.

Wales have their own stamp duty regime from April 2018, the Land Transaction Tax (LTT), and Scotland, from April 2015, the Land & Building Transaction Tax (LBTT). Scotland have devolved powers to set their own rates of Income Tax.

Regarding property purchases, this can create interesting differences for individuals buying in the border areas of Wales/England and Scotland/England. For example:

Consider Llanymynech, a village that straddles the border between Powys (Wales) and Shropshire (England). The amount of stamp duty payable on an identically priced house, say £179,000, would cost the buyer £1,080 in Stamp Duty Land Tax if bought in the English side of the village, but no Land Transaction Tax would be payable for an equivalently priced house on the Welsh side of the village. A definite incentive to buy in this price bracket the Welsh side of the border.

If you live in the Scotland/England border areas and you are contemplating the purchase of an expensive property and your budget is £1m, you may want to consider the following numbers:

  • Buying in Scotland would cost you £78,350 in Land & Building Transaction Tax, and
  • Buying in England would cost you a mere £43,750 in Stamp Duty Land Tax.

Scotland has also set its own Income Tax rates for 2018-19. So, depending on the amount of your income, you may pay variable rates of Income Tax depending on which side of the border you choose to live.

Payments in lieu of notice

Wednesday, May 9th, 2018

Up to 5 April 2018, certain payments in lieu of notice were not taxable, primarily, those not contractually required to be made.

This is no longer the case.

Employers will now need to pay Income Tax and Class 1 National Insurance contributions (NICs) on an element of all termination payments from 6 April 2018, whether or not they are contractual payments.

The element that is now chargeable to Income Tax and NICs is the amount of the termination payment that represents payment in lieu of notice (PILON). This change applies to payments, or benefits received on, or after, 6 April 2018 in circumstances where the employment also ended on, or after, 6 April 2018. This follows an announcement at Budget 2016 that government would introduce rules to prevent employers from manipulating the system.

This measure is intended to bring fairness and clarity to the taxation of termination payments by making it clear that all PILONs, rather than just contractual PILONs, are taxable earnings.

All employees will pay Income Tax and Class 1 NICs on the amount of basic pay that they would have received if they had worked their notice in full, even if they are not paid a contractual PILON.

This means the tax and NIC consequences are the same for everyone and are no longer dependent on how the employment contract is drafted or whether payments are structured in some other form, such as damages.

Who qualifies for the minimum wage

Wednesday, May 9th, 2018

As you would expect there are a range of conditions that affect the answer to this question. We have reproduced below a summary of the main conditions to be observed.

Workers must be at least school leaving age to get the National Minimum Wage. They must be 25 or over to get the National Living Wage.

Contracts for payments below the minimum wage are not legally binding. The worker is still entitled to the National Minimum Wage or National Living Wage.

Workers are also entitled to the correct minimum wage if they are:

  • part-time
  • casual labourers, for example someone hired for one day
  • agency workers
  • workers and homeworkers paid by the number of items they make
  • apprentices
  • trainees, workers on probation
  • disabled workers
  • agricultural workers
  • foreign workers
  • seafarers
  • offshore workers

 

Apprentices are entitled to the apprentice rate if they’re either:

  • under 19
  • 19 or over and in the first year of their apprenticeship

 

Apprentices over 19 who have completed the first year of their apprenticeship are entitled to the correct minimum wage for their age.

The following types of workers aren’t entitled to the National Minimum Wage or National Living Wage:

  • self-employed people running their own business
  • company directors
  • volunteers or voluntary workers
  • workers on a government employment programme, such as the Work Programme
  • members of the armed forces
  • family members of the employer living in the employer’s home
  • non-family members living in the employer’s home who share in the work and leisure activities, are treated as one of the family and aren’t charged for meals or accommodation, for example au pairs
  • workers younger than school leaving age (usually 16)
  • higher and further education students on a work placement up to 1 year
  • workers on government pre-apprenticeships schemes
  • people on the following European Union programmes: Leonardo da Vinci, Youth in Action, Erasmus, Comenius
  • people working on a Jobcentre Plus Work trial for 6 weeks
  • share fishermen
  • prisoners
  • people living and working in a religious community

Why tax credit payments can change

Wednesday, May 9th, 2018

If you are claiming tax credits make sure that you keep an eye on changes that may affect the amount you receive.

Your payments can go up if:

  • your income goes down by more than £2,500
  • your benefits stop or go down
  • you start getting personal independence payment (PIP), Disability Living Allowance (DLA) or other disability benefits for yourself or a child
  • you have a child
  • your childcare costs go up

You should report these changes within 1 month to make sure you get everything you’re entitled to. Payments can’t usually be backdated any further than this.

Your payments can go down or stop if:

  • your income goes up by more than £2,500 – report this straight away to reduce the amount you’re overpaid
  • you haven’t renewed your claim
  • your award notice shows you’ve been overpaid
  • you stop getting PIP, DLA or other disability benefits for yourself or a child
  • your child is now 16, 18 or 19 and you haven’t told the Tax Credit Office they’re in approved education or training
  • your childcare costs go down
  • you or your partner start claiming Universal Credit

Tax Diary May/June 2018

Wednesday, May 9th, 2018

1 May 2018 – Due date for corporation tax due for the year ended 30 July 2017.

19 May 2018 – PAYE and NIC deductions due for month ended 5 May 2018. (If you pay your tax electronically the due date is 22 May 2018)

19 May 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2018.

19 May 2018 – CIS tax deducted for the month ended 5 May 2018 is payable by today.

31 May 2018 – Ensure all employees have been given their P60s for the 2017-18 tax year.

1 June 2018 – Due date for corporation tax due for the year ended 31 August 2017.

19 June 2018 – PAYE and NIC deductions due for month ended 5 June 2018. (If you pay your tax electronically the due date is 22 June 2018)

19 June 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2018.

19 June 2018 – CIS tax deducted for the month ended 5 June 2018 is payable by today.

When child benefit becomes a liability

Wednesday, May 9th, 2018

A typical two parent, two child family can claim £34.40 per week in Child Benefit (CB). In a tax year this would amount to £1,789.

Often, this becomes part of the family housekeeping and is spent.

Consider Mary and John and their two children. John collects the CB, it is paid into his current account and used to fund the household budget. John elected to stay at home and look after the management of the family. Mary is a solicitor and has a full-time job in a local practice.

In the current tax year, Mary will receive bonuses that increase her salary to £60,000. This is £10,000 more than her previous year’s salary which amounted to £50,000. After a 40% income tax deduction, Mary will receive an additional £6,000. Mary and John decide to use the extra cash to part finance a holiday in Florida and top up their ISAs.

Imagine their surprise when Mary discovers her self-assessment tax bill is £1,800 more than she expected. The culprit, the High Income Child Benefit Charge (HICBC).

The HICBC levies an additional tax charge on families that claim CB and where one of the parents earns more than £50,000 in a tax year. Effectively, CB must be repaid at the rate of 1% of CB received for every £100 the highest earner’s income exceeds £50,000. In Mary’s case, this excess income was £10,000 and therefore 100% of any CB received will have to be repaid. Accordingly, Mary’s self-assessment included a £1,789 HICBC.

Reluctantly, Mary and John had to withdraw the £1,789 from their ISAs.

Mary thought that receiving just £6,000 of her £10,000 bonus was bad enough, but she now realises that the true “tax” cost was £5,789 (£4,000 income tax and £1,789 HICBC). The combined tax hit was not 40% of her income but 58%.

Parents who exceed the £50,000 income limit for the first time and draw CB will find themselves in a similar position to Mary and John and will need to plan accordingly.

Cheques to clear in one day

Tuesday, May 8th, 2018

Legislation has been introduced to reduce the present maximum six-day clearance process, to just one day.

Banks presently send the payer’s cheque to the clearing banks to facilitate clearance. Under new rules, that will apply from October 2018, this will be reduced to one-day by sending a digital image of the cheque for clearance. To do this, banks will use a common Image Clearing System (ICS).

This should all but eliminate the present, confusing process where cheques are debited to your statement but may not be cleared to draw against for days.

Following consultation with interested parties HM Treasury have agreed that customers have the right to a copy their cheque, together with other useful information.

For those interested in the detail of their response HM Treasury said:

In 2015, HM Treasury introduced measures in the Small Business, Enterprise and Employment Act to allow UK banks and building societies to introduce the Image Clearing System (ICS) for cheques. ICS is an innovation that cuts down cheque clearing times from a possible six days to one day by sending a digital image of the cheque for clearing, rather than the paper cheque itself.

In November 2017, HM Treasury consulted on proposals to make provision for two measures in secondary legislation to support the introduction of the ICS:

  • That a copy of a paid cheque (or other paper instrument), along with some additional information, be provided to the payer upon his or her request, and that the copy can be used as evidence of payment
  • That if a customer paying using a cheque incurs a loss in connection with the presentment of a cheque under the ICS (that did not result from gross negligence or fraudulent activity on their part), and has not received compensation, the payee’s bank must compensate this customer for this loss. If the paying bank incurs a loss (in the event they have already paid out compensation to the customer) the payee’s bank must compensate the payer’s bank.

The aim of the proposed legislation is to ensure that the ICS, which will clear all cheques by October 2018, has no detrimental impact on the existing position of cheque users.

The Government has considered these representations and …, upon request, paying banks will have to provide a copy of the cheque together with:

  • confirmation of the decision of the banker that the payment should be made (including automated decisions); the date that the decision was made (or the date upon which the automated decision was made);
  • the value of the payment made;
  • the sort code and account number of the paying customer (drawer of the cheque);
  • any reference number allocated by the banker authorised to collect payment of the instrument (used to identify the payment instrument).

This will ensure that customers have the right to a copy of their cheque, together with useful information, while minimising the burden on industry.

Businesses that are still receiving cheque settlement of their invoices will be pleased by this announcement as it effectively reduces the credit they are obliged to give customers by up to one week.