Business News March 2006
 Tax Credits – The End Of Payment Via Employers
Payment of Working Tax Credit through the payroll is being phased out by the end of the current tax year. Employers should have already received a notice from HMRC, for each of their employees, telling them to stop making payments.
Any employers who have not received the notice need to contact HMRC to agree a stop date. HMRC have warned that any payments that employers make to their employees after 31 March 2006 will not be recoverable.
HMRC have also reminded employers that they should have sent their employees a letter last November informing them that HMRC would begin paying direct in the near future. A copy of the suggested wording for the letter is in the link below.
It may well be advisable for employers to send employees a copy of this letter now to prevent a potential flood of employee queries which are otherwise likely to occur in this busy period.
Internet links:
Online Filing A Success Say HMRC
HMRC have announced that nearly two million taxpayers filed their 2004/05 personal self assessment tax returns online this year. This represents a 38% increase compared to last year.
The HMRC website processed 719,913 self assessment returns during January. 336,277 returns were received in the final seven days, and 216,154 of those in the final four days until midnight on 31 January.
"We've been pleased to see further growth in online filing this year. We estimate almost a quarter of all returns were submitted online," said Sir David Varney, Chairman of HMRC.
Interestingly although HMRC seem pleased with the increase in online filing which will save them time, effort and processing costs, the percentage of returns submitted electronically is still only about 20% of the 9.8 million returns issued.
Internet link:
SMEs Happy Being Small
Research shows that three quarters of small business owners believe their quality of life has improved since they started their own business.
The Health, Wealth and Happiness Report from MORE TH>N Business, shows that over half the owners of ventures employing fewer than five employees started their businesses to be happier and to have more control over their lives, rather than to make their fortunes.
Starting up in business was a lifestyle choice rather than a career move, as an overwhelming 85% prioritise quality of life over money, while 56% never want to employ more than 10 staff.
One of the conclusions of the survey is that this type of small business should be regarded as distinct from traditional entrepreneurs, even going to the trouble of dubbing them ‘alterpreneurs’ and setting up a website dedicated to them.
“Working for yourself can be a great lifestyle choice,” commented Stephen Alambritis of the Federation of Small Businesses. “Despite the hard work and long hours involved, very few people who have made the leap would consider returning to the 9 - 5 world again.”
“The government is missing the target by aiming support at start-ups with big growth plans,” he continued. “There needs to be greater focus on established firms, and moves to tackle the administrative headache of taking on employees to make growing a business more appealing.”
Internet link:
Employer Pension Contributions
From A Day, 6 April 2006, the new pension regime will finally take effect. We have previously reported on the introduction of the new rules and HMRC have recently published their draft internal guidance on whether or not employer pension contributions will be deductible for tax purposes.
Under the new regime, pension contributions by the employer must be physically paid and satisfy a wholly and exclusively test. The HMRC guidance advises that the contribution will be looked at carefully, especially where the salary is less than the commercial rate and the pension contribution appears to have been inflated.
The situation described in the HMRC guidance is quite common in small owner managed businesses and typically would apply to director shareholders. The professional bodies are expected to challenge HMRC’s interpretation of these rules but care should be taken when making employer pension contributions until this matter is clarified.
Internet link:
Child Trust Fund (CTF) Vouchers Expire
The CTF is a tax free savings and investment account designed to ensure that all children born from 1 September 2002 will be entitled to a fund when they reach age 18. The government issued the vouchers for children born from 1 September 2002 to April 2005 in batches and compensated them for the fact that the vouchers were issued late. However, it appears that many parents have failed to open an account within the one year time limit allowed and HMRC have issued revised guidance to Child Trust Fund providers giving an extra 7 days after expiry for the parent to get the voucher to a provider.
Where parents have lost the voucher or fail to open an account the government will open a basic stakeholder account for the child. The parent will then have the opportunity to change the account in the future.
One of the main advantages of the CTF accounts is that parents and other individuals can add up to £1,200 additional capital to the account each year and this is also allowed to grow tax free. The fund must pass to the child once they reach 18 and the government hopes that this money will be used towards funding higher education costs for the child.
If you have recently had a child and are wondering how to apply for the voucher in the first place then you will be glad to hear that there is no application form to complete. A voucher will be issued automatically when an application is made for Child Benefit.
Internet links:
PAYE - End Of Year Filing
HMRC have published a huge amount of guidance on end of year filing of employers’ returns. Employers with 50 or more employees will have to file electronically this year or face automatic penalties of between £600 and £3000. Smaller employers will again be chasing the £250 tax free incentive payment which is available where they successfully file electronically.
HMRC advise that they will be applying the full list of checks to the information supplied by employers, whether this is submitted by the agent or employer, either electronically or on paper. Last year, due to the failure of HMRC’s computer, only a few checks were actually applied. This year any errors will result in the returns being rejected by HMRC. The forms will have to be amended and resubmitted by the filing deadline of 19 May 2006 to avoid penalties.
HMRC have also warned that they will be checking that any returns submitted are necessary before they issue incentive payments this year, which may cause further delays in receiving the £250 incentive payment.
Internet links:
National Pensions Day – 18 March
On 18 March 2006 the future of pensions will be debated nationwide in the UK's first National Pensions Day.
Secretary of State for Work and Pensions, John Hutton, made the announcement in a speech to The Work Foundation.
A series of consultation events will take place on the day in Birmingham, Newcastle, Glasgow, Swansea, Belfast and London, attended by Ministers, industry specialists and a representative sample of the public.
The recommendations in The Pensions Commission's report published last November will provide the basis for the debate, which will also look at:
-
the role of the State
-
the challenge for employers
-
the options for improving the position of women's pensions
-
and the trade-offs and balances that will have to be struck to achieve long-term reform.
Internet link:
Chip And Pin
We are sure you will not have missed the introduction of the chip and PIN payment system with the flurry of in store advertising campaigns. Fighting for Private Business (FPB), a group which campaigns for small businesses, says banks are to blame for the difficulties surrounding the introduction of chip and PIN by pushing the system through before retailers and consumers are ready.
From 14 February, people with chip and PIN cards are expected to verify a purchase by keying in their personal ID number. If your business does not have chip and PIN you may now be liable for credit card fraud carried out on your premises.
Internet links:
Health And Safety At Work
The Health and Safety Executive have put together an interactive package to enable businesses to check whether or not they are complying with the legislation in this area. To check if your business is up to scratch use the link below.
Internet link:
Employment Status Tool
HMRC have made available on their website an employment status indicator (ESI) tool which allows contractors to check HMRC’s interpretation of the employment status of potential workers. The tool is aimed at those contractors within the Construction Industry Scheme (CIS) and is being made available in advance of the start to the new scheme, which has been pushed back to 6 April 2007.
WARNING!
Those of you who decide to use the tool should do so with extreme care as it asks a series of leading questions which are used to form the basis for a conclusion of employed, self employed or unsure. Where the tool is unable to come up with a conclusion then it suggests you refer the particular circumstances to an HMRC Status Inspector which could have all sorts of unexpected consequences, including a visit from HMRC. HMRC warn that the tool cannot be used to produce a binding ruling as to the status of a particular individual.
Internet link:
Trust Expenses
HMRC have recently published updated guidance on their interpretation of current trust law. HMRC advise that trustees and beneficiaries should make their tax returns according to these guidelines. The guidance has been largely agreed by trust representatives, but some areas of disagreement remain, in particular trustees' fees.
Internet links:
Changes To The VAT Treatment Of Conferencing
Customs have issued revised guidance on the VAT treatment of conference facilities provided by hotels. The guidance affects the situation where a hotel provides conference facilities on a 24 hour delegate rate. The guidance now means that only part of the 24 hour delegate rate should be subject to VAT. The element of the costs which relate to the room hire should be exempt from VAT unless the hotel has elected to tax the premises, known as an ‘option to tax’.
These changes will mean that some hotels may be entitled to a VAT refund and Customs have also issued guidance on how this claim should be made.
Customs have confirmed that hotels that wish to continue charging VAT on the full cost of 24 hour delegate rates may do so. This may well be the simplest option for some hotels but may mean they loose out on some bookings from businesses which are unable to reclaim the input VAT they incur.
Internet link:
To read the Customs article go to:
Arctic Systems – Revenue To Appeal To The Lords
Last month we reported on the Court of Appeal decision in the Arctic Systems case. Just in case you need a reminder, the case concerned a company owned by a husband and wife and hinged on whether dividends paid by the company to the wife (who was not a higher rate taxpayer) could be taxed instead on her husband (who was a higher rate taxpayer). The case was won by the taxpayer in the Court of Appeal and we had hoped it had reached its final conclusion. Unfortunately the Revenue have requested leave to appeal to the House of Lords, so those taxpayers whose affairs bear a striking similarity to that of Mr and Mrs Jones, the shareholders of Arctic Systems, are again facing uncertainty as to how they should complete their tax returns.
The professional bodies and the Revenue have published further guidance on the current situation.
Internet links:
To read the Revenue’s guidance:
To read the professional bodies guidance:
Bird Flu
Avian flu continues to make the headlines and appears to be getting closer to the UK, causing worry and uncertainty.
Bird flu, known as H5N1, currently lacks the ability to transfer from human to human, but, like ordinary flu, it is steadily changing and health officials are concerned it will develop that ability. If this happens, the consequences could be catastrophic. More than eight out of ten large UK companies have made emergency plans, according to a survey by The Telegraph.
However, many smaller employers have not yet recognised the financial consequences that bird flu could have on their business were it to become a pandemic. Businesses should consider whether they need to make contingency plans. Some of the potential risks are:
-
staff shortage through employees taking time off ill, to care for others or to avoid infection
-
costs of stringent health and safety policies and procedures for preventing a spread of the virus
-
disruption to public transport, making it difficult or impossible for staff to get to work
-
costs of home-working solutions for those unable to attend work
-
disruption to the supply chain
-
disruption to business travel.
Internet links:
To read more go to:
Are Your Customers Creditworthy?
Small businesses should check potential customers’ creditworthiness before starting to trade with them and then continue to monitor them to avoid payment problems developing, advises the Better Payment Practice Group (BPPG).
An effective way of doing this is to apply for a status report on the customer from a credit agency. These include full customer details and financial results, along with the payment experience of other suppliers, county court judgments registered against them and a recommended credit rating.
The BPPG recommend carrying out credit checks on customers that make up the top 80% of your sales. These businesses should be given a full credit check. Less detailed checks can then be carried out on the others.
The BPPG also offer advice on whether or not you should offer customers trade credit in the first place and give tips on how to improve the credit rating of your own businesses.
Internet link:
To read the BPPG guidance go to:
Car Benefit Calculations
The Revenue have produced updated guidance in the Employment Income Manual on how car benefits are calculated. The guidance sets out the basis for the calculation using the list price of the car and an appropriate percentage normally based on the CO2 emissions of the car. There are lower benefits, and therefore less tax to pay, on energy efficient or ‘green’ cars and the guidance for the benefit calculation for these cars is also included.
The revised guidance is welcome as there are significant changes to the calculation rules for energy efficient cars and also for Euro IV or ‘clean’ diesels from 6 April 2006.
Internet link:
To see the Revenue guidance go to:
No Future For The Corner Shop
A gloomy future awaits the traditional corner shop, according to predictions from a parliamentary committee. The pressure from the big four supermarket chains will prove so great that, by 2015, wholesalers which specialise in supplying the smaller retailer are likely to have disappeared too. The predictions are contained in a report leaked to The Times, which is due to be published later this month.
Internet link:
You can read more at:
Unfair Dismissal Compensation Set To Rise
The government has announced the revised compensation limits that will come into effect from 1 February 2006. From that date, the maximum amount of compensation awarded for cases of unfair dismissal will increase from £56,800 to £58,400.
The maximum award of 'a week's pay' as defined when calculating redundancy payments will also rise from £280 to £290. This is the maximum amount of weekly pay that can be included in statutory redundancy payments regardless of actual earnings.
Internet link:
To read the details go to:
Civil Partnerships – A Sensitive Issue
We reported in a previous newswire the introduction of Civil Partnerships. Acas has since issued guidance on how to comply with the Civil Partnership Act, which gives same-sex couples the same rights as married heterosexual couples in terms of employment rights such as pensions, parental leave and health insurance options. Acas is asking businesses to review their current policies, forms and guidance to ensure that they are up to date. It claims the changes are easy to implement but points out the need for sensitivity and discretion when dealing with such matters.
Internet link:
To read the Acas guidance go to:
VAT Receipts And Employee Mileage Claims
In last month’s enews we reported on the changes to the procedures for input VAT recovery by employers on employees’ mileage allowances. Customs have issued further clarification of the evidence required to support a claim for input VAT recovery. We set out below a summary of the procedures:
-
The change comes into effect from 1 January 2006 regardless of the VAT return period end date. From that date, employers should retain VAT invoices, including less detailed garage VAT invoices their employees obtain from the fuel supplier as proof of purchase.
-
Customs acknowledge that businesses will need a little time to make the necessary changes to their arrangements in order to hold VAT invoices in support of their claims. Therefore, Customs will be administering the change with a ‘light touch’ until such time as businesses have had a reasonable period to adjust to the new requirement.
-
As with the existing system, input tax may only be claimed on the cost of fuel for business use. As such, invoices only need to cover this amount.
-
Customs accept that the amount of the invoice in many cases will not match the input tax claim in respect of business fuel in any one claim period and that invoices may cover more than one period, particularly where fuel is purchased towards the end of a period.
-
Clearly, a claim cannot be supported by a VAT invoice which is dated after the dates covered by the claim. This means, in practice, that it may be advisable for employers to arrange for their employees who use, or may use, their cars for business purposes to retain all fuel invoices. This will ensure that, at the end of the claim period, the value of business fuel is covered by an invoice.
-
The fuel prices per mile rates used to determine the business fuel cost remain unaffected. Customs publish their own rates but also accept rates set by recognised motoring agencies, eg RAC, AA etc.
-
The only practical change to the current system is that an invoice must be retained in support of a claim for VAT recovery - in the vast majority of cases, this will be a less detailed tax invoice.
It is nice to see that Customs will initially be operating a ‘light touch’ approach to these new rules.
Internet Links:
To read Customs full guidance go to:
To view the advisory fuel rates go to:
Latest News
|
