Taxing Times – May 2015

Welcome to the May edition of Taxing Times. In this edition we’ll look at: Tax Opps

  • IR35 – What’s That all About then?
  • Employment Intermediaries: News
  • PAYE Updates
  • 7 Tax Changes from April 2015

Also, we are running a free solicitors’ specialist seminar on 20th May at Rheged – click here for details.

Taxing Times will take a break in June for the Summer holidays and be back with you in July…happy reading!Dotted Line

Employment Status Special

IR35 – what’s that all about then?

IR35 is a tax rule introduced way back in April 2000 that says people cannot be “disguised employees” by paying themselves through their own company – referred to as their Personal Service Company (“ PSC”) in the tax legislation –  when they are in reality providing their personal services and actually an employee of the organisation which has engaged their company. Raising an invoice through a company for remuneration rather than getting paid via PAYE means that the Government loses out on NIC, specifically Employers NIC, which the engaging organisation does not pay when it engages someone through a PSC.  Understandably, HMRC are very interested in identifying and challenging these arrangements, although they haven’t always been successful in the past.

22175861_sInterestingly, HMRC are increasingly also turning their attention to the engaging organisation in pursuit of the monies lost to the Government by such arrangements.  Inspectors are now instructed to challenge the engager – not the PSC – in cases where a director of the engager is paid “off payroll”.  And very recently HMRC investigated potential breaches of the IR35 legislation with the Ministry of Defence and the Department of Health, leading to nearly 100 NHS staff and civil servants being fired and two Government departments being fined £1.5m after it emerged they were not doing enough to stop staff being paid through companies.

Having said all the above, not all PSCs are avoidance-vehicles and there are lots of individuals providing their services through their own company who are NOT in any way shape or form “disguised employees” – in which case the IR35 legislation does not apply. For those who have been operating through a company structure for a long time, it is an easy piece of legislation to forget, but nonetheless it is very important to be aware of. It is very easy over time for the nature of an engagement to change and to unintentionally slip into something which looks more like an employer/employee engagement rather than a true consultancy arrangement.  It is therefore worth periodically reviewing the engagements your company has to provide your services to other organisations in order to  ensure that they cannot be construed as “contracts of service” (i.e. employment).

You can check your status at http://tools.hmrc.gov.uk/esi/screen/ESI/en-GB/summary?user=guest, but if you are in any doubt, please talk to us and we would be happy to help you review your company’s position and make any appropriate changes.

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Employment Intermediaries

There is a huge cost and cash flow difference between being an employee (subject to PAYE on a monthly/weekly basis and having to pay Class 1 NIC with the employer having to pay a high rate of employer’s NIC) and self employment (subject to tax under self assessment, a lower rate of NIC for the individual and no employer’s NIC).  “Status” issues and the opportunity to recategorise people as employees not self employed, and therefore collect PAYE and additional NIC, is an extremely lucrative area for HMRC.  As well as the IR35 legislation (see the article above), HMRC also have a new tool in their armoury against “false self employment” with the Employment Intermediaries rules.  These have been in place since 6 April 2014 but now come with a new reporting requirement to help HMRC identify where to focus their efforts.14163000_s

The crux of the Employment Intermediaries rules is that a business which supplies individuals to provide their services to someone else may be classed as an employment intermediary.  Then, if certain (fairly minimal) conditions are satisfied, the employment intermediary is obliged to operate PAYE on the amounts paid to the individual.  In the past when HMRC have talked about employment intermediaries they have typically meant employment agencies – but there was a loophole in the tax legislation  relating to agencies which meant that PAYE was not always operated.  So the new legislation is much wider and catches many more businesses than just employment agencies. And it’s a piece of legislation which catches the business which supplies the individuals rather than the individuals themselves.

It will therefore be important for organisations who have a business of placing people with other organisations, for whatever reason, to comply with the Employment Intermediaries rules. From 6 April 2015 employment intermediaries have to provide HMRC with a return of worker information every three months for all workers they supply for whom they do NOT operate PAYE – a form of self indictment some might say, offering themselves up to HMRC scrutiny.

The first quarterly return is due on 5 August and must be submitted online and must contain amongst other things the reason why the intermediary is not operating PAYE.

If you are at all concerned about the new rules or want to discuss if they apply to your business, please give us a call.

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PAYE Updates

Holiday Pay

In July last year there was a landmark ruling stating employees must receive their “normal remuneration” during their annual paid leave and that commission must be taken into account for this purpose.  No guidance as to how this should be calculated was given so it recently went to Employment Tribunal for them to consider and they have concluded that “commission or similar payments” must be included in holiday pay for the four weeks’ holiday pay under the EU Directive but not the additional 1.6 weeks under the Working Time Regulations (WTR).  Legal experts still believe there may be further appeals against the decision and most employers will want to wait for further clarification.  If you are concerned about holiday pay and what you should do, you should firstly check over their contracts of employment and seek assistance from a legal expert about holiday pay terms.  Our payroll team will be happy to explain this further.

Tax Penalty

Late Filing Penalties for RTI

A little while ago HMRC announced the following PAYE changes (in very small print):

Special rules for late filing penalties:

  • All returns may be up to 3 days late without penalty
  • Anyone who has suffered a late filing penalty since 6 October 2014 and was 3 days late or less may appeal their penalty on the grounds that it was “not more than three days late”.
  • This measure will continue to apply for the foreseeable future.

There is also a temporary relaxation in place of reporting arrangements for micro employers. Existing employers with nine or fewer employees, who need more time to adapt to RTI, can report PAYE information on or before the last payday in the month until April 2016 if, for instance, they pay employees on a weekly basis.

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New (Tax) Year, New Start: 7 Tax Changes in Effect from April 2015

1. Pensions Flexibility: The Government says that “the most ground-breaking pension reforms in nearly a hundred years” came into force on April 6. People are no longer obliged to buy an annuity.  Individuals over 55 now have the flexibility to access their defined contribution pension savings as and when they want, instead of having to take an annuity when they reach retirement age. The first 25% of any lump sum taken will be tax free and the balance subject to tax at the individual’s marginal rate.  In addition, the tax charges arising on the transfer or draw down of unused defined contribution pensions savings on death have been reduced, such that:

  • if an individual dies before the age of 75, any unused defined contribution pension savings can be passed on without triggering a tax charge; and
  • if death is after the age of 75, a beneficiary can draw down on the pensions savings at their marginal rate of tax, or 45% if the amount is taken as a lump sum.

Budget 20142. Capital Gains Tax for Non-Residents: Individuals, closely controlled companies and non-resident trusts disposing of UK residential property after 5 April 2015, will be subject to tax on any gains arising after that date. The default position is that the gains arising post 6 April 2015 are calculated based on a rebased market value from 6 April 2015.  However there are alternatives available including time apportionment or taking the value over the whole period of ownership.

3. The marriage allowance: Married couples and civil partners where neither spouse/partner is a higher or additional rate tax payer are now entitled to the marriage allowance (previously known as the transferable personal allowance). This allows one partner to transfer up to 10% of their personal allowance to the other, saving the couple a maximum of £212 in tax in 2015/16.

4. Helping Employers: From 6 April, employers hiring under 21s will be no longer face National Insurance Contributions (NICs) tax bills.

5. Increasing the Personal Allowance: People on lower incomes will pay no income tax at all, as personal allowance rises from £10,000 to £10,600 on April 6. In 2015-16, a typical taxpayer will be £825 better off than s/he was in 2009/10 as a result of the increase in the tax-free personal allowance over the life of this Government

6. Savings Income Bonus: The starting rate of savings tax will be cut from 10% to 0% for savings up to £5,000 – taking 1.5 million people out of paying tax on their savings income from April 6

7. Key corporation tax rates: From April 1, the corporation tax that businesses pay is cut to 20%, the lowest rate in the G20. It was 21%. In 2010, it was 28%.  In addition, the research and development reliefs available to companies have been increased with effect from 1 April. SMEs are now entitled to an enhanced CT deduction at 230%, whilst the above the line tax credit (for large companies and companies carrying on R&D on a subcontractor basis) is increased from 10% to 11%.

Please get in touch if you would like to discuss how any of these changes affect you.

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And Finally….Is Tax too Taxing?

The Institute of Chartered Accountants of Scotland (“ICAS”) says that the UK’s highly complex tax laws must be simplified.  The Institute’s Chief Executive, Anton Colella, said:

‘Every political party is talking about tax avoidance, but one important element that lies in their hands is simplifying Britain’s tax code. This will bring much needed clarity to the grey areas of avoidance…….. The next government must stop tinkering by adding yet more reliefs and start tackling the complexity of it all’.

Speaking as someone who has seen the direct tax legislation grow from 3 books to 7  in my relatively short time in tax I can only agree!!

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