Taxing Times – September 2018

Hello and welcome to September! In this edition we have the following articles and updates to lead you gently into the Autumn season after the hectic rush of Summer:

  • How to get the best out of your business (and yourself) this Autumn
  • National Minimum Wage – top tips to get it right
  • Proposed changes to the tax penalty system
  • PAYE update
  • Dates for your diary
  • Tax News

It’s all about me, me, me!

This title sounds rather selfish doesn’t it?! But it is making a very important point; when you are responsible for leading a business, whether as part of the management team or because you are an entrepreneur running your own business, you have to look after number one.  When you think about it, that makes perfect sense – after all, if you burn yourself out, who is going to successfully carry on the business? And if you are cranky and miserable through worry/stress/tiredness, what kind of message does that give to your employees?  Not a positive one, that’s for sure.

So remember to look after yourself first – a happy, positive, energetic you is absolutely the best thing for your business!

Below are some tips for health and wellbeing this summer:

Less is more
It’s tempting to fill your schedule with organised activities and we all feel a little guilty when we sit down and do nothing.  But it is good for you.  Make time for lazy weekends in the garden, pick up a book, take time out to read the Sunday papers and do the crossword! The occasional bout of boredom gives the brain a chance to reboot and get those creative juices flowing again.

Shake it out
Stress increases tension in our neck and shoulders (and maybe in our arms and fingers, depending on how tightly we grip the mouse when we read an irritating email)! But relieving tension can be calming and feeling physically less “tight” will make you feel mentally better too. Interlace your fingers, turn your palms up and stretch your arms above your head. Don’t hunch those shoulders! Breathe slowly through your nose then drop your arms, roll out your shoulders and repeat.  An easy exercise to do at your desk.

Sweet soul music
You may be used to pounding the night away on the dancefloor to some high energy tunes but instead, try some calming music when you are stressed.  It doesn’t have to be classical, just take it down a few notches to some nice music and lyrics – think the Carpenters, Randy Crawford or Simon and Garfunkel (showing my age here)! Allowing yourself to be distracted by the lyrics will take your mind off whatever is worrying you and allow your tension levels to drop.

Time out for a drop (of water that is!)
Not getting enough fluids leads to dehydration and which results in a big drop in concentration.  Not only is that unproductive, it can also lead to headaches and nausea.  So keep regularly topping up those fluids both at work and at rest; helpfully, that will also get your step count up too.

Even HMRC have some recommendations for looking after yourself (and your employees).  In the latest employer bulletin on gov.uk they point out that poor fitness can cost employers around £522 every year for each employee (because of anxiety, depression, back pain, diabetes, obesity etc, all of which can stem from lack of physical activity) and refer to their guidance on what employers can do, such as provide a cycle to work scheme; arrange access to corporate discounts for gym and health club membership; provide an in-house gym (no benefit in kind).  Read more here.

Points not prizes: HMRC plans points-based overhaul of penalties for late tax payments

HMRC plans to overhaul the penalties for late payments by businesses and individuals for corporation tax, income tax and self assessment, using a brand new points-based system.  They propose a points-based penalty system for late payment and two changes to the way that interest is charged and repaid for VAT, with the VAT changes coming into force from April 2020, but as yet no date for the launch of the points-based system for the other taxes (or details of the rates at which the penalties will be charged).

As with the existing penalty regime, there will be a ‘reasonable excuse’ get-out, but as with the current system, inability to pay and reliance on a third party are not reasonable excuses.

First charge:

Second charge:

A second charge will also become payable and will be calculated on amounts outstanding from day 31 after the payment due date until the outstanding balance is paid in full. Any TTP agreed during this period will also result in future penalties being suspended from the date the TTP was agreed.

In a statement explaining the rationale for the introduction of the new system, HMRC said: ‘The changes will ensure that people who pay late can avoid a penalty if they take action to make arrangements to pay, and that those that do not will receive a penalty that is proportionate to both the value of the debt and the amount of time it is outstanding for. The measure is designed to encourage those who cannot pay to agree a Time to Pay (TTP) arrangement as quickly as possible and only penalise those who do not.’

So communication with HMRC and arranging a formal TTP agreement with them, rather than burying one’s head in the sand and “hiding” from the debt as long as possible, will be important to minimise penalties when (if) this new system comes in.

PAYE update

Real Time Reporting for Employers
If you run a business and employ staff then you will have to register as an employer with H M Revenue & Customs (HMRC) and process payroll.  Generally employers are tasked with collecting tax and national insurance from their employees pay and sending that money to HMRC.  A system of real time reporting was introduced by HMRC which fundamentally reformed Pay As You Earn (PAYE) tax reporting.  Real Time Information (RTI) requires all employers to notify HMRC of their PAYE liability at the time or before they make any net payments to their employees. This information must be sent to HMRC electronically as part of the routine payroll process by filing a Full Payment Submission (FPS).

For the majority of employers, sending the FPS each pay period has been okay.  However, the accuracy of employer PAYE data being captured by HMRC still appears to present a significant challenge that can directly affect an individual’s personal tax record.  Issues such as duplicate employment records where HMRC systems record employees details more than once for the same job; incorrect tax codes; problems reconciling employer PAYE liabilities to their PAYE accounts; and very high numbers of incorrect notices advising taxpayers that they have paid the wrong amount of tax, have been widely reported.

Why is RTI important for your employees?
The rollout of Universal Credit (UC) across the UK depends on the PAYE information that employers supply to HMRC. When HMRC are notified by the Department for Work and Pensions (DWP) about a UC claimant, HMRC pass information about their pay to the DWP.  Late or incorrect reporting of RTI data by the employer can negatively impact employees and can affect the amount of UC they receive.  Accurate reporting of payroll information is also vital to ensure employees pay the right amount of tax.

Saving a Penalty!
No you don’t need to be a world class goal keeper to save a penalty.  You just need to make sure you submit your FPS in a timely manner.  The payment date you report on your FPS should be the earlier of the date an employee is paid or the date they were entitled to that payment and not the date you run your payroll or another date set up on your payroll software.  It is important to check this as HMRC find that this is often the reason why some employers receive a late filing penalty.

HMRC take a risk based approach to issuing late filing penalties. Their approach (at present) is to not charge penalties automatically if a FPS is filed late but within three days of the payment date and there is no pattern of persistent late-filing by the employer.

Late filing penalties depend on the number of employees you have.

If you’re over 3 months late you can be charged an additional penalty of 5% of the PAYE tax and National Insurance that you should have reported.

Similarly, late payment penalties will also continue to be raised on a risk-assessed basis rather than automatically, focussing on penalising those who persistently pay their PAYE liability late.  Late payment penalties will depend on the number of times you have failed to pay on time and the percentage rate that is applied to the amount that is late in the relevant tax month.  Daily interest will build up on all unpaid amounts.

Paying your employees on time and submitting information to the revenue correctly is vital – so if you want any help with processing your payroll, don’t hesitate to get in touch.

National minimum wage (NMW) – common mistakes to avoid

It seems quite simple to say that workers must be paid at least NMW for all time worked but in fact the legislation is actually pretty complicated, and the guidance isn’t as clear as it could be. Genuine mistakes, misunderstandings and technical mis-analysis can lead to non compliance.  And with HMRC proactively policing NMW compliance and failure to pay NMW leading to penalties of up to 200% and the employer at risk of being publicly named, it is vitally important to get it right.

If HMRC finds an employer is paying below the NMW, it can issue a notice of underpayment demanding the settling of any arrears, going back up to six years (five years in Scotland). Ex-employees aren’t left out – NMW underpayments have to be made good to employees who have left as well as to employees who are still with the employer.

In addition, a penalty of between 50% and 200% of the employer’s total underpayment can be levied, which can add a staggering amount to the overall NMW settlement bill (although the penalty is capped at £20k per worker, it could potentially be enormous, depending in the extent of the issue).

So what can an employer do to avoid falling foul of NMW rules?  A number of common mistakes around NMW are made again and again.  We have set out some of these below.  Being forewarned is forearmed;  if employers are aware of traps to watch out for,  it will be much easier to avoid them!

Uniforms/equipment
Uniforms can be problematic in the retail, leisure and hospitality sectors. Most restaurants and hotels require staff to wear a uniform, such as a pair of black trousers, black shoes and a white shirt. If the worker has to provide these at their OWN expense, the cost incurred must be deducted from their pay to establish whether the NMW is being paid. What is a uniform?  Well that is debatable but expect HMRC to take quite a wide-ranging approach and to check the terms of the employment contract and any uniform policy.

Salary sacrifice
It is the pay a worker receives AFTER salary sacrifice that counts towards the calculation for establishing NMW compliance. Therefore, if employees whose pay would be reduced below the NMW after salary sacrifice are allowed to join the scheme, there would be a NMW problem.

Tips and gratuities
Unfortunately tips and gratuities never count towards the NMW.

Sleep-in shifts
Sometimes social care providers operate sleep-in shifts when the worker is required to sleep on site. In line with HMRC guidance that was available at the time, a flat rate of pay was paid for these shifts, and while it technically meant that pay was below NMW when averaged over the total time on site, it was not actually thought to be unlawful. However, several employment tribunal cases have held that “sleeping time” should be counted for the purposes of paying NMW.  The care sector therefore has a big problem in this regard and the government will allow affected employers to settle arrears without the usual penalties.  Note, however, that the Court of Appeal is considering whether NMW does indeed have to be paid for sleeping time so things are still rather up in the air as yet.

Accommodation
If the employer provides free-of-charge accommodation, the employer can deduct a notional “accommodation offset allowance” of a maximum of £7 a day from the worker’s pay even if this takes the pay below NMW.  But if the employer charges for accommodation (including for utilities such as water), then the amount charged is offset against the daily accommodation allowance, and any excess is actually treated as a deduction from pay for calculating whether NMW obligations are met.  If, when that calculation is done, pay is below NMW, there is a problem.  Complicated! So great care needs to be taken when accommodation is provided and workers are near NMW.

Records
Sometimes administration goes wrong, such as having the wrong date of birth on an employee’s record or forgetting to change the NMW rate on the payroll each April when the rate rises.  Simple to get wrong – but also hopefully simple to check and put right!

Debriefs/security checks/clocking in and out
If a worker starts work before the beginning of their shift or works past the end of it, this is working time that the employer should record and pay for. Also, if there are team debriefs before a shift starts or staff are required to undergo a security check when a shift ends, the time taken for these is working time and should be included in the NMW calculations.

Tax repayments warning

Many personal tax returns will contain claims to repayment. But did you know that even if you give your bank details on the tax return form, or specifically request a cheque, HMRC will override the request and make the repayment to the debit or credit card last used to make payment on your self-assessment account.  This can cause problems when that card belongs to a spouse or partner, or worse, an ex-spouse or partner who then refuses to hand over the tax repayment to the rightful recipient.  HMRC have been questioned on this practice but their policies are clear;   if the refund is due to tax being overpaid (i.e. If there is a tax liability and payments made towards it are too high) they will always refund to the card if payments were originally made by card. They will only ever now refund by cheque if the liability was nil for the year but you have been taxed too much at source.

This is obviously a cause for concern but HMRC remain unmoved.

For more information please click here to view an article by the Low Incomes Tax Reform Group.

 

30 September

  • Corporation tax: returns for accounting periods ended 30 September 2017 need to be with HMRC by 30 September 2018.
  • Company accounts: private companies with 31 December 2017 year ends need to have filed accounts with Companies House by 30 September 2018.

5 October

  • Income tax self assessment: the last day for individuals not already registered for self assessment to notify HMRC of chargeability to CGT or income tax for 2017/18 is 5 October 2018.

19 or 22 October

  • Employers: the deadline to pay tax and Class 1B NICs due under a PAYE Settlement Agreement is 19 October 2018 (if paid by cheque) or 22 October 2018 (if paid electronically).

31 October

  • Income tax self assessment: the deadline to file paper returns for the 2017/18 tax year is 31 October 2018. The deadline to file a return which cannot be filed online because it falls into one of the exemption categories (such as MPs and members of the clergy) remains as 31 January 2019.
  • Corporation tax: returns for accounting periods ended 31 October 2017 need to be with HMRC by 31 October 2018.
  • Company accounts: private companies with 31 January 2018 year ends need to have filed accounts with Companies House by 31 October 2018.

 

What’s new in the world of tax?

Psychic doesn’t foresee tax bill
TV clairvoyant Psychic Sally has been assessed to tax of almost £3m. HMRC lodged a £2,919,679 claim against Sally Morgan Enterprises, which the company disputes.

VAT relief
Cumbrian author and celebrity Hunter Davies can finally deregister from VAT.  He said. “My aim in life is to earn less, pay less tax, have less paperwork and have a simpler life. Leaving VAT will be a godsend, in time and money and stress.”

Ronaldo agrees €18.9m tax fraud settlement
Cristiano Ronaldo has come to an agreement with Spain’s finance ministry in a tax fraud case, which will see him pay €18.9m and accept a two-year suspended jail sentence.

Amnesty accountant jailed
An accountant with Amnesty International has been jailed for 21 months for spending £43,000 on flights, hotels and luxury goods on the charity’s credit card. Sebastian Sarmiento Orozco, 27 admitted fraud at Southwark crown court.

Holiday health-check
Poppy Jaman, chief executive of the City Mental Health Alliance, recommends that employees should make an effort to avoid checking their emails when on holiday. She says that respecting annual leave is an opportunity to create “healthy workplaces where people can Flourish.”

Andrew Lloyd-Webber amongst celebrities in £200m legal battle with film tax scheme Bankers, sports stars and celebrities are suing Ingenious Media Holdings for £200m over a film-related tax relief scheme deemed to be unallowable by HMRC, which has left investors with tax bills running into the millions.  Stars including Andrew Lloyd-Webber are also among the 500 claimants heading to the High Court after they were given ‘catastrophic’ tax bills.

Scam “HMRC” texts
Research by Which? shows a third of text message users have received at least one scam attempt in the past six months. Some 42% of those targeted were sent texts purporting to be from HMRC. An HMRC spokesman said it was working to “identify, frustrate and close down fraudulent operations.”

HMRC grabs poker winnings
A fraudster who won nearly £70,000 in a poker tournament has been forced to hand his winnings to HMRC. Adam Lulat had previously avoided paying a fine for money laundering, but was taken back to court after HMRC learned he had won £68,930 at the Manchester event.

Score! Bangor City FC avoids winding-up bid
Bangor City FC has paid a £10,300 unpaid tax bill to HMRC to avoid a second move to wind it up.

‘Love Island’ is a better career option than University
Analysis by Frontier Economics has concluded that appearing on Love Island is likely to net you more money over the course of your life than an degree from Oxford or Cambridge would do.

Not that Taxing Times is suggesting this as sound career advice!

 

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