hjs|accountants

Meet the tax return deadline and avoid the penalties!

2012-01-04T03:02:00.000-08:00

With the 31^st of January tax return deadline now only four weeks away, it is important to remember the penalties which could be imposed if your return is submitted late

Most of us know that there are financial penalties which HM Revenue & Customs (HMRC) can levy when a tax payment is late. However, many people pay less attention to the fact that penalties also apply if the tax return itself is received after the due date.

Since April 2011 the penalty structure which has been in place means a fine of £100 if the return is even just one day late, with the amount increasing daily from 1 May. If you don’t file the return until August, you will find yourself with a fixed penalty of £1,300. If your return is more than six months late, you could be fined a percentage of the tax bill as well.

What if you have no tax to pay?

Your tax return still needs to be submitted before the deadline even in cases where no tax will be payable, and failure to achieve this will still result in the penalties mentioned above.

What if you end up with a penalty?

Even if you find yourself in a situation where you have had a penalty imposed, it is still important to talk to a professional who fully understands the penalty rules, to ensure that you don’t pay any more than you have to.

Are HMRC charging the new PAYE late payment penalties mentioned in the October 2010 blog?

2011-11-10T08:48:00.000-08:00

To date I have only seen one case personally where the new penalties have been charged. I understand that HMRC have limits based on value and the number of late payments below which they are not charging penalties for 2010/11. Also they appear to only be charging the penalties once the full 2010/11 PAYE liability is settled – therefore where employers may have had financial difficulties in the current climate and have only just managed to pay in full, they may not have received a penalty notice yet.

In talking to other tax specialists, I know that there are numerous cases where employers have received notice of significant penalties. The lowest penalty I know of is just under £4,000 and the highest nearly £80,000. In all cases we would advise clients to consider appealing against the penalties partly because of the way HMRC have dealt with the new legislation – as far as we are aware HMRC only sent out one warning notice in May or June 2010 and HMRC have made no other effort to warn employers of the penalties they were building up.

I know that a number of penalties have been appealed against and cases are pending with the Tax Tribunal – I understand the first case may have been heard last month and the decision is awaited. Some Judges of the Tax Tribunal have been taken a strong line with HMRC when they consider they have not dealt with taxpayers fairly

If you have been charged any penalties (including VAT Default Surcharge) for late payment of tax or late submission of Returns by HMRC, it is always worthwhile speaking to your accountant or if they do not have experience in the Appeals field, a specialist, as there may be grounds for an appeal against these. The key is to do this promptly as if you leave it you may be too late to appeal. I am always happy to talk through a case in principle and advise whether we can help.

HMRC Tax Code Chaos : second time lucky ?

2011-10-20T05:31:00.000-07:00

HM Revenue and Customs has been in the news twice this week and neither report has been favourable.

At one extreme they have been questioned in parliament about letting Goldman Sachs, the investment bank, off a £10m interest charge when settling the tax due on an alleged tax avoidance scheme.

Whilst this may have a small cost to all taxpayer, their second problem will be more significant to many individuals, for good or bad. For the lucky ones, this will mean that they have the pleasant surprise of a small refund from HMRC in time to help with buying Christmas presents. However, for the unlucky ones this will mean getting a bill from HMRC saying that insufficient tax has been deducted from their salary and they owe more (probably a few hundred pounds).

These errors (or as HMRC probably describe them adjustments) arise from the way the Pay As You Earn system works, particularly when you receive benefits from your employer (a company car, medical insurance and other items) and the time scale for HMRC to receive the information from employers.

In this case though it appears that, earlier in the year, HMRC made refunds and may now be want these back having processed more information.

We still find that for most taxpayers who submit Self Assessment Tax Returns the system works smoothly. Unfortunately, it often works less well for those within the PATE system who do not submit Tax Returns. The key things people can do to make sure they are not losing out are :

· Check you payslips regularly and particularly when your pay changes

· Make sure you understand how the tax (PAYE) deduction is calculated

· If you think the figures are wrong check them by speaking to HMRC or an accountant, your employer may also be happy to help

· If you are due a refund contact HMRC immediately and if you need to submit a Tax Return do this promptly and if possibly electronically

· If you owe tax, contact HMRC as soon as possible (so the debt does not grow) and ask them if you can settle it over time (whether through PAYE or by monthly payments to HMRC).

Separating from your spouse - what about the tax?

2011-09-20T03:52:00.000-07:00

Unfortunately along with the personal and other issues there are a few tax issues which need to be considered as the financial side of a divorce settlement is being agreed. The same issues will apply to the dissolution of a civil partnership

The most important thing to be aware of is that the special treatment for Capital Gains Tax purposes for transfers between spouses only applies for a tax year where the couple are married AND living together at some point in the tax year (to 5 April). This means that from the 6 April following the separation transfers and gifts of assets will be subject to Capital Gains Tax in the normal way

In contrast the special treatment for Inheritance Tax purposes applies to spouses until the time of divorce or dissolution. This means that transfers are not chargeable to IHT (subject to special rules if one spouse is not UK domiciled).

If assets such as shares, second homes, buy to let property or businesses interests are being transferred between spouses are part of the financial arrangements, it is therefore vital that advice is taken on the Capital Gains Tax implications. Even if no tax is payable immediately it is important that you know what tax might be payable in the future if the asset is sold – it may affect the overall detail of the settlement.

1) If the is an exchange of shares in different properties, there is a concession which allows the Capital Gains which would otherwise arise to be deferred.

2) If the property is subject to a ‘Mesher’ order where one spouse is not entitled to their share until the children reach a specific age or leave education, then they should still be entitled to Principle Private Residence (PPR) relief and the gain not be taxable.

3) The last three years of ownership of a PPR are eligible for relief even if one spouse has moved out and there another concession which can extend this if they do not have a new PPR.

All of these areas can be complex and it is important that you understand the tax implications of separation, divorce and any transactions involved in the financial settlement.

Are HM Revenue & Customs taking a stronger line and challenging items in accounts and Tax Returns?

2011-09-05T08:22:00.001-07:00

There are some types of business which have always interested the tax man as they are viewed as high risk and generally these are unchanged. Generally these are the types of business where customers do (or can be persuaded to) pay in cash and they fall into two main categories : retail shops and takeaways etc where not all cash may be recorded in the till and service type businesses (builders, gardeners etc) where there whole jobs (or part of the price) can be left out of the records.

At a more detailed level, there are a number of areas where we are seeing HM Revenue & Customs challenging or checking on specific items, including :

1) Travelling expenses are often being challenged particularly if these include home to site travel. HMRC appear to be much less willing to just accept that someone runs their business from home, if they have any form or regular other location.

2) Often employees and employers make assumptions that redundancy payments and other termination payments are tax free. The rules on this are complex and very dependent on the specific circumstances and HMRC are challenging the treatment regularly, often will extra tax being due. This is an area where it is vital that advice is taken before the payment is finalised.

3) HMRC will generally look into any large capital gain on a Tax Return and they are now often challenging where a property sale is eligible for Principle Private Residence relief. They have recently had a number of successes in the Tax Tribunal on this issue and these show how important it is to check the facts before assuming the relief is available.

All of our experience with these cases highlight the importance of dealing very carefully once HMRC start to look into a taxpayers affairs. If is very easy for a question or answer to be misinterpreted in the early stages of the enquiry and the impression given to be very difficult to correct later on. Unless you are very sure of your ground (both in fact and law) and your ability to express this clearly, it is almost always helpful to with someone experienced in this specialist area.

Hectic week for the middle of summer – what’s happening in tax?

2011-08-17T06:48:00.000-07:00

This week seems to have included a number of potentially significant announcements and news items affecting taxpayers and tax professionals. As a quick summary, here are a few :

HMRC have announced details of the first five arrests for tax evasion following the closure of the initial notification period for the Plumbers Tax Safe Plan on 31 May. Locally these include the arrest of a Ringwood man alleged to have evaded income tax of over £150,000. This is a useful reminder of the advantage of making an unprompted disclosure to HMRC if you have past tax failings – not only will the penalties be reduced, but it is extremely rare for HMRC to consider criminal prosecution if you voluntarily disclose things. Anyone with concerns about their past record should consider taking advice from someone experienced in tax investigations and disclosures.

The government have today announced seven move Enterprise Zones, which includes one locally, the Solent Enterprise Zone at Daedalus Airfield in Gosport. At present we appear to be awaiting more details of the specific incentives available to businesses setting up in the Zone.

A recent Supreme Court case (Autoclenz Ltd v Belcher) has raised concerns in the mind of many tax advisers about whether some self-employment contracts ‘work’ for tax purposes. Although the case was an appeal from an Employment Tribunal case on minimum wage and hoiday entitlement, it is quite possible HMRC will try and use this in the tax arena. In my mind the key reminder this decision gives is that the written contract and the reality of the commercial relationship must be consistent. This case consider whether a substitution clause in the written contract was relevant given the realities of the situation. Again a reminder to take proper advice not just on the initial contract but on how the ongoing relationship works.

I have heard that the tax man is going to prosecute more people in the Criminal Courts, should I be worried if I make a mistake?

2011-07-11T03:30:00.000-07:00

Earlier in the year HM Revenue & Customs announced that would be looking to increase the number of criminal prosecutions they bring annually to about 1,000 – a fivefold increase.

This is however a tiny proportion of the number of enquiries into Tax Returns they undertake. Historically HMRC have found it far more cost effective to use their general powers and civil penalties to collect extra tax which is due. Their intention is usually to collect any extra tax due and encourage taxpayers to comply with their obligations in the future and the significant penalties which can be charged without going to the Criminal Courts are enough to achieve this

There is clear guidance on the types of cases where criminal action might be considered appropriate which includes situations where there has been previous offences, the taxpayer is a professional advisor, there are threats to HMRC officers or there are links to wider criminal activity

So, in summary, there is almost no chance that HMRC will take criminal proceedings if you have made a mistake, but you may still get a financial penalty if HMRC take the view that you have been careless. This is however a sign of the increased effort which HMRC are putting into targeting tax evasion and what they see as tax avoidance.

Should you be paying VAT to HMRC when your customers have not paid you?

2011-05-26T02:30:00.000-07:00

There are provisions which allow you to reclaim the VAT you have paid to HMRC if your customer has not paid you within six months of the due date of the invoice. It is always sensible to keep your list of debtors under review to identify these items and reduce the amount you pay to HMRC in a later VAT period accordingly. Of course you have to pay over the VAT again later on when the customer pays you

There are a couple of warnings to be aware of as : you must document the write off for VAT purposes and must not have factored the debt.

The other side of these rules are that you need to remember that if you have not paid a supplier six months after the due date of an invoice, you must adjust your next VAT Return for the VAT you have not paid to the supplier. Again you reclaim when you actually pay. It is easy to overlook this and very easy for a VAT Officer to find this type of error on an inspection

If you are a small business (with a turnover of less than £1,350,000) you can join the cash accounting scheme where you deal your VAT according to when your customers pay you or when you pay your suppliers. If you invoice your customers and have to wait for them to pay you, this can be much better for your business cashflow. You do need to be careful that you deal with any changes in the VAT rate (as in January) properly, but otherwise the scheme is easy to operate.

Did you receive your tax return last month and whats changed?

2011-05-04T02:32:00.000-07:00

The basics are the same as last year :

- if you fill in the paper form you must return the complete return by 31 October 2011

- if you complete and submit an ‘on-line’ form you must submit this by 31 January 2012

Again as usual, if you are completing a paper form check early on that you have the right pages for your employments, self-employments, capital gains etc. It will take a few days to get these through if you have to telephone HM Revenue & Customs for them (the number is on page two of the Return).

If you are completing on-line and using the HMRC service for the first time, make sure you request and activate your access codes well in advance of the deadline. Again it take a week or more to get these through if you do not have them.

If you are using an accountant it is likely that they will use commercial software to prepare and submit your Tax Return avoiding some of these problems.

The big change this year is that if you are due to submit a Tax Return and this is submitted late you will be charged a penalty of £100 even if you have paid all your tax or are due a refund. If you are more than three months late a further penalty of £10 per day will be charged for the next 90 days. If you are struggling to obtain part of the information you should consider submitting the Return with an estimate – just make sure you tick box 20 and provide the accurate information as soon as you can.

If you are unable to meet the filing deadline and think you may have a ‘reasonable excuse’ you may be able to get the penalty cancelled. Relying on this should always be a last resort and if you think you need help with your Tax Return, it is vital to arrange this early and not leave it until just before the filing deadline.

Could your business claim Research & Development Tax Credits?

2011-03-03T07:01:00.000-08:00

R&D Tax Credits are an ‘incentive’ through the Corporation Tax system to encourage companies to undertake Research and Development. There are two schemes :

Under the large company scheme (companies with over 500 employees) where the company gets a tax deduction for 130% of the costs (so an extra 30% of tax relief).

Under the SME scheme (companies with under 500 employees) where the company gets a tax deduction for 175% of the costs. Under the SME scheme, the company (if loss-making) may be able to get a cash refund of 24% of the costs (there are other restrictions on this cash refund as well).

The key rules are that the company must spend at least £10,000 on R&D. An R&D project must seek to achieve and advance in science or technology and directly contribute to this through the resolution of scientific or technological uncertainty. This does not have to be something completely new, but can be an appreciable improvement to an existing process, material, product or service. It must however be an increase in overall knowledge not just the companies own knowledge.

The key costs which can be claimed under the scheme are staff costs, sub-contract costs, direct material costs, fuel and power costs.

This is a complex area, but there will definitely be cases where companies may have activities which potentially fall within the definitions of R&D but they do not consider the possibility of a claim. In some cases, their accountants may not have been given or perhaps asked for sufficient detailed knowledge of the company’s activities – they do not therefore highlight the opportunity either. If you do any development work on products, software, production processes, you should always discuss this with your accountant to see if a claim is possible.

When will you get your state pension?

2011-02-22T03:46:00.000-08:00

As I am sure you are aware, historically men could take their state pension from age 65 and women from age 60. From April 2010 a process began to increase the age or women from 60 to 65. This change means that women born between April 1950 and April 1955 would retire later than they expected between May 2010 and April 2020.

The new proposals are that women born between April 1953 and December 1953 will have their State Pension delayed by up to a further 16 months. Men and women born between December 1953 and April 1954 will also have their State Pension delayed further. There are then future changes to increase the state pension age to 67 and then 68.

You can check for your actual State Pension age (based on your date of birth) at

http://pensions.direct.gov.uk/en/state-pension-age-calculator/home.asp

and see the new proposals in detail at

http://www.direct.gov.uk/en/Nl1/Newsroom/SpendingReview/DG_192159

Building Contractors and Developers failing to submit CIS Returns. What to do to avoid problems?

2011-02-03T03:34:00.001-08:00

There are two different problems here. Firstly, contractors within the construction industry must submit monthly returns of their payments to and income tax deductions from sub-contractors. Secondly, sub-contractors may benefit from ‘gross status’ whereby the have no tax deducted from payments made to them.

For the contractor filing returns, it is vital that the monthly returns are filed on time (e.g. for return to 5 February by 19 February). If the return is late there is a penalty due which starts at £100 for each return which is late. Under current rules this increases by £100 each month until the return is 12 months late making a penalty of potentially £1,200 for each late return! New rules come in from November 2011 which changes the rules but, penalties can still be significant. There are further penalties if the tax which has been deducted is not paid over on time.

There are three things a contractor can do to avoid or minimse these penalties : (1) make sure they have processes in place to ensure that the Returns are filed on time and tax paid over when due and (2) if either a return or payment is made late due to unforeseen circumstances or events outside the contractors control, make sure that an prompt appeal is made that there was a ‘reasonable excuse’ for the delay. (3) if the new rules give a lower penalty, you can ask HMRC to apply these early.

For the sub-contractor with ‘gross status’ it is important that all the sub-contractors tax returns are submitted on time and all tax payments made on time. If the sub-contractor fails to do this they can lose this status and would then have 20% income tax deducted from all payments made to them by the contractors for whom they work – a very negative impact on their cashflow. This is a very wide field and includes a company’s Corporation Tax obligations, PAYE/CIS obligations and if a partnership/sole trade the individuals own Self Assessment Tax Returns. Some occasional minor delays can be overlooked, but it is dangerous to rely on this. Again if there are unforeseen circumstances behind the late payment or return, an appeal can be made on the grounds of ‘reasonable excuse’.

If you are a contractor or sub-contractor in the position where returns or payments are late and you think you have reasonable excuse, it is important to properly present your case to HM Revenue & Customs (or on appeal to the Tax Tribunal). The way the facts are presented can be important to whether the penalty is withdrawn or you keep your gross payment status.

How should you deal with the VAT Increase effective from 4th January

2010-12-10T03:14:00.000-08:00

The standard VAT rate changes from 17.5% to 20% on 4 January, but the reduced rate (5%) and zero rate are unchanged.

Broadly if you raise a sales invoice on or after 4 January 2011 you should use the new (20%) rate of VAT. When dealing with suppliers invoices you should be guided by the date and therefore the VAT rate they have used.

If you use one of the special schemes for small businesses, there are special rules to consider.

Flat rate scheme : the rates will be increasing and you should check the new rate for your particular industry.

Cash accounting : remember that the invoice date normally sets the VAT rate not the date payment is received.

For most businesses using accounting software, the key is to make the appropriate change and be very careful to date entries correctly.

There are various anti-avoidance provisions to stop people abusing the change but as long as you are invoicing your customers normally, you are not likely to fall foul of these. If you are thinking of trying to encourage customers to pay up front to get the lower VAT rate, speak to us or you accountant to make sure your proposal works.

There is a helpsheet on our website covering the basic principles and how to make changes within Sage accounting software www.hjssolutions.co.uk

The government have changed the rules for pension contributions again, do you know what is happening?

2010-11-25T02:14:00.000-08:00

You will have heard that the before the election the previous government was intending to limit the tax relief given on pension contributions for higher income taxpayers. The new government said it was going to review these rules as they thought they were too complex. The new rules were announced in mid October and apply from 2011/12.

The basic remains rule is that your personal pension contributions cannot exceed your £3,600 or your earnings, whichever is higher. For this purpose earnings are salary, bonus etc or profits from your own business.

There is then an ‘annual allowance’ which looks at the total contributions made by employee and employer – this limit is being reduced to £50,000. If you and your employer make contributions above this amount, you (personally) will be charged tax (at 20%, 40% or 50% depending on your income) on the excess. If you are a member of a defined benefit scheme HMRC look at the increase in the value of your accrued benefits to assess this £50,000 – this can be distorted if you are promoted and your salary increases significantly.

The lifetime allowance has also been reduced to £1.5m. If your ‘pension pot’ exceeds this amount when you start to take the benefits you will have to pay tax on the excess. This will be at 25% if you are taking income (the income is then taxable as you receive it) and 55% if you take a lump sum (no further tax).

Someone from HM Revenue & Customs has turned up on my office doorstep threatening ‘distraint’ for tax they say is unpaid. What does this mean?

2010-11-10T03:46:00.000-08:00

Distraint is a process by which HMRC are able to take possession of and if necessary sell at auction goods to recover unpaid tax – it does not require a court order or judgement. To use this process the person visiting must be an HMRC officer, they cannot send a private bailiff. The normal process is that HMRC officer inspects and then lists the items which he intends to seize. Having done so he will want the taxpayer to agree to ‘walking possession’ whereby the goods are not removed and the taxpayer has time to make payment of the tax due, agree arrangements for the payment of the tax due or show that the tax is not actually due.

Your initial decision is whether to let the HMRC officer enter your premises – without a warrant he cannot break in. If it would show that you have nothing of value it may be worthwhile allowing this. However if you have valuable assets and the tax is not actually due, you may want to refuse entry while you take advice from your accountants and try to get HMRC records to show the corrected amount due, which may require the submission of outstanding returns. It is important that it is made very clear to the HMRC officer where assets are not owned by the taxpayer owing the debt.

Distraint is a serious process and it is important that you take immediate advice on your situation, particularly as the price obtained by HMRC if your goods are actually sold will usually be significantly less than the value you put on them.

What information do you really need to keep for the taxman?

2010-10-13T01:48:00.000-07:00

HM Revenue and Customs advise that you should keep your personal tax and financial paperwork (non-business) for at least 22 months from the end of the tax year. This would mean keeping the papers for the 2008/9 tax year until at least 31 January 2011. If you submit your Tax Return late you need to keep the supporting papers for 15 months from the submission of the Return.

Having seen the problems caused by not having the necessary papers available, I would keep some papers for rather longer. These would include :

Any details on the purchase of assets you still own, whether this is a property, shares, valuable picture/cars/boats etc.
Invoices supporting major work on such assets, house improvements etc
Details of any significant gifts made (over £3,000) for at least seven years
Details of any significant gifts or bequests received for perhaps six/seven years
Annual valuations of pensions, life assurance etc – this is a good chance to review how these are performing as well

Do you provide a pool car for your employees?

2010-09-29T08:01:00.000-07:00

The tax treatment of company cars is such that it is often very beneficial to argue that a car is a ‘pool car’. This generally means that no individual employee is taxed on a benefit in kind for the car. However, if you want this treatment it is vital that you meet the conditions for this treatment, two important of these are that it is not ordinarily used by one employee and that it is not normally kept at or near the residence of an employee. Even if you meet these rules and treat the car as a pool car, it is still almost impossible for a normal business (not a taxi/car hire/driving school/car sales business) to reclaim the VAT on a car (as opposed to a van) – the VAT conditions are based around the car not being ‘available’ for private use, a very strict test.

Will your business qualify for the NIC holiday, and how much would it be worth?

2010-09-14T06:34:00.000-07:00

Despite being announced in the budget, full details of the scheme were only published on Friday 30^th August.

If you started a new business on or after 22 June 2010 or plan to do so before 5 September 2013 you should qualify for this holiday if you start your business outside Greater London, the South East and the East. There are rules about what qualifies as a new business and to stop you taking a few months off and then restarting in business. There are also special rules for some types of business (particularly farming). When considering location you look at the Principal Place of Business and regions are defined by local authority areas – as an example Hampshire is excluded but Dorset qualifies.

The scheme gives you twelve months exemption from Employers Class 1 National Insurance Contributions on the first ten employees taken on provided they start within the first twelve months of the new business. Employers NIC is currently charged at 12.8% of earnings over £110 per week. There is a cap on the NIC holiday of £5,000 per employee, so it could be worth £50,000. As an example, if you take on an employee earning £30,000 you will save £3,100 over the first year, while for an employee on £20,000, this saving is £1,800.

There is press coverage about taxpayers being hit with tax bills of £1,500. Why this happened and will you be affected?

2010-09-08T06:40:00.000-07:00

Employees (rather than the self-employed) pay their tax through the PAYE system where employers deduct tax from their monthly or weekly pay, based on a ‘PAYE Code’ provided by HM Revenue & Customs (HMRC). The same system applies for pensioners receiving private or company pensions.

For all but the very simplest of cases the system relies on making estimates of benefits, pension contributions, other income when setting the PAYE Code. The position should then be checked and amended to reflect the actual figures after the end of the tax year (5 April). Because of an upgrade to the HMRC computer system last autumn, the figures are only now being checked for some 2007/8 cases and for most 2008/9 cases. Also the new computer is identifying errors not highlighted by the old system.

The people most likely to be affected are those with multiple jobs/pensions or with benefits in kind (e.g. company car/van or medical insurance), who have changed jobs or have had gaps in employment, pensioners with incomes between £20,000 and £30,000. Taxpayers who submit a Tax Return each year should not be directly affected by these as submitting the Return should ensure any errors get identified each year anyway.

If you receive a refund, be pleased but do check why it has arisen – HMRC do make mistakes (as we see here) and you do not want to be asked to refund this later.

If you receive a notice that you owe tax, it is likely to be collected through your salary from April 2011 to March 2012. If more than £2,000 is due you may be asked to pay immediately. First you should check the figures or get someone to do this for you. The notes sent with the calculation will help you do this, but you could ask an accountant to help, your employer may be willing to do so and for low earners and pensioners there are Advice services who can help (Tax Help for Older People; Tax Aid; Citizen’s Advice). If the tax relates to 2008/9 or earlier, you believe that HMRC had all the information they needed to get things right and it was ‘reasonable’ for you to believe your tax affairs were in order you can ask them not to collect the tax. Also if asked to pay now (because more than £2,000 is due) you can ask for a ‘payment arrangement’ where you pay off over a number of months. If you do nothing you will either see the change to your pay in April next year or get demands to pay the tax.

If HMRC delaying repaying overpaid VAT to you, are you due interest on the payment?

2010-08-31T03:21:00.000-07:00

You will not be due interest on the repayment when it is made, but there are rules meaning that if HMRC take more than 30 days to make the repayment you may be entitled to a fixed Repayment Supplement of 5% of the refund. However, in calculating the 30 day period you have to exclude the time taken to raise and answer ‘reasonable enquiries’ into the Return. Therefore there are two things to bear in mind: firstly try and deal with any questions promptly (and accurately), it will speed up your repayment; secondly, if HMRC appear to have taken more than 30 days take professional advice about whether you should be getting the Repayment Supplement.

PAYE late payment penalties and the new regime

2010-08-17T04:16:00.000-07:00

From April 2010 a new set of penalties came in for PAYE and NIC payments by employers. HM Revenue and Customs have recently sent out the first batch of warning notices to employers who were late paying their PAYE for April 2010 (month ending 5 May). If you continue to pay late you could incur a penalty of up to 4% of the amount you pay late depending how many times you are late during the tax year. If you pay more than six months late you could incur a further 5% penalty.

We currently understand that the penalties will not be issued automatically by the HMRC computer during the year but after 6 April 2011, HM Revenue and Customs will undertake a manual review of late payments and issue penalties manually on a risk-assessed basis. Although we have heard comments that the penalties will be applied ‘gently’ to begin with, we do not know how this will be applied in practice.

To minimise the risk of penalties you should:

Pay your PAYE/NIC on time if at all possible
If you are struggling to pay agree a formal Payment Plan with HMRC, if you keep to this the penalty will not arise
If you are notified of a late payment and believe you have a ‘reasonable excuse’ for the late payment, appeal against the notice or penalty as soon as possible. This can remove or reduce the amount of the penalty

Starting a new business? Will you benefit from the National Insurance Holiday

2010-08-11T03:03:00.000-07:00

HM Revenue and Customs have only announced limited details of the scheme but if you start a new business outside the London, East and South East regions in the three years from 23 June 2010 you should be entitled to a twelve month ‘holiday’ from Employers National Insurance contributions (currently at 12.8%) on your first ten employees. The amount of this is capped at £5,000 per employee. It could therefore be worth £50,000 to a new business.

We do not have full details of the scheme but the initial guidance issued by HMRC (http://www.hmrc.gov.uk/budget2010/nics-hol-qa-7076.htm) suggests that there will be rules to prevent abuse and these will restrict what constitutes a ‘new business’, who will qualify as an ‘employee’, which types of business will not qualify for the scheme (coal, agriculture, fisheries, agencies providing staff have all been mentioned).

The latest information we have is that the scheme should formally begin on 6 September 2010 (but new businesses commencing on or after 23 June will qualify from 6 September 2010).

If you are thinking of setting up a new business, you should be careful how much this holiday influences your decision. If your proposal and business plan show a viable business anyway, this could be a pleasant ‘bonus’ to help you early on. However, if your business plan shows that things are marginal, you should be careful allowing this to tip the balance, particularly whilst the detailed rules have not been announced.

Do you need to send PAYE Returns to HMRC on a monthly basis as a small business?

2010-07-20T02:23:00.001-07:00

Small employers have the option to elect to pay their PAYE/NIC to HM Revenue & Customs on a quarterly basis and if they elect to do so they are also able to submit a quarterly return of the amounts due. In order to qualify for this arrangement you must have a monthly PAYE/NIC payment of less that £1,500. The actual rules say that you must have a ‘reasonable expectation’ that the average monthly amount will be less than £1,500. I would normally recommend that employers take advantage of this arrangement where eligible because it reduces the returns and payments due and therefore the number of times you risk a penalty by submitting a return or making a payment late.