HMRC has now published a factsheet setting out to whom the new late payment penalties, starting 6 April 2010, will apply, how much they will be and when they will be issued.
Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.
Unfortunately pay in lieu of notice is frequently a problem area for tax. HMRC often claims it as taxable while businesses and employees believe it to be tax free.
There are two areas to consider in this:
Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this blog with Cathy you can call her on 01908 605552.
HMRC has issued an update on the new rules that will apply to late PAYE payments with effect form May of next year. Essentially if more than one payment a year is late a penalty will be charged at graduated rates depending on how late the payment is and how many other late payments have been made in the same year. It will be important to manage payments and contact HMRC in advance if any cash-flow issues arise.
For full details see - http://www.hmrc.gov.uk/employers-bulletin/bulletin33/paye-ontime.htm
Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this blog with Cathy you can call her on 01908 605552.
With effect from 6 April 2009 employers with 50 or more employees must send their employee starter and leaver information – P45s, P46s and P46(Pen) for pensions – online. Failure to do so could result in a penalty. Forms are filed online using HMRC’s PAYE Online for Employers service, with which employers must first register at www.hmrc.gov.uk.
Comment on PAYE penalties in the space provided below, or visit my profile for details of how to contact me.
Cathy Corns is a Corporate Tax partner at Mercer & Hole.
The Finance Act 2008 has introduced a number of changes to compliance which will take effect from 1 April 2009.
The main changes are:
For VAT, the time limits for assessments and claims will be increased from three to four years. The legislation ensures that claims that are already out of time are not brought back into time.
HMRC has published an e-learning package on its website. This sets out the new framework in more detail.
In certain circumstances a PAYE liability can arise on the exercise of share options in a company. The initial liability falls on the employing company, but there is a fixed period from the date on which the payment is deemed to have been made, within which the employee can make good the tax due. If this is not done then the tax is effectively treated as a benefit in kind and assessed to income tax.
A recent case of the Special Commissioners (Chilcott and Others v. Revenue & Customs Commissioners SPC727) related to a case where, rather than reimbursing the company, the individuals declared the options on their returns and paid the tax. HMRC then sought to repay that tax and assess them instead on the benefit in kind of the company payment.
The Special Commissioner did find for the Revenue but expressed concern about the legislation in that, in his opinion:
1. The liability could be an additional imposition on an employee who reimbursed the employer after the 30 day period had expired. In those circumstances the overall tax burden could be as high as 56%. That appeared to put employees who chose not to reimburse their employer in a better overall position, which made no sense.
2. The legislation takes no account of the length of time between the expiry of the 30 day period and the date on which reimbursement occurred. The tax charges are exactly the same if an employee is a day late as opposed to a year late.
Despite the sympathy and concern, one has to say the taxpayer still lost. The facts of this case pre-dated a change in the legislation and the period for making good was extended to 90 days. It was clearly recognised that 30 days was too short, but too late to help Mr Chilcott and colleagues.
Whilst it seems a little unusual to think of depositing money with HMRC rather than with a bank, if you do have spare cash this may be something worth considering.
Just to put matters in perspective, for companies that overpay “ordinary” tax, interest is paid thereon at 2% and for tax paid early or for over-paid quarterly instalments the Revenue are paying at 2.75%, both of these are taxable.
For individuals who have overpaid tax the Revenue are paying 1.5% interest on a tax-free basis.
Interest is not accrued if you choose to pay your income or capital gains tax early.
However, for individuals, there is the possibility of using Certificates of Tax Deposit. These were very popular some years ago but fell out of favour in times of rising interest rates. Regrettably they cannot be used for corporate tax, PAYE or VAT. Essentially deposits are purchased and the rate of interest, which is taxable, varies as to whether the certificate is cashed or applied against tax payments. The current rates are as follows:-
|
Deposit of under |
Applied for tax |
Cashed |
|
£100,000 or less |
1.75% |
0.75% |
|
£100,000 or over: |
||
|
Months held |
||
|
(a) under 1 |
1.75% |
0.75% |
|
(b) 1 but less than 3 |
4.50% |
2.25% |
|
(c) 3 but less than 6 |
4.25% |
2.00% |
|
(d) 6 but less than 9 |
4.25% |
2.00% |
|
(e) 9 to 12 months |
4.00% |
2.00% |
If these rates are better than you would get from putting your money elsewhere, this may be something that is worth considering.
Further to our previous blog HMRC have decided to defer the implementation of the new PAYE system from October 2008. No new implementation date has yet been set.
Apparently it is more complicated than was first thought! Watch this space.
Just so you know, HMRC is planning to unveil the “biggest change to the way we process PAYE records in 25 years” in October of this year.
Under the scheme, the PAYE Service will bring together a dozen different databases covering information about individuals and, in theory, will be able to see at a glance what each person’s tax position is. At the moment, records are held with reference to employers so if, for example, someone has two jobs, their tax position is immediately complicated. HMRC says: “As a result of the change we will have a more comprehensive view of the individual’s PAYE and you will benefit from having fewer queries from both HMRC and your employees”.
The new system (called National Insurance Recording System 2) aims to make administration simpler – watch this space.
Apparently, such arrangements do not meet the new requirements that are being introduced from 6 April 2008.
HMRC is aware that over the years some employers have reached agreements with their local tax office, for example with regard to:
These local agreements are now being ended and may lead to the rejection of the information submitted.
HMRC is reviewing all local arrangements with a view to terminating them and any affected business should urgently conduct a similar review to avoid having your data rejected.
HMRC has published new guidance on the new penalty provisions that will apply from April 2008.
HMRC states that it has designed the new penalties so that:
The new penalties initially apply to VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme.
Further information can be found at:
http://www.hmrc.gov.uk/about/new-penalties/penalties-leaflet.pdf
http://www.hmrc.gov.uk/about/new-penalties/faqs.htm
Subsequent Governments have tackled some of these, including aligning the lower thresholds for income tax and NI, and charging Class 1A NIC on benefits in kind. However, perhaps the most politically sensitive point still remains - if income tax and NI are actually merged that would give a headline percentage for basic rate tax of 33%. This would fall to 31% from next April, but it doesn’t sound as good as 20% does it?
Although a true merger may still not be on the cards, the alignment of the two taxes continues. The change for 2008 onwards is a substantial increase in the upper earnings limit for NI. This is the maximum level of income on which you pay the full rate of employee NI – any earnings above that limit attract only a 1% charge.
The upper earnings limit will rise from £34,840 to £40,040 from April 2008. This means that you will pay 11% on an extra £5,200 rather than the 1% payable this year – an increase of £520.
The level at which the 40% higher rate of income tax will apply for 2008/09 has not yet been announced, but is expected also to be £40,040, thus aligning both the lower and upper limits for tax and NI. This extension of the basic rate band, together with the proposed reductions in the basic rate from 22% to 20%, should more than compensate for the extra NI. However, for those people who have the choice, the message is still clear - take income in the form of dividends rather than salary whenever possible and avoid the additional NI.
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