Monthly Archives: July 2012

Tax Avoidance Schemes

HMRC is planning a new set of measures to improve the information available to it about tax avoidance schemes and the risks of using it.

The proposals are to revise and extend the Disclosure of Tax Avoidance Schemes (DOTAS) regime, which requires promoters and users of tax avoidance schemes to provide information to HMRC.

HMRC are working on a 12 week consultation programme which will address improving public information about tax avoidance arrangements and the risks associated with using them. It also seeks views on:-

– extending the DOTAS information to be reported to HMRC, and

– ensuring that persons required to disclose a scheme do so at the right time.

HMRC is also seeking views as to whether proposals to revise and extend the DOTAS ‘hallmarks’ (the descriptions of schemes required to be disclosed for income tax, capital gains tax and corporation tax purposes) are too widely or narrowly drawn, and on their impacts upon compliance costs and administrative burdens.

Tax Credit – Renewals

HMRC are reminding claimants that they have only one week left to renew their Tax Credits.

Claimants have until 31 July 2012 and if they do not renew in time, payments could stop.

Alison McDonald, Director, of HMRC’s Benefits and Credits, said:

“Claimants have only days left to renew their tax credits. If they don’t do it in time, payments will stop, and people could lose all the money they have received since April.

“They also need to check their details in the renewal packs carefully as any errors now could mean they receive less money.”

Real Time Initiative – All employers

Real Time Initiative (RTI) is a change to the way PAYE is reported. HMRC are proposing to that it will come into effect in 2013. Under the new RTI, employers will report payments to employees throughout the year – in Real Time – rather than at the tax year end, as it is now.

HMRC believe it will improve the operation of PAYE and this important change will affect ALL employers. This will include freelancers/contractors operating through a limited company, irrespective of the amount of salary employees take as their remuneration package.

The RTI will NOT apply to the Self Employed, for example, Freelancers who operate as a Sole Trader or through Partnerships.

Employers will begin to use the RTI service from April 2013 but by October 2013 the RTI will be mandatory to all employers. Although this does seem some time away, you will need to ensure that all your initial administration is in place and may well need to liaise with your accountant to ensure that you have everything in place in plenty of time to ensure the smooth running of RTI.

The fundamentals of PAYE such as the use of codes, employers deducting tax and National Insurance, will remain unchanged, but RTI will change how and when employers and pension providers will report information to HMRC. HMRC believe that RTI will make the PAYE system easier for employers and HMRC to operate, and employees will receive information more quickly.

In the long term it will make PAYE more accurate for individuals by reducing the number of bills and repayments sent after the end of the tax year. The new system will enable HMRC to pursue late payments more effectively. It is also believed that it will support the payment of Universal Credits providing the Department for Work and Pensions (DWP) with up to date information about claimants’ employment income, enabling them to calculate Universal Credits payments, without the need for claimants to supply employment or pension income information. As a result, the Government believes that the system will reduce Tax Credits error and fraud.

Freelancing and the public sector

Vital public sector departments including the Department for Business, Innovation and Skills and HM Treasury have drawn up guidelines that will effectively eliminate freelancers from the public sector.

Leaked documents to the PCG detail measures which maintain freelancers on a day rate of £220 plus and on contracts over six months, will be made to operate IR35 or have their contracts terminated. It is seen as HMRC’s outright war on freelancers and contractors working through their limited company in the public sector.

John Brazier, Managing Director of PCG said “The harsh reality of this move will be to remove public sector access to freelance expertise and bluntly threatens to destabilise many Government Departments. It is vitally important the Government does not undermine the UK’s vibrant flexible workforce. The phrase ‘throwing the baby out with the bathwater’ comes to mind when you read these proposals.

“This has gone a way beyond Ed Lester the Head of the Student Loans Company who was clearly a case of false self employment; this is now attacking legitimate contractors who have done nothing wrong and are taking the brunt of a panic stricken Government and an HMRC who have launched a witch hunt. These people are essential to delivering vital public services and they are being treated in a scandalous way. The repercussions for operation of Government are potentially catastrophic.”

PCG predict, that under the new guidelines thousands of experts engaged on short term project work will be forced out, leaving bodies like the NHS and the Ministry of Defence without access to vital resources such as IT contractors and healthcare professionals. The assurance guidance, which comes into force from 15th September 2012, centres on proper engagement of freelance resource in an ‘off-payroll’ capacity.

Unfortunately, according to PCG’s sources within the public sector, the nature of the ‘business tests’ recommended for use within the guidance combined with huge financial penalties for any public sector body found to be contravening them have resulted in almost no room for legitimate freelancers to exist.

John Brazier added, “I do not believe the Government fully understands the consequences of these measures. PCG will do its best to highlight these issues to Ministers and MPs. They will also work tirelessly to protect legitimate freelance businesses in the private sector.”

Court of Appeal backs HMRC

HMRC was gained victory against an avoidence scheme marketed by an accountancy firm.

The avoidence scheme was being used by approx 200 people who now all face having to pay the tax in full, plus interest as well as the significant fees to use the scheme.

The Court of Appeal unanimously rejected the taxpayer’s appeal against HMRC’s action and has refused permission for the taxpayer to appeal to the Supreme Court.

Exchequer Secretary David Gauke said:

“This is a great result for the country and it’s another example of HMRC taking firm action against the avoidance schemes that would otherwise deprive the UK of billions of pounds. HMRC has a strong track record of quickly and effectively challenging avoidance through the courts, and anyone thinking of using such a scheme needs to carefully consider that.

“When millions of hard working families are playing by the rules, paying what they have to, we will not put up with the use of cleverly structured schemes designed purely to get around the rules.

“I hope that real lessons are learnt from the Court of Appeal’s decision.”

Decline in available contracts

According to agency body REC, contract appointments and temporary placements have declined at the sharpest rates since July 2009. Temporary/contract billings were down for the seventh month running.

The overall demand for staff showed a very slight increase during June with permanent vacancies easing and temporary vacancies rising at a slow pace.

However, recruitment consultancies indicated that availability of staff, both permanent and temporary began to rise during June with the strongest growth being temporary.

REC chief executive Kevin Green saId: “The sharp drop in the number of people placed into work last month is really disappointing. A decrease in hiring activity means we could see a period of increased unemployment, especially as a new wave of school leavers and graduates will be entering the labour market over the summer.

“I expect as we continue to make slow progress out of recession that we’ll see this kind of a zig-zag pattern with some good months followed by weaker ones – rather than sustained periods of uninterrupted jobs growth.

“But it’s also important to note that the picture is not uniform across all industries. If you are a skilled engineer, IT professional or in nursing or secretarial work there is still increasing demand for you from employers.”

Sole traders wasting £billions not incorporating

In a recent report released by the Small Business Tax Action, Sole Traders and Freelancers could be wasting £4.2 billion by not incorporating.

The report revealed that around 1 million sole traders and 246,000 partnerships could potentially benefit by forming a limited company for their business. By changing the structure of their business, small firms could save billions in National Insurance payments on their profits.

For the first time, this year the Tax Action Report has included a section covering the tax wastage of SME’s. The Small Business Tax Action Report examined the saving SME’s could make by incorporating and making better uses of allowances, tax credits and tax efficient business support schemes.

By not maximising the most tax efficient methods of running their businesses, SME’s are wasting a huge £7.1 billion in the UK.

One significant saving could be achieved by incorporating a business and taking a lower salary up to the threshold of National Insurance and then taking the balance of post tax profits as dividends, which are taxed at a lower rate.

Should your profits exceed the basic rate tax band, it is certainly worth considering to incorporate your business.

HMRC – Real Time Information

HMRC have reported that their Real Time Information (RTI) pilot has gone from strength to strength.

The RTI was launched in April 2012 and was expanded from 8th May as scheduled, when the first of a further 310 PAYE schemes started reporting PAYE information in real time. HMRC is on track for a further expansion in November.

HMRC have announced today that over 130,000 employers will join the RTI pilot between now and September 2012.

Stephen Banyard, Acting Director General for Personal Tax, said:

RTI is on track and the pilot is going very well. We started in April with just 10 employers and now we’ve successfully received over 1.7 million individual records from 338 PAYE schemes.

“Following the success of the first pilot stage, more PAYE schemes will join the RTI pilot, as planned, and by the end of September up to 1,300 employer schemes will be reporting PAYE in real time.

“We are also seeing external confidence in the pilot and we’ve responded to that by offering more large employers, payroll bureaux, new employers and software developers the opportunity to join the RTI pilot or to expand existing involvement in advance of the launch date in April 2013.”

Most employers will begin reporting PAYE in real time in April 2013. All employers will be routinely reporting PAYE in real time by October 2013, in time for the introduction of Universal Credit.

MPs – Ease regulations for small businesses

A group of Conservative MPs have put forward a recommendation that small businesses be freed from the burden of employment regulations.

The Free Enterprise Group is aiming to improve the businesss climate within the UK and have put forward several discussion points to help kick start the industry.

One recommendation put forward was that small businesses (with less than three employees) and with a turnover that fall short of the VAT threshold of £75k, be exempt from employment regulations.

The papers put forward says, “Private sector growth is the best way to rebuild our economy. So let’s get Government out of the way of budding entrepreneurs. Whether in website design, weeding gardens, window cleaning or widget production, we’ve got to help our smallest businesses to get started and thrive. The Government should remove the regulatory burden.

“Micro businesses with up to three employees and less than £75k annual turnover should be exempt from employment regulation including unfair dismissal, auto-enrolment of pensions, paternity and maternity leave (these could be paid direct), and the minimum wage. This would be a supply side boost to the economy.”

Chartered Institute of Taxation – HMRC Initiatives

The Chartered Institute of Taxation (CIOT) have issued a recommendation in response to the launch of the HMRC’s “Tax Return Initiatives”, saying that “Rather than continuing to launch different targeted campaigns every few weeks, HMRC should focus their efforts on a big national campaign open to all taxpayers whose tax affairs are not up to date.”

“A one-off ‘general disclosure facility’ that lasts sufficiently long and is sufficiently attractive to get people to come forward to clean the slate would make sense.”

The CIOT expects some disbelief at the premise the Tax Return Initiative is being launched on, though they did say, not because people who fail to file their returns shouldn’t be a priority to the tax authority.

The CIOT’s Gary Ashford explained: “Many people will be surprised that HMRC have to launch a campaign on these ‘missing’ self-assessment returns. They are now some 17 months late, after all and some will no doubt be due to report significant tax liabilities.”

Live Chat Software for Website
Request Callback
Click here to listen to our radio spot
Our Promises
Check your company name now - for free!
Free 90 page Contractors Guide
© Lennox Trent 2011. All rights reserved.