Tax News

Government publishes revised timetable for pensions auto-enrolment

The Government has published a revised staging timetable for when employers of all sizes must start enrolling their staff in a workplace pension scheme. Starting from 1 October 2012, and depending on PAYE scheme size and reference, employers will be obliged to enrol eligible employees automatically, and make mandatory employer contributions, into a qualifying workplace pension scheme or the National Employment Savings Trust (NEST). Employers will be given a date from which they must auto-enrol (called their staging date) by the Pensions Regulator. The Government previously published a staging timetable, which set out the dates by which employers must begin to auto-enrol. However, the Government has now published a revised automatic enrolment staging timetable. This follows its announcement in November 2011 that it would revise the original timetable so that small businesses (i.e. those with fewer than 50 employees) would be given more time to prepare and would therefore only begin automatic enrolment from May 2015, instead of the previously intended timing of April 2014. Under the revised timetable, there is no change to the staging dates of large employers with 250 or more employees. Under the staging timetable, all existing employers will have enrolled their staff by April 2017, followed by all new employers by February 2018. The level of pension contribution will be phased in over time to help employers and workers adjust. Full contributions will have to be paid from 1 October 2018.

PAYE penalties

The tax office has now begun to issue penalty notices to employers that have not filed their starter and leaver forms online in the period 6 October 2011 to 5 January 2012. The penalties for failing to file online range from £100 up to a maximum of £3,000 depending on the number of forms that should have been filed. Penalty notices for not filing starter and leaver forms online are issued after the end of the quarters ended 5 July, 5 October, 5 January and 5 April. The requirement for employers with fewer than 50 employees to file their starter and leaver forms online was introduced on 6 April 2011. HMRC had confirmed that they would not charge penalties during the three quarters ending 5 July 2011, 5 October 2011 and 5 January 2012 but would issue letters to employers when they have not filed a form online. However, penalties will be triggered where an employer has incorrectly filed more than two forms on paper during the quarter to 5 January 2012. The filing date for the 2010/11 annual return was the 19 May 2011. The Return including a P14 for each individual employee and a P35 summarising the entire workforce should have been filed by the deadline. The returns are now over 8 months late and HMRC have started to issue penalty notices where no return has been received. The penalty will be £100 per 50 employees for each month the return is outstanding for the period from 20 September 2011 to 19 January 2012. For a business with less than 50 employees the current penalty notice will be £400.  Businesses that wish to challenge the current penalty notices have 30 days to appeal to the office shown on the penalty notice. Any businesses with outstanding returns are urged to submit them as soon as possible in order to avoid any further penalties.

Commonwealth games tax break announced

The Chief Secretary to the Treasury, Danny Alexander, has announced a tax break for athletes that take part in the 2014 Commonwealth games in Glasgow. The move means that athletes from outside the UK will be exempt from UK income tax on any payment in connection with their performance in the UK. Under UK tax rules a sportsperson not resident in the UK would usually be subject to UK income on UK earnings including a proportion of any worldwide endorsement income. This move is meant to help attract top athletes to compete at the Commonwealth Games and follows a similar exemption for the Olympic Games in London which was a condition of the London bidding process. The athlete will remain liable to tax in the country in which they are resident and the tax break is only available to non UK resident athletes. Announcing the exemption Danny Alexander, Chief Secretary to the Treasury, said: 'With six months tomorrow to go until London 2012, I’m pleased to announce this special exemption for Glasgow 2014 which will prolong the Olympic legacy and help spread the long-term benefits into Scotland. Everyone wants to see the best athletes compete at Glasgow 2014 and this exemption will make that more likely. Seeing the Sir Chris Hoy Velodrome today, it's clear that Glasgow will be an outstanding venue for the Commonwealth Games which showcases the best of UK and international sporting talent.'

Submitting online VAT returns

From 1 April 2012 all VAT Returns must be submitted online and payment must be made electronically. This measure completes a process started 1 April 2010 when VAT registered business with a turnover exceeding £100,000 and all newly VAT registered businesses were required to file VAT returns and make payments online. Exceptionally, VAT registered businesses who were VAT registered before 1 April 2010 and had a turnover of less than £100,000 were able to continue filing paper VAT returns. However, from April 2012 this option will no longer be available and all businesses that have not yet registered for online filing and payment of VAT returns should ensure they do so as soon as possible. The change will apply for accounting periods beginning on or after 1 April 2012 and for the first time no further, paper VAT returns will be sent to registered traders. There are a number of benefits to filing online which are highlighted by HMRC in the news release including:• An automatic acknowledgement that a VAT return has been received.• A handy sum checker.• An email alert to remind businesses when their next online return is due.VAT registered businesses can file VAT returns using HMRC's free online software or using commercially produced software. In either case businesses must have registered and enrolled for the VAT Online service. We would urge businesses, that are still filing paper returns, ensure that they are properly prepared for this change.

Qualifying period increase for unfair dismissal will not be retrospective

On 6 April 2012, the qualifying period for claiming unfair dismissal will increase from one year to two years. When the Government announced this change back in October 2011, it gave no indication as to how it would apply to existing employees, some of whom may already have qualified for unfair dismissal rights. Although the Department for Business, Innovation and Skills (BIS) has not yet made a formal announcement, it has informally stated that, subject to Parliamentary approval, the new two year qualifying period will only apply to employees whose employment begins on or after 6 April 2012. Those who are already in employment before that date will retain the current one year qualifying period for claiming unfair dismissal.

PAYE – share based payments

New regulations were introduced in April 2011 which changed the tax code that applies to certain payments of PAYE income made to an employee after cessation of employment which have not been included in the form P45. The new regulations introduced the '0T' (zero T) code which deducts income tax at the basic, higher and additional rates depending on the level of income in question, without giving any personal allowances. However, payments made in the form of share-based payments (those in the form of securities, interests in securities and securities options) continued to be taxed under the Basic Rate (BR) PAYE code whilst HMRC reviewed the operational effects a change to 0T would have on such payments. From 6 April 2012, HMRC have proposed that the 0T tax code (and not the BR code) should also be used on a non-cumulative basis against share-based payments made to an employee who has left employment and which have not been included in the form P45. This change will align all post-employment earnings under the same tax code. HMRC have now published for comment draft amendments to the PAYE regulations to enable this change. The closing date for comments on the proposed legislation is 16 February 2012.

Business records checks under review

The Business Records Checks programme imposes penalties for significant record-keeping failures relating to Income Tax, Corporation Tax and VAT and applies to the self-employed, sole traders and businesses with a turnover of less than €50m and with less than 250 employees. HMRC has confirmed that it has started a detailed review of the Business Records Checks project following criticism that its process of investigating small businesses’ paperwork had been poorly implemented. The project was launched on a pilot basis last year. HMRC now accept that the 'Business Records Checks pilots has caused considerable concern to the tax profession and that the project would have benefited from more detailed consultation with tax professionals at an earlier stage. In the light of these concerns, HMRC will undertake a strategic review of the project in consultation with the professional and representative bodies'. In the meantime a limited number of pilots will continue and they will be evaluated as part of the strategic review. No new legislation was necessary for the introduction of the business records checks as HMRC use existing legislation regarding both record keeping requirements and penalties for failure to comply with those requirements.  HMRC had previously said that initially they would only levy a record-keeping penalty in the most extreme cases of poor record-keeping such as where a taxpayer has no records or has destroyed them. HMRC have confirmed that no such cases have been identified to date.

Research and Development (R&D) tax credits

Research and Development (R&D) tax credits were introduced for small and medium sized enterprises (SMEs) in 2000 and for large companies in 2002. R&D credits are a corporation tax relief that were introduced to encourage innovation and enterprise within the UK economy. A number of changes which were announced as part of the 2011 Budget in relation to R&D tax credits were subject to state aid approval. The European Commission has now approved the increase in the small and medium-sized enterprise R&D relief to 200% which is effective on expenditure incurred on or after 1 April 2011. Subject to Parliamentary approval the amount of relief is expected to increase by a further 25% from 1 April 2012 giving a total deduction of 225%.  

Fraudulent emails from 'HMRC'

HMRC have issued a warning that a significant number of fraudulent emails are still being sent to taxpayers. The emails take advantage of the upcoming 31 January 2012 deadline for submitting self-assessment returns. The emails target taxpayers who may be expecting a refund of tax from HMRC and provides a link to a clone of HMRC's website where the recipient is asked to give their credit card or bank details.  These are not genuine HMRC messages and should be disregarded.  It is a 'phishing' exercise that uses bogus e-mails and websites to trick taxpayers into supplying confidential or personal information. The emails are being sent from inside the UK and around the world. In a recent press release HMRC confirmed that they only contact taxpayers, who are due a tax refund, in writing by post and currently don't use telephone calls, emails or external companies in these circumstances.

Contractual disclosure facility (CDF)

A new Contractual Disclosure Facility (CDF) is to be launched by HMRC from 31 January 2012. The CDF is a facility for taxpayers to disclose serious tax fraud to HMRC. The CDF is only suitable for taxpayers who want to admit to tax fraud. It is not a method to notify HMRC about errors, mistakes or avoidance schemes where no fraud has taken place. If HMRC writes to an individual about a suspected tax fraud they will be offered the opportunity to use the CDF. The CDF can also be used by taxpayer wishing to disclose their part in a tax fraud. Under a CDF, HMRC will agree not to criminally investigate and prosecute taxpayers over fraud disclosed as part of the CDF contract. However, the  taxpayer must commit to the following: Tell HMRC about all taxes that have been deliberately evaded, with no exceptions. Give HMRC details of all taxes evaded within 60 days of being offered the contract. Sign a statement to say accurate and complete details of the tax fraud have been provided. Pay all taxes, duties, interest and penalties due. Stop any fraud immediately. If all the conditions are met, the investigation will then be carried out using civil powers, with a view to a civil settlement for tax, interest and a financial penalty. Under CDF there are 3 options: Owning up to fraud: the CDF route. Deciding not to own up to fraud: the denial route. Not replying to HMRC: the non-cooperation route.

New PAYE coding notices

New PAYE coding notices are being sent to taxpayers. The coding notice informs taxpayers of their new tax codes for the tax year beginning 6 April 2012. The notices will be sent to taxpayers by HMRC during January, February and March 2012. The coding notices are designed to help ensure that taxpayers pay the right amount of tax and have been given all the allowances and reliefs that they are entitled to claim and that all income sources have been taken into account. Any taxpayers that receive a coding notice should check carefully that the information is correct as the coding will be used by employers and pension providers. Taxpayers should check carefully that they have been given all the allowances and reliefs that they are entitled to claim and that all their income has been taken into account. Not all taxpayers receive a coding notice each year. It usually depends on what allowances and reliefs are being claimed and whether these tend to change from year to year. The taxpayers' employer or pension provider will be able to update taxpayers' tax code on 6 April 2012 if no coding notice has been received.

Employment legislation in 2012

With the government having announced a whole raft of proposals for possible employment law reform during the course of 2011, there will be a number of key employment legislative changes in 2012, as well as public consultations continuing or opening on some of these proposals.  Here’s a summary of the main expected employment law developments in 2012 together with the likely start dates: 31 January 2012 The closure date for calls for evidence on the effectiveness of the TUPE regulations and the scope of the collective redundancy rules – this may result in formal consultation later in the year. 1 February 2012 The limits applying to certain employment tribunal awards and to other amounts payable under employment legislation will increase. For example, the maximum amount of a ‘week’s pay’ (used for calculating an unfair dismissal basic award and statutory redundancy payments) will increase from £400 to £430, the maximum daily amount of statutory guarantee payment will increase from £22.20 to £23.50 and the maximum unfair dismissal compensatory award will increase from £68,400 to £72,300. 6 March 2012 The consultation closes on the introduction of fees in employment tribunals and the Employment Appeal Tribunal. 6 April 2012 The qualifying period for an employee to bring an unfair dismissal claim will increase from one year to two years. Substantial changes to employment tribunal practice and procedure will take effect. The weekly rate of statutory sick pay (SSP) will increase from £81.60 to £85.85. The lower earnings limit for qualifying for SSP, SMP, OSPP, ASPP and SAP will increase from £102.00 to £107.00. April 2012 (dates to be advised) The standard weekly rate of statutory maternity pay (SMP) and the weekly rates of ordinary statutory paternity pay (OSPP), additional statutory paternity pay (ASPP) and statutory adoption pay (SAP) will increase from £128.73 to £135.45. Unpaid parental leave will increase to four months. 1 October 2012 Auto-enrolment into workplace pension schemes will begin for larger employers. The various national minimum wage rates may increase, depending on prevailing economic conditions and the Low Pay Commission’s recommendations. Developments with no confirmed date yet, but likely to be progressed in 2012 Financial penalties to be introduced for employers who lose at employment tribunal and are found to have breached employment rights. Early ACAS conciliation of all employment tribunal claims. Amendment of the whistleblowing rules so that disclosures about breaches of employment contracts are no longer covered. Compromise agreements to be simplified and re-named. Consultation on 'protected conversations' between employers and employees about employment issues. Consultation on a proposed new rapid resolution scheme as an alternative to employment tribunal for low-value and straightforward disputes. Consultation on a range of measures to reform the law on employment disputes. ACAS Code of Practice on Disciplinary and Grievance Procedures to be looked at with a view to a simpler dismissal process. Consultation on the removal of the third party harassment provisions in the Equality Act 2010. The working time rules are likely to be amended to allow holiday to be carried forward in limited circumstances.

Class 2 National Insurance contributions

Class 2 National Insurance Contributions (NICs) are paid by all self-employed taxpayers unless they qualify for the small earnings exemption or other exemptions that remove the necessity to pay NICs. Class 2 NICs are payable at a flat weekly rate. Since April 2011, payments for Class 2 NICs become due on 31 January and 31 July, the same dates as those of a self-assessment tax bill. The last Class 2 NICs payment request was issued in October 2011 and is due to be paid by 31 January 2012. The next payment request will be issued in April for 2012 and is due for payment by 31 July 2012. The self-employed may continue paying monthly by direct debit or six monthly on the actual payment due date if they do not wish to stagger the payments. Class 2 NICs count towards payments such as the basic state pension, the employment and support allowance, maternity allowance and bereavement benefits.

Self assessment deadline is approaching

The deadline for submitting 2010/11 self assessment tax returns online is 31 January 2012. Taxpayers should also be aware that payment of any tax due should also be made by this date. This includes both the payment of any balance of self assessment liability for the 2010/11, plus any payment on account due for the current 2011/12 tax year. Any taxpayers that are filing online for the first time should ensure that they register to use HMRC’s self assessment Online service as soon as possible. Once registered it can take up to 10 days for an activation code to be sent by mail. All filings must now be made online as the date for submitting paper returns has already passed. Any returns that are filed after the 31 January 2012 deadline will be subject to the new penalty regime which begins with the 2010/11 self assessment returns. The main features of the new penalty regime are as follows: From day one: taxpayers will be charged a £100 penalty even if they have no tax to pay or have paid any tax due on time. From 3 months late: taxpayers will be charged an automatic daily penalty of £10 per day up to a £900 maximum. From 6 months late: taxpayers will be charged additional penalties which are the greater of 5% of tax due or £300. Over 12 months late: there are additional penalties based on greater of 5% of tax due or £300. In serious cases this penalty may be increased up to 100% of tax due.

Labour providers and the Olympic games

It has been estimated that the Olympic and Paralympic Games will involve more than 50,000 contracts, worth about £6bn. The sectors affected range from construction, engineering and manufacturing to creative, merchandising and retail at 34 Games venues around the UK. A news release has been published aimed at employers who plan to take on more staff for the Olympic and Paralympic Games to remind businesses to properly check their labour providers. Labour providers are agencies that supply temporary workers to meet seasonal and market demand – sometimes called 'gangmasters'. There is a history of tax fraud and unpaid taxes (especially relating to VAT) through the use of labour providers. This mainly relates to businesses involved in the agricultural and food processing sectors, construction, hotels and leisure, security and other labour intensive industries. The news release includes details of the different types of checks that can be carried out by people using labour supplied by a third party to establish the credibility and legitimacy of their supplies, customers and suppliers. This includes knowing about the financial status of any business that provides third party labour as well as investigating if the workers have the right to be working in the UK.

Tribunal – late submission of P35

A tribunal case once again looked at the issue of whether HMRC had acted unreasonably in delaying the time it takes to send a penalty notice to taxpayers. In the most recent case heard by the tribunal, the taxpayer received a penalty for late submission of a P35 end of year employer return. The deadline for submission of the P35 was 19 May 2010 and the first penalty notice was not received until 27 September 2010. In only the second paragraph of the tribunal judgement we are informed that HMRC had provided no explanation as to why the issue of the penalty notice was delayed 'for such an inordinate period of time'. Following receipt of the penalty notice, the taxpayer filed an end of year return (on 25 October 2010) but further penalties were issued totalling £600. The taxpayer appealed the penalties and also argued that there was a reasonable excuse for the late filing. The Tribunal found in favour of the taxpayer and the appeal was allowed. Interestingly, the judge commented that even if the reasonable excuse had not been accepted, he would still have reduced the penalty charge. The issue of HMRC not sending taxpayers reminders to submit P35’s clearly concerned the tribunal judge as did 'HMRC’s dilatoriness in failing to send out a First Penalty Notice for four months or thereabouts'. The judge was clear that 'the conduct of HMRC in desisting from sending out a timeous First Penalty Notice gives rise to conspicuous unfairness which would be recognised as such by any fair-minded objective observer.'

Budget 2012

The Chancellor has announced that the 2012 Budget will be held on Wednesday, 21 March 2012. The date was announced when the Chancellor spoke before the House of Commons Treasury Select Committee. This will be Chancellor George Osborne’s third Budget and will take place on the final Wednesday before Parliament's Easter break. Details of all the Budget announcements will be made on a special Budget 2012 section of the HMRC website which will be updated following completion of the Chancellor’s speech next March.

New compensation limits announced for 2012

The Employment Rights (Increase of Limits) Order 2011 has been published and will come into force from 1 February 2012. The Order increases the limits applying to certain awards of employment tribunals and to other amounts payable under employment legislation. The main changes are: Maximum amount of a ‘week’s pay’ for the purpose of calculating a redundancy payment or the basic or additional award of compensation for unfair dismissal or payments to employees in the event of insolvency – increases from £400 to £430. Limit on the amount of compensatory award for unfair dismissal – increases from £68,400 to £72,300. Limit on the daily amount of statutory guarantee payment – increases from £22.20 to £23.50. The increases apply where the event giving rise to the entitlement to compensation or other payment occurs on or after 1 February 2012. The date is determined differently depending on the type of claim brought. In unfair dismissal claims, this date is the effective date of termination of employment. In guarantee payment claims, it is the day in respect of which the payment is due. The increases reflect an increase of 5.6% in the retail prices index from September 2010 to September 2011.

HMRC are now accepting faster payments

HMRC have announced that with effect from 16 December 2011, they will be able to accept payment via the Faster Payment Service (FPS). The FPS was the first new payments service to be introduced in the UK for more than 20 years. The service enables electronic payments to be made and processed in hours rather than days. The scheme has been in use for a number of years but HMRC had been unable to accept the FPS and it still took around three days for payments to HMRC to arrive. The limits for payments that can be made using the FPS are individually set by banks. HMRC recommends that taxpayers should contact their own bank or building society before making a payment to confirm that: The services is available. Whether there are any single transaction or daily limits on the amount you can pay. The latest cut off times for making a payment. HMRC also reminds taxpayer of the importance in using the correct bank account details and reference number when sending a payment. This will help ensure that the payment is received promptly and correctly allocated and reduce the likelihood of penalties, interest or surcharges for late payment.

Tribunal – one business or two?

A recent case heard by the First Tier Tribunal concerned an appeal against a direction by HMRC that two separate rural businesses should be jointly registered for VAT. The background facts which were not disputed concerned a farm run by the same family since 1936. The farm is currently run by a married couple and their son and has been registered for VAT since the inception of VAT in 1973. The wife is not an active partner in the farm and has been running an independent B&B since 1975. The B&B has never been VAT registered and has always traded below the VAT registration threshold. In 2009, HMRC visited the farm as part of their rural diversification project and the HMRC officer reviewed the books of the farming partnership and the B&B. Following the visit HMRC considered there was sufficient financial, economic and organisational links between the farm and the B&B to justify issuing a notice of direction. Effectively this would have bought the B&B trading activities into the farm VAT registration. The taxpayers appealed and the tribunal in deciding the case considered each of the 14 factors used by HMRC in arriving at their decision to issue the taxpayers with a direction. On examination, the tribunal found that the overwhelming majority of the factors were either neutral or weighed in favour of the B&B being treated as a separate business. The only factors were that the B&B shared the use of the farmhouse but there was no evidence that the farmhouse was used by the farming business. The tribunal found squarely in favour of the taxpayer unanimously concluding that 'HMRC could not have been reasonably satisfied that there was an artificial separation of the farming and B&B businesses' and concluded 'that the B&B is not closely bound to the farming business by financial, economic or organisational links'. The taxpayers' appeal was allowed in full providing hope for other rural businesses targeted as part of the rural diversification project.