Employment Tax Expert

The Government’s Comprehensive Spending Review (CSR) highlighted the need to adopt a consistent approach across HM Revenue & Customs (HMRC) in tackling tax avoidance risk. So what have HMRC done, you would hope tackle the massive corporate tax avoidance schemes that are well known, past and present, but no …… what is the highest risk, you guessed it, SME’s, this employment tax expert despairs.

To address the expectation in the CSR and focus on effectively tackling tax avoidance, HMRC has created four specialist teams to handle compliance checks into direct tax avoidance schemes used by small and medium enterprises (SMEs). SMEs are companies, partnerships or self-employed businesses with a turnover of under £30 million and with less than 250 employees.

The teams are located in:
Central – Stoke
East – various locations
South East – Bournemouth
London and Anglia – Luton

HMRC is currently transferring approximately 1,850 ongoing SME compliance checks to these four teams and aims to complete this by the end of January 2012. HMRC customers and their authorised tax agents and advisers (if appropriate) will be advised (in writing) of a change to both case officer and office dealing with the check.

From 1 December 2011, the teams will deal with all SME compliance checks which involve direct tax avoidance risks, so if you find your self in this position, please call us on 0800 917 9176

HMRC has capped penalties for late returns of payment information to contractors under the Construction Industry Scheme. The scheme has proved controversial with contractors. Since 1 October penalties have been capped at £3,000. Before then, however, penalties for failing to register with the scheme were £100 per month and some penalties could amount to tens of thousands of pounds. In some instances where firms had neglected to register in the first place, they were being hit with notices for £20,000 and more. One firm was landed with a penalty of £80,000, which had built up over a year because the firm had failed to register as a contractor.

The new penalty regime came in on 1 October and only applies to penalties levied since that date however if you are faced with penalties under the old regime, contact us today on o800 917 9176 and we will assist you in mitigating these liabilities

HMRC has said it will stick to a plan to introduce a ‘real-time’ pay-as-you-earn tax system by 2013, despite concerns from employers and payroll software companies that the timetable is “unachievable”.

As part of a plan to modernise PAYE, which was introduced in 1944, employers will send information about tax and national insurance they deduct from employees’ wages to HMRC when they are made – rather than at the end of the tax year as happens now.

The current system causes overpayments and underpayments of tax because some information is out of date.

RTI timetable

Q: When will it happen?
A: Employers and pension providers will begin to use the RTI service during April-October 2013. All employers will use the RTI service by October 2013.

Q: How can employers be sure it will work?
A: HMRC will pilot RTI with volunteer software developers and employers and pension providers for a year, starting in April 2012.

Q: How can employers be part of the pilot?
A: Plans for the April 2012 pilot are already well advanced and no additional employer volunteers are needed. However HMRC are looking at how to bring more employers onboard later in the 2012-13 tax year.

Q: As an agent who files PAYE submissions for a number of employers, do I need permission from my clients before I could take part?
A: Yes. An agent would need to have the agreement of the client employer.

Real-time earnings information could be sent to HMRC automatically using payroll software via the BACS payment network. The new system is expected to be working October 2013.

In a response to an HMRC consultation in December last year, three quarters of respondents who had a view on the proposed timetable for introducing real-time PAYE thought it was “UNACHIEVABLE”.

But in a summary of responses to its consultation document on real-time PAYE information HMRC said the timetable for the introduction of the “universal credit” in 2013 to replace many benefits and tax credits meant “there is no flexibility in terms of the ultimate go-live date of RTI.”
which is quite frankly ridiculous.

To help smooth employers’ transition to real-time earnings information HMRC said it would “align its employment records with those of the employers”, hmmmmm and that should be interesting to witness.

Software suppliers told HMRC in the PAYE consultation that the proposed timescale did not allow sufficient time to develop and test products in time for to be ready by April 2012, but did they listen ………….?

In a concession to software companies, HMRC has said that not all software products would need to be ready for real-time PAYE by April 2012. Instead, software products will be tested for one year – starting in April 2012. Software suppliers and employers can volunteer for the scheme.

Karen Thomson, associate director of policy, research and strategic visibility at the Chartered Institute of Payroll Professionals (CIPP), said the trial of the payroll software should flesh out any “anomalies”. Employers who make payroll errors under the new system, such as telling HMRC the wrong hours worked by an employee, or the wrong leaving date from a job, could be responsible for an individual losing their benefit entitlement because the Universal Credit will rely on PAYE information, Thomson said, so a sysytem that 3/4 of respondents thought was being rushed and has a major impact on benefit entitlements, has simply not been thought through and will crash and burn if the existing timescale is pursued

HMRC has been forced to respond to a Freedom of Information Act request and confirmed the following:

• The new Business Record Check annual target is 20,000 visits, which represents a 30,000 reduction from the original objective of 50,000, as outlined in the Business Record Check Consultation Paper.

• The 20,000 annual target has been reduced on a pro rata basis for this tax year. 12,000 Business Record Check (“BRC”) visits are due to be conducted before March 2012.

• The 30 staff who carried out the original ‘Test and Learn’ BRC visits between April and July from Edinburgh, Irvine, Liverpool, Manchester, Portsmouth, Sheffield, Stockport and Sunderland tax offices are going to be assisted by a further 90 staff. More tax offices are going to be involved. The additional 90 staff are being drafted on to the BRC Team between September and November 2011.

In addition to this second round of BRC visits which have already begun, HMRC is also revisiting businesses deemed to have been keeping inadequate records during the first ‘Test and Learn’ exercise. The follow up letters state the intention is ‘to check that the appropriate improvements have been made.’

There is no official clarification from HMRC yet as to whether fines will be levied for poor record keeping during the second round of BRC visits, although HMRC has previously said that businesses visited during the ‘Test and Learn’ phase would not receive fines unless in the most significant circumstances

HM Treasury will continue in its fight against tax avoidance by the UK’s wealthiest people with the recruitment of an additional 2,250 tax inspectors.

Speaking at the Liberal Democrats annual conference in Birmingham, Danny Alexander, chief secretary to the Treasury, confirmed that the additional HMRC staff will move into new anti-evasion and avoidance jobs targeting around 350,000 taxpayers.

More than 1,000 of these new HMRC roles are being advertised this month.

Mr Alexander said: “These [350,000 wealthiest taxpayers] are the people who pay or should pay the 50p rate of tax. And my message to the small minority who don’t pay what they owe is simple, I agree with the Chancellor. ‘We will find you and your money’ and you will pay your fair share.”

Alexander also said that this package was already bearing fruit: “I promised you we’d collect an extra £7bn a year by the end of the Parliament; and I can tell you we’re already on track to raise £2bn this year.”

The Lib Dems have also vowed to put an income tax threshold of £12,500 “on the front page of its next manifesto” up from £10,000.

“Some people have argued that we should change our tax priorities and focus our limited resources on cutting taxes for the wealthiest instead,” said Alexander. “At a time of austerity, this argument simply beggars belief. If we are all in this together, those with the broadest shoulders must bear the greatest burden.

“Fair taxation of the wealthiest is key to our deficit reduction plan. Of course, if a better way can be found to raise the money from this group, I will be willing to consider it. But right now we must focus relentlessly on those who are struggling. And we need to make sure tax owed is tax paid.”