Thursday 22 December 2011

HMRC extends business records checking

HMRC have announced that they are extending their Business Records Checks programme.

These checks were piloted earlier this year and involved checks on the adequacy of Small and Medium Sized Entities’ business records. The pilots apparently found that around 44% of businesses visited had issues with their record-keeping, while around 12% of those visited had seriously inadequate records.

HMRC are now extending this activity from mid-September to cover a number of key areas across the UK. As part of this, the number of full-time staff employed on the programme will rise from 30 to 120.

HMRC are planning to complete up to 12,000 checks by the end of the current financial year, with 20,000 provisionally planned for 2012/13. HMRC are increasing the number of visits so it can refine the process, before final decisions on a national roll-out are taken in the New Year. If you have any concerns in this area please contact us.

Good economic news

Looks like the economy is growing strongly again http://www.bbc.co.uk/news/business-16300104

The negative effect of the 50% tax rate

Last night I was listening to the Aston Villa v Arsenal game on Radio 5 Live. The commentators observed the lack of effort made by the Russian player Andre Arsharvin and made the point that he stopped trying when then 50% tax rate came in. Apparently he is on record as saying that it is a major disincentive and he wants to move in the January transfer window to a lower tax country.

It's hard to feel any sympathy with such a highly paid player, but it does neatly illustrate the point about how much a disincentive 50% tax is - and of course it's not really 50%, but 52% when you take into account the NIC.

Keeping 48% of what you make is never going to incentivise anyone.

It's no surprise that economic growth is sluggish when there is no incentive to grow your business.

Instead of our economy getting 40% of Arsharvin's wages, we are now going to get nothing and someone else's economy will benefit instead.

It makes no sense.

Tax rates need to be reduced to stimulate the economy.

Maggie Thatcher proved that in the early 1980's when she reduced Labour's basic rate of tax of 34% and look what happened - we had a boom all through the 1980s!!

Wednesday 21 December 2011

FSA report into the collapse of RBS

So now we know! The Regulators have at last reported on the collapse of RBS.

Bankers have preached at businesses for years to avoid two cardinal errors - overtrading and too much gearing.

Unfortunately RBS didn't heed their own advice!!

Between 2003 and 2007 they quadrupled the size of their balance sheet - sounds like overtrading to me!

But they didn't heed the warning signs and blindly launched into taking over ABNM Amro.

All they got from ABNM Amro was two lever arch files and a CD. Despite this lack of information, RBS paid £21 billion for ABNM Amro - and had got no idea what they were buying!

To compound this error, RBS made another mistake! It borrowed 100% of the £21 billion !!!

If this was not a big enough error, RBS made another mistake by having the debts as very short term!!

No wonder it fell over after a such a series of poor decisions - you don't have to be a high flying City financier to know that breaking some very basic banking rules would end in tears.

Oh and by the way - when RBS finally did look at ABNM Amro, it discovered that its balance sheet was riddled with dodgy sub-prime loans!!

What a catalogue of errors!

Valuable guidance on Christmas gifts

http://www.peninsula-uk.com/blog/blogentries/53/Bribery-Act-at-Christmas.html

Friday 9 December 2011

Good advice from Abbey Tax about capital allowances

With the publication of their response on 6 December 2011, HMRC have now sought to clarify that “expenditure on a fixture can only be written off once against taxable profits over its economic life”. To this end the new legislation places responsibility onto the seller and purchaser of commercial properties to agree what level of pooled expenditure is to be sold/purchased as a result of the property transaction. This takes effect for all expenditure incurred on or after 1 April 2012 for Companies (6 April 2012 for Individuals and Partnerships).

This agreement is to be achieved using the current legislation under:

  • Section 198/199 CAA election, where the seller & purchaser make a joint election, which effectively fixes the value of the pool.

  • Section 563 CAA where the parties are unable to agree on a value within two years of the transaction, resulting in the matter being referred to the First Tier Tribunal for a decision.

The new legislation makes the availability of Capital Allowances to a purchaser of fixtures conditional on the following three points:

  • Previous qualifying expenditure being pooled prior to any property sale.

  • The seller and purchaser agreeing (within a two year period from the transaction date) to fix the pool value.

  • A written statement from a past owner confirming the disposal value of the pool that he has some time earlier been required to bring into account.

Quite clearly the first two bullet points will be the main focus for the majority of property transactions. With the onus being placed on the seller/purchaser to agree figures there is a clear opportunity for the accountancy profession to maximise the tax position for their client, by ensuring all qualifying items are pooled prior to the point of sale enabling a S198 election to be put into the sale agreement. Our full briefing on the Capital Allowances Consultation Response can be found on our website here which also details HMRC’s revised legislation on items that qualify for Feed-in Tariffs and Renewable Heat Incentives.

Friday 2 December 2011

employment law proposals

http://howespercival.cmail2.com/t/ViewEmail/y/EEE5C03805E5EDFA/6C2848FFEBD38F247F4E5A579FEBB2E9

It is ridiculous that the Government are proposing that if you are an employer and you lose a Tribunal case, you get fined. If you are an employee though and you lose, you don't get fined!!

Wednesday 30 November 2011

Latest news from Taxwise on tax investigations

We continue to face challenging economic times and there are no signs of any good news soon. HMRC activity has been well publicised and unsurprisingly we have seen unprecedented levels of claims. In the 6 months to 30 September 2011 claims notifications are in excess of 50% higher than the same period last year. A third of claims are PAYE and VAT compliance checks, 2% are Schedule 36 interventions with no reference to statute and 2% are cross tax enquiries covering income tax, corporation tax, PAYE and VAT in one enquiry. We are seeing HMRC focus on records, systems and controls and increasingly these checks do not relate to submitted returns.

Friday 25 November 2011

Back to the 1980's with YTS??

http://www.bbc.co.uk/news/uk-politics-15878796

Interesting that youth unemployment has been relentless rising under New Labour since 2001, so its not a recent problem

Green Taxes - a con?

Under Gordon Brown’s stewardship as Chancellor, the tax burden on us all rose by about a third in real terms. Many of these tax rise were the so called “green taxes” designed to tackle the alleged problem of man-made climate change.

Of course, if the object of this tax strategy was to reverse the effects of man-made climate change, it was fundamentally flawed from the beginning. Unless every single nation on earth followed exactly the same strategy and it produced exactly the same change in behaviours then its impact on the climate would be precisely nil. Recognising this weakness (albeit a bit late) today Mr Huhne has called for a global legally binding climate change deal by 2015 (like that’s going to happen).

This week Mr Osborne has announced an extension of Mr Brown’s strategy and a whole series of new green taxes are winging our way. Quite apart from the weak logic of green taxes, new scientific research has emerged that virtually destroys the whole notion of man-made climate change.

New research by London’s Natural History Museum has shown that:

·         2 million years ago climate change caused East Africa to dry out and forced our ancestors out of the trees and made them walk
·         450,000 years ago climate change saw an Ice Age and it split human populations. In the north Neanderthals evolved while in the south Homo Erectus (our ancestors) evolved
·         55,000 years ago climate change caused Africa to be dry and forced Homo Erectus to migrate to Europe
·         25,000 years ago climate change saw another Ice Age. Sea level dropped 330 feet as a result and humans were able to walk to North America and populate it
·         14,000 years ago climate change saw the end of the last Ice Age and erratic weather patterns and caused humans to develop farming to stabilise food supplies

What is clear from the above (and conveniently ignored by the climate change proponents) is that:

·         Climate change has been a regular feature in the past
·         It has been caused by entirely natural events

There is nothing to suggest that any change in climate that may or may not be occurring today is man-made.

Of course, if climate change is NOT man-made, then the green taxes will have absolutely no impact on the climate and so are a “con”!


Thursday 24 November 2011

Handy answers to some topical tax questions

http://www.peninsula-uk.com/july_to_sept_2011_qas.pdf

Proposed changes to employment law

http://howespercival.cmail3.com/t/ViewEmail/y/53E9657CEE3574B8/5E8B42580143BF63A29558A201773426

Useful summary of the proposed changes to employment law. In the view of many, the proposed changes do not go far enough to balance the equation back to to an equal balance between employers and employees. All the rights still remain with the employees.

Wednesday 23 November 2011

Tax and benefits

http://www.bbc.co.uk/news/uk-politics-13633966

This a great calculator. I can now see that each year I pay thousands of pounds more than I get in benefits fro the State. I like, most business, am thinking "what is the point of growing my business - I'm getting nothing out of it". And they wonder why the economy is not recovering? Where is the incentive?

Tax and benefits

Poorly performing employees

http://www.peninsula-uk.com/bottomlineexpress/479/Top-Ten-Tips-On-How-To-Deal-With-Employees-Poor-Performance.html

How to deal with poorly performing employees - useful tips from Peninsula!!

How to ensure a trouble free Christmas party

http://www.peninsula-uk.com/bottomlineexpress/478/HR-Rules-To-Ensure-A-Trouble-Free-Christmas-Party.html

General Anti Avoidance Rule

http://www.ion.icaew.com/TaxFaculty/23459

At present, the way tax legislation works is that the Government passes a law to say you can or can't do something. Some clever barrister finds a way around the rule and a tax scheme is born. it gets peddled by the big firms, millions of tax is avoided and then the Government is forced to bring in some specific anti avoidance legislation to stop the abuse (because they didn't draft the rules properly in the first place).

Usually therefore anti-avoidance legislation is not that relevant to most businesses.

However, the study group is now proposing a general anti avoidance rule.

This would work differently. Basically under a general anti avoidance rule, if the Taxman thinks you've done something to avoid tax then he can attack it.

Of course this potentially will hit quite common tax planning such as husbands and wives being in business together and splitting the profits, taking dividends instead of salary, making pension contributions instead of taking a salary etc.

Watch this space as this could be a very important development in tax legislation.

Tuesday 22 November 2011

UK Debts

http://www.bbc.co.uk/news/business-15820601

Not my favourite commentator but a great summary of why we have huge debts - and it's all down to Mr Blair and Mr Brown saddling us with vast debts before the financial crisi hit in late 2008

Wednesday 16 November 2011

IOD Growth plan

Plan to boost the economy

The Institute of Directors (IoD) has proposed a new economic growth plan which aims to improve business investment and development. ‘The Route Back to Growth’ contains several recommendations including:

1.
Monetary policy - Quantitative easing; launch QE2 in October with an initial £50 billion
2.
Fiscal rules - A new 35% of GDP public spending target by 2020
3.
Taxation - Remove the 50% top rate of income tax
4.
Taxation - Extended corporation tax cuts to 15% by 2020
5.
EU policy - Use future Treaty and/or budget negotiations to repatriate key employment powers
6.
Infrastructure - Ring-fence transport, energy and ITC infrastructure spending
7.
Energy policy - Do no harm - don’t sacrifice UK competitiveness for green credentials
8.
Education - Further expand free school provision with profit incentives
9.
Taxation - End the £100,000 personal allowance anomaly
10.
Competition policy - Intensify competition policy both domestically and within the EU
11.
Regulation policy -  Radical civil service reforms to promote de-regulation
12.
Employment Law - Nine major changes to free up the labour market
13.
Planning - Incremental ‘Green Belt’ and developer rights to propose, and reduce political influence over infrastructure planning
14.
Public sector performances - Greater decentralisation of public sector pay
15.
Public sector performances - No watering down of reforms to unfunded public sector pensions


The IoD claims that if its suggestions are adopted by the government, it could make the UK one of the most advanced economies in the world.

Monday 14 November 2011

Bank lending to small businesses down by 9%

http://www.bbc.co.uk/news/business-15718590

UK economy - why are we not bust like Italy?

http://www.bbc.co.uk/news/business-15717770

HMRC task forces


HMRC's "Taxforces" Hit The Road
On 7th November HMRC released 5 separate press releases announcing the launch of 5 taskforces aimed at various parts of the UK focusing on varying potential areas of evasion.

In the North West and North Wales there will be two separate taskforces. The first will target tax evasion amongst landlords who own and/or rent more than three properties. The second will be focused on construction traders who are self employed or who run their own companies, where suppression of sales or over-claiming expenses is identified.

The South East is an area where HMRC has identified that there is an increasing problem with some taxpayers not submitting their statutory returns across Corporation Tax, Income Tax, Self Assessment, PAYE and VAT and the taskforce will be focused on this area. Whilst business activities may have ceased in some cases, or there may in fact be no tax liability, HMRC will be targeting those who are fully aware how much money they are due to pay but have made the conscious decision not to submit the necessary declarations.

In Scotland the taskforces will again target two separate areas. The first will be scrap metal dealers who are deliberately suppressing their income or inflating expenditure to evade paying the correct liabilities, and any that may not have registered their business with HMRC. The second group to come under the spotlight will be fast food outlets deliberately falsifying their records and mis-declaring their true sales levels to avoid paying the correct taxes. As part of this activity any business coming under inspection will also have its National Minimum Wage compliance reviewed.

Taskforces are specialist teams that bring together various HMRC compliance and enforcement teams to undertake intensive bursts of compliance activity, typically focusing on groups of up to around 600 taxpayers/businesses, in specific high risk trade sectors and locations across the UK.

These taskforces come as a result of the Government’s £900m spending review re-investment to tackle tax evasion, avoidance and fraud from 2011/12, which aims to raise an additional £7bn each year by 2014/15.
HMRC has announced it is planning 12 taskforces in 2011/12, with more to follow in 2012/13.
Mike Wells, HMRC's Director of Risk and Intelligence, said: “These taskforces will come down hard and fast on those who have chosen to break the rules and deliberately evade the taxes they should be paying. Honest businesses, however, have absolutely nothing to worry about.

“HMRC is clear – if you deliberately seek to evade tax we can and will track you down and you’ll face not only a heavy fine, but possibly a criminal prosecution as well.”

Wednesday 9 November 2011

What is an employee - great article from Peninsula!

What Is An Employee?

This question has vexed many an employment practitioner over the years and remains one of the most hotly contested issues of employment law. No wonder, because the employment status of an individual is the very basis on which his employment relationship with you is defined. Getting the classification wrong - which is very easy to do - can have major implications on an employer not only in relation to the individual concerned but also the rest of the workforce.

Employment rights are granted dependent on an individual’s employment status. Employees are entitled to a raft of employment rights: maternity leave, paternity leave, parental leave, the right to request flexible working; rights upon a transfer of an undertaking; minimum periods of notice, statutory redundancy pay, the right to claim unfair dismissal; and the list certainly goes on.

Self employed people are not entitled to these employment rights because the idea goes that they have a greater amount of bargaining power to negotiate the contract under which work to be provided. Discrimination protection does, however, extend to self employed individuals so employers must bear this is mind. Further, just to make the situation a little more difficult, not all self-employment situations will attract this protection.

The third category of ‘worker’ is the most recent category to be formed and is somewhat of a half way house between an employee and a self-employed individual – a ‘worker’ carries traits of both but in employment law it is a completely separate entity.  Its creation came about because of the recognition that employment relationships are fluid and modern times did not lend themselves to the two limited existing categories.  Workers have some employment rights to avail themselves of, but substantially less than an employee. It is worth noting that as far as HMRC are concerned; this third category of ‘worker’ does not exist.

So what tests have been devised over the years to determine the status of an individual?

If an individual is an employee, the employer will exert substantial control over them. This is characterised by the employer having ultimate authority over the work that is done by the individual: the employer will set the times that work should be done, where it is done and how the work is done. The employer will provide the equipment for the work and will also lay down certain procedures that govern the relationship. For example, if an individual wants time off, he must request it according to the employer’s holiday request procedure. If he is sick and cannot attend work, he must report it via the sickness reporting procedures.

If there is a lack of obligation that binds the two parties to the contract, it is unlikely that the relationship will be one of employment. If there is no duty upon the employer to provide work to that particular individual, and there is no corresponding obligation on the individual to accept it when it is offered, this fact is quite often indicative that the individual is not an employee.

Perhaps the most fatal blow to the assertion of an employment relationship is the absence of the requirement for the individual to provide service. If the individual has the right to send a substitute then it is almost impossible for an employment relationship to be in existence.

Recent case law has added further considerations to the issue of employment status, and rather than clarifying matters, has muddied the waters somewhat. In Autoclenz v Belcher, the claimants were engaged as self-employed car valeters, and as such were entitled in their contracts to send a substitute. The contracts also provided that there was no obligation on the employer to provide work nor on the individuals to accept it. However, it was not the wording of the contract that persuaded the tribunal to find that the individuals were in fact employees, but the actual performance of the contract. No substitute was ever in practice provided by any individual, they turned up for work every day and work was always provided. In effect, this had varied the original agreement and the individuals were entitled to see themselves as Autoclenz employees.

It seems the favour has swung well and truly away from the employer in this situation, who must focus much more on the day to day performance of a contract in addition to the drafting of the contract itself.

Monday 7 November 2011

R & D Tax credits

HMRC has set up a 'Voluntary advance assurance'; pilot to help small companies - including start-ups - to make their first Research and Development (R&D) claim.

Companies that take part in the pilot will have the support of a designated R&D specialist who will provide one-to-one support and advice on making a claim. The company and HMRC will agree a basis for the first R&D claim, and claims for the two subsequent Corporation Tax accounting periods.

Providing you use the agreed basis, these claims will normally be accepted as accurate without query from HMRC - unless a significant issue arises. You can find out more from your specialist R&D Unit.

Additionally, during the agreed period, you will have a designated contact who will be available to you to discuss any aspect of your R&D Relief claims.

Friday 28 October 2011

HMRC launch the Tax Catch Up Plan

HMRC have launched a campaign to target private tutors and coaches who have undeclared tax liabilities.

The Tax Catch Up Plan (TCUP) is aimed at individuals who provide private lessons, or who profit from tuition and coaching, as a main or secondary income where the correct tax has not been paid. The types of tuition, instruction or coaching covered by the TCUP include tuition of traditional academic subjects, fitness and dance instruction, musical instrument tuition, art, services provided by life coaches and others.

Under the TCUP, tutors and coaches have until 31 March 2012 to advise HMRC about their outstanding tax for the years up to 5 April 2010, and pay what they owe. HMRC have confirmed that those who come forward by the deadline are likely to receive the best possible terms for paying the tax owed. If they have to pay a penalty, it is unlikely to be more than 20%.

Those who wait for HMRC to come to them will find that they have to pay much higher penalties (as much as 100% and may even face criminal prosecution). After 31 March 2012, using information pulled together from different sources, HMRC will investigate those who have chosen not to come forward.

Marian Wilson, Head of HMRC Campaigns, said:

‘Our campaigns are designed to ensure tax is paid so that the money is available to spend on public services used by everyone. We are making it as easy as possible for people offering tuition and coaching to use this unique opportunity to put their tax affairs in order by making a full disclosure, and benefit from the best possible terms.

We are using various intelligence sources to identify and then target those who do not take advantage of this opportunity to declare their full income. The message is clear: contact us before we contact you.’

The Tax Catch Up Plan has two stages:

  • From 10 October 2011 to 6 January 2012, tutors/coaches/instructors must register with HMRC to ‘notify’ that they plan to make a voluntary tax disclosure.

  • By 31 March 2012 those who have registered to notify must tell HMRC what they owe and pay the tax, interest and penalties due.

People can register online by completing a notification form which can be accessed using the link below or by calling HMRC on 0845 601 8817.

Please do get in touch if you have any concerns in this area.

Thursday 20 October 2011

Agreement with Switzerland to secure billions in unpaid tax

The government has agreed measures with Switzerland to tackle offshore tax evasion. Under the terms of an agreement, existing funds held by UK taxpayers in Switzerland will be subject to a significant one-off deduction of between 19% and 34% to settle past tax liabilities.

From 2013, a new withholding tax of 48% on investment income and 27% on gains will ensure the effective future taxation of UK residents with funds in Swiss bank accounts. This will be accompanied by new information-sharing rules which will make it easier for HMRC to find out about Swiss accounts held by UK taxpayers. The new charges will not apply if the taxpayer authorises a full disclosure of their affairs to HMRC.

Internet link: Press release


Tuesday 18 October 2011

Advisory Fuel rates for Company Cars

New company car advisory fuel rates have been published to take effect from 1 September 2011. HMRC’s website states:

‘These rates apply to all journeys on or after 1 September 2011 until further notice. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.’

The advisory fuel rates for journeys undertaken on or after 1 September 2011 are:

Engine size
Petrol
LPG
1400cc or less
15p (15p)
11p (11p)
1401cc – 2000cc
18p (18p)
12p (13p)
Over 2000cc
26p (26p)
18p (18p)


Engine size
Diesel
1600 cc or less
12p (12p)
1601cc – 2000cc
15p (15p)
Over 2000cc
18p (18p)


Please note that only one rate has changed and that has been reduced and care must be taken to apply the correct rate after the one month period of grace.   

Other points to be aware of about the advisory fuel rates:

  • Employers do not need a dispensation to use these rates.

  • Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.

  • The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

Monday 17 October 2011

New National Minimum Wage

The adult rate of the National Minimum Wage (NMW) increases to £6.08 (£5.93) an hour from 1 October 2011. This is payable to those age 21 and over.

The rate for those aged 18 to 20 increases to £4.98 (£4.92) and for 16 and 17 year olds to £3.68 (£3.64) an hour.

The apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship, increases to £2.60 (£2.50) and hour.

Updated guidance available on the Business Link website includes specific situations such as those engaged on work experience or internships and their entitlement to the NMW. The guidance also includes a new worker checklist for employers and case study examples.

The press release confirms:

Entitlement to the NMW does not depend on a job title but on whether the arrangement they have with an organisation makes them a worker for NMW purposes. Where an individual is a worker - and no exemption applies – then they must be paid at least the NMW.’

Employment Relations Minister Edward Davey said:

Internships and work experience of all forms offer an excellent opportunity in helping to bridge the gap between education and the workplace. And for businesses it allows them access to a wide talent pool of some of our best and brightest who didn’t take the traditional route into a job.

Fairness though is absolutely paramount with all placements. When a worker is entitled to the minimum wage, they should be paid it and we will continue to enforce the law. Today’s publication will help clarify this for employers and will also make sure that all interns and those on work experience placements have a better understanding of their entitlement to the minimum wage.’

HMRC are able to charge penalties to those employers found to be in breach of the NMW rules.

If you have any queries on the NMW please do get in touch.


Friday 14 October 2011

15% of self assessment tax returns are late

http://www.accountingweb.co.uk/article/sa-penalties-hit-15m-more-come/519767

Changes to audit exemption thresholds

This is a message on the proposed changes from the President of the ICAEW (at http://www.icaew.com/)

Today the Department for Business, Innovation and Skills has announced a formal consultation on increasing audit exemptions, removing some of the gold plating that previous governments have applied to EU directives in this area. In a nutshell, the proposals are:-
  • To extend audit exemptions for SMEs by aligning the mandatory audit thresholds with EU small company thresholds. Currently in the UK, SMEs have to meet both turnover and balance sheet thresholds to be exempt from audit. In future, to be classified as small for accounting purposes, businesses will have to meet two out of three criteria (turnover, balance sheet and headcount).
  • To exempt subsidiary companies from the statutory audit where they fulfil a rigorous set of conditions including a commitment from the parent company to guarantee its debts.
In considering these proposals, what is important to me is that we continue to reinforce the message that effective financial management is crucial for any business. Strong financial controls and appropriate management oversight are important components for any company seeking to grow and build their business, no matter what their size. That’s what chartered accountants tell their clients and that’s the message I continue to press home to ministers.
Audit is critical in this. It plays a vital role in the oversight and governance of companies. This is as true for many smaller businesses as it is for larger multi-nationals. It provides investors, shareholders and management with trusted independent verification of an organisation’s financial statements and gives some insight into how well it is being run.
In my view, many SMEs and subsidiaries will continue to choose to have an audit, even though they may qualify for exemption, because it provides confidence and peace of mind. It can be important to have audited accounts when pitching for contracts or seeking finance.  For those who choose not to have an audit, we should absolutely continue to encourage them to seek third party assurance on their financial statements. This is a service an ICAEW Chartered Accountant can provide.
We need to look carefully at the detail of the proposals and ICAEW’s Audit and Assurance Faculty will be responding to the consultation in due course. To help us shape our response, we will be consulting members and would like to know what you think. If you’re in business and as a result of these proposals are now eligible for audit exemption, will you take it? If you’re in practice and have clients who may now be exempt from audit, how do you think this will impact on you and your business?
I look forward to hearing your thoughts.

Wednesday 12 October 2011

Mandatory new pension scheme rules for employees

Great guidance from Peninsula

Auto enrolment 12 month reminder

As part of the government’s plans for pension reform, employers must automatically enrol their workers into a pension scheme. The largest employers, in terms of the number of workers they have, and in some cases, by PAYE reference, will have to comply first, with a ‘staging date’ of 1st October 2012. The ‘staging date’ is the date from which an employer must start to auto enrol their workers into a scheme. To find out when your staging date is, click  here.

From the relevant staging date, all workers must be auto enrolled into a qualifying pension scheme by their employer. Employers can choose which scheme they use but it must meet minimum standards in respect of the benefits it provides or the amount of contributions paid to it.

Employers must therefore:

• make a minimum 3% contribution is made towards a defined contribution scheme (based on qualifying pensionable earnings) such as NEST (see below); or
• offer membership of a defined benefit scheme or certain hybrid scheme which either has a contracting out statement or meets the test scheme standard

One qualifying scheme that has been set up specifically for an employer to use so that he meets his new obligations is called NEST (National Employment Savings Trust) and is available to any employer who wants to use it. However, use of this is not compulsory, as long as the pension scheme used counts as a ‘qualifying’ one.

Employers who currently use a pension scheme should therefore check that it counts as a qualifying scheme. If it does, then they can continue to use it under the pension reform. If it isn’t, then they should check how the existing scheme can be amended, or set up a new scheme.

Not all workers must be auto enrolled – only ‘eligible’ workers must be. ‘Eligible’ workers are those who:

• are 22 years old and over
• are under state pension age
• earn more than the minimum earnings threshold (likely to be £7475 per year); and
• work or ordinarily work in the UK

However, other individuals will have the right to be enrolled into their employer’s pension scheme if they ask to be. These are:

• jobholders aged between 16 and 22, or between State Pension Age and 75 with earnings of more than £7,475 a year.  If these individuals ask to be enrolled their employer will have to make a minimum contribution.
• workers aged at least 16 but who are under 75 and who do not have earnings of more than £7,475.  If these individuals ask to be enrolled their employer will not have to make a minimum contribution, but it can if it chooses.

Once a worker has been automatically enrolled, they can choose to opt out in which case they will no longer be a member of the scheme and any payments made into the pension pot will be refunded. Opting out can only be done within a month of being auto enrolled. Opted out workers may re-join at a later date.

After the opt-out period, workers can choose to leave the pension scheme at any time. Payments already made in this circumstance will not be refunded and will remain in their pension pot.

Workers who have opted out or left the scheme must be auto enrolled again ever three years as long as they continue to be an ‘eligible’ worker.

Who should be automatically enrolled?
Fiona
Fiona is aged 27 and earns £37,000 per year.

Fiona’s employer is required to automatically enrol her because of her age and her earnings level. Her employer must make at least the minimum contribution.

Raj
Raj is 20 and earns £17,000 per year.

His employer is not required to auto enrol him because he is not old enough. However, Raj can ask his employer to put him into the workplace pension scheme and will have to make a contribution to his pension.

Peter
Peter is 42 and earns £25 a week.

Peter’s employer is not required to automatically enrol him because he doesn’t earn enough.
However, Peter can ask to be enrolled but his employer does not have to make contributions, but can do so if they wish

Employees and the internet

This is good advice for what can be a difficult area.

http://www.peninsula-uk.com/bottomlineexpress/457/Directors-Cut:.html

New employment tribunal rules

http://www.peninsula-uk.com/blog/blogentries/43/Are-Proposed-New-Employment-Tribunal-Reforms-Going-To-Be-Good-For-Business?.html

These are some thought provoking comments on the new employment tribunal rules

Tuesday 11 October 2011

IR35 CASES

Interesting update on IR35

http://www.ion.icaew.com/TaxFaculty/23116

IR35 cases

Interesting update on IR35

http://www.ion.icaew.com/TaxFaculty/23116

Watch out if you are dissolving a company!

From the ICAEW:

The Treasury Solicitor removes its concession so you must sort out the Share Capital before applying for a company to be struck off under C16

Technically speaking if a company is struck off under Extra Statutory Concession (ESC) C16 any share capital distributed as part of the ‘pay-out’ is treated as an unauthorised distribution under company law and this element of the payout can be recovered from the shareholders by the Crown as bona vacantia.

The Treasury Solicitor has in recent times exercised a concession under which they will not seek to recover share capital paid out during a company strike off if the amount of share capital involved is less than £4,000.

This concession is being withdrawn by the Treasury Solicitor with effect from 14 October 2011.

In future if you use ESC C16 to have a company struck off then if any of the money paid out represents share capital that amount can be recovered by the Treasury under the bona vacantia procedure.

The new arrangement is set out in a Notice published on the Treasury Solicitor website.

Unfortunately the explanation given in the Notice is not as clear as it might be and is likely to cause confusion.

Paragraph 2 states

In practical terms, can I now distribute share capital of any amount prior to dissolution without approval from TSol?

Yes. The TSC has been removed so there is no need to contact the Bona Vacantia Division regarding distributions of any amount. However, as noted above, depending on the circumstances, you will still need to comply with HMRC‘s ESC C16, or any successor legislation, and any other applicable rule in relation to share capital distribution.

But the key provisions you have always had to comply with in relation to share capital are the company law provisions and if you fail to comply with those provisions as to when share capital can, or cannot, be reduced or repaid then any money paid out is an unauthorised distribution and can be covered by the Crown. That covers any share capital paid out under the ESC C16 route as this has no standing as far as company law is concerned.

Before the Treasury Solicitor revoked their concession the company law position could be ignored as long as the amount of share capital that was distributed was less than £4,000.

The Treasury Solicitor has changed its mind, and revoked their Concession, on the grounds that the new provisions in Companies Act 2006 make it easier to reduce or pay back share capital and so the £4,000 de minimis concession is no longer necessary.

In future if you are going to take advantage of ESC C16 you can pay out any amount of distributable reserves, subject to capital gains tax, but you should reduce the share capital of the company to a nominal £1 if you want to avoid any problem with bona vacantia.

In the background to all this is the consultation on the potential statutory enactment of ESC C16. The proposal in the HMRC consultation document is that if the concession is enacted the amount that you will be able to distribute under the new statutory provision will be limited to an absolute maximum of £4,000 even if the distributable reserves are much greater than that.

Monday 10 October 2011

Over half of all VAT fines wrong

According to figures obtained by Hacker Young, during the 18 months to 31 October 2010 the VAT Internal Review Team considered almost 29,000 appeals against penalties imposed by HMRC for incorrect returns and late payments. In just over 50% of these appeals, the penalties were cancelled because they had been wrongly imposed. In most cases the penalties were cancelled because the mistakes made by businesses were not as a result of carelessness but rather a genuine mistake.

If that weren't bad enough, the penalties were overturned by HMRC's review team who are hardly likely to be independent!

Update on the economy

Courtesy of RBS Group Economic Research

The Governor of the Bank of England is hoping that increasing monetary stimulus will help steer the economy into calmer waters. By injecting more funds into the UK economy, and quickly, Mr King aims to counteract some of the drags on growth coming from weaker global activity and worries about banking and sovereign debt conditions in the Eurozone. Meanwhile, his European Central Bank (ECB) counterpart, Jean Claude Trichet, also took action to increase liquidity in the Eurozone banking system in an attempt to promote some stability. But overall, there is little prospect of a strong recovery. Choppy times lie ahead.

Audit exemption savings

The Department of Business, Innovation and Skills (BIS) have today published proposals which could help 100 thousand UK businesses save in excess of £600 million in accountancy and administration costs every year.
The consultation on Audit Exemptions and Change of Accounting Framework sets out plans to allow more small companies and subsidiaries to decide whether or not to have an audit.
Current EU rules mean that to classify as ‘small’ for accounting purposes, a company must comply with two out of three criteria relating to their turnover, balance sheet total and number of employees. However, to obtain an audit exemption in the UK, small companies must fulfil both the balance sheet and turnover criteria. Under the new proposals, UK SMEs would be eligible for audit exemption by meeting any two of the three criteria, saving them an estimated £206m per year.
The Government is also proposing to introduce legislation in 2012 to exempt most subsidiary companies from mandatory audit, provided their parent is prepared to guarantee their debts. Savings are estimated at £406m per year.
Furthermore, following the consultation by the UK Accounting Standards Board on changes to UK Generally Accepted Accounting Principles (UK GAAP), the Government is also seeking views on whether to allow companies which currently prepare accounts under International Financial Reporting Standards (IFRS) more flexibility to change their accounting framework to UK GAAP.
The consultation is open for comments and responses until the 29 December 2011.
The consultation documents are available from BIS.