RTI

Many businesses will find the new Pay As You Earn (PAYE) reporting system impossible according to the ICAEW. This is despite HMRC publishing proposals explaining when employers will be allowed extra time to send in information to HMRC.

ICAEW has warned that the new requirements, known as Real Time Information (RTI), are at best unrealistic and at worst impossible, creating a new burden on businesses.

Frank Haskew, head of ICAEW Tax Faculty, said: “We are particularly concerned about the impact this will have on smaller businesses, which are the lifeblood of the UK economy and essential if the UK is to continue to grow.”

PAYE is the system that HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance Contributions (NICs). Currently, employers have to deduct this from their employees' wages and pay HMRC either monthly or quarterly.

Under RTI, an electronic return will have to be made to HMRC ‘on or before’ a payment is made to an employee. If the return is not made on time then the employer is potentially liable to penalties. While complying with the RTI requirements may be relatively straightforward for larger businesses, many smaller businesses will find it difficult and sometimes impossible to cope with.

Take the following examples:

• Businesses employing low paid workers who have to receive advances of salary before payday in order to live. Under RTI the employer will have to submit an RTI return within seven days of an advance of salary being paid.
• A pub landlord calls in some extra help as he has a busy night ahead. Currently many such employers would only run their payrolls monthly but under RTI they will have to do so within seven days of such payments being made. This is a significant increase in reporting obligations.

Frank continued: “The above examples show that the ‘on or before’ requirement – even with the relaxation to “within seven days” - will not work for many businesses. It’s not yet clear what HRMC will do if faced with widespread non-compliance by employers - will they apply penalties or turn a blind eye? Either way, the requirement could inflict serious damage to the credibility of the UK tax system.”

HMRC is now proposing extra time for employers in some cases but this would only be an extra 7 days. The ICAEW has called for employers to be required to file monthly.

Frank concluded: “The ‘on or before’ rule even as amended completely ignores the way the real world works. It will add significantly to compliance costs and burdens for many small and medium sized businesses. Even if all employers complied with the ‘on or before’ requirement, it is difficult to see how HMRC could reconcile easily all the information it would receive. We therefore propose that there should be a single RTI return on the 19th of the month following the month of payment – this is the same as the normal PAYE due date and will be familiar to all employers.”

Auto -enrolment

I was watching TV last night when an advert came on from the Department of Work and Pensions about auto enrolment.

First thing that struck me was the title - Department of Work and Pensions. I don't get it - I employ you to do a job and pay you for it. Why is your retirement anything to do with me? Surely its up to you to sort it out?

The second thing that hit me was, after the succession of people proclaiming "I'm in" was the bloke announcing - "and the best bit is that your boss has to contribute".

Well that's true, but it's also very missleading. We as businesses have a choice of strategies:

1. we could just bear the cost like the advert suggests but that will mean we have less money to re-invest in the future of our business (in our own case as we are a labour only business, the extra cost burden is equivalent to employing an extra person!)
2. we could try to pass it on to our customers but if everyone does this, then inflation will rise and we'll all be worse off
3. we could cut our employees' wages to leave our overall payroll cost the same

It's interesting that the Department of Work and Pensions assume that because we are in business we must be making loads of money and therefore can go route 1. Of course, for many businesses that is not the case and options 2 or 3 will be taken up. Most likey for a lot of businesses is option 3, leaving employees worse off!!

The whole auto enrolment thing is a massive missell too.

If you assume that a 25 year old male on average earnings of £26000 pa puts in £200 per month (including his employers 3% contribution) then when he gets to age 65 his pension pot will be about £85,000.

Why so low? Well it's because the stock market has drifted sideways for 12 years with no sign of picking up. As a result pension funds have averaged a 1% pa return for the last 25 years.

So he then goes along with his pension pot and buys an annuity. Because annuity rates are so low, currently £85000 would buy a pension of about £4500pa.

What a waste of time and certainly not the pension that he would have expected.!

He'd have been better off saving the £200 a month or paying his mortgage off quicker!

Regulation

The ICAEW's Quality Assurance Department has recently started to do desk top reviews of a number of firms.

48% do not carry out adequate client due diligence to ID clients in accordance with the law

15% had not registered with the Information Commissioner as required by law

25% hadn;t realised that the ICAEW's logo had changed and were using the wrong one on their letterhead

16% hadn't explained to their clients the basis on which they charge fees

We rigorously apply all the red tape thrown at us by our regulators but clearly an awful lot of firms do not!

Finance Act 2012

The Finance Act 2012 received Royal Assent on 17 July 2012. It has 687 pages, 229 sections and 39 schedules. It is longer than all the Finance Acts added together for the 1950s. George Osborne and Vince Cable promised to reduce the burden of red tape strangling British businesses - how about starting with making the tax system simpler and easier?

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.

Internet links: NMW rates Business link guidance Press release NMW Penalties

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.

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.

Red Tape day

From Accounting Web

1 October is often called "Red Tape Day" because of the new regulations that come into effect on that day. Here is a roundup of relevant changes for businesses and their advisers.

Company annual returns

Companies House will adopt the 2007 version of the UK SIC codes. The latest version will introduce five-digit codes to classify company business activities, rather than the existing four digits. All companies filing an annual return on or after 1 October will need to use the new codes, which will be asked of you when filing in your annual return via WebFiling. If you use the new codes prior to 1 October, Companies House will automatically convert the code, but this is not encouraged. Further details: Companies House filing errors: Check and check again

Aside from the Annual Return, other forms that will be using the SIC 2007 version after 1 October are: SE FM01, SE FM02, SE FM03, SE FM04, SE FM05, SE TR02, and SE TR03. The new regulations also contain changes to shareholder details required on the annual return. Unlisted companies must 'provide a full list of all shareholders on the first annual return following incorporation and on every third annual return thereafter. Any details of transfers of shares that have taken place during the year will be required for intervening annual returns. Listed companies must provide name and address details of shareholders who hold 5% or more of the company’s share capital. Those companies subject to the FSA's DTR5 Vote Holder and Issuer Notification Rules (whose share register is available online on the National Storage Mechanism) do not have to provide Companies House with the same details.

Agency worker rights

After some last minute posturing, agency workers will indeed see their benefit rights extended from 1 October. Once agency staff have completed 12 continuous weeks of service, they will gain similar rights to permanent staff including pay, overtime, shift allowances, maternity rights, holiday pay and individual performance-bonuses. However, agency workers will still not be able to enjoy benefits such as occupational sick pay, redundancy pay and health insurance.  It was the talks between the TUC and the government that led to the benefit extension. The Agency Workers Regulations apply to hirers and companies involved in the supply of temporary agency workers, either directly or indirectly in England, Wales and Scotland.

National Minimum Wage

Adding to the employment regulation changes will be a change in the National Minimum Wage, applicable to all in the UK. The following rates will be effective from October 1:

• £6.08 an hour for workers aged 21 and over
• £4.98 an hour for workers aged 18-20
• £3.68 an hour for workers aged below 18 who are no longer of compulsory school age

For apprentices, £2.60 per hour must be paid to apprentices who are under the age of 19, or for those over 19 or over and in the first 12 months of their apprenticeship.

Abolition of default retirement age

With effect from 1 October, the default retirement age (DPA) of 65 was repealed by the Employment Equality (Age) Regulations that prohibit age discrimination in the workplace. Further guidance can be found on the BIS website and in the ACAS guide, Retirement Process and the removal of the Default Retirement Age.

Carrier Bag levy

A 5p charge is being introduced by the Welsh Assembly on single-use carrier bags for customers in Wales. The charge is compulsory and is also applicable to retailers outside Wales who deliver to customers in Wales when using single carrier bags. BusinessZone reported that business groups have reacted angrily to the new regulations. Non Rhys, Wales Policy Manager at FSB, told the BBC: “Not all retail businesses will have had the packs from the Welsh Government because there's not a list of all the retailers in Wales, so we have been trying to contact as many businesses as possible. But there will be some small businesses that do not know."

The new regulations will be published on the legislation.gov.uk website on October 1.