Unusual tax case

Here's an interesting case on whether or not a worker is self employed - T Coffey/Dr Selvarajan v HMRC.

Mr Coffey was engaged by Dr Selvarajan to project manage the refurbishment of his clinic over a two year period. All the usual self employment tests were considered - no substitution was allowed, there was mutuality of obligation, there was no contract, Mr Coffey worked regular hours and to notify the Doctor of any holidays, Mr Coffey was paid £500 per week, irrespective of the hours worked and whether or not he was on holiday.

It looked like a cast iron case - Mr Coffey had all the hallmarks of Dr Selvarajan's employee.

However, HMRC argued that Mr Coffey was self employed, and won!!!!

New IR35 guidance

HMRC issue guidance on IR35

HMRC have released guidance setting out their risk-based approach to checking compliance with IR35.

The ‘IR35’ rules are designed to prevent the avoidance of tax and national insurance contributions through the use of personal service companies and partnerships.

The rules do not stop individuals selling their services through either their own personal companies or a partnership. However, they do seek to remove any possible tax advantages from doing so.

The tax advantages mainly arise by extracting the profits of the company by way of dividend. This avoids any national insurance contributions which would generally have been due if that profit had been extracted by way of remuneration.

The intention of the rules is to tax most of the income of the company as if it were salary of the person doing the work.

Broadly the rules apply if, had the individual sold their services directly rather than through a company (or partnership), they would have been classed (by HMRC) as employed rather than self-employed.

For example, an individual operating through a personal service company but with only one customer that they effectively work full-time for is likely to be caught by the rules. On the other hand, an individual providing similar services to many customers is far less likely to be affected.

HMRC have released new guidance setting out their risk-based approach to checking compliance with IR35. It lays out the approach to compliance and how to work out which ‘risk band’ a business may be in. It also gives example scenarios to illustrate when and why IR35 will apply to an engagement. Interestingly, the guidance is aimed primarily at businesses rather than at their advisors.

If you have any concerns in this area please do get in touch.

Internet link: HMRC guidance

P11d deadlines

P11D Errors

The forms P11D, and where appropriate P9D, which report benefits and expenses for both employees and directors for the year ended 5 April 2012, are due for submission to HMRC by 6 July 2012.

Employees pay tax on benefits provided as shown on the P11D, either via a PAYE coding notice adjustment or through the self assessment system. In addition, the employer has to pay Class 1A national insurance contributions at 13.8% on the provision of most benefits. The calculation of this liability is detailed on the P11D(b) form.

The following is taken from an article on expenses and benefits contained in the recent Employer Bulletin. The article includes a list of common mistakes which include:

‘The following is a list of common errors which are easily avoidable but delay

processing and cause problems with employees tax codes each year:

• Submitting duplicate P11D information on paper where P11D information has already been filed online to ensure ‘HMRC have received it’. This causes processing problems

• Using a paper form that relates to the wrong tax year – check the top right hand corner of the first page

• Not ticking the ‘director’ box if the employee is a director

• Not including some form of description or abbreviation, where amounts are included in sections A, B, L, M or N of the form

• Leaving the ‘cash equivalent’ box empty where you’ve entered a figure in the corresponding ‘cost to you’ box of a section

• Sending P11Ds when you’ve also ticked the box in Part 5 of form P35 (in your Employer Annual Return) to indicate that P11Ds are not due

• Where a benefit has been provided for mixed business and private use, entering only the value of the private-use portion – you must report the full gross value of the benefit. Not completing the fuel benefit where this applies. This means an amended P11D has to be sent in

• Completing the ‘from’ and ‘to’ dates incorrectly in the ‘Dates car was available’ boxes by showing the whole tax year. For example entering 06/04/2011 to 05/04/2012 to indicate the car was available throughout that year. If the car had been available in the previous tax year, the ‘from’ box should not be completed and if the car is to be available in the next tax year, the ‘to’ box should not be completed.’

If you would like any help with the forms P11D or the calculation of the Class 1A liability please get in touch.

Internet links: HMRC P11D guidance Employer Bulletin

Tax credits deadline

Tax credits renewal deadline

Tax credits are state benefits which are generally available to lower income families. However, entitlement to the credits is significantly increased where individuals pay for childcare or suffer a drop in normal levels of income perhaps due to incurring trading losses or redundancy.

Individuals who have already claimed tax credits for 2011/12 have to finalise their provisional award, which would have originally been based on their 2010/11 income, and advise HMRC of any changes in their circumstances for 2012/13. This procedure is known as the renewals process. The deadline for the submission of tax credit renewals is generally 31 July 2012.

Claimants need to be aware that the payment of tax credits will stop at the end of July if they have not renewed their applications by that date. There are significant changes to the income limits and claw back of entitlements for 2012/13 so you may wish to review the HMRC guidance. If you need any advice on tax credits please do get in touch.

Internet link: HMRC tax credit deadlines

HMRC warn of scams

HMRC warn of email scam

HMRC have issued a warning about possible fake or ‘phishing’ emails sent out by fraudsters. The period in the run-up to the tax credits renewal deadline often sees an increase in such attacks. Taxpayers have to renew their claims by 31 July 2012 or their payments may stop.

The format of the emails is that they often promise a rebate. If taxpayers click on the link within the email, they are taken to a replica of the HMRC website where they are then asked to provide credit or debit card details or other sensitive information. Fraudsters then try to take money from the account.

Victims are at risk from having money stolen from their bank accounts or their personal details being sold for identify fraud.

According to the HMRC press release:

‘During last year’s tax credits renewals period, from April to July, nearly 94,000 phishing emails were reported by customers. Even though HMRC helped shut down more than 360 scam websites during the period, others continue to be created.’
Steve Lamey, Director General for Benefits and Credits, said:

‘We only ever contact customers who are due a tax refund in writing by post. We don’t use telephone calls, emails or external companies in these circumstances. Anyone who receives an email claiming to be from HMRC should send it to phishing@hmrc.gsi.gov.uk before deleting it permanently.’ 

Internet link: Press release

Overhall of employment law

I was driving to a meeting last evening and was listening to the sports news. There was a story about how the Norwich City manager Paul Lambert had resigned and was going to join Aston Villa under some pretty dubious circumstances.

Essentially an employee (Lambert) has "quit" to join a competitor, despite that competitor being denied access to the employee by his employer (Norwich City) under the terms of their contract with the employee. So essentially the employee can leave their employer in the lurch and run off to join a competitor and suffer no consequences. However if the employer had tried to get rid of the employee, they would have had to have jumped through endless hoops, run up huge legal bills to make sure they did it right, and still end up in a Tribunal as it costs the employee nothing to make a complaint!

It made me think just how wrong employment law is, how heavily biased it is in favour of the employee and how Vince Cable is totally out of touch to resist reform of employment law.

New employment tribunals

The Government has published the Enterprise and Regulatory Reform Bill which, if it becomes law, will radically alter the way employment tribunal claims are conducted.