Newsletter 216 West George Street Glasgow G2 2PQ Telephone 0141 226 8484 Facsimile 0141 204 4387 Email firstname.lastname@example.org Gilliland & Company Registered to carry on audit work and regulated for a range of investment business activities by the Chartered Accountants Institute of Chartered Accountants of ScotlandComplex but SUMMER 2011changing Employer PenaltiesOne of the Government’s early actions in Employers who fail to pay their PAYE liabilities on time every time and in fullJuly 2010 was to establish the Office of Tax may face penalties.Simplification (OTS) to provide independentadvice on how to reduce the complexity of the Since 6 April 2010, HMRC have had the right to NIC etc per tax year. A further penalty of 5% may impose late payment penalties on all employers, be charged if any amounts are still outstandingexisting tax system. The Chancellor even stated regardless of size, who fail to make their monthly after 6 months and then again after 12 months.in his Budget 2011 speech that: or quarterly PAYE payments on time. The‘Our tax code has become so complex that it payments covered by these rules not only include Don’t owe anything?recently overtook India to become the longest PAYE but National Insurance contributions, It is important to let HMRC know that you have Construction Industry Scheme deductions andin the world!’ nothing to pay either by: Student Loan deductions.The initial task of the OTS was to carry out • completing the online form: www.hmrc.gov.uk/ Unfortunately some employers may be blissfully payinghmrc/paye-nil.htmtwo reviews. The first was to list all reliefs, unaware that a penalty may be due as HMRCsallowances and exemptions applying to • sending a signed payslip with the amount approach during 2010/11 has been to issue abusinesses and individuals and identify those completed as “NIL” warning letter only, and even this has been at theirreliefs that should be repealed or simplified to discretion. The receipt or not of such a warningsupport the objective for a simpler tax system. • phoning 0845 3667816 with your HMRC letter is not necessarily an indication that a penalty accounts office reference and advising them notice will be levied. In fact HMRC have up to two which period no payment is due for.Following the publication of the initial report the years after the payment default to issue a penaltyGovernment intends to abolish 43 tax reliefs notice. The penalties are risk assessed so HMRC Late returnswhose rationale is no longer valid. A minority may not charge the penalties to all late payingof redundant reliefs will be repealed in Finance employers. However, HMRC have 2010/11 also saw the demise of the sevenBill 2011. The other reliefs will be removed after made it clear that such notices days grace for filing the P35 and P14consultation. will start to be issued from end of year returns which have to be May 2011. filed by 19 May following the end ofThe second task was to identify the areas the tax year. These annual returnsof the tax system that cause the most day- So how do the need to be filed online by almostto-day complexity and uncertainty for small all employers. Penalties for late penalties work?businesses and recommend priority areas for filing of these returns are currentlysimplification. That initial report has resulted in No penalty will be imposed fixed at £100 per month for everythe announcement that the Government will for the first late payment in 50 employees.consult on the integration of the operation of a tax year but subsequentthe income tax and national insurance systems. breaches may attract Please get in touch if you wantThis major structural change will take time to penalties from 1% to 4% help with payroll issues or you have depending on the number received a penalty notice which youproperly consider but we will keep you updated of late payments of PAYE/ would like us to check.on any important developments.www.gillilandca.com Gilliland & Company
Tax credit Getting the VAT joberrors done with the right tools HMRC toolkits are issued to help taxpayers and For businessesIn the autumn Comprehensive agents to file accurate returns. They focus on using the flat common problem areas for both direct taxes rate scheme,Spending Review HMRC, like and more recently VAT. VAT toolkits issued so far using incorrectthe majority of government include such areas as Input VAT, Output VAT and percentagesdepartments, were given strict Partial Exemption. and incorrecttargets to meet over the next four turnover figures As well as covering specific technical areas the are commonyears. toolkits emphasise the need for better record problem areas. This keeping. This is critical as penalties may be is especially going toThe main headlines were: incurred for filing incorrect returns (including VAT) be an issue for VAT returns spanning the change• a 15% reduction in costs required before particularly if documentation is not available to in the standard rate of VAT on 4 January 2011. 2015 support the figures in the returns. The rest of this The new flat rate percentages must be applied to article examines some of the key issues outlined turnover from 4 January 2011. Businesses must• £900m to address the tax gap and tackle in the recently issued VAT toolkit on Output VAT. ensure they use their new flat rate percentage, tax avoidance and evasion, bringing in an Further areas are considered in the toolkit itself. rather than just adding 2.5% to their old flat rate additional £7bn per year by 2014/15 percentage. A revised table has been issued for Output VAT problems this purpose. This can be accessed at www.hmrc.• £100m to improve the operation of PAYE gov.uk/vat/start/schemes/flat-rate.htm#sa• measures to deliver £8bn of tax credit Outputs are often incorrectly accounted for fraud and error savings by 2014/15 on occasional, miscellaneous and incidental Other errors regarding output VAT include transactions, including on deemed supplies. incorrect zero rating of exports outside of the• a five-fold increase in criminal For example, deemed supply occurs when the EU and dispatches to other EU countries. These prosecutions business gives away gifts to one person costing supplies can only be zero rated when supporting more than £50, or a series of gifts to the same documentation to prove movement of goods• a new dedicated team of investigators to person, or puts goods or assets to non business is held. For EU dispatches, the customer’s VAT crack down on offshore evasion and use. Output VAT must be charged by the business number must be obtained and quoted on the• improving the scope of in-house debt to itself on the value of these transactions. This is invoice for zero rating to apply. collection and placing up to £1bn commonly seen in the calculation of the fuel scale per year of tax to private sector debt charge for supplies of fuel for private motoring, So finally, if you would like any help in calculating collection agencies. but many taxpayers seem unaware of the need to output VAT or any other aspect of VAT please do calculate the tax on other such supplies. not hesitate to contact us.HMRC are starting to make progress insome of these areas and have recentlylaunched a campaign to target suspectedfraudulent tax credit claims from the self- Not a pool caremployed. According to HMRC, in 2008/09675,000 tax credit awards (8.9%) had There have been several recent Tribunal cases them as staff that needed cars for official use haderrors relating to income. The potential loss which illustrate the dangers of the tax rules on other pool cars available.was £145m. what are generally known as pool cars. Pool cars are tax efficient as there is no taxable benefit. The Tribunal found that the vehicles were not poolHMRC have been writing to 12,000 self- However, as always, there is no such thing as a cars and that:employed people who are claiming tax free lunch. ‘…the Appellants lack of fiscal knowledge hadcredits where they believe that those claims The conditions for a car to be regarded as a pool caused him to fall foul of (the rules) which in hisare not genuine or accurate. car and so tax free are: case became penal causing him to become liableThis is part of a wider government to a car benefit charge based on the £51,000 listcrackdown and HMRC and the Department • the car was made available to, and actually price of the cars which amounted to £9,156 perfor Work and Pensions have published a used by, more than one employee year. The independent dealer value of the carsstrategy designed to tackle error and fraud having regard to their age was some £6,000 for • the car was made available, in the case ofin benefits and credits. each car meaning that the Appellant could have each of those employees, by reason of the bought the cars for less than the tax arising on the employees employmentExchequer Secretary to the Treasury David car and fuel benefit.’Gauke said: • the car was not ordinarily used by one of those employees to the exclusion of the others In the second case, a Mercedes Benz CD320CDI,‘HMRC is determined to take a tough owned by the company of which the taxpayer wasapproach to targeting possible fraud • in the case of each of those employees, any a shareholder and director was claimed a pool car.among tax credit claimants. Last year the private use of the car made by the employee was merely incidental to the employees other The taxpayer stated that the Mercedes was keptGovernment launched radical proposals to use of the car in that year and in a steel container at the factory and that it wasreduce the billions lost to tax credit error never taken home. It was also only used to visitand fraud every year. These losses are • the car was not normally kept overnight on or in customers. However, there appeared to be nounaffordable and unacceptable. the vicinity of any residential premises where any mileage log. The Tribunal found that the taxpayer of the employees was residing, except whilstHMRC will now use credit reference failed to provide satisfactory evidence to show that being kept overnight on premises occupied byagencies and data-matching to spot all five conditions were met. the person making the car available to them.patterns of fraud. The department is also In the first case, HMRC carried out an Employer The message is clear – the key to tax free successemploying additional investigators and are Compliance Review and found that the company is to ensure all conditions are considered and inexamining each claim in high-fraud areas.’ had provided the taxpayer with vehicles for several particular, proper records maintained. Please doIf you have any concerns about tax credits, years. The taxpayer claimed that the vehicles were get in touch if you would like to discuss this areaplease do get in touch. pool cars but no one else was available to use further.
Let’s go Real Time - Minimizing IHT by maximising reliefthe future of PAYE Agricultural Property Relief (APR) is an important relief for landowners as it reduces the value charged toIn July 2010 HMRC issued a Consultation Document looking at major Inheritance Tax (IHT). During lifetime it is available toreforms of the PAYE system using real time information. You may have read relieve a charge that might arise on a gift to trust. Ator heard about elements of the system but we thought that we would try to death it has the effect of providing IHT relief on bothdispel a few myths. estate assets and reducing any additional charges on lifetime gifts. The rate of relief is frequently 100%The project consists of two separate system, with better administration and although some tenanted land only secures 50% reliefelements: reductions in fraud, error and overpayment. to the owner. It is also necessary that the owner either occupied the property themselves for the purposes• Real Time Information (RTI) would The basic process would be: of agriculture for the two years prior to a transfer or collect information about tax and • most employers would be required by that the property was occupied by someone else for other deductions automatically each regulation to use the Bacs system to the purposes of agriculture in the seven years prior to time employers ran their payroll. transmit RTI information with payment transfer. This information would be submitted automatically to HMRC at the same time instructions; A significant change in the scope of APR has been employees were paid. • a common standard will be used for the made following pressure from the EU. The relief used• Centralised Deductions (CD) would build transmission of RTI data at all stages of to be limited to property in the UK, Channel Islands and on RTI by moving the responsibility for the payments infrastructure from payroll the Isle of Man but is now extended to property situated calculating and deducting tax, national software through banking interfaces and in the European Economic Area. This relief is effectively insurance and student loan repayments Bacs submission software to the Bacs backdated although time limits mean that the earliest from employers to the electronic payment system itself; year which may now benefit is the tax year 2007/08. system. • smaller employers (fewer than 50 The property must fall within the definition of agriculturalIt appears that the Government have decided employees) who do not pay their property. Bare land used for agriculture qualifiesto proceed with a phased introduction of employees via Bacs will initially be able to without restriction. Problems can arise where a claimRTI with a pilot beginning in 2012 and then submit RTI from their software, or via an is made for APR in respect of buildings, especiallyimplementation from April 2013. It also agent, using an internet channel through residential buildings on the farm. The requirement isappears that CD will only be considered once the Government Gateway. that the buildings must be occupied for the purposesRTI has been fully introduced and this seems Employers would still need to issue payslips of agriculture and must be of a character appropriate tounlikely before 2015. to their employees and issue P60s at the the agricultural property. year end.RTI A recent case has held that a property left unoccupied CD because the farmer was in hospital and then a nursingWith RTI, employers paying employees home could still qualify because all his effects were stillelectronically would send HMRC details of The basic concept is that HMRC would in the property and he was playing an active role in theemployees’ pay, the deductions of tax, NIC construct a central calculator to work out business almost up to his death.and student loan repayments and information the correct deductions of tax, nationalabout employees’ identities. insurance and student loan repayments The issue of large residences claimed as farmhouses from an individual’s pay. The employer remains a problem area and one in which HMRC areThe information would be produced would send the gross payment through the likely to take an interest. It is clear that HMRC expect toautomatically by the payroll system at the electronic payment system to the central see that the farming operations are controlled from thepoint of making the payment and would be calculator where the deductions calculated house and will then consider whether its character issent to HMRC via the electronic payments by HMRC would be made automatically. appropriate. This will involve looking at the physical sizesystem as part of the payment instructions. The resulting net payment would then be of the house and its relationship to the farm. A largeHMRC think that this could simplify sent to the individual’s bank account and property with a small area of farmland may strugglethe processes when people the deductions would be paid to qualify for relief. HMRC accept that the issue is achange jobs, with no directly to the government. question of fact in each case.need to complete aP45/46 but with Agricultural purpose As employersa notification Assuming that the property qualifies as agricultural would no longerthrough the property it must still pass a test of being used for be responsiblenew electronic agricultural purposes. These are not comprehensively for the tax,system. defined in legislation, apart from one or two exceptions they wouldIndividuals not need to such as the breeding of racehorses on a stud farmchanging operate tax which is given specific legislative approval. Howeverjobs in the codes. other common farming activities do qualify and HMRCyear would also accept that seed and tree nurseries and growingbe more Obviously, grass for turf all qualify. On the other hand, occupationlikely to pay things are in for livestock other than for food for human consumptionthe right their infancy does not qualify. Neither does sporting rights nor theamount of and there will use of land for purposes other than agriculture such astax. It could be a lot more grouse moor. Schemes to preserve habitat for wildlifealso do away information to will generally qualify if it is managed in the right way.with end of come in futureyear information. months. We will keep This relief and other IHT reliefs may be available onAccess to real time you fully informed of lifetime gifts as well as on your estate so if you woulddata would also improve developments. like us to review their availability please do not hesitatethe benefits and tax credits to contact us.
Funding not to be Short life not short thrifttaken for granted Some unwelcome capital allowance reductions are set to come into operation from April 2012 but its not all bad news…..Obtaining finance to help start, grow or develop abusiness can be a difficult task. However, grants and First the bad news acquisition. The AIA reduction from April 2012 makes the SLA electionother financial support may be available to help the The Annual Investment Allowance more attractive to a wider range ofbusiness realise its potential. (AIA) provides 100% relief on qualifying businesses. plant and machinery expenditureGrants are contributions awarded to businesses or individuals to but it is to reduce from £100,000assist with specific projects or activities. These can be obtained And better to just £25,000. Further, the mainfrom a number of different types of body which include government writing down allowance (WDA) which The lifetime period for SLAs has beendepartments, local development agencies, local authorities or applies generally to any expenditure in extended to eight years from the endcouncils and charitable organisations. excess of the AIA in the current period of the accounting period of acquisition (or brought forward from previous for additions on or after 1 April 2011Investment in growth is a key objective of the current Government. accounting periods) will reduce to for companies or 6 April 2011 for theGrants and other methods of support, therefore, are still available to 18% annually from the current rate of self employed. This makes it moreboth new and established businesses in spite of spending cuts on 20%. This means lower tax relief on useful as it means more assets couldthe whole. expenditure in the period of acquisition benefit from SLA election.Eligibility for grant funding can be dependent upon your location, and delayed relief in later years forbusiness size and industry sector. Some areas, for example, are both unincorporated and corporateeligible for government funding through schemes to improve local businesses. Examplesocial deprivation or unemployment. But it gets better A business purchases qualifyingGrants or other support can be obtained to provide funding for a plant for £100,000. It has an One way of obtaining more capital estimated business life of 6 yearsdiverse range of purposes. Some key types of support include: allowances earlier is to make a and no scrap value.• Investment in capital to create new jobs or safeguard ‘short life asset (SLA) election’. This existing ones facility has been available for many • If acquired in the year to Government grants have previously been available for investment years but the 2012 changes and an 31 March 2012 it would be in business through various grants. Grants within this remit are announcement in Budget 2011 has totally relieved by the AIA and often still offered at a local level. put the SLA back on to centre stage. a SLA election would not be worthwhile.• Investment in environmentally friendly assets Up until now it has been possible to 0% loans of £3,000 to £100,000 are available from the Carbon make a SLA election on most assets • If acquired in the year to 31 Trust. with an expected useful life to the March 2013 and no SLA business of four years or less from election is made then total• Activities stimulating regional development the end of the accounting period of allowances over the 6 year Regional development agencies, often distributing European acquisition. Fast moving technology period would be £77,200 funding, offer a range of grants to businesses to develop their like computers would be a good comprising the £25,000 AIA local area. example of a potential SLA. However, and £55,200 WDA over the• Investment in innovation, research and development cars are specifically excluded from 6 years. Further tax relief will Government grants are available to small and medium sized SLA treatment. Such an election continue to be obtained in businesses for the research and development of technologically means that the asset is placed into a future years after the asset innovative products and processes. Grants are often made which single asset pool for capital allowance has gone! cover a proportion of costs directly attributable to the activities. purposes. Initially it is eligible for the • If instead a SLA election• Employment and training same allowances (AIA and WDA) as had been made on this A number of different types of grant are available ranging would have applied if placed in the asset acquired in the year to from those helping with additional costs incurred in employing main plant pool. However, on disposal, 31 March 2013, the shortfall disabled employees, to those helping with training and staff where there is an unrelieved balance still unrelieved in year 6 could development expenditure. of expenditure, an extra allowance can have been claimed meaning be claimed. This equates to writing an extra £22,800 overall.Applying for a grant off the whole cost of the asset over its economic life to the business. In fact,The exact nature of the application will differ dependent on the a SLA election should only ideally be The best for lasttype and source of funding being applied for. Formal application made on assets which are likely towill normally be preceded by discussion with the funding body. lose value quicker than they receive This would be worth a minimumThe application is likely to then require completion of the relevant tax relief. This is because where assets £4,560 in tax saving (based on thepaperwork in addition to a sound business plan, as the overall pot hold their value well this could result current basic rate of income taxfor funding is often restricted. in a clawback of some or all of the tax excluding any national insuranceMonies received will often require match-funding and performance relief given. saving or alternatively the smallcriteria to be met, with a potential claw-back where funds are not company corporation tax rate) andused for their designated purpose. Many small (and possibly medium significantly more for individuals and too!) businesses have not found it companies subject to a higher rateThe process of obtaining grant funding can be daunting due to the advantageous to make SLA elections of tax.detailed information requirements of the application but we can on additions since April 2008 dueassist with the process, or in preparation of a business plan. to the availability of the AIA. Most If you would like any advice on these small businesses found that the AIA changes, or capital allowances inSo if you are thinking about applying for grant funding, please covered their additions in full, thus full general, please do not hesitate to getcontact us to help you secure the best outcome. tax relief was obtained in the year of in touch.Disclaimer - for information of users: This newsletter is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailedlegislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this newsletter can be accepted by the authors or the firm.