PAYE Randoms 29 May 2013

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PAYE Randoms 29 May 2013

May 29, 2013 2013

Time is scarce this month so, without any further ado, here's a selection of recent PAYE related news that we think is worth sharing.

Advisory fuel rates

A slight change to the rates published by HMRC come into effect from 1 June 2013, the new rates are here for information.

Most of the changes are down the way, by 1p mostly, to reflect the slightly lower pump prices we are "enjoying" at the moment.

For those of you not aware, the Advisory Fuel Rates are those suggested by HMRC as standard (not taxable) for either company car drivers claiming reimbursement from their employer for business journeys, or for the purposes of calculating a fair charge for employees to repay any personal mileage costs back to the employer, e.g where all fuel is initially paid by a fuel card. They are also used for VAT purposes as well.

Don't forget though, you DON'T have to use these rates ! You DO have to prove to HMRC why alternative rates are more appropriate though if you deviate from the "Advisory" figures.

Employment Related Shares & Securities

The latest ERSS bulletin was published by HMRC earlier this month, the main points from which are:

1. Employers will have to register most Share Incentive Plans, Save As You Earn Schemes and Company Share Option Plans online with HMRC from April 2014. This includes new and existing schemes and is a one-off requirement.

2. When registering the schemes, employers will need to "self certify", in other words, confirm that each scheme meets the conditions for advantageous tax treatment.

3. Online filing of share related returns, including the more common forms 40 and 42, will become mandatory from April 2015.

Tax cases

Two cases worth mentioning (but read the full case summaries at your peril though as both are VERY long winded !) are

 Richard Denny v HMRC

This case again highlights to owner managed limited companies how absolutely critical it is to keep business and personal life completely separate otherwise a whole load of tax issues could be waiting for you when HMRC find out. This chap ended up incurring tax liabilities on various benefits in kind such as living accommodation, use of a boat and overdrawn director's account simply because he was treating company money and assets as his own.

Scotts Altantic Management Ltd v HMRC

This case involved the matter of EBTs (Employee Benefit Trust) which seems to be an issue featuring more and more at the Tax Tribunal these days.

Surprisingly, HMRC lost this one, well at least on the PAYE side, they had more success on the corporation tax issues. As with other EBT cases, the PAYE position hinged mostly on whether shares in a company were placed "unreservedly at the disposal of various employees" which the tribunal ruled were not.

Whilst this was a decent result for the taxpayer, it is another timely reminder that HMRC will vigorously challenge situations where employment benefits are seen to be provided through EBTs. As this case also highlights, HMRC are increasingly seeking to transfer PAYE liabilities on to individual directors or employees where they believe there is some form of collusion to avoid tax.

 

Okay, that's all for now folks. And yes, RTI has been missed off this blog deliberately before you ask ! Whilst it may be misleading to suggest that RTI is going wonderfully for all employers, there are certainly less teething troubles this month than many expected so not too much to report that hasn't been repeated many times over elsewhere. We may do more on RTI in June though depending on what information we get through on this from clients and contacts.

The Do's and Don'ts of tax research

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The Do's and Don'ts of tax research

May 24, 2013 2013

Understandably, the current recession has resulted in many businesses cutting back on their consultancy spend and so many employers and clients prefer to do as much research themselves as possible when seeking our help on an employment tax matter as this helps to reduce our fees.

This is fair enough and we are happy to work with clients on this basis as it helps to strengthen the working relationship with the client for the longer term. BUT, it's true what is said, "a little knowledge can be a dangerous thing" and this is especially the case with tax as it can often be very unclear what the answer is. Certainly, on PAYE related matters, there can often be more than one answer which isn't really helpful to specialists and non-specialists alike.

So, with this in mind, we list below some Do's and Don'ts when doing tax research :

DO's........1) Start with tax legislation

Although tax legislation is often too clunky, long-winded and vague to provide a suitable answer to the problem, it is the best place to start when looking at any tax question or issue. The law is the law and legislation will always be the main source to provide a resolution in the event of a dispute with HMRC, especially if this goes all the way to the First Tier Tax Tribunal.

 Of course, there can be different interpretations of the law, especially where the legislation is not clear, and so more research may be necessary on some things to get the answer.

 2) Look at HMRC's technical manuals/other guidance

In the employment tax context, we mean things like the Employment Income Manual, Employment Status Manual, CIS Reform Manual, 480 & 490 booklets, CWG2 & CWG5, etc etc.

Knowing what HMRC says on a particular issue or situation can be very helpful in determining the position on the matter you are looking at.

 However, this comes with a very serious caveat (see Don'ts below)

 3) Consider past experiences

We admit this is slightly unfair and not possible in many cases. In most situations, this will be the first time the employer will have had to consider the specific matter in hand so no past experience will be useful or relevant in trying to find the solution.

This is probably where an advisor can add most value. Having experience of dealing with similar issues in the past, including agreeing the position with HMRC, can often be the key factor in establishing how the particular issue should be dealt with, or how HMRC should be approached.

 4) Look at case law

 It's always difficult for non specialists to a) find relevant cases and b) to understand the key technical points that can be used in your favour, or otherwise, with reference to the issue in hand. However, a strong precedent set in a previous case can be extremely helpful with a contentious issue.

 Reviewing case law is not for the faint hearted and we would only recommend this approach for certain clients where we thought they wouldn't just be wasting their time.

 Again, this type of research is often best left to the professionals amongst us.

DON'Ts .......1) Over rely on HMRC guidance

 There is a tendency for non tax specialists (and some professionals it has to be said) to think that just because something is published by HMRC that it is legally binding.

 HMRC manuals and guidance documents are simply HMRC's own interpretation of the tax law. Yes, in many areas HMRC's guidance is helpful and consistent with the profession's general view, and it is sometimes a brave employer or advisor who takes on HMRC on a particular issue when HMRC have clearly set out their stall on the technical position. BUT, as we have said before, it can be the case that HMRC's view on a specific technical point is not correct, or not the only answer, and so it is perfectly acceptable to deviate from HMRC guidance where there is justification in doing so.

 The mistake that many clients do is to dive straight into the EIM or whatever and take whatever they find as the answer to their technical query.

 2) Cut corners

 Things like Googling for the answer or trying to get a quick answer through many of the finance forums on the internet usually always ends in tears. You may only get half a story, or be told complete cobblers or be getting "advice" that is years out of date.

tears 

If you are doing your own research, do it properly. By that we mean check relevant and reliable sources. This could include HMRC, tax magazines, tax bodies, websites of professional firms, technical presentations, etc etc.

 3) Give up !!

 There is a lot of detective work involved in tax research. Like criminal investigations, it may take a lot of leg work, evidence gathering and elimination before you get the suspect /answer. Or, it can even end up "case unsolved".

If you don't find the answer in the first half an hour of trying it doesn't mean that the answer isn't out there. Keep trying, and trying and trying until all avenues have been explored and you have something tangible to go on - and just be thankful that you're not paying someone an hourly rate to do it for you ! *

 * We should qualify this statement by saying that an experienced advisor doing research on your behalf should be able to do so much quicker as they will know where to start looking and be able to identify relevant information much earlier in the process. Therefore you should seriously consider how long detailed research will take you, or one of your colleagues, to do compared with the potential fee your advisor will charge before going ahead.

 4) Understimate the "unknown"

 With tax, it's often not just a case of what you know/have found out, but what you DON'T know ! It's all very well having researched a tax issue and thinking you have come up with THE answer. But is there something you have missed ? Something that could be hugely important to the ultimate treatment or HMRC agreement on the particular point at hand ? Again, this is where a specialist can really add value. Experience can be invaluable in covering all angles, including the lesser known technical arguments or "twists" that could make all the difference.

 

So, the moral of the story is, yes there is certainly a place for employers to do their own tax research in this age of information at your fingertips and necessary cost control. But, please do be careful, and don't be afraid to work with your advisors , there are some out there who can add much more value than what they charge (hint, hint....like Optimum PAYE !)

Good Luck and happy researching !

 

 

 

A real-life example of a PAYE audit handled badly

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A real-life example of a PAYE audit handled badly

May 13, 2013 2013

Client confidentiality prevents us from sharing most things with others, especially on t'internet. However, we came across a blog posting by a charity the other day moaning about their experience of a PAYE audit by HMRC which we felt compelled to reply to and which we thought would be a good blog topic of our own.

The charity's blog can be found here which we thought was a highly honest account and one which many organisations would have shied away from giving publicly as it is not human nature to openly admit mistakes.

To quote the charity, it cost them £39,000 in out-of pocket costs to rectify things internally and with HMRC and another £15,000 to £25,000 in director's time costs in dealing with the audit and negotiations with HMRC which lasted for over 2 years. That's a heck of a cost and wasted time to any business, not least a not-for-profit organisation which will need all the financial help they can get.

The charity have listed a number of learning points they have taken from this experience but, in our view, there are more fundamental points of note here for other businesses to take heed of.

1) Poor record keeping is NEVER helpful - and there's no excuse for it

HMRC officers are like kids in a sweetie shop when they come to do an audit and the records are poor or non existent. Basically this gives them carte blanche to a) assume taxable payments have been made and b) to think of a random (usually way too excessive) number in assessing the extra tax/NI due by the business for non compliance with the PAYE rules and it is very difficult to recover from this without any form of proof or evidence.. The charity clearly fell into this trap hook, line and sinker in a number of the issues HMRC identified but you have to ask yourself WHY a charity of all organisations, did not keep sufficient paperwork to account for every single penny being spent ?!

2) It IS possible to fight back against HMRC - and win !

We have commented many times before that HMRC are not always right and can be extremely wrong when suggesting something is taxable in the context of a PAYE audit. It really frustrates us that there are employers out there like this charity who end up paying a sizeable settlement to HMRC where there is a huge question mark around the legality of the assessments made, Many of HMRC's technical views in the charity's case seem to us to be dubious at the very least based on the limited information available. The charity should have had proper representation from someone like Optimum PAYE during these discussions and fought back. Sadly, like many employers, the charity didn't seem to be getting the right kind of advice from their advisors on this and probably ended up paying far too much to HMRC.

3) Employers, stop being naive !!

This charity, like so many other businesses, clearly thought that tax laws are all about common sense when deciding how to treat staff payments. They really need to get with the programme, otherwise HMRC are going to continue having a field day when doing PAYE audits. Employers really need to grasp that:

a) Common sense doesn't really come into play in many areas of PAYE and employment taxes. The legislation is over complicated and seldom sensible but it is what it is.

b) As we have said before, if something sounds to good to be true then it usually is. Did the charity here REALLY believe that taking cash out of a business to offset personal mortgage costs could REALLY be a free tax "wheeze"  ??

c) Know the rules ! Or, know someone who knows the rules and can keep you right. Working in the dark, i.e. in ignorance of the many wonderful rules we have in the world of staff payments, is complete madness and a recipe for disaster as this charity found out to their cost.

4) Not-for-profits and public sector bodies are as fair game as any corporate ! No special treatment from HMRC just because of the sector you are in. And quite right too. In our experience, the not-for-profit sector has just as many non compliant businesses as the corporate world, and often much more in reality.

 soapbox

We hope this blog hasn't turned into a rant, it is hard not to get on one's soapbox about these things, but we thought this would be worth sharing to demonstrate how failing to address PAYE properly can be costly for any business, no matter what shape or size it is.

Revised HMRC guidance on salary sacrifice for bus travel

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Revised HMRC guidance on salary sacrifice for bus travel

April 30, 2013 2013

HMRC don't like salary sacrifice (despite having some in place for their own staff). We know it, they know it and over the last few years they have been doing as much as possible to make salary sacrifice difficult or impossible for other employers.

Latest on HMRC's salary sacrifice hit-list is bus travel.

New guidance was published yesterday by HMRC which, although not law, is a very good indication of the resistence employers are likely to face going forward with any existing or new salary sacrifice schemes involving bus passes. This new guidance comes into force immediately albeit there is some protection for existing salary sacrifice arrangements that have not ended yet.

The majority of the new guidance is centred around the issue of employer support to the bus company. The legislation states that to qualify for exemption, the employer can provide "financial or other support" to the bus company. HMRC's view seems to be that some employers have been playing on these words to set up a salary sacrifice scheme that is outside the spirit of the exemption.

This latest guidance makes HMRC's views on what is acceptable support much clearer and what does NOT work (in their eyes) in terms of the salary sacrifice side of such arrangements. The main points around this include:

1. The need for employer support to continue for the duration of the salary sacrifice scheme, i.e. not just a one-off payment or facility

2 The support needs to be "meaningful" to qualify. So a £250 donation to the bus company probably wouldn't cut-it or something equally minor.

3. Bulk purchasing arrangements do not qualify as support for these purposes.

4. Support for regional or zonal journeys do not count.

5. If the financial support provided by an employer is recouped from employees via the salary sacrifice payments there is effectively no support from the employer to count towards the exemption. This could potentially catch a lot of employers out who have already set up schemes on this basis.

 

Employers with existing bus travel salary sacrifice schemes, or any organisation who was thinking of setting one up, really should be getting advice on what this new guidance means for them and employees. We have extensive experience in this area so please do contact us if you need any help or advice around this.

4 years in business, 10 lessons learnt

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4 years in business, 10 lessons learnt

April 23, 2013 2013

How time flies when you're having fun - Optimum PAYE is 4 years old this month !

Every adjective you can think of would describe the last 4 years for us, including: exciting, scarey, challenging, successful, satisfying, demoralising, up, down, easy, hard, invigorating, tiring, etc, etc. Being in business is certainly not always plain sailing, especially during a recession, but the key to survival and success we have found is to accept the rough with the smooth and to learn from every single experience that comes along.

So what are the key lessons that we have learned from over the last 4 years and which have shaped our business into what it is?

Lesson 1 - Relationships are the key

Many people say this but it's actually true. Strong relationships are what makes everything happen. Securing work, getting paid, having great conversations, adding value, having fun while you're working even, all come from good relationships with clients and contacts. Get this right and you're more than half way there.

Lesson 2 - Effort pays dividends (usually)

 Like most things in life you get out of business what you put in. Work hard, keep in touch with that contact, go the extra mile for that client, put yourself about even when you don't want to, and things will happen eventually. It doesn't always turn out that way, we've flogged a few dead horses along the way, but more often than not it does.

Lesson 3 - Invest your time wisely

Following on from 2, use your time very, very wisely. It is very easy to go down blind alleys chasing those horses we like to flog and time is the one thing that businesses are always short of. Plan your day, week, business development, everything, and learn to say "no" if you think a meeting or proposal is a waste of time.

Lesson 4 - Timing is everything (but be patient)

Being in the right place at the right time is often luck but it is often possible to influence things so that you are there, or at least in the client's thoughts, at the precise time when they are ready to "press the button". In the current climate, patience is definitely needed, don't rush things, be in tune with the client's needs and you'll hopefully get there eventually.

Lesson 5 - Don't ignore the small clients

The natural reaction is to chase the "big" money, i.e. the "big" clients and in some cases that can be the right approach. However, our largest projects in our time in business have been from much smaller businesses. They may be small companies but they can still have big issues. Don't ignore this market !

 

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Lesson 6 - collect that cash !

No matter how robust your business is, if you don't have strong invoicing and cash collection procedures,  it is always going to be an uphill battle to survive.

Get invoices out in time, don't be scared to "chase" late payers, make sure that engagement terms are bulletproof and do have formal processes in place to take things further for the "won't pay" or "can't pay" clients and be prepared to follow these through if necessary to the legal side.

Lesson 7 - Networking is crucial, but choose wisely

Similar to point 3. Networking is a vital part of being in business. Work isn't going to magic its way to your desk without you lifting a finger. Get out there, meet people, you never know who you might bump into or strike up a relationship with. That said, though, not all networking is good for business - it may be a good laugh and enjoyable but are you really going to get any business out of it? Try different things but don't just attend an event or group out of habit. Is it the right type of group for you, are attendees the right type of business or contact you might be able to work with or for, is the format right for your personality type, etc etc.

Lesson 8 - Content is king for Google

Forget all the complicated SEO (Search Engine Optimisation) stuff involving algorithms, keywords, etc. If your website has great content, Google will find you ! It certainly works for us ! Maybe we should be keeping that quiet........

Lesson 9 - Have a healthy cautiousness

By that we mean don't be naive. If something sounds too good to be true, it usually is ! In tax terms this includes clients telling you that things are okay for tax, or HMRC has "agreed" everything. Don't always take things at face value or accept everything you are told. Sometimes, you need to roll up the sleeves and get "dirty" to make your own judgements.

Lesson 10 - Don't be bullied

Being in business is not for the faint hearted !! There will be situations where someone else, or another business, will try to get away with things or do something that is detrimental to your business. Don't let them bully you !! You really need to have the confidence to stand up to any and all bullies you come across in business otherwise you won't last very long. For the tax advisors amongst us, this includes sticking to principles and ethical guidelines and also not allowing clients to bully you into changing your technical view and professional opinions just because they don't like it.

 

Cheers !

 

 

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