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 !

 

 

 

RTI early verdict & other PAYE related news

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RTI early verdict & other PAYE related news

April 16, 2013 2013

 

Real Time Information

It is early days for RTI given that we are only 11 days in to the new tax year but how are things going with this new system for reporting payroll payments and deductions so far ?

If you listen to HMRC, or believe everything you read, things are wonderful. The new Employer Bulletin just published by HMRC proclaims:

"79% of the first employers to try RTI thought it was easy". "The first employers to try RTI felt as confident or more confident than they did using the existing PAYE system". "66% of the first employers to try RTI said the PAYE burden will be less in the future because of RTI"

Feedback from clients so far is maybe not as enthusiastic as this but still, on the whole, more positive than expected. Yes, there have been a number of teething problems in making the first FPS (Full Payment Submission) for some clients but it seems to us that most of the issues have come about through a lack of understanding of what is needed for the FPS or in how the payroll software functions. There have been reports of issues from the HMRC side as well which mostly seem to be caused by delays in acknowledging receipt of the FPS.

Overall verdict has to be that it is too early to consider whether RTI is going to work or not. Maybe once everyone is more in tune with the new software being used we can get a clearer picture of how RTI is going and what needs to be addressed for the longer term.

In the meantime, HMRC has issued some additional guidance to clarify a few points on RTI  National Insurance Number Verification Requests and  Submitting forms P45 and P46 for 2012/13

 

Employee shareholding status

Unsurprisingly, the proposal reaffirmed in the Budget to give some tax incentives to employees receiving "free" shares for giving up some employment rights has been rejected by the House of Lords. We always believed such a scheme was madness as any employee with any sense would steer well clear of such an arrangement. It is clear that the Government is very keen on this scheme, however, and so they may try to push this through again possibly after making a few tweaks to the proposals.

Reporting Benefits and Expenses

HMRC has introduced a new, online, method for employers to report expenses and benefits each year.

Before everyone celebrates the demise of the dreaded P11D this new method of reporting is extremely limited and only applies when an employer is reporting a nil P11D and P11D(b) return or to give HMRC advance notice that all benefits and expenses have been taxed through payroll and therefore no taxable values will ultimately be declared on forms P11D (which strictly still need to be done).

HMRC has suggested that this functionality may be expanded in due course but we won't hold our breath in this completely removing the P11D burden for employers.

Employment Income Manual update

For the first time in a while, HMRC has updated its EIM, the summary of changes is here.

As ever, it is hard to see exactly what has changed, probably just a few words here or there. We haven't reviewed the amended pages in any great detail yet though so we must put that on our "to-do" list for later (oh joy).

 

Any questions or concerns about any of the above just let us know.

 

 

The PAYE Smell Test

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The PAYE Smell Test

September 05, 2012 2012

 

9 times out of 10 when clients come to us for help in resisting an HMRC challenge on an employment tax issue it is clear that the client has acted in good faith, even if they have not quite got things right or have a weak argument against HMRC, maybe through an ignorance of the legislation, or a misunderstanding on a technical point or even having some bad advice along the way.

However, every now and again we have to wonder at some clients (we use this term loosely as most of the time these are new contacts to us) who think they can do whatever they like around paying employees or directors and then ask advisors like Optimum PAYE to wave their magic wand to make it all better when HMRC catch wind of it. The worst thing is, most of these businesses cannot or will not understand or accept that they are "trying it on" and likely to fail against HMRC and usually end up blaming everyone but themselves for the mess they are in.

PAYE tax legislation can be complicated, and it can be difficult to gauge the exact technical position in some cases, but even after a brief initial conversation with a (new) client, we can usually weed out any "dodgy" arrangements that are almost certain to fail. We do this by applying the "smell test" i.e. is there any sense or logic to the arrangement, does the client explanation sound plausible and, in theory, does it fall within the limits allowed by legislation and practice ? Or is it just "too good to be true" ??

Some examples of situations that have failed the PAYE "smell test" recently include:

1) (our personal "favourite") - a small business paying their admin manager (who was probably a close relative, we didn't quite get to the bottom of that), in gold and silver collector's coins instead of wages. Although the coins had a face value of £10k, the actual value (and cost to the company) was closer to £80k. The business only put £10k through the payroll - but wanted full tax relief on the £80k cost to purchase the coins !! A huge fail of the smell test !!

2) A contractual bonus not being paid to a departing employee but his redundancy package mysteriously being much higher than normal (i.e. because the bonus is lumped in as redundancy to get the £30k tax relief). This is a common one and is easily "sniffed" out.

3) The Managing Director of a small limited company receiving his £100k a year "salary" gross as he is a providing self employed "consultancy" services to the company. The "consultancy" services are basically managing and running the business ! Again, easily "sniffed" out in the "smell test".

4) The car is not a company car, it is only in the company's name to get a better finance deal. The director effectively pays the lease through a reduction in salary. Fail, fail, fail.

5) The £50k we gave to the ex employee was a personal gift and nothing at all to do with his previous employment with us - which must be true because there is no paperwork confirming the payment. Of course it wasn't Guv ! "Smell test" fail again. * We should say that this last one is one of those cases where further "smelling" may be required to judge whether this is a failure waiting to happen as in some remote cases it MAY be possible to mount a sensible "gift" argument, albeit this will normally be rigorously defended by HMRC.

 

So, the moral of the story is, a good rule of thumb in classifying a PAYE saving arrangement as feasible or "dodgy" is to ask whether it "smells" right. If there are no nasty pongs lingering, then it might just be okay but if there is something decidedly whiffy about the whole arrangement, the likelihood is there may be trouble ahead....

 

PAYE Randoms 25 July 2012

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PAYE Randoms 25 July 2012

July 25, 2012 2012

No, we haven't dropped off the face of the earth, it's just been peak holiday season here at Optimum "Towers" and so we have struggled to keep our blogging going over the last few weeks. We're sure no-one missed us too much though !

Anyways, we were fully anticipating a barrow load of news to report on our return to the fold but have been sadly disappointed with what little has actually happened on the PAYE front in the last few weeks. Yes, there has been plenty action around RTI but this will be the subject of our July article over the next few days and so we don't want to peak too soon !

Blink and you'll miss it but here are the headlines to bring us all up to date:

Restaurants and takeaways

HMRC are still aggressively pursuing this sector, we were involved in another case a few weeks ago where HMRC were challenging fuel payments to delivery drivers and general payroll procedures amongst other things. Yet again, HMRC's technical arguments were weak in this case but the sector does not do itself any favours by not keeping good records. We fully expect more cases to come out of the woodwork in the months ahead.

Withdrawal of Form P38(s)

HMRC confirmed that the P38(S) will no longer apply after 5 April 2013 and therefore employers will need to treat students the same as all other new employees when starting them on the payroll after this date.

Employment Related Shares and Securities Bulletin

A new bulletin was issued by HMRC around share based payments and schemes, some of which is new but other bits have previously been announced. It is worth a glance though if you provide any share based payments to employees.

First Tier Tribunals - Three recent  judgements worth noting from a PAYE perspective are:

Coopers & Ors (Leaside Timber & Builders Merchants Ltd) v HMRC - the involvement of a partnership in providing cars to family members of the company directors was not successful in avoiding company car benefit in kind charges on the directors.

Graham Paterson Ltd v HMRC - another case lost to HMRC around Seafarers Earnings Deduction which involved the usual argument as to whether the offshore rig was a ship or permanent structure.

Hayward v HMRC - another win for HMRC this time in relation to a Payment In Lieu of Notice which the taxpayer had argued was a payment of redundancy qualifying for the £30k tax exemption. This case reiterates the point that a compromise agreement does not dictate the tax treatment of termination payments - it is the normal contractual terms that does this.

That's all for now folks...

 

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