Care needed with Tax Tribunal judgements

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Care needed with Tax Tribunal judgements

November 26, 2012 2012

Two recent high-profile PAYE related tax cases have prompted a lot of (over) excited comments both within and outside the tax profession in the last couple of weeks most of which we think is quite dangerous or ill-advised.

If we start with the Rangers EBT case, the judgement from the First Tier Tax Tribunal being here for those of you  interested.

Now, if you listen to many commentators, you would be lead to believe that (old) Rangers have won this case against HMRC and have been totally vindicated in the use of Employee Benefit Trusts and the way in which they operated such arrangements for players and staff.

However, what these commentators fail to mention or acknowledge or even possibly realise is:

1) A First Tier Tribunal is just that, the FIRST stage in the judicial system for tax disputes

2) In more significant/important cases, it is unusual for the case to finish at the First Tier stage. Many go on  to the Upper Tier Tribunal, the Court of Appeal and sometimes even the Supreme Court before the decision can be considered final.

3) The FTT judgement in the Rangers case includes the right for HMRC to appeal and HMRC has indicated that it is likely to do so within the time-frame allowed.

4) The FTT's decision in this case was not unanimous - it was 2-1 in favour of Rangers. The minority view gives HMRC plenty of ammunition to build on for the next tribunal if they go ahead and appeal.

 

Next is the Total People Ltd case (now under the new company name of Cheshire Employer and Skills Development Ltd) which we have blogged about before relating to car/mileage allowances. Again the latest judgement from the Court of Appeal is here if you want to get into the detail.

Although this latest judgement is from a much higher authority than the Rangers case, and it could well be the final decision on the matter, it is unclear at the time of writing this blog whether HMRC can and will appeal against this latest decision.

This case has swung from commentators shouting "get your NIC claims in " to "oh, maybe hold fire on those claims after all" and we're now back to "get your claims in" again from the very same people.

Clearly, if the case ultimately ends up at the Supreme Court, then no refunds will be made by HMRC unless and until they have lost the final, final battle so it is perhaps jumping the gun a little (lot) by claiming victory at this stage. Even if HMRC loses the next round or admits defeat, it is not beyond the realms of possibility that retrospective legislation could be introduced by HMRC at some point to remove the possibility of NIC claims being successful in similar circumstances.

 

The moral of the story is:

Don't count your chickens before they're hatched. The tax tribunal and judicial system can be a long drawn out process and often the first decision isn't the same as the end result.

If you have to comment on cases either in public or to your clients, then please know how the tax system works and how final the relevant decision is likely to be otherwise clients are not going to be too happy if you have to go back on what you have told them before if it has a bearing on their tax position.

Another latest update on RTI (Real Time Information)

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Another latest update on RTI (Real Time Information)

November 19, 2012 2012

Yes, we are as sick of writing about RTI as you no doubt are of reading about it !! Cry However, like it or lump it, RTI is going to be with us very soon and so it is vitally important that we all keep as up to date as possible with the changes coming in otherwise April time could be a horrendous car-crash waiting to happen for employers across the country.

So what has been happening since our last RTI update at the end of September?

If we forget all the hype from HMRC about how wonderful things are going with the RTI pilot, which we challenge as being largely "spin", the main change to be aware of is the relaxation of the requirement to make an RTI submission "on or before" payment is made to the employee in certain circumstances.

Slight relaxation to Real Time reporting requirement

As expected, HMRC published a document called 'On-or-before' on 12 November summarising situations where the relaxation to the Real Time rule applies confirming, in most cases, that the timing extension is 7 days following payment to the employee. Some examples of what is covered include:

1) casual employees who work for less than a week and do not provide a P45

2) employees paid below the Lower Earnings Limit for NI who do not provide a P45

3) payments in cash at the end of the working day and/or shift workers where it would be impossible to submit an RTI return at the time of payment or in advance. HMRC's examples for this include crop pickers (relevant, NOT, to most employers) and catering/bar staff

4) benefits or expenses that attract a Class 1 NI charge through payroll despite being a P11D Benefit for tax. The most common examples being personal bills and certain non cash vouchers.

5) certain "notional" payments, e.g. typically an award of shares or some other arrangement that involves no cash payment as such to the employee

6) earnings and payments made by overseas employers

 

We would advise you to check the HMRC document above for the specific timing requirements around those areas that directly affect your business.

Draft legislation

Following on from the above announcement by HMRC, draft legislation was published on 16 November, the technical note for which can be accessed here, to include these proposed changes within the legislation when it is finalised for PAYE, NI and CIS.

We have had a brief glance at the draft legislation (it was too horrible a thought to have a detailed review at the end of a hard week last week and we've not been able to face doing it yet at the start of this week !!) but, from what we've read, the draft legislation more or less ties up with the earlier announcement and guidance published by HMRC on the relaxation of the timing rules.

If anyone so desires, there is a brief period of consultation open to comment on the draft legislation. All comments must be with HMRC by 11 January 2013.

 

That's all on RTI (for now anyway !). Whilst the above changes are largely positive, there is still some way to go before RTI can work practically for many employers.Who knows what the next few weeks or months will bring though !

We are still coming across some employers who are asking "what is RTI ?" so if this is YOU, please, please get in touch/go on to HMRC's website/ google RTI/ phone a friend or all of the above. Just do SOMETHING before RTI swallows you up (whole) on 6 April...

National Employment Tax Forum November 2012

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National Employment Tax Forum November 2012

November 12, 2012 2012



Last week Brian Rudkin made the short trip to Newcastle to attend the latest instalment of the Employment Tax Forum which is held twice a year for employment tax specialists across the UK to share, discuss and address topical issues.

As ever, it was a packed agenda for the day. We wouldn't want to bore you with all the detail, some of which is not for general consumption anyway e.g. confidential and ongoing discussions with HMRC on practice and legislation, but some of the main points we can share with you is as follows:

Total People tax case

It is not clear yet whether HMRC can, or will, appeal against the ruling in favour of the taxpayer made by the Court of Appeal recently which over-ruled the Upper Tier Tax Tribunal's previous decision on car v mileage allowances.

There will undoubtedly be more on this case to come. Could we even see new legislation being brought in by HMRC to close down any ambiguity around car allowance payments if they cannot resolve this through the courts ?

PAYE settlements and penalties

Suspended penalties continue to be an option considered by HMRC in some cases to encourage better compliance "behaviour" instead of imposing actual financial penalties.

In cases where non compliance covers a number of years, HMRC are typically going for the full 6 years worth of payments for National Insurance despite the time limit for tax payments being 4 years.

Employment status

A reaction is expected from HMRC soon regarding the recently published BBC report on its "off-payroll" workers. The use of Personal Service Companies is already high on HMRC's and the Government's agenda and so the findings from this report, and the BBC's approach to handling the issue going forward, could bring some action, e.g. new guidelines or legislation, from HMRC that could have far-reaching consequences for other employers who typically hire and pay consultants outside of payroll.

Salary sacrifice

The tax technical merits of some of the "salary sacrifice for Ipad" schemes being promoted just now were debated with the general consensus being that, whilst some of these schemes may have some consistency with other, valid, salary sacrifice schemes, there are a number of issues that would need to be looked at in greater detail before this could be considered a "go-er" from a tax point of view, especially around the business need argument and the private usage of the equipment.

Real Time Information

Any employment tax meeting would not be complete without discussing RTI !

The imminent relaxation of the "on or before" payment rule in certain circumstances is universally welcomed but the hope is that further changes and flexibility will be accommodated over the next few months as there is still quite a way to go before RTI can work practically for many employers.

The RTI penalty proposals are expected to be announced shortly, albeit these are unlikely to apply in the first year as employers (and HMRC) learn to cope with all the new requirements under RTI.

PAYE Related FAQs on Child Benefit Withdrawal

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PAYE Related FAQs on Child Benefit Withdrawal

October 30, 2012 2012

Panic is now setting in amongst the higher earners who face losing some/all of their Child Benefit payments when new rules come into play on 7 January 2013.

We've had a number of questions coming our way of late around these changes so we thought it would be a good idea to highlight a few of the more common ones from an employment perspective.

Before we start and to bring everyone "up to speed", remember that the withdrawal of Child Benefit only affects individuals entitled to, or their partner is entitled to, Child Benefit payments (obviously!) and where one or both receive more than £50,000 in income in a tax year. Where anyone in the relationship earns more than £50,000, 1% of the Child Benefit for every £100 of income between £50,000 and £60,000 will be clawed back by way of a separate tax charge. The tax charge for earnings over £60,000 will reduce the Child Benefit to nil.

Q1. Does the new legislation only apply to income received after 7 January 2013?

A: No. Earnings for the full 2012/13 tax year (i.e. 6 April 2012 to 5 April 2013) need to be taken into account in deciding if a Child Benefit charge applies in this first tax year. However, if this is the case, the charge only applies to Child Benefit payments received on, or after, 7 January 2013. This should hopefully only be an issue in the early stages as everything will align itself on 6 April 2013 when the new tax year starts but we can't help thinking that the starting period has been overly complicated (as per usual !).

Q.2 Does earnings include non-cash benefits from my employer such as company car, childcare vouchers, etc?

A: If the benefit is taxable, in other words, it is a P11D item, then yes, the cash value of the benefit should be included within earnings for Child Benefit charge purposes. However, any benefit that is tax exempt, such as qualifying childcare vouchers, interest-free loans under £5k, etc, then these do not count as taxable income.

Q3: What about pension contributions?

A: Most pension contributions will reduce the level of income for Child Benefit withdrawal purposes. Where tax relief is given at source on pension contributions (most arrangements nowadays), the grossed-up value of the contributions (i.e. the contribution made plus the tax relief received) should be deducted from taxable income in calculating the "adjusted net income" figure.

Q4: Will the tax charge be through my PAYE coding?

A: Not necessarily. You can elect to do this or to pay the amount in a lump sum via the Self Assessment Tax Return process (for 2013/14 tax year and beyond). Either way, a Self Assessment Tax Return will need to be filed to declare the charge.  More complexity and more paperwork for many then !!

Q5: Is there any planning opportunity around this to mitigate the potential loss of Child Benefit?

A: Fortunately, yes. The long established principle of salary sacrifice (whereby an employee gives up some pay in return for something else from his employer, the something else hopefully being exempt from tax) could be used to reduce taxable income so that the Child Benefit tax charge is reduced or removed altogether. We should say that salary sacrifice is not for everyone, and that there is no point doing this if you don't need or want the "something else" in return for losing an element of pay, but if you or your partner are hovering around the £50k or £60k mark for income (or are still within smelling distance of the £60k), it may be worth considering.

 

We are sure there will be more questions to come on this as the legislation becomes reality in the next couple of months. One thing for certain just now is that the whole thing seems to be overly complicated (as per usual !) and it is likely to be as "popular" as the Child Tax Credit system amongst advisors and taxpayers alike.

Any questions or issues on this just now please do let us know.

P.S. thanks to our male models for the blog photo, Messrs Calum and Rory Rudkin and their little cousin Archie Smile

Review of HMRC PAYE records - HMRC style!

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Review of HMRC PAYE records - HMRC style!

October 22, 2012 2012



Last week HMRC published a summary of the business expenses paid to its senior officers between 1 April and 30 June 2012, as per the attached link "business expenses"

We thought we'd turn the tables on HMRC for a change and review these expenses in the manner that HMRC themselves would do during a PAYE audit not just to add a bit of humour to a Monday morning but also to demonstrate to our readers how aggressive/unreasonable HMRC can be and also how easy it can be to attract unwanted attention around employee expenses simply because of a lack of detail. Please note, we have had to be selective in our comments to avoid repetition and to keep this blog post manageable - in real life HMRC do not worry about such problems!!

Lin Homer, Chief Executive

1) Accommodation & meals - £65 11/04/12, £53.10 30/05/12 & £63 20/06/12. Please provide a full breakdown on each occasion to confirm no personal expenditure is included within these figures.

2) Staff event 16/04/12. Please provide a full breakdown of the costs incurred, and for whom, and information of the event held. We contend that the costs detailed are staff entertaining.

Dave Hartnett, Permanent Secretary for Tax (as was)

1) Trip to Australia 30/03/12 - 07/04/12. Please confirm a) the purpose of this trip, b) all attendees, c) the agenda for the entire period and d) details of any personal benefits or costs included within the costs claimed

Stephen Banyard, Director General for Personal Tax

1) Staff event 14/06/12 £23.45. Please advise the location and nature of this event, all attendees and confirm whether this was at, or near, the employee's Permanent Workplace

Steve Lamey, Director General Benefits & Credits

We note that Mr Lamey appears to attend Preston on a regular basis. Please provide a breakdown for the 2 years to 5 April 2012 of Mr Lamey's work patterns for us to review the position further.

John Spence, Non Executive Director

We note that Mr Spence has claimed various travel costs to attend monthly Board meetings. We do not consider that these costs are incurred wholly, exclusively and necessarily in the performance of duties and, as such, will attract a charge to income tax. Please provide details of Mr Spence's role as Non Executive Director, including the location of Board meetings, so that we can consider the position further.

Non Executive Directors (various)

We note that all Non Executive Directors have claimed meal costs of £57.35 on 09/05/12. We do not consider that attendance at regular board meetings qualifies as a business journey for tax purposes. Please provide full details of the purpose of the meal and location for us to consider the position further.

 

Summary

So there we have it. A number of questions/accusations on often insignificant amounts and, more importantly, a lot of detail requested which will involve a lot of time and effort to gather together and respond to. Especially as many of our comments apply to more entries than we were able to include above.

Our overriding thought is that HMRC's expenses sheet is woefully inadequate for the purposes of identifying the correct PAYE treatment of each item. We just hope that the real form that they use internally, not just for publishing externally, is more up to the job. After all, they need to practice what they preach !!!

 

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