(Very) limited NI refund opportunity for some trainers

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(Very) limited NI refund opportunity for some trainers

October 17, 2012 2012

Those of you who provide any sort of education or training to your clients will know that the tax and NI position on the individual trainers has been a right mess for many a year, mostly courtesy of the Categorisation of Earners NI regulations which caught many trainers as employees for NI purposes even if they were genuinely self employed for tax.

After a period last year where HMRC started going hell for leather after trainers away from the traditional educational establishments, e.g. first aid trainers, flying instructors and other specialist trainers, which included a rushed consultation and proposed new legislation meaning more would be classified as employees for NI, HMRC eventually did a complete reversal and said they were scrapping the NI regulations completely around this so that the NI rules would follow the tax rules if a trainer was genuinely self employed.

And this did happen, with the NI regulations being withdrawn on 6 April 2012 which thankfully made things much clearer and easier for all concerned.

As expected, but not very timely, HMRC are now inviting applications for refunds of NI (both employer and employee) for those who may have been forced to apply the NI regulations in error during the period where HMRC were all over the place on the issue. However, the opportunity for a refund is extremely limited and only applies to:

1) trainers within the vocational or recreation sector (i.e. not trainers within traditional educational establishments who always had to apply the rules anyway)

2) (Obviously) only trainers in the above sectors who qualified as self employed for tax purposes but were forced to pay Class 1 NI (because HMRC were wrong in their assertions)

3) Only 2 years worth of refunds can be claimed (year ended 5 April 2011 and year ended 5 April 2012) unless HMRC raised a challenge earlier

 

We would recommend that the engager applies for the refund rather than the individual trainer as this makes it easier where both employer and employee NI has been paid. So, if you are in the 0.1%* or whatever that this opportunity may apply to, give us a shout if you need any assistance in making a claim or in maximising the amount that could be refunded by HMRC.

 

* caveat - we know this blog doesn't apply to too many of our regular readers but we like to cater for everybody, even the small minority (plus the fact that there has been very little "news" on the PAYE side from HMRC of late that isn't Real Time Information related !!)

A quick note about Real Time Information

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A quick note about Real Time Information

September 28, 2012 2012

In a week where we have had countless discussions about the fast-approaching RTI start date, and the huge difference in how employers are preparing for RTI (from all guns blazing approach to doing nothing whatsoever) we thought it would be useful to highlight the Employer Bulletin published by HMRC this week which contains some useful information on where things are at from their side with RTI.

For those of you with information overload on RTI look away now but for the rest of you, the link to the Employer Bulletin is here.

In addition to this, letters will be going out to all employers in the next week or two with specific information on RTI and the implementation timetable (which will be the first inclination of anything changing for many we would guess) with further letters to follow around February time with specific instructions for each employer.

That's all we are going to say on RTI for now (we told you it would be quick !!) other than to remind you all that you really should be doing work in these 3 key areas NOW:

- Payroll software. i.e. talking to and working with your existing software supplier (or payroll bureaux if payroll is outsourced) to have an RTI ready package in place well before April.

- Processes, mostly around joiners and leavers as these will need to be adapted for RTI

- Data, data, data. Auditing and updating all employee records so that these can be aligned with HMRC records when the time comes.

 

 

Should EMPLOYERS be worried about HMRC's latest taskforce initiative ?

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Should EMPLOYERS be worried about HMRC's latest taskforce initiative ?

September 19, 2012 2012

Yesterday saw the latest "tax crackdown" publicised by HMRC, this time on lawyers in London, hair and beauty businesses in the North East and also the motor industry in Scotland.

We are regularly asked whether HMRC's Taskforce is more interested in the workers or the employers in these high profile initiatives and whether employers need to do anything.

Based on the specific wording of recent HMRC press releases announcing these taskforce initiatives, you would have to conclude that the focus is very much on the individual workers in these "high risk" sectors, with HMRC's belief being that many individuals are under declaring personal income on tax returns. And it certainly seems that this is true in reality as it is mostly individuals that have been prosecuted through the various initiatives in the last year or so.

BUT, and it is a big BUT here, employers HAVE been caught up in things with HMRC's Taskforce crawling all over each targeted sector and we have been involved in a number of employer settlements with HMRC following these initiatives, mainly in the medical and restaurant sectors. We are also aware of many others involving employers that we were not directly involved with.

So, we think it is fair to say, that if you are an employer in any of the latest targeted sectors, and particularly within the legal profession and the motor trade, you should be looking behind your shoulder, and more importantly getting your house in order, just in case this latest Taskforce starts digging around your PAYE compliance. In our experience, both these sectors have "previous" in terms of serious non compliance with PAYE and NI rules and it is no surprise that HMRC has badged both as "high risk".

The obvious area in the motor industry is around cars, i.e. demonstrator cars being used privately by employees and the reporting of company car and car fuel benefits and also employee car purchase programs incorporating hefty discounts and the opportunity for employees to sell cars on for profit.

However, other more common areas such as expense payments, directors and salary sacrifice do seem to cause a lot of difficulties in this sector.

Without tarring everyone with the same brush here, there are some professional firms, including lawyers, who may be brilliant at what they do but tend not to spend much time on running their own business. Similar to many trades people in that a painter and decorator will often have a poorly decorated home, or a hairdresser with a dodgy hairdo or a plumber with a dripping shower, some legal firms will have poor or inadequate tax and legal processes for their own staff. Combine this with a relatively wealthy sector and gaps with PAYE compliance are often not too hard to spot.

If you are an employer in one of the latest sectors to be targeted, regardless of whether you are in the specific region mentioned in HMRC's press release (these things tend to spread like wildfire across the country) please do get in touch with Optimum PAYE and we can help you to avoid HMRC putting you to "task" - with their taskforce. Get it ?! Embarassed

 

 

 

 

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....

 

The Hidden Tax Problems of Being a Director

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The Hidden Tax Problems of Being a Director

August 27, 2012 2012

It is well documented that operating a business as a limited company has its advantages for the owners, primarily the potential to reduce tax and also the protection provided to individuals through the company's limited liability status.

These two reasons are mostly why accountants normally recommend the company route when someone is setting up in business. However, there are some disadvantages of being a limited company director, some of which are actually very important, and it is our experience that these disadvantages are NOT explained properly (or at all !) by some accountants when urging new clients to set up a limited company.

We should say here that although some of the following points may be more relevant to small business owners who have/had the choice to run their business as a sole trader or partnership, some of the points are equally valid for ALL company directors, regardless of size of business.

Okay, so here's ten of the main problems, or potential downsides, that are often overlooked (okay, the first couple are not exactly tax related but we needed to generalise in our blog title...):

1) A limited company's finances are much more visible to the outside world

For just £1 anyone, anywhere, can access Companies House records on your company, including accounts.

2) Running a company involves much more admin and responsibilities (as well as higher accountancy fees !!)

Companies House returns, more complex financial accounts and the legal responsibilities of being a director

3) Beware of IR35

If IR35 is in point, operating a limited company could cost MORE than other business structures because of lost tax advantages

4) A limited company's money is NOT the director's !

Huge problems arise where the director does not get this. Treat the company as your "cash-cow" and there WILL be lots of tax issues.

5) It is harder to get tax relief on director's expenses

PAYE rules are so much tighter than for the self employed. This can be a significant extra cost for the business and/or director

6) Company car/van rules

This is a complex area and can involve considerable costs if you set up an inefficient arrangement. Avoid fancy "tax avoiding" schemes at all costs - they usually don't work !

7) Expense reimbursement and reporting is a minefield

This is a major area for costly errors. Ignore the rubbish that gets spouted on this subject and take proper advice.

8) Director's loan accounts

THE main problem area with small limited companies. PAYE, Corporation Tax and Benefit In Kind issues abound with poorly operated director loan accounts and, in some cases, can also lead to a charge of "unlawful trading".

9) A limited company does NOT always provide limited liability protection !

Do things wrong on the PAYE and NI side and YOU (director) can be pursued by HMRC for any unpaid liabilities. See our recent article Transfer of employer PAYE and NI Liabilities to Directors for more information on this critical point

10) You can't just close a company with unpaid PAYE debts and walk away

Such behaviour can lead to huge problems for the directors for many years to come, e.g. having to pay a PAYE security to HMRC if/when a new company is formed (which brings criminal charges if not paid) and also having to suffer the consequences of being rated as "high risk" by HMRC

 

Our advice is ALWAYS think very carefully before setting up a limited company and taking on the responsibilities of being a director. It is NOT for everyone, and not quite as rosy and easy as some may make it out to be.

And please do contact us if you have any concerns, questions or issues in relation to any of the above points.

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