HMRC tax win against Weightwatchers - what is or who is next?

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HMRC tax win against Weightwatchers - what is or who is next?

November 14, 2011 2011

Last week's win for HMRC in the Upper Tax Tribunal against Weightwatchers was not wholly unexpected by those of us within PAYE circles but the decision is important nonetheless and could be equally as significant going forward for many organisations.

So we ask the question Who or What is next, in other words, what is the potential fall-out going to be from this decision ?

We should say at this stage that it is not clear whether a further appeal will be allowed to a higher court, or whether Weightwatchers would in fact wish to take it any further given that it is HMRC 2, Weightwatchers 0 with no prospect of HMRC losing any goals even if it were to go into "extra time".

Before we look into the future, there may be some employers out there who, bizarrely, may not be familiar with this case so by way of a quick 60 second summary, we should say that the issue at stake here was whether Weightwatchers were correct to pay their Group Leaders (who run the regular local classes for members looking to lose weight) as self employed, i.e. on a gross basis, which they had been doing for years, instead of as employees via the PAYE system. Both the First Tier and now the Upper Tier Tax Tribunals ruled in favour of HMRC by agreeing that the Group Leaders were in fact employees which is reported to be costing Weightwatchers around £23m in settling arrears of PAYE and National Insurance. This is BEFORE interest and penalties are considered !! The main crux of the Upper Tribunal's decision was that there was a high degree of control and a mutuality of obligation on both sides (which also covered the issue of substitution), both of which are main elements of an employer/employee relationship. This was despite contractual terms stating the opposite - but, as we have stated many times before, it is the working practices that are important in determining employment status, not what is written on a piece of paper. This point is being proven almost on a weekly basis through the courts and in practice at the moment.

So that's the case in a nutshell. For those of you who love trawling through the detail click here for the full decision.

Okay, so it's fairly obvious that this is a huge win for HMRC and they will want to make the most of the decision that went their way. So what do we think is going to be their approach to achieving this ? Well, to be perfectly honest, the Weightwatchers decision, as important as it is, is not really as groundbreaking as may be believed, albeit there is some further clarity around what is NOT a successful substitution arrangement in trying to avoid PAYE and NI. So, this latest victory for HMRC does not necessarily give them carte blanche to go into any organisation and challenge that all self employed consultants or contractors should be re-assessed as employees.

However, what this case does do is provide HMRC with stronger arguments for employment status in cases where there is some ambiguity or where the contractual position is not in line with the reality and there should certainly be some employers out there quaking in their boots should they get a visit from an HMRC Status Inspector.

We do not expect HMRC to start a free-for-all campaign targeting all employers in all sectors who may happen to engage self employed workers in the hope that they can "catch" another Weightwatchers style jackpot. But we do expect there to be a renewed focus over the coming months on organisations who may have similar arrangements to the Weightwatchers Group Leaders, particularly where a class-led structure is a main part of the business, as there could well be more rich pickings for HMRC if they can use some of the precedents set by the Weightwatchers decision to bolster their arguments.

We think it is safe to assume (and to publicise - after all this is not top secret) that some of the organisations potentially in HMRC's firing line over the next while could well include some of the following brands:

scottish_slimmersslimming worldrosemary_conleylighter-life

 

If you are in charge of Finance or Tax in any of the above organisations, or you are any other business holding regular classes for customers - give us a buzz, before HMRC are buzzing your doorbell for a review of your self employed workers. You know it makes sense !

Round up of PAYE matters 28 October 2011

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Round up of PAYE matters 28 October 2011

October 28, 2011 2011

 

It's Friday, it's been a long couple of weeks, and we know that we've not blogged for a while so we thought it would be a good idea to round off the week by covering some odds and sods in the PAYE world just now.

For the avoidance of doubt for any new readers, we do not attempt to cover absolutely every minute change that goes on in PAYE circles, such as the latest issue with PAYE coding notices, or slight amendments to HMRC forms or processes etc, within this blog. Instead, we try to stick to matters that are not only of most relevance to our clients (and prospective clients) but also that won't have the eyelids closing after two sentences !

Anyways, on to the detail.

Teachers, lecturers and tutors - some confusion

Nearly two years ago to the day, HMRC issued a consultation document to consider changes to the National Insurance regulations around "self employed" teachers and the like with a view to bringing more people into the definition of "employed earner" for employer/employee NIC to apply. This was mostly targeted at certain vocational instructors who were paying NICs as self employed.

As with many (most ?) HMRC consultations, this one died a death and nothing really happened with it....until now that is !

Bizarrely, another consultation has been launched by HMRC around the same theme but, this time, HMRC seem to be going in the opposite direction in suggesting that the Categorisation of Earners regulations should be scrapped completely for all teachers, lecturers and tutors with effect from 6 April 2012. In anticipation of this actually happening, HMRC has removed certain sections of their Employment Status manual with immediate effect.

How bizarre !! More bizarreness to follow on this we are sure

 

PAYE "pooling" - consultation document of the week

Yet another waste of time, sorry, consultation was launched this week around the possibility of employers with multiple PAYE schemes pooling these into one big PAYE scheme.

The main objective is to simplify things for both the employer and HMRC and to cut down on paperwork, e.g. end of year P11D reporting, P45/P46 admin for inter group transfers etc.

Whilst we can see that this might suit some employers, for many others there is a lot to be said for keeping everything separate, especially where budget holders/finance staff for each scheme are in different locations. Everything being fed into the "centre" by the regional business is not always the way to go as there is less accountability when things go wrong and a mass of inconsistent approaches which can lead to incorrect PAYE reporting by the team responsible for pulling it all together.

Our overriding thought on this consultation though is that HMRC are making an issue out of something that isn't really for the vast majority of employers out there. You would think that HMRC would have little time as it is without wasting lots of it on a non issue like this. Of course, it could be that this is a huge issue in practice, in which case we are happy to be proved wrong,....but we doubt it !

 

Victory number 2,034 against HMRC (it was a foregone conclusion but we'll take the plaudits all the same !)

HMRC has finally conceded that statutory redundancy and non contractual Payment In Lieu of Notice are NOT taxable if below £30k !! We never even received an apology for HMRC wasting our and the client's time by refusing to accept that they had such a basic element of tax wrong. Still, we got there in the end and the client is sitting with a nice fat repayment cheque. HMRC, you should be ashamed !!

 

Tax cases

Due to a combination of few judgements being published over the last few weeks, and the majority of those that are being the typical "reasonable excuse" arguments over the validity of late filing penalties, there is nothing much exciting to report on tax cases involving employment taxes.

The only case worth mentioning is the one involving Talentcore which was before the Upper Tribunal recently. The issue in this case was whether cosmetic consultants (make-up counter girls and boys to you and me !!) were self employed or fell within the agency rules for PAYE.

The Upper Tribunal sided with the taxpayer on this and confirmed that the First Tier Tribunal was correct to judge the workers were self employed, mostly around the fact that substitution of the workers was allowed within the contractual terms. So, another loss for HMRC, although we are sure that they will happily trade that for a win in the Weightwatchers case which we hope to hear about soon.


That's enough for now we think. Enjoy the weekend and we'll catch up with you soon.

Autumn 2011 National Employment Taxes Forum Meeting

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Autumn 2011 National Employment Taxes Forum Meeting

October 17, 2011 2011

Friday last week saw the latest gathering of employment tax experts from across the UK in a sunny Edinburgh to discuss topical issues in the PAYE world.

Including Brian Rudkin's 23 years, there must have been several hundred years of employment tax experience in the room  with a good mix of experts from a wide range of organisations. The tax and accountancy professions were again well covered with representations from the Big 4, Top 10, Top 100 and several regional firms with Optimum PAYE being the only true boutique PAYE firm there. There was also representations from the legal profession, tax publishing, manufacturing and the financial sectors which brought a diverse and interesting mix of discussions to the table.

The main point of these meetings is to share information and views on key PAYE technical issues and current practice and issues in working with HMRC and to feed back to the Institute of Tax any serious issues that come to light. This may seem like a very boring type of meeting for those of you who think that tax is a very dry subject but Brian says that the meetings are always lively and interesting with quite a lot of joviality throughout the day. We believe him, thousands may not !!

lol

 

Anyways, some of the points discussed include:

Termination payments - HMRC is increasingly taking the default position to be that everything is taxable and it is up to the employer to prove otherwise, including on payments such as statutory redundancy and particularly with all Payments In Lieu of Notice. This has led to some employers inadvertently overpaying tax and NI on termination settlements.

Employment status - this continues to be HMRC's top priority. There seems to be a trend developing where HMRC issue assessments to not only the employer where a worker's self employed status is being challenged, but also to the worker directly.In effect, they are getting two bites of the same cherry. HMRC status officers are still asking far too many questions when doing status reviews and questions being asked directly to the workers are often heavily loaded so great care is needed in such situations. The Weightwatchers case (which could well end up being a significant victory for HMRC) has been heard through the courts recently but it may take a few months before the judgement is published. Could an HMRC success lead to vigorous challenges on other franchises ??

Tax penalties -  suspended penalties still appear to be common practice at the moment where compliance errors have been identified but the conditions for suspension seem to vary from case to case. HMRC is often using the suspension carrot as an excuse to revisit the issue in 12 months which may not always be a good thing.

Construction Industry Scheme - HMRC appear to have backed down in their attempt to bring all deemed contractors within CIS. However, the number of cases where the deduction of materials from CIS invoices is being challenged by HMRC is on the increase especially where scaffolding costs are involved.

HMRC delays - still a huge concern up and down the country with no sign of correspondence delays being improved since the last meeting.

Salary sacrifice - still some uncertainty whether salary sacrifice will be possible for NEST pension contributions when these come in.

PAYE Settlement Agreements - HMRC is checking with many employers that the tax rates used for the grossing-up calculations are correct, specifically for employees falling within the 50% tax bracket.

Total People tax case - should a further appeal by the taxpayer and Grant Thornton be allowed, the general concensus is that HMRC will win this case, especially as there are other car allowance/mileage payment schemes that do work from a tax/NI perspective, the main difference being that these successful schemes are more formal and structured than the Total People arrangements.

 

 

Confirmation of VAT position on pre July 28 salary sacrifice

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Confirmation of VAT position on pre July 28 salary sacrifice

October 04, 2011 2011

No, we're not trying to move over to "the dark side" in mentioning VAT again, it's just that the VAT treatment of salary sacrifice arrangements has a huge impact on the PAYE side for both employers and employees and so we think it is important to inform our clients and contacts of the current state of play on this.

Further to our brief mention about this on Twitter the other day, HMRC issued a further VAT Brief yesterday (see here) clarifying that the new VAT rules on salary sacrifice arrangements coming in to play on 1 January 2012 will NOT apply to arrangements already in place prior to 28 July 2011 (the date of their initial Brief on the VAT rules).

This is excellent news for employers and employees alike as it means that there is no mucking about needed to the pricing arrangements for agreements that were in place before HMRC dropped their bombshell which avoids arguments about who is picking up the tab for the extra VAT cost which would undoubtedly have left some employees unhappy and severely out of pocket.

However, it should come as no surprise that things are not THAT straight forward, or as good as they seem, with this latest HMRC announcement ! HMRC has stated that a change to the employee's contractual terms and conditions beyond 28 July 2011 will disqualify the employee from taking advantage of the VAT concession on their salary sacrifice arrangements which would mean that VAT would apply to the salary sacrifice payments (benefit dependant) from 1 January 2012 as normal, or when the change to terms and conditions occurred if later.

HMRC's Brief on this is....brief so there is not a lot of detail to go on around what HMRC mean in terms of a change to contractual conditions. Our understanding is that this includes ANY change whatsoever, whether it is directly related to the salary sacrifice scheme or not, including pay reviews, change to bonus arrangements, change in company car or allowance provisions, deselecting a salary sacrifice scheme, selecting an additional salary sacrifice benefit, etc etc.

We think that it is going to be difficult for most employers to avoid triggering some form of change to participating employees' terms and conditions of employment before too long so this "relaxation" of the rules by HMRC could end up being more of a nuisance than a help to employers as the likelihood is that any VAT advantage to be gained is going to be extremely short lived for most.

Ok, we're off to do some "real" tax now, i.e. PAYE !! Note to our learned VAT colleagues - we are only joking of course !! Wink

What counts as Inadequate Records for PAYE compliance ?

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What counts as Inadequate Records for PAYE compliance ?

September 27, 2011 2011

 

Last week HMRC announced an extension to their Business Records Check programme on the basis that nearly half of all small and medium sized businesses checked in their pilot were found to have "issues" with their record keeping, with around 12% of the sample having "seriously inadequate records".

We have to say that the results from HMRC's pilot is not surprising, from an employment tax perspective we see very poor record keeping around PAYE matters in many businesses and this brings with it many issues in terms of tax compliance failures and leaving the employer exposed to risk of HMRC challenge. It is also no surprise that more of these checks are going to be done in the months ahead as there is a lot of "easy hanging fruit" for HMRC to grab through this initiative in terms of extra revenues, penalties, etc.

So, from a PAYE point of view what would HMRC likely say is poor or inadequate record keeping ? The following are just some examples of what we see on a regular basis that would fit into this category:

  1. A lack of receipts to support employee expense claims
  2. A lack of detail to support employee expense claims, e.g. in relation to client entertaining, travel costs, mileage claims, etc
  3. No, or minimal, checking and sign-off procedures for employee expense claims
  4. Inconsistent and/or haphazard posting of expense payments to the accounting system which could result in items being recorded incorrectly and being treated wrongly for income tax or VAT
  5. No employment contracts for employees
  6. No employment contracts or service agreements for directors, including non executive directors
  7. A lack of proper records in relation to company cars, e.g. around car changes, payment of fuel, optional extras, etc
  8. Little or no tracking of employee movements in relation to inpats or expats e.g for tax and social security implications both in the UK and overseas
  9. Little or no record keeping to monitor an employee's workplace when claiming expenses to a Temporary Workplace, in relation to time limits, qualifying placements, etc
  10. A lack of controls and procedures in place to monitor the payment of self employed consultants or subcontractors and to properly consider their employment status on a regular basis
  11. Termination payments being made without all information and documentation being considered around the make-up of the termination payment and the employee's contractual entitlement to payments on leaving
  12. A lack of proper checks and an audit trail in relation to CIS subcontractors, including verification correspondence with HMRC
  13. Inconsistent or non existent documentation in relation to salary sacrifice arrangements, especially around the change to the employee's terms and conditions of employment
  14. Little or no monitoring of the operational aspects of salary sacrifice, e.g. when an employee leaves, or the sacrifice agreement is spent, etc
  15. Little or no monitoring of share plans e.g. to ensure qualifying conditions are met for each participating employee and to capture any taxable events, especially in relation to expat employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We are sure that we could think of more examples but this is plenty for now we reckon. The message to come from this is that no matter your size of business or whether you are a new or well established enterprise, it is essential to have proper, complete records in all of the above areas that are relevant to your business if you want to avoid HMRC penalising you if they do come calling as part of their Business Records Checking initiative.

Not having the time, or qualified staff, or money to invest in a good accounting system, or an understanding of what records are required or of the tax rules are not good enough excuses we are afraid if HMRC believe your records are poor or inadequate.

As ever, Optimum PAYE can help to plug any gaps in all of the above areas so please do contact us if you need any assistance before HMRC have a chance to suggest your records are not good enough.

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