Auto enrolment

Pensions - Auto Enrolment Auto Enrolment is a set of duties to make sure all employees who are eligible, automatically become members of a qualifying pension scheme with a high enough level of contributions. This means the employer has several new responsibilities such as: • Workforce assessment • Provision and Auto Enrolment into a qualifying scheme • Facilitating opting out and refunds • Record keeping Time Frames You will have to understand your obligations as an employer over the next few years. For most small employers the following dates are relevant, however larger employers will have to register much sooner. In any event, now is the time to start reviewing what is involved. • Any employer with a PAYE scheme registered before 1st April 2012 must have enrolled their staff by April 2017 • Any employer with a PAYE scheme registered from 1st April 2012 must have enrolled their staff by February 2018 For more information on this subject, click on the following link here

IR35 - Update 2015

IR35 - Where are we now?

IR35 remains a very hot topic.  Following the OTS (Office of Tax Simplification) review of IR35 and the Government’s commitment to keep IR35 and improve the way it is administered by HMRC we have seen lots of changes including:

• Creation of the IR35 Forum
• Complete review and rewrite of HMRC’s IR35 guidance
• New IR35 HMRC compliance approach with 5 specialist HMRC IR35 teams
• Lots more IR35 investigations
• Trial of the Business Entity Tests
• Improved promotion and communication of IR35
• Launch of HMRC’s IR35 contract review service and helpline
• New Assurance processes for IR35 for those in the Public Sector
• Office Holder tax rules changed

We have also seen the review of the use of Personal Service Companies by the House of Lords Select Committee earlier this year.

Pilot and the report
 
All these new IR35 processes have recently been subject to review and the IR35 Forum has now published their report on the new processes.  This report also aims to address many issues raised by the House of Lords Select Committee.

Key findings in a nutshell
 
Much has already been done to improve the administration of IR35 and there is more to do on many of the areas identified for improvement.

The Business Entity Tests will be abolished with effect from April 2015.  The tests were designed to indicate the level of risk of an IR35 investigation, rather than being any sort of status test.  However, it became clear that the tests were of little use to the typical contractor or Personal Service Company user with most of them falling into the “high risk” band.  Worse still it was found that the tests were being manipulated and various web sites sprung up offering to rent virtual offices to contractors and all sorts of additions (at a fee) to gain a “low risk” score.  Because the tests are all about the risk of IR35 HMRC investigation, achieving a low risk score does NOT mean that IR35 does not apply.  So it’s goodbye to the BETS and not before time.

IR35 Investigations.

• If you receive a Business Records Check letter from HMRC that asks whether IR35 has been considered please note that you have on your hands a full blown IR35 investigation.
• If you ask HMRC for an extension of time to gather all the information they will grant this and confirm the extension within a formal “Notice to Produce”. 
• These enquiries are not being confined to IR35 and you will likely have an expenses and benefits enquiry at the same time.
• Without exception HMRC are interviewing the end client for their views on the day-to-day working practices.
• If you contract to the end client via an agency, you cannot rely at all on the clauses in the agency contract in isolation to support an outside IR35 decision.
• You must always take an in-depth look at what you are actually doing.  Any sort of IR35 opinion based on the terms and conditions set out in the written contract alone is meaningless.  This applies even where you have a direct contract i.e. no agency.
• Consider getting some sort of confirmation of the true terms and conditions from the end client, as part of your normal review process and certainly ahead of any technical submission to HMRC.
• 50% of all IR35 current enquiries are into those providing services to the Public Sector. . We have seen numerous investigations in the traditional government departments e.g. DWP, MOD etc but it is clear that this is now being extended into the NHS, BBC and local authorities.
• Finally don’t panic and seek specialist help.

IR35 Contract Review Tips for you

• Always look in detail at the actual working practices.
• Make sure you are certain who the end client is – this is often unclear when multiple agencies are involved in the contractual chain.
• Make sure the working practices match the written contract.
• In agency cases try to seek sight of the “upper” contract between the agency and the end client.
• Consider a confirmation of arrangements in the event of a future IR35 investigation.
• IR35 is not a once made in or out decision.  It has to be considered for every single contract or extension entered into.

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Tax relief at Christmas

Tax Relief at Christmas

As thoughts turn to all things Christmassy, I thought I would write a few words on tax issues relevant to the forth coming festive season. I hope this will give you some ideas while planning treats for your customers and staff!


 Christmas Parties

• The cost of a staff party or other annual function for employees is an allowable tax deduction for businesses. This does not apply to sole traders and business partners of unincorporated organisations.
  
  As long as the function meets the following criteria, there will be no chargeable taxable benefit for the employee:

• It must be open to all employees, or to all at a particular location.
• The cost per head must not exceed £150. If more than one annual function is provided the aggregate cost per head must not exceed £150. Partners and spouses of employees are included in headcount when calculating the cost per head of attendees.
• If the £150 limit is exceeded staff will be taxable in full on total cost per head for them and their partner/spouse also attending.
• Cost is calculated as the total cost of the party or function including any transport or accommodation provided and VAT.
  
  
  

VAT is recoverable on staff entertaining expenditure but this does not extend to staff partners/spouses so input VAT will need to be apportioned.

Client Entertaining

Client entertaining (i.e. hospitality of any kind) is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it.

Business Gifts

Gifts to customers are only allowable as a tax deduction if:

• The total cost of gifts to any one individual per annum does not exceed £50 and
• The gift bears a conspicuous advert for the business and
• The gift is not food, drink, tobacco or exchangeable vouchers.
  
  

However samples of a trader’s product are allowable even if they are food, drink or tobacco. 

Gifts to Staff

In some cases HMRC will consider a benefit exempt on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial as to be not worth pursuing. HMRC have conceded that an employer may provide an employee with a seasonal gift such as a turkey, an ordinary bottle of wine or a box of chocolates and this will be considered an exempt benefit. However, a case of ordinary wine or bottle of fine wine or a hamper is unlikely to be considered trivial.

This concession also applies to seasonal flu jabs which are also considered trivial but your employees may not be quite so appreciative of the “gift”!

Some employers give staff vouchers at Christmas; these are subject to tax and NI on the individual.

Christmas Bonus for staff

This will count as ordinary earnings and be subject to PAYE and NI as if it were additional salary.

 I hope this has given you some ideas and information on festive tax matters.

Mark

Zero-hours contracts

Research from The Chartered Instistute of Personnel and Development (CIPD) suggests that the use of zero-hours contracts is becoming widespread throughout the UK. The research, widely reported in today’s press, states that the CIPD estimates around 1 million workers to be on zero-hours contracts. But what are zero-hours contracts and what are the implications of using them for your business? When is it appropriate to use them and what rights do employees on zero-hours contracts have? Below we tackle these questions and assess the advantages and disadvantages for you and your staff.

Q. There has been a lot of talk on the news about zero-hours contracts. What is a zero-hours contract?

A. A zero hours contract is a contract of employment where the employee is not guaranteed a minimum or maximum number of hours of work. However, there is an expectation that when the employee is offered work by the employer they will accept the work offered.

Q. When can I use a zero-hours contract?

A. Zero-hours contracts are often used where there are peaks and troughs in a business which makes it difficult to provide employees with weekly contracted hours, for example, in the hospitality and leisure industry or the healthcare sector.

Q. What happens if someone I originally employed on a zero-hours contract starts working a certain number of hours each week in the business?

A. If an employee works regular hours each week over a period of time, then there is an argument to say that these hours could become their contracted hours and that they would no longer be a zero hours employee.

Q. What rights does someone employed under a zero-hours contract have?

A. Someone employed on a zero-hours contract is an employee. This means that after two years’ continuous service (if they were employed on or after 6th April 2012) they would have the right to claim ordinary unfair dismissal at an Employment Tribunal. They are also entitled to the National Minimum Wage, paid holidays and, if they qualify, Statutory Sick Pay.

Q. If an employee on a zero-hours contract isn’t working out, can I just stop offering them work?

A. No. As mentioned above, they are employees and as such, depending on their length of service, they may have employment rights.

Q. How do I calculate holiday pay for an employee engaged on a zero- hours contract?

A. Where an employee doesn’t have any regular hours then their holiday pay is calculated based on their average pay over the previous 12 weeks. If they did not earn anything during one week, then you should add in the pay from the week before the 12th week to bring the total up to 12.

Q. Is a zero-hours contract the same as a casual worker agreement?

A. No, a casual worker is engaged to work for an employer either on a one-off basis for a short period of time, or on an ad-hoc, as required, basis. They usually have no regular pattern of days or hours of work. The employer does not guarantee the casual worker any minimum amount of work within any given period of time.

The casual worker is free to accept or decline the offer of work, which means that no mutuality of obligation exists in the working relationship.

Q. What are the advantages and disadvantages of a zero hours contract for you and your employees?

A. For the employer

Advantages:

This type of contract can allow you to manage your business needs more efficiently and with greater flexibility.

These types of contracts can be appropriate when you have unpredictable levels of work, the work is irregular or the need for work is very short term. When you know that you have work to offer it would be good if you could provide the employee with as much notice as possible.

There is a mutuality of obligation in that the employee is obliged to work upon the demand (subject to certain exception like holidays) and the employee is obliged to come to work subject to a minimum notice requirement.

Disadvantages:

The downsides for using this type of contract are that the contract will be a contract of employment as opposed to a contract of services and that the employee will accrue continuity of service (whether or not they are actually working) and thus gain over time.

For the employee

Advantages:

The main benefits for the employee of a zero hours contract is that it may suit their personal circumstances and suit individuals who want occasional work.

It also gives the employee continuity of service and allows them to accrue statutory unfair dismissal and redundancy rights as well as accrue annual leave under the Working Time Regulations.

Disadvantages:

The main disadvantage of this type of contract is that it appears to be very one sided for the employer, as the employee can often be sitting around waiting to be offered work whilst being unpaid and the employee only gets paid for when they work- no regular pay or consistency for them.

If the above affects you and you would like to know more, then please give me a call.

Mark.

Collection by PAYE tax code adjustment

If you owe tax and are struggling to pay your tax in a lump sum you may be able to choose to pay through the PAYE system. This means is that you can have your tax paid by way of an adjustment to your PAYE tax code. Assuming, of course, that you have a continuing income from employment.

The process is this. The tax owed is the taken by an adjustment to your PAYE tax code (or coded out) so that you pay it off monthly or weekly depending on how often you are paid with the idea that all of the tax will be paid by the end of the tax year. For example, if you owe tax for 2012/2013 you can choose to have this collected by way of an adjustment to your tax code in 2014/2015. 

Time limits

In the above example, HMRC must also be notified before 31^st December 2013 or they may not make the adjustment.

Limtations

In order to protect you from paying unreasonable tax deductions HMRC will not take tax through your tax code if you don’t have enough PAYE income to enable the collections. They also will not take the tax this way if more than 50% of your PAYE income will be taken to pay it, or if you would end up paying twice as much tax as you normally would each time you get paid. There is also a maximum amount of £3,000 tax that can be paid through a tax code adjustment. If the tax cannot be paid through your tax code, HMRC will write to you with alternative methods of payment.

When tax is taken through your tax code you should receive a PAYE Coding Notice which will display what changes have been made to your tax code and why.

Other points to note

There are occasions where HMRC will choose to collect other underpaid taxes through your tax code,

For example, from April 2014 HMRC may collect outstanding Class 2 National Insurance Contributions in addition to tax if you receive PAYE income. If you do not pay or contact HMRC after receiving a payment request, they will send a coding notice between January and March 2014 showing how they will collect the outstanding National Insurance.

If you require more information on the above, you can follow this link, or get in touch with us to see how we can help.

Mark

Salary sacrifice

Salary sacrifice is offered by some employers as a means for their employees to receive increased pension scheme contributions. This is not an effective way of saving for everyone so if you are offered salary sacrifice by your employer, make sure you benefit before signing up.

How it works

You sacrifice part of your salary. The amount you sacrifice is paid to your pension plan directly by your employer, rather than being paid to you.

As a result of you having a lower salary, both you and your employer pay less National Insurance Contributions (NIC). As part of the salary sacrifice deal, your employer pays all or pat of their NIC saving into your pension plan along with the sacrificed wages.

For example if you earn £30,000 per year and decide to sacrifice £1,000, your new salary is £29,000, with the employer paying £1,000 into your pension plan. You pay less NIC (and in some cases less Income Tax) because your salary is lower. Your employer also pays less NIC and pays a percentage of their savings into your pension plan.

The percentage of NIC saving your employer pays is defined by them as part of their salary sacrifice offer, it could be anything between 0% and 100%.

The advantages

The main advantages are:

1. You pay less NIC (and in some cases less Income Tax) because your salary is lower; and
   
   
2. You may receive a boost to your retirement savings because your employer may add a percentage of their NIC savings to your pension contribution.

 The disadvantages

Salary sacrifice results in you having a lower salary. This could affect the following.

1. Life cover – your employer may provide you with life cover, which is usually calculated as a multiple of your salary. As your salary is lower under salary sacrifice, so may be your life cover. Some employers will continue to provide life cover at the pre-salary sacrifice rate.
   
   
2. Refund of contributions – some occupational pension schemes offer a refund of employee contributions on leaving with less than two years service. The contributions made with a salary sacrifice arrangement are not employee contributions and therefore would not be refunded.
   
   
3. Mortgage borrowing – mortgage lenders usually calculate the maximum borrowing level as a multiple of salary. As your salary is lower under salary sacrifice, your borrowing may be affected.
   
   
4. Statutory maternity pay (SMP) – SMP is available if you earn above the Lower Earnings Limit (LEL, £5,564 in 2012/13) prior to going on maternity leave. If salary sacrifice takes you below LEL then you may lose your entitlement to SMP.
   
   
5. State Second Pension (S2P) – this additional part of the state pension is calculated with reference to your earnings. Any reduction in your earnings between the Low Earnings Threshold (£14,700 in 2012/13) and the Upper Accrual Point (£40,040 in 2012/13) may affect this entitlement. In addition, if your salary falls below LEL then your entitlement to S2P may be lost.

If you require further guidance on the above, then feel free to give me a call, or check out the HM Revenue & Customs website for more information.

http://www.hmrc.gov.uk/payerti/payroll/special-pay/salary-sacrifice.htm

Mark

Real time information

Real time information (RTI), the biggest shake up to payroll procedures since PAYE was introduced in the 1940’s, will become a reality for employers from April 2013.

Look out for a letter from HMRC inviting your PAYE scheme to join RTI, an invitation you cannot refuse! Let us know as soon as you have received your invitation so we can help you make the necessary transition.

The principle behind RTI is simple, HMRC want to know which employees are being paid, together with details of the deductions being made ‘on or before’ the payment is made to the employee.

Real time information key procedures

Here we primarily concentrate on the key submissions but do contact us regarding any questions concerning RTI.

Key submissions	What the submission contains and ‘top tips’
Employer alignment submission (EAS) – preparing for RTI	Although this submission is only compulsory for large employers or those with a complex payroll system. It is advisable for all employers. It provides HMRC with details of all employees employed in the current tax year.
Full payment submission (FPS)  – operating RTI	Used to report details of employees being paid for a particular pay period.
Employer payment submission (EPS) - operating RTI	Used to report employer details each month such as payments to HMRC (or where no payments are due) and also CIS suffered.

Changes to employees leaving and new employees

Under RTI information, when an employee leaves a company, the information is filed automatically along with the payment details for the pay period during which they left, as opposed to separately filing a P45. There will still be a P45 to issued to the employee.

For a new employee, information for them is automatically filed during the pay period in which they started work for an employer. This means that there will no longer be P46’s issued to employees, unless the employer is exempt from filing online.

If we are currently handling your payroll then you don’t have to worry about doing anything for RTI, our software provider has already confirmed that they can handle the change and are fully compliant with RTI.

If we do not currently handle your payroll and you would like further details of the service we provide, please give us a call and we can also quote a price to suit your needs.

Mark

Repaying your student loan

Student loans are a great way to finance learning when you’re low on cash, but the money has to be paid back at some point, and if you don’t know how this works you could be in for a surprise if it gets collected without your knowledge.

How repayments are made

Repayments of your student loan are taken from your pay in the same way as PAYE and National Insurance contributions when your income before taxes exceeds a certain threshold. This threshold is one of the following

£303 per week if you are paid weekly

£1,316 per month if you are paid monthly, or

£15,795 per year.

How much is taken?

The rate for student loan deductions is 9% of anything earned over the above thresholds.

For example, if you earn £1,750 in a month, you subtract £1,316 giving an amount of £434, then you take 9% of £434 to give you £39 as the amount that will be deducted from your income per month.

Other repayment examples

Income before tax (£)	Monthly Salary (£)	Monthly repayment (£)
Up to 15,795	1,316	0
16,000	1,333	1
21,000	1,750	39
24,000	2,000	61
27,000	2,250	84
30,000	2,500	106

What you can expect when your income changes throughout the year

Because the repayments are taken in the same fashion as PAYE, if your income rises or falls throughout the year, the amount of student loan you pay back will alter to reflect this. This means if your income drops sharply, you wont have to worry about an unaffordable payment on your student loan.

Making payments even if below annual threshold

If you are under the annual threshold but have a temporary increase in income, such as taking on an extra shift at work or a bonus, you could have some of your student loan repaid if you exceed the weekly or monthly threshold for that week or month.

If some money was taken for your loan in this fashion, you can apply for a refund providing you are still below the annual threshold at the end of the tax year.

Student loans and your tax return

If you are a sole trader, your student loan must be declared on your income tax return, failing to do this could result in HM Revenue and Customs issuing a penalty for an inaccurate tax return if you cannot provide a reasonable excuse.

So if you have a student loan, make sure to let us know and provide us with a copy of an up to date statement with your accounts so that we can ensure that your tax return will be accurate.

I hope this has managed to shed some light on this seldom mentioned subject, if you do have any queries regarding this, please do not hesitate to give me a call.

Mark.

Wife's wages

Where one spouse or partner employs the other in the business (often a husband employing his wife), it is perfectly in order for a salary to be paid to reflect the work done for the business. Often the salary is just below the Income tax or NIC threshold where there is just part-time involvement. It is worth stressing that two important conditions should be observed:

The salary should: 

• actually be physically paid rather that just making a journal entry through drawings and;

• be justifiable in relation to the type of work done and the hours spent.

Should the above points not be observed, then you run the risk that any amounts claimed in your accounts could be disallowed - which means that you will be required to pay more tax and national insurance on your profits!

In addition to the above, my opinion is that it makes sense that if wages are going to be paid to the wife, that a 'payroll scheme' is opened with HMRC to formalise the administration of this task and ensure the necessary paperwork is in place so that if some national insurance is desired to be paid - the year will count for state pension purposes.

Whilst there are additional compliance costs, these may secure the result you are after where poor paperwork and definition results in an unforeseen problem for you in the future.

Mark