We often think that HMRC are interested only in collecting in tax due by way of cash into the Treasury. During the last month however we have seen a position emerge where HMRC are keen to deny tax relief which would otherwise have been due and would have reduced a taxpayer’s liability.
Under Self Assessment it is the responsibility of the taxpayer to notify any circumstances which could lead to additional tax becoming payable. It seems however that some taxpayers may have taken the view that as their main source of income is through PAYE and tax correctly deducted, their rental property income which results in a loss after interest and overheads does not require disclosure. They may take the view that when profits are made then they will tell HMRC. Rental losses can only be carried forward to use against rental profits but HMRC are challenging undisclosed losses from earlier years and seeking to open enquiries into all aspects of a return as a consequence.
Our advice is to disclose everything including losses on a tax return as this will potentially avoid any unnecessary investigation into tax affairs.
- LOANS FROM A COMPANY TO SHAREHOLDERS
- INCREASE IN NMW RATES
- HMRC LAUNCH MANAGING SERIOUS DEFAULTERS (MSD)
- EMPLOYER END OF YEAR FORMS
- EMPLOYMENT PARTICULARS
- P11D DEADLINE APPROACHING
- SCOTTISH RATE OF INCOME TAX
Draft legislation has been published which confirms an announcement made in Budget 2013 and which has effect from 20 March 2013.
A close company (which generally includes an owner managed company) may be charged to tax in certain circumstances where it has made a loan or advance to individuals who have an interest or shares in the company (known as participators). Loans and advances are also caught where they are made to an associate of the individual such as a family member.
The corporation tax charge is 25% where the loan is outstanding nine months after the end of the accounting period.
The new law will prevent the practise of avoiding the payment of the tax charge by repaying the loan before the tax is due (nine months after the end of the accounting period) and then effectively withdrawing the same money shortly after. This change may also prevent refunds of the 25% tax already paid where loans are redrawn shortly after.
This change may affect a number of owner managed companies and we will be happy to discuss this with you.
The Government has announced increases in the NMW rates which will come into effect on 1 October 2013:
• the adult rate will increase by 12p to £6.31 an hour
• the rate for 18-20 year olds will increase by 5p to £5.03 an hour
• the rate for 16-17 year olds will increase by 4p to £3.72 an hour
• the apprentice rate will increase by 3p to £2.68 an hour and
• the accommodation offset increases from the current £4.82 to £4.91.
Katja Hall, CBI Chief Policy Director, said:
‘Pay restraint has been crucial in creating jobs in this tough economic climate.’
‘The LPC has struck a careful balance in setting the rates given sluggish growth, particularly in recommending a cautious approach to youth pay.’
‘The LPC will need to monitor the impact of raising the adult rate very carefully. Given average earnings this year are already lower than expected, we must make sure the minimum wage doesn’t limit jobs in key sectors, by outstripping pay across the rest of the workforce.’
‘The law is clear that employers must pay apprentices the legal minimum wage. It is right that ministers tighten up compliance and enforcement.’
Following on from Managing Deliberate Defaulters (MDD) programme, under MSD HMRC will closely monitor the tax affairs of more individuals and businesses who have deliberately evaded tax for up to five years.
From 1 April 2013, HMRC is also extending the close monitoring of the tax affairs of those who deliberately choose not to pay what they owe. MSD replaces and expands the MDD scheme.
David Gauke, Exchequer Secretary to the Treasury, said:
‘Increasingly, evaders are using contrived insolvency to evade tax, either through liquidation of a business or bankruptcy of an individual. It is only fair that someone who has deliberately tried to evade tax should face extra scrutiny from HMRC.’
‘This measure, along with those announced in the Budget, demonstrates that we will crack down on people who don’t pay what they owe.’
Internet link: Government news
HMRC are reminding employers that in order to avoid penalties they must file the Employer Annual Return (P35 and P14s) online and on time. The vast majority of employers must file electronically and the deadline for submission of the forms is 19 May 2013, which this year falls on a Sunday.
Where employers do not file their annual return by 19 May they incur a penalty of £100 per 50 (or fewer) employees for every month (or part month) that their return is late.
With the introduction of RTI for the majority of employers from 6 April 2013 this will be the final P35 submission for many.
If you are unsure whether you need to complete a return this year please do get in touch.
The government has updated the template of written employment particulars.
The template is an example of a written statement of employment particulars which meets the requirements of employment law.
Where an employee is employed for more than a month the employer must give them a written statement of employment particulars.
Internet link: Government Publications
The forms P11D, and where appropriate P9D, which report employees and directors benefits and expenses for the year ended 5 April 2013, are due for submission to HMRC by 6 July 2013. The process of gathering the necessary information can take some time, so it is important that this process is not left to the last minute.
Employees pay tax on benefits provided as shown on the P11D, either via a PAYE coding notice adjustment or through the self assessment system. In addition, the employer has to pay Class 1A National Insurance Contributions at 13.8% on the provision of most benefits. The calculation of this liability is detailed on the P11D(b) form.
HMRC have issued some guidance as to common errors on the forms in the latest Employer Bulletin. These include the following which can delay
processing and cause problems with employees’ tax codes:
• Not ticking the ‘director’ box if the employee is a director.
• Not including a description or abbreviation, where amounts are included in sections A, B, L, M or N of the form.
• Leaving the ‘cash equivalent’ box empty where you’ve entered a figure in the corresponding ‘cost to you’ box of a section.
• Not correctly completing the box in Part 5 of form P35 (Employers Annual Return) or the declaration on the final FPS/EPS submission (for those employers operating PAYE in ‘real time’) to indicate whether or not P11Ds are due.
• Where a benefit has been provided for mixed business and private use, entering only the value of the private-use portion – you must report the full gross value of the benefit.
• Not completing the fuel benefit box/field where this applies. This means an amended P11D has to be sent in.
• Incorrectly completing the ‘from’ and ‘to’ dates in the ‘Dates car was available’ boxes. For example entering 06/04/2012 to 05/04/2013 to indicate the car was available throughout that year. If the car was available in the previous tax year, the ‘from’ box should not be completed and if the car is to be available in the next tax year, the ‘to’ box should not be completed.
Correct P11D completion is complex. If you would like any help with the forms P11D or the calculation of the associated Class 1A National Insurance liability please get in touch.
On 14 February 2013 Scottish and UK ministers agreed the final text of the Memorandum of Understanding between HMRC and the Scottish Government covering the Scottish rate of income tax.
The Scottish rate will commence from a date to be set by the UK Government, expected to be April 2016.