| Enews - December 2006 | ||||||||||||
Introduction Welcome to the last enews of 2006. You may be winding down for a well earned break over Christmas and the New Year but there is lots of news to report. At the beginning of the month Gordon Brown presented his Pre-Budget Report. The announcements have received plenty of coverage but we highlight a few of the important changes which were announced. We also impart some Christmas party advice! With very best wishes for a prosperous 2007.
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Construction Industry Scheme
In last month’s enews we reported that HMRC had launched their press campaign on the introduction of the new Construction Industry Scheme (CIS) which will be introduced on 6 April 2007. In the Pre-Budget Report the government made two announcements regarding CIS tax rates. Under the current scheme subcontractors may be entitled to receive payments without deduction of tax if they have satisfied certain criteria. Otherwise there is a standard deduction rate (currently 18%) for registered subcontractors. According to HMRC an increasing proportion of subcontractors in the current scheme do not have their full tax and NIC met by their deductions. To reduce the additional payments due after the end of the year, the new scheme will have a standard deduction rate of 20%. A higher deduction rate will be introduced in the new scheme which allows unregistered subcontractors to start work. The government has now confirmed this rate will be 30%. One of the purposes of the higher rate is to encourage subcontractors to register. In preparation for the new scheme HMRC have recently sent a letter and a paper list or CD-ROM, to all registered contractors. The lists contain details of subcontractors paid since 6 April 2005 and therefore not requiring verification under new CIS.
Managed Service Companies attacked In 2000 the government introduced rules to tackle the provision of services through Personal Service Companies (PSCs). These rules have been referred to by the name of the press release of that time, IR35. PSCs were designed to ‘disguise employment’ by placing an intermediary, usually a company, between the payer and worker. This minimised the amount of tax and NIC due by paying that worker predominantly with dividends. Managed Service Companies (MSCs) attempt to avoid the IR35 rules. The types of MSCs vary but are often referred to as ‘composite companies’ or ‘managed PSCs’. HMRC have encountered increasing difficulty in applying the IR35 rules to MSCs because of the large number of workers involved and the labour-intensive nature of the work. Even when the IR35 rules have been successfully applied, an MSC can often escape payment of outstanding tax and NIC as they have no assets and can be wound up. The government announced in the Pre-Budget Report that they will remove MSCs from the IR35 rules and introduce new rules from April 2007. The intentions of the new rules are to:
Air Passenger Duty For those of you planning to fly off in the New Year you should be aware that Air Passenger Duty (APD) rates will be increased from 1 February 2007. The new rates of duty will be:
Date for Arctic Systems hearing announced At last, it has been announced that the Arctic Systems case will be heard in the House of Lords from 5 to 7 June 2007. The case, and the subsequent uncertainty, has now been running for more than two years and it is to be hoped that some sort of finality to this issue can be obtained before the end of 2007. Just in case you need a reminder, the case concerned a company owned by a husband and wife, Mr and Mrs Jones, and hinged on whether dividends paid by the company to Mrs Jones (who was not a higher rate taxpayer) should be shown on her husband self assessment return and taxed as his income at a higher rate of tax. HMRC won the original case heard by the Special Commissioners. The taxpayer subsequently appealed to the High Court, and HMRC also won this hearing. However, HMRC lost in the Court of Appeal. HMRC’s petition to the House of Lords for permission to appeal was granted and the appeal will be heard from 5 June 2007.
HMRC email scam HMRC have issued a warning to taxpayers about an email scam which is a ‘phishing exercise’ that uses bogus emails and websites to trick people into supplying confidential or personal information. The email asks taxpayers to complete a form with their bank details, on the understanding that they will receive a large repayment of tax direct to their bank account. The message and the promised tax rebate from ‘HMRC Premier Services’ are not legitimate. HMRC also provide a link to advice on online protection.
Employer late filing penalties for 2005/06 HMRC have announced that they have started sending out late filing penalty notices to those employers who they believed sent in their 2005/06 employer’s annual return forms P35 and CIS36 late. The due date for the 2005/06 returns was 19 May 2006 and fixed penalties are charged where the employer’s original return was received after 29 May 2006. If you believe you have been incorrectly issued with a penalty notice do get in touch.
Major VAT fraud operation HMRC criminal investigators have arrested 13 people following dawn raids across Europe in an operation targeting multi-million pound VAT fraud. The international operation saw over 300 HMRC criminal investigators deployed across four countries; France, Spain, Germany and the UK. Five people were arrested in the London area, two in Glasgow, three in the Midlands and three in Cheshire. The arrests are linked to suspected 'Missing Trader' fraud, which we have previously reported on in enews. ‘Missing Trader’ fraud is a sophisticated and organised criminal attack on the VAT system. The fraud arises through contrived transaction chains involving supplies of high value goods with the tax loss occurring when the VAT charged by the supplier is not paid to HMRC but can be reclaimed by the recipient. A reverse charge procedure was introduced in Finance Act 2006 whereby the VAT registered customer, rather than the seller, will have to account for and pay the VAT on the supply of certain goods of a kind used in ‘Missing Trader’ fraud, such as mobile phones and computer chips. Although the legislation was introduced in Finance Act 2006 with a planned implementation date of the reverse charge of 1 December 2006 this has been postponed. The delay is due to difficulties in the negotiations with other member states on the change in law in other countries to introduce the charge. The government has confirmed that the discussions are still continuing and still plans to introduce reverse charge VAT accounting for a range of goods, including mobile phones and computer chips, once agreement has been reached. Euan Stewart, HMRC Deputy Director of Criminal Investigations, said: ‘Organised criminals are attacking the tax system, with the aim of stealing huge amounts of revenue. The scale of the problem across Europe is unprecedented, and HMRC has significantly strengthened its response to this serious fraud. Today's operation, one of the biggest ever undertaken by HMRC, is part of a large scale, international criminal investigation into frauds that may run to hundreds of millions of pounds. We are committed to tackling VAT fraud and to showing the criminals behind it that there are no safe havens. We will pursue them, and the money they steal, wherever they operate in the world.’
Health and Safety According to a report published by the Health and Safety Executive (HSE) an estimated 5,000 lives have been saved in the workplace since the introduction of the Health and Safety at Work Act 1974. The report shows that there were 212 work-related deaths in 2005/06, which compares with 614 in 1975. The report also reveals that 146,000 people suffered serious injuries at work in the last year. The HSE also admit that they are falling short of government targets and that there is still a lot more work to do. The report states that: ‘Six years ago, the government set some ambitious targets to reduce work-related ill health, injuries and days lost…… we set out how we are doing: on track for meeting the ill health and days lost targets, and at last making progress on injuries. Indeed, in the last four years, the number of days lost has fallen 25% from 40 million to 30 million. But 212 deaths and 30 million days lost is still too many so there is much more work to do.’
Christmas party advice And finally, it wouldn’t be the festive season without some Christmas party advice! The Advisory, Conciliation and Arbitration Service (Acas) has commented that many businesses find themselves with problems on their hands over the Christmas period, particularly the fall-out from the office party. They have provided the answers to some particularly topical questions which include the following questions: Do you have any responsibilities towards an employee who has clearly drunk too much at the office Christmas party and is planning to drive home?
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