| Enews - February 2006 | ||||||||||||||
Introduction February has been a busy month especially in the world of tax as the articles in this month’s business update will testify. We pick up on the forthcoming changes to the rules on tax credit payments by employers and the new rules on the deductibility of employer pension contributions. We also bring you news of a new web-based tool whereby businesses can obtain HMRC’s view on the status of their subcontractors. Finally, at last, the government has announced the date of this year’s Budget. It will be on 22 March. We were beginning to wonder if the Chancellor had forgotten! We will of course keep you informed of any important changes announced.
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| Tax Credits - the end of payment via employers Payment of Working Tax Credit through the payroll is being phased out by the end of the current tax year. Employers should have already received a notice from HMRC, for each of their employees, telling them to stop making payments. Any employers who have not received the notice need to contact HMRC to agree a stop date. HMRC have warned that any payments that employers make to their employees after 31 March 2006 will not be recoverable. HMRC have also reminded employers that they should have sent their employees a letter last November informing them that HMRC would begin paying direct in the near future. A copy of the suggested wording for the letter is in the link below. It may well be advisable for employers to send employees a copy of this letter now to prevent a potential flood of employee queries which are otherwise likely to occur in this busy period.
Online filing a success say HMRC HMRC have announced that nearly two million taxpayers filed their 2004/05 personal self assessment tax returns online this year. This represents a 38% increase compared to last year. The HMRC website processed 719,913 self assessment returns during January. 336,277 returns were received in the final seven days, and 216,154 of those in the final four days until midnight on 31 January. "We've been pleased to see further growth in online filing this year. We estimate almost a quarter of all returns were submitted online," said Sir David Varney, Chairman of HMRC. Interestingly although HMRC seem pleased with the increase in online filing which will save them time, effort and processing costs, the percentage of returns submitted electronically is still only about 20% of the 9.8 million returns issued.
SMEs happy being small Research shows that three quarters of small business owners believe their quality of life has improved since they started their own business. The Health, Wealth and Happiness Report from MORE TH>N Business, shows that over half the owners of ventures employing fewer than five employees started their businesses to be happier and to have more control over their lives, rather than to make their fortunes. Starting up in business was a lifestyle choice rather than a career move, as an overwhelming 85% prioritise quality of life over money, while 56% never want to employ more than 10 staff. One of the conclusions of the survey is that this type of small business should be regarded as distinct from traditional entrepreneurs, even going to the trouble of dubbing them ‘alterpreneurs’ and setting up a website dedicated to them. “Working for yourself can be a great lifestyle choice,” commented Stephen Alambritis of the Federation of Small Businesses. “Despite the hard work and long hours involved, very few people who have made the leap would consider returning to the 9 - 5 world again.” “The government is missing the target by aiming support at start-ups with big growth plans,” he continued. “There needs to be greater focus on established firms, and moves to tackle the administrative headache of taking on employees to make growing a business more appealing.”
Employer pension contributions From A Day, 6 April 2006, the new pension regime will finally take effect. We have previously reported on the introduction of the new rules and HMRC have recently published their draft internal guidance on whether or not employer pension contributions will be deductible for tax purposes. Under the new regime, pension contributions by the employer must be physically paid and satisfy a wholly and exclusively test. The HMRC guidance advises that the contribution will be looked at carefully, especially where the salary is less than the commercial rate and the pension contribution appears to have been inflated. The situation described in the HMRC guidance is quite common in small owner managed businesses and typically would apply to director shareholders. The professional bodies are expected to challenge HMRC’s interpretation of these rules but care should be taken when making employer pension contributions until this matter is clarified.
Child Trust Fund (CTF) vouchers expire The CTF is a tax free savings and investment account designed to ensure that all children born from 1 September 2002 will be entitled to a fund when they reach age 18. The government issued the vouchers for children born from 1 September 2002 to April 2005 in batches and compensated them for the fact that the vouchers were issued late. However, it appears that many parents have failed to open an account within the one year time limit allowed and HMRC have issued revised guidance to Child Trust Fund providers giving an extra 7 days after expiry for the parent to get the voucher to a provider. Where parents have lost the voucher or fail to open an account the government will open a basic stakeholder account for the child. The parent will then have the opportunity to change the account in the future. One of the main advantages of the CTF accounts is that parents and other individuals can add up to £1,200 additional capital to the account each year and this is also allowed to grow tax free. The fund must pass to the child once they reach 18 and the government hopes that this money will be used towards funding higher education costs for the child. If you have recently had a child and are wondering how to apply for the voucher in the first place then you will be glad to hear that there is no application form to complete. A voucher will be issued automatically when an application is made for Child Benefit.
PAYE - end of year filing HMRC have published a huge amount of guidance on end of year filing of employers’ returns. Employers with 50 or more employees will have to file electronically this year or face automatic penalties of between £600 and £3000. Smaller employers will again be chasing the £250 tax free incentive payment which is available where they successfully file electronically. HMRC advise that they will be applying the full list of checks to the information supplied by employers, whether this is submitted by the agent or employer, either electronically or on paper. Last year, due to the failure of HMRC’s computer, only a few checks were actually applied. This year any errors will result in the returns being rejected by HMRC. The forms will have to be amended and resubmitted by the filing deadline of 19 May 2006 to avoid penalties. HMRC have also warned that they will be checking that any returns submitted are necessary before they issue incentive payments this year, which may cause further delays in receiving the £250 incentive payment.
National Pensions Day - 18 March On 18 March 2006 the future of pensions will be debated nationwide in the UK's first National Pensions Day. Secretary of State for Work and Pensions, John Hutton, made the announcement in a speech to The Work Foundation. A series of consultation events will take place on the day in Birmingham, Newcastle, Glasgow, Swansea, Belfast and London, attended by Ministers, industry specialists and a representative sample of the public. The recommendations in The Pensions Commission's report published last November will provide the basis for the debate, which will also look at:
Chip and PIN We are sure you will not have missed the introduction of the chip and PIN payment system with the flurry of in store advertising campaigns. Fighting for Private Business (FPB), a group which campaigns for small businesses, says banks are to blame for the difficulties surrounding the introduction of chip and PIN by pushing the system through before retailers and consumers are ready. From 14 February, people with chip and PIN cards are expected to verify a purchase by keying in their personal ID number. If your business does not have chip and PIN you may now be liable for credit card fraud carried out on your premises.
Health and Safety at work The Health and Safety Executive have put together an interactive package to enable businesses to check whether or not they are complying with the legislation in this area. To check if your business is up to scratch use the link below.
Employment Status tool HMRC have made available on their website an employment status indicator (ESI) tool which allows contractors to check HMRC’s interpretation of the employment status of potential workers. The tool is aimed at those contractors within the Construction Industry Scheme (CIS) and is being made available in advance of the start to the new scheme, which has been pushed back to 6 April 2007. WARNING! Those of you who decide to use the tool should do so with extreme care as it asks a series of leading questions which are used to form the basis for a conclusion of employed, self employed or unsure. Where the tool is unable to come up with a conclusion then it suggests you refer the particular circumstances to an HMRC Status Inspector which could have all sorts of unexpected consequences, including a visit from HMRC. HMRC warn that the tool cannot be used to produce a binding ruling as to the status of a particular individual.
Trust expenses HMRC have recently published updated guidance on their interpretation of current trust law. HMRC advise that trustees and beneficiaries should make their tax returns according to these guidelines. The guidance has been largely agreed by trust representatives, but some areas of disagreement remain, in particular trustees' fees.
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