Internet link: Telegraph article

Tax return deadline

Last month we updated you on reaction to the surprise announcement, made on Budget Day, of the proposal to bring forward the tax return submission deadline from 31 January to 30 September for paper returns and 30 November for electronic ones. The professional bodies have been campaigning against the recommendations made as part of Lord Carter’s review.

Lord Carter has said that he may re-examine the proposal to bring forward the deadline for filing tax returns.

This announcement seems to be a direct response to the uproar caused amongst the accountancy profession. Let’s keep our fingers crossed that the government drop this proposal.

Internet link: professional bodies comment

Pensions white paper

The long awaited White Paper was released on 25 May. It contains many proposals which would change the pensions system quite radically. Amongst its features are the following:

• A new low cost savings scheme through personal accounts in which employees will be automatically enrolled unless they are members of their employer's scheme which meets a minimum standard. Employers will be required to make matching contributions while the employee chooses to remain in that new scheme. It is thought that up to 10 million employees will 'choose' not to opt out.
  
  
• Employees will contribute 4% of a band of earnings between approximately £5,000 pa and £33,000 pa. Employers will pay 3% on the same band of earnings and a further 1% will be added from the employees basic rate tax relief (some employees will, of course, attract higher rate tax relief too).
  
  
• There will be measures to help smooth the introduction of this reform for business. Employers’ contributions will be phased in over three years at the rate of 1% each year. There will be consultation on additional transitional support for very small businesses.
  
  
• Non employees and the self-employed will be able to opt in to the personal accounts scheme.
  
  
• A higher state pension re-linked to earnings from 2012 but only if it can be afforded at that time. A statement on the precise date of implementation will be made 'at the start of the next parliament'.
  
  
• The state second pension will become a simple and flat rate top-up to the basic pension. This process will start at the same time as basic pension earnings linked increases (ie, 2012 or later) and be fully flat rate by 2030 or shortly after.
  
  
• There will be a gradual rise in the state pension age. It will rise to 66 over two years between 2024 and 2026 and then from 66 to 67 between 2034 and 2036 and then to 68 in 2044 to 2046. Of course, this will also increase the number of years for which national insurance contributions have to be paid, even if not needed to earn a full state pension (see below).
  
  
• There is an extension of the current anomaly whereby benefits can be earned for no financial contribution. The White Paper suggests modernising the contributory principle for the basic state pension and the state second pension so that ‘it rewards social contributions equally with paid contributions’. This will be done by cutting to 30 the number of qualifying years needed to receive a full basic state pension, replacing Home Responsibilities Protection with a new weekly credit for those caring for children, and introducing a new contributory credit for those caring for severely disabled people for 20 hours or more per week.

Internet link: Pensions White Paper

Work and families Bill receives royal assent

Carers and working parents should benefit from the introduction of some new legislation as part of the Work and Families Act.

Thousands of working parents will be entitled to more maternity and paternity leave and pay after the Work and Families Bill received Royal Assent on 21 June. In addition, for the very first time, carers of adults will be given a right to request flexible working.

Businesses should also benefit from a package of measures designed to make life easier for employers. These include increasing the notice requirement to two months for mothers changing the date for their return to work after additional maternity leave and the introduction of ‘keep in touch days’ where women can be paid for a few days work without forfeiting her entitlement to statutory maternity pay or leave for that week.

The measures are due to take effect from 6 April 2007 and we will keep you informed of the changes that you will need to be aware of.

Internet link: Press release

HMRC get tough on status

In recent months, HMRC have begun to take a very hard line with the reclassification of subcontractors to employment status. The effects of this can be bad enough for a business but it now appears that HMRC are taking a much harder line.

In a Special Commissioners case known as Demibourne (SpC486), the company was required to pay tax and national insurance, under a settlement agreed with HMRC, due to the reclassification of an individual as an employee. HMRC practice over many years had been, provided that the individual had paid income tax on a self employed basis, to treat this as tax due on earnings and to collect only NI from the employer. This would include both employer and employee contributions, usually with no deduction available for Class 4 contributions paid.

In Demibourne, HMRC sought a full settlement of the tax as well as the normal procedure regarding NI, which the Commissioners upheld. It would seem that this practice is now becoming the standard approach because:

• the tax paid on a self employed basis will usually be lower than the amount due by an employee;
• if an individual is reclassified as an employee, they can make an error or mistake claim in respect of earlier returns. This will result in a repayment of the tax to the individual.

It now appears that HMRC’s approach is to demand the full tax and NI from the employer. HMRC will only allow a set-off for the amount of tax paid by the individual where the employer can obtain a mandate from the individual stating that the individual will not seek a refund of the tax and requesting that HMRC set the tax paid against the PAYE liabilities of the employer.

Of course, if the employer cannot trace the individuals concerned, employers may have no option but to settle the tax in full.

When a reclassification goes back beyond the time allowed for error or mistake claims by the individual concerned (5 years and 10 months after the end of the tax year), the tax cannot be repaid to the individual. HMRC should give a full set-off for this in the settlement.

A second change is that HMRC officials often used to accept that any reclassification could apply for the current year onwards. HMRC officials now appear to be under instructions to pursue all earlier years rigorously.

If you have contact from HMRC regarding this, or an Employer Compliance Review, please contact us urgently.

Internet link: Demibourne case

Businesses looking for older employees

Employers are looking for older workers, with 70% of employers currently trying to find staff over the age of 55, says a new survey by the Chartered Institute of Personnel and Development (CIPD).  The report also found that over 30% of businesses were trying to recruit employees over the pension age. 

Businesses, when questioned said that they were keen to take advantage of skills offered by older workers before the introduction of the anti-age discrimination legislation on 1 October this year. CIPD is advising businesses to remove all age-related criteria from recruitment practices.

Last month we reported on ACAS guidance which has been supplemented by some factsheets published by the DTI to help you in complying with the legislation from 1 October 2006.

Internet links: CIPD press release and ACAS Age and the workplace guide and Age legislation factsheets

Consultation on holiday entitlement

The current entitlement of a minimum 20 days paid holiday was introduced in 1998. However, the 20 day period can include the 8 permanent Bank Holidays leaving staff with as little as only 12 non-statutory days a year. The government is proposing to increase these minimum holiday entitlements. The proposals would mean that employers would be prevented from forcing staff to take Bank Holidays as part of their annual leave entitlement.

The proposed change, which it is estimated would affect about 2 million workers, especially women, ethnic minorities and part time staff, would be phased in from October 2007.

Internet link: DTI press release

Free guide for new employers

HMRC have published a guide for new employers. The pack includes details of how to register with HMRC, how to set up and manage a payroll system, and how to file the relevant tax returns. The guidance is useful reading for anyone thinking about becoming an employer. Alternatively we would be happy to discuss human resources or payroll issues with you.

Internet link: HMRC prospective employers pack

‘Train to Gain’ incentives

Small businesses (those with less than 50 employees) will be able to claim back the salary costs of employees taking part in the government’s ‘Train to Gain’ programme. The programme is designed to improve the basic literacy and computer skills of employees in the workplace. The programme is not yet available in all areas of the UK but is set to be rolled out across the country by August 2006.

The application procedure can be found by following the ‘Train to Gain’ link at the bottom of this article which takes you through the necessary steps to obtain training. This includes finding a local training broker who should be able to let you know what is available in your area.

To receive full salary compensation the employer will have to provide details of employees’ salary to the programme. Where salary details are not provided £5 an hour compensation will be paid.

Internet links: Telegraph article and Train to Gain website procedures

Ebay tax cheats

HMRC are using a search engine device to track down traders who sell large quantities of goods on eBay and don’t declare their earnings. Also, HMRC are looking for those traders who are not VAT registered.

HMRC expect the initiative to earn an additional £1million in VAT annually. For those wondering about the rules, for anyone in business selling second hand goods, bought from non-VAT registered individuals, the business is generally only liable to pay VAT on the profits and not on the full VAT-able turnover of the business.

It is believed that around 70,000 people earn 25% of their annual income trading on eBay.

Internet link: this is money article