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The Welsh rates of income tax (WRIT) came into effect on 6 April 2019. They replace ten percentage points of each income tax rate with 10% of Welsh income tax. The total tax payable for 2019/20 by each Welsh taxpayer should be the same as for an equivalent taxpayer in the rest of the UK (excluding Scotland).

Each Welsh taxpayer should have been issued with a new PAYE code for 2019/20 with a C suffix. If the employer ignores the C suffix when applying the PAYE code through their payroll software, the correct amount of tax will still be collected, but it won’t go to the right place.

The Welsh tax paid on earnings and profits (WRIT doesn’t apply to savings, dividend or gains) is collected by HMRC and paid over to the Welsh Government. If the C code is not used the Welsh Government won’t get the money it is due.

Some Welsh taxpayers who should have received an C code were instead allocated an S code for 2019/20, which is reserved for Scottish taxpayers. This does have an effect on the amount of tax paid by the individual, as the Scottish income tax rates and bands are quite different to those used in the rest of the UK. HMRC is unable to confirm the extent of this error, but it has affected a number of government departments and agencies.

HMRC should issue the Welsh or Scottish PAYE code based on the individual’s correspondence address, if this has not been updated with HMRC an incorrect code may be issued. However, in some cases the PAYE computer is picking up the address of the employer or pension payer as the taxpayer’s address.

Can all clients review the PAYE codes used for employees who live in Wales or Scotland, to check that the correct country code has been applied.

Written by the Tax Advice Network

Do our clients use the new starter checklist when taking on new employees? This form is not optional, employers should ask all new employees to complete it even if the individual presents a completed P45.

Page 1 of the starter checklist asks the new employee to tick box A, B or C against the following statements:

1. This is my first job since 6 April and I’ve not been receiving taxable Jobseeker’s Allowance, Employment and Support Allowance, taxable Incapacity Benefit, State or Occupational Pension.
2. This is now my only job but since 6 April I’ve had another job, or received taxable Jobseeker’s Allowance, Employment and Support Allowance or taxable Incapacity Benefit. I do not receive a State or Occupational Pension.
3. As well as my new job, I have another job or receive a State or Occupational Pension.

If the individual does not understand the language used, he or she may well leave all three boxes blank, in which case the employer should choose option C and the new employee is given a tax code of OT/1. This leads to the employee being over-taxed as no personal allowance is given. HMRC may take some months to correct PAYE code, during which the employee will be short of cash and thus unhappy. This does not help the business to retain staff.

HMRC is rolling out a program to compare the PAYE codes reported on the FPS with the latest code issued for each employee. Where mismatches are found, the correct code will be reissued to the employer. Check that you are using their payroll software to download your employees’ PAYE codes before each payroll run. Any mismatches between downloaded codes and current employee data (eg name or NI number) should be followed-up with HMRC without delay.

Written by the Tax Advice Network

One of the factors which creates problems for capturing online tax returns is when the return includes a claim for receipt of the marriage allowance, see our newsletter on 20 September 2018. This problem is highlighted in exclusion number 105 on the SA online exclusions list for 2018/19.

The temptation would be not to claim the marriage allowance, but this would mean the taxpayer would pay £238 more in tax than was strictly due for 2018/19. If the marriage allowance is available for all years from 2015/16 (when it was introduced), the taxpayer could have overpaid tax of £900 across those four years.

The deadline for claiming the marriage allowance for 2015/16 is 5 April 2020. It would be worthwhile checking that all our married clients, and those in civil partnerships have claimed the marriage allowance where both partners are eligible. If the higher earner is taxed above the basic rate, they can’t receive the marriage allowance from their partner.

Remember a widow or widower can still claim the marriage allowance for years in which their partner was living for 2015/16 onwards.

Written by the Tax Advice Network

The first monthly VAT returns required to submitted under MTD are due in by 7 June 2019, and the first quarterly VAT returns due under MTD must arrive with HMRC by 7 August 2019. In spite of these close deadlines HMRC is still adjusting the MTD rules as set out in VAT Notice 700/22.

The latest version of this Notice was issued on 3 May 2019, and it includes some welcome simplifications regarding the digital recording of supplier statements and petty cash transactions. There is also a concession for charity fundraising events.

HMRC now accept that a business can record the totals from its supplier statement instead of all the individual purchase invoices issued by the same supplier. This will help businesses who make say one payment per period to each supplier, and their accounting records are compiled from the bank-feed of transactions. This relaxation only applies if all the invoices on the statement fall into the same VAT period, and the amount of VAT charged at each rate is recorded. Notice 700/22 says this change has the force of law, so you can rely on it.

Petty cash transactions can also be recorded as a single digital record, where the total amount is no more than £500, and the individual purchases were each no more than £50. This relaxation also has the force of law.

Charity fund raising events tend to be run by volunteers, who may buy supplies personally and then reclaim a total amount back from the charity as a reimbursement of expenses. HMRC has quite reasonably agreed that the charity can record all supplies relating to one event as one invoice. That concession is also given the force of law.

There is some confusion about what data must be recorded digitally, and when that data must be transferred digitally, rather than as retyping or as a cut-and-paste exercise.

When an invoice has been received digitally by email as a word file or PDF document, it does not have to be imported into the accounting system digitally. The law says you must record these data points:

• Time of supply
• Value of the supply
• Amount of VAT to be reclaimed

The taxpayer is within the MTD rules if he types those three points into his accounting software pack or spreadsheet. This is the formation of his VAT record, not the point the supplier invoice is received. Once the data is within his accounting system it need to be digitally transferred to the VAT return via digital links, without further retyping, or by cut-and-paste or copy and paste.

Section 4.2 of the VAT Notice 700/22 is the best place to look for guidance on digital records and digital links.

Written by the Tax Advice Network

In some cases, an individual’s personal tax liability is too complex to be calculated by hand. The combination of variable allowances, reliefs and geographically-dependant rates can defeat even HMRC’s computer programmers, which results in the SA tax return being excluded from online filing.

If you submit a paper tax return after 31 October following the year end, there will be an automatic late filing penalty. However, where the HMRC staff capture (ie scan and attach to the taxpayer’s electronic record) the reasonable excuse claim attached to the paper return, the automatic penalty should be overruled.

A number of tax agents are reporting that late filing penalties have been issued for 2017/18 paper tax returns submitted between 1 November 2018 and 31 January 2019, in spite of a reasonable excuse claim attached to the return. If this occurs for our client, we can ring the HMRC Agent helpline and ask the officer to look at the scan of the return.

Where the reasonable excuse claim has been captured, including the explanation that the return fell into one of the online exclusions for 2017/18, HMRC should cancel the penalty on request. If the reasonable excuse claim was not captured, you need to appeal the penalty, and enclose copies of the reasonable excuse claim plus other relevant information such as the electronic submission rejection.

Version 1 of the list of SA tax return exclusions for 2018/19 has just been issued. This year HMRC has removed all the solved exclusions from the list, leaving only 31 open issues. It’s worth reading through those exclusion categories before you attempt to submit a return, as your tax return software may not flag-up a problem before the point of submission.

Written by the Tax Advice Network

Welcome to our monthly newswire. We hope you enjoy reading this newsletter and find it useful.

How to raise your prices without losing customers

The cost of running a business goes up every year, but when was the last time you increased your prices?

Many business owners and managers worry that if they were to increase prices, they would lose customers.  However, a customer will often be willing to pay a higher price if they feel they are getting value for their money.

A good way to increase your prices can be to bundle products or services together and offer the combined bundle at a price that offers value to the customer. For example, a phone contract might have a higher price but it may include a bundle such as unlimited calls and 20GB of data per month. The key is providing value to the customer.

Find a way to differentiate your offering. Perhaps you could offer new online services to your customers such as an online portal or an app. Maybe you could create faster, more efficient processes so that your customers get a faster, more efficient product or service from your firm, compared to the competition. If you offer something that is seen to be the best in its class, that offers a benefit to your customers, you may be able to increase your prices.

You can test a higher pricing strategy on new customers. Your existing customers might be resistant to a price increase but new clients will be unfamiliar with your pricing so they may accept the higher price if they feel that you offer more value to them than your competitors.

If you do increase prices for your existing customers, you need to communicate well and explain clearly why you had to make the decision to increase your prices. Do your market research to make sure that your pricing isn’t completely out of line with competitors. If your business is not significantly different to the nearest competition, you may run the risk of losing clients.

Large sudden jumps in your prices will not go down well. Instead, introduce gradual increases such as 5% or 10% per year, depending on the type of business that you run. Everyone knows that the cost of doing business goes up each year. If you communicate with your customers, they may be more receptive to small increases.

Managing difficult people

Managing difficult people can be time consuming and emotionally draining.

You can’t reason with an unreasonable person. However, there is usually some underlying reason that is motivating them to behave in a difficult manner.

Try to identify the person’s trigger. What is stopping them from co-operating with you? It may be helpful to set up a one-to-one meeting. This gives you the opportunity to ask them what their intentions are and why they tend to behave in a difficult manner. Sometimes people just need to feel like they are being listened to.

Perhaps you can agree what it is you can do to resolve the situation.  If this doesn’t work, it can be helpful to let the person know your intentions and what you are trying to achieve. Explain how your objectives and the objectives of the business align and how you need them to work with you in order to move forward – try to build rapport.

Sometimes we rely too heavily on email and instant messaging, we forget to have a conversation with people. Talking gives you and the individual the chance to build a connection, perhaps through discussing non work-related topics such as hobbies or family.

It can also be useful to get some perspective from others. If an individual is being difficult with you, they may also have been difficult with others. Perhaps your colleagues can help you to see things from a different angle and may even offer ideas in terms of a situation.

If the situation cannot be resolved, it is worth remembering that no one is indispensable. Regardless of how good they may be at their job, you need to look at what the overall cost is to your firm. If other staff are leaving because they are unhappy, perhaps it’s best to part ways with your difficult individual and replace them with someone who is easier to work with.

Understanding what your customers really value can help you to market your products and services more effectively.

 Customer value is the perception of what a product or service is worth to the customer.  Customers don’t buy features – they buy benefits. Your customers will buy your product or service because of the benefits that they get.  If you take the time to understand what your customers value and what they are willing to pay for, you will be able to market your business more effectively. You may also be able to win new customers from your competitors.

Most businesses make the mistake of thinking about value purely in terms of money. They create special offers to promote their products and services, but all they are doing is cutting their profit margin in a race to the bottom. Sure, there is a place in most markets for a lowest priced competitor but this doesn’t work for everyone. Take the airline industry – there isn’t room for more than a handful of low cost airlines and that is why many of them are in financial difficulty – their costs have gone up, but there is downward pressure on pricing.

Value is about much more than just money. Put yourself in your customer’s shoes – your customers think of value in terms of goals, benefits and results. They are seeking an outcome and this is what drives their purchasing decision. For example, an accountant might save a customer £6,000 on their tax bill and charges the customer £2,000 for doing the tax work. The monetary value to the customer is therefore £4,000. But what if this is only the beginning? What if the customer wants to grow their business over the next 5 years. The accountant could add value by providing advisory services to the customer over the next 5 years, to help them to achieve that goal. The customer would be willing to pay for that additional service because it helps them to achieve their goal.

The overall perception of value is, from a customer’s perspective, also influenced by experience. If the accountant in our example is difficult to deal with and the customer has to regularly drive to their offices to sign paperwork, have face to face meetings, etc. the customer will not think that the service is great and may question whether it is worth the money. Conversely, if the accountant offers meetings over Skype, at a time convenient for the customer and provides documents by email with e-signature capability, the customer may value the convenience and efficient service to the extent that they may even be willing to pay more for that service.

Amazon.com is a great example. The high street is struggling yet the world’s largest online retailer continues to grow. Why? Because its customers value the convenience, the vast range of product choices on offer and the ease of purchasing. Amazon has aligned its business model with the values of its customers and that is why it continues to succeed.

Effective multi-tasking

In today’s fast-paced business world, here are some tips to help you to be more effective at multi tasking.

Over the past 10 years or so businesses have become leaner by reducing employee numbers, focusing on efficiency and increasing the demands on their staff. An increased workload forces us to multitask, which may be effective for a short period of time, but over the long term, can cause stress.

Multitasking is not about “piling on the work” to the point of exhaustion. It’s about training the brain to channel energy in an efficient and effective manner so you can accomplish more in less time. One of the keys to learning how to multitask effectively is actually to slow down, in order to accomplish more.

Set Priorities

Try to think of your brain as a computer. If you are working within multiple programs and have numerous windows open so you can quickly jump from program to program, you may find that your computer crashes a lot, due to the strain. The same thing happens in your brain. When you’re performing multiple tasks that require your undivided attention, your brain gets overloaded, as it can only process information from one channel at a time. Therefore, do not multitask if the assignment requires your full attention.

Useful tools

Make lists and write things down. You can’t remember everything so having a central to-do list is helpful. If you have a list of items you need to refer to often (such as pricing schedules or keyboard shortcuts) position this next to your phone or computer for quick access. Diarise some “management time” in your calendar each day – this might be a 45 minute slot where you have no meetings and can take stock, look at your to-do list and work through anything that needs your immediate attention.

Shift multitasking to single tasking

Your brain cannot multi-task all the time. So, occasionally, stop multitasking and allow yourself to do just one thing for fifteen to twenty minutes. At the end of this “rest period”, you’ll feel refreshed, alert, and ready to tackle more tasks – and you’ll do so with fewer mistakes.

Take regular breaks

Make the most of your breaks – avoid working through lunch and make sure to take a short break in the morning and afternoon. Use your break to walk around the building, sit outside, or do whatever you like for a few minutes to clear your head and give your brain a rest. Taking this time out during the day can actually make you more productive.