News & Updates

HMRC are undertaking their annual reconciliation of PAYE records and started the process of sending out P800 tax calculations and PA302 simple assessments in June. This process finalises the income tax liability for individuals under PAYE who are not expected to complete a tax return and HMRC expect it to be completed by the end of November 2019.

Clients should look out for the calculations and simple assessments. However, HMRC can and do make mistakes, so rather than assume that HMRC’s figures are correct, they should be checked carefully. The ICAEW have highlighted the following items where, historically, errors have been common:

• employment and pension income and tax deducted, including checking for omissions and duplications;
• other taxable income, such as rental income or dividend income below the threshold for needing to file a self-assessment tax return;
• employment expenses; and
• allowances, such as the marriage allowance.

HMRC estimate that 10% of individuals will have overpaid tax and 5% of individuals will have underpaid tax. Repayments for clients who have overpaid tax can be triggered from their personal tax account if they do not want to wait for HMRC to issue the refund, which may take up to two months. Where tax is owing, HMRC will either notify the individual that they will collect the underpaid via their tax code or, where this is not possible, issue a PA302 simple assessment, which must be paid by 31 January 2020.

Individuals registered for self-assessment who submit a tax return should not receive a PAYE calculation – where this is issued in error, you should contact HMRC to correct the situation.

Written by the Tax Advice Network

The off-payroll working rules as they apply where the end client is a public sector body are to be extended to the private sector, applying from April 2020 where the end client is a large or medium-sized public sector organisation. Where the end client is a small private sector organisation (as defined for the purposes of the Companies Act 2006), the IR35 rules apply as now with the personal service company being responsible for deciding whether the engagement is within IR35, and working out the deemed payment if it is.

The legislation to extend the public sector off-payroll rules to the private sector has been published in draft. The rules, as amended, will apply equally where the end client is a public sector body or a large or medium sized private sector organisation.

A key feature of the rules is the need for the end client to determine whether the worker would be an employee of the end client if the services were provided direct to the end client rather than through an intermediary, such as a personal service sector client. The end client must produce a status determination statement and this must be passed by down the chain. To encourage compliance, the client will be treated as the fee payer if they do not pass the status determination statement to the next person in the chain.

The legislation provides a definition of a status determination, which is a statement that either the off-payroll working rules apply or that they do not apply. The client must provide a reason for the decision, and must also take reasonable care.

HMRC’s Check Employment Status for Tax tool can be used to reach a decision and, as long as the details entered are correct, HMRC will stand by the decision produced by the tool. A copy of the decision should be printed out and passed down the chain with the status determination.

It is important that you understand the rules if you are affected by them and their obligations under them, and have procedures in place to comply from April 2020, particularly where high number of status determination statements will be needed.

Written by the Tax Advice Network

The UK will leave the EU by automatic operation of the law on 31 October 2019, unless the UK Parliament does something to stop it, and there is precious little time left for MPs to do anything.

If there are no arrangements in place (no deal brexit) to temporarily keep the UK within the customs union, import and export procedures will change immediately. All businesses who export to, or import from, EU countries will need an EORI number issued by the UK, otherwise they will not be able to keep trading with EU customers and suppliers.

HMRC is automatically allocating EORI numbers to 88,000 VAT registered traders who have completed an EC sales list to report goods sold to EU countries, and don’t already have an EORI number. The letters informing traders of their new unique EORI number should arrive this week.

However, many more businesses who are not VAT registered will also need an EORI number. If you import goods from the EU, or export any goods to customers in the EU, even very small amounts, they will need an EORI number to clear those goods through customs. Those businesses need to apply for an EORI number as soon as possible.

In addition to clearing customs the UK business will have to pay VAT on any goods imported from the EU into the UK. A trader can register for transitional simplified procedures (TSP), which is an additional process to the EORI number. There may also be tariffs to deal with on certain goods, and health and safety certificates.

There is a lot to understand about importing and exporting post Brexit, but fortunately the French customs authority has provided a useful guide.

Written by the Tax Advice Network

Since the IR35 rules were introduced in April 2000 they have been ignored by most engagers, as the responsibility for deciding whether the worker is caught by IR35 lies with the worker’s personal service company (PSC).

This decision-making responsibility was switched to public sector engagers from 6 April 2017, and it will switch to large and medium sized private sector engagers on 6 April 2020. However, the mechanism will also change from April 2020 as the engager must issue an employment status determination for the worker, which is passed down the chain of agencies until it reaches the worker. Thus each link in the chain should be informed of the engager’s decision about the worker’s status.

The worker can object to the employment status decision, giving reasons, and the engager (referred to as “the client” in the HMRC guidance) has 45 days to respond. Meanwhile the engager must continue to apply the IR35 rules in line with its determination.

The worker can of-course choose to leave the contract and seek work elsewhere, or request a higher gross fee to compensate for the tax and NIC which will be deducted from that fee.

The fee-payer will not normally be the engager, but another agency in the chain which pays the worker’s intermediary (the PSC). It is the fee-payer’s responsibility to deduct tax and employee’s NI from the worker’s fee, and report those deductions through RTI. The fee-payer should not deduct employer’s NIC from the worker’s fee, but pay that as an extra charge.

Small private sector engagers will not be required to make the employment status determination, and in those cases the PSC will make the decision as now. The HMRC guidance doesn’t explain the criteria for a “small” business, which is one that meets two of these conditions for the accounting period:

• less than £10.2m turnover
• less than £5.1m balance sheet
• no more than 50 employees

It is apparently up to the engager to tell the PSC whether it qualifies as small, which leaves a huge scope for confusion and mis-communication.

Written by the Tax Advice Network

To help employees with the cost of travelling to work employers can; subsidise travel on a local public bus service, lay on a works bus, or provide a cycle to work scheme.

The last option involves lending bicycles to the employees, who after a period of at least one year have the option of buying the cycle at a significant discount on the original price. Where the amount paid by the employee is within the range suggested in the table in EIM21667a there is no taxable benefit for the employee. A bicycle transferred after 5 or 6 years is deemed to have a negligible value.

The cycle to work scheme has been used to help employees to acquire desirable bicycles, but there has been an effective £1000 cap on the value of the bikes, as the loan of an asset worth more than that requires the employer to be authorised under article 36A of the Financial Services and Markets Act 2000.

However, the Government has announced a clarification of the rules. Where the employer appoints a FCA-authorised firm to hire out the cycles, the employee enters into a consumer hire agreement with that authorised lender and there is no limit on the value of the cycle which is the subject of the hire agreement.

The cycle to work scheme is frequently provided as part of a salary sacrifice arrangement, where the employee forgoes an amount of salary in return for the bicycle. Cycle to work salary sacrifice schemes are still tax efficient as they are excluded from the new salary sacrifice tax arrangements which came into effect on 6 April 2017.

 

Written by the Tax Advice Network

The domestic reverse charge for VAT comes into effect for the construction industry on 1 October 2019, as we explained in our newsletter on 13 June 2019.

However, many smaller building firms are unaware of this huge change to VAT administration. The Federation of Master Builders (FMB) has found that 69% of their members haven’t heard of the VAT reverse charge, and of those who were aware of it, only a third had started any preparation.

Here are four steps to work through.

1. Check whether the reverse charge affects some or all of your sales.

The reverse charge applies to the full value of the invoice, not just the labour element as CIS does. Most building services are covered by the reverse charge except for professional services of architects and surveyors. Check the list in the HMRC guidance.

Only VAT registered firms are affected by the reverse charge. Some builders whose turnover is under £85,000 register for VAT so they can reclaim VAT on purchases. This decision needs to be reviewed urgently.

2. Perform a cash flow analysis to see how the reverse charge will affect you.

From 1 October 2019 subcontractors will no longer charge VAT on their invoices to contractor firms, but they will need to reclaim VAT on purchases. This is likely to make their VAT returns repayment cases, which may impact their cash flow. The business may need to apply for a temporary loan to cover the period until the VAT is repaid. Alternatively, you could change to making monthly VAT returns, if you can cope with the extra deadlines.

3. Review the accounting system and make sure software updates will cope with the reverse charge.

Not all software suppliers have got to grips with the domestic reverse charge as they have been concentrating on MTD. All software updates need to be tested before October.

Firms which use the flat rate scheme will almost certainly have to leave that scheme before 1 October, as it will not be beneficial to pay VAT to HMRC on invoices where VAT has not been charged.

4. Train your own staff in how the reverse charge will operate and how to ensure the correct information is input into accounting software.

Staff need to be confident that they understand when the reverse charge applies, and when it doesn’t. To apply the reverse charge (ie not charge VAT on their invoice) they need to check that their customer is VAT registered and the VAT number is valid. This information can be collected for regular customers before October.  Please contact this office if you need any help in this regard.

Written by the Tax Advice Network