The Taxman has launched another campaign to encourage people to pay tax on income they have previously omitted from their tax returns. This time private teachers are targeted under a scheme called TCup: Tax Catch Up Plan for tutors and coaches.
If you want to use the TCup scheme you need to tell the Taxman you intend to make a disclosure by 6 January 2012, either using the notification form on the HMRC website, or by telephoning: 0845 601 8817.
On notification the Taxman will issue you with a disclosure reference number (DRN) and payment reference number. You will need to quote the DRN when you make the full disclosure of all your outstanding tax matters by 31 March 2012.
That is also the deadline for paying all the tax due on your previously undeclared income, interest on that tax, and the relevant penalty. To ensure your payment is matched to your disclosure form you need to quote your payment reference number.
It is up to you to calculate the penalty you should pay due to your late declaration of income. Under the TCup scheme the penalty can be 0%, 10% or 20%, depending on whether your under-declaration of income was an innocent mistake, careless error, or deliberate error. This is a considerable discount on the 100% penalty enforceable for deliberate and concealed errors discovered by the Taxman in normal circumstances, (which incidentally can be up to 200% where certain off-shore income is involved).
We can help you make a full disclosure and calculate the tax, interest and penalties due.
Thursday, 3 November 2011
Reality of Self-Employed Contracts
A recent case heard in the highest UK court (the Supreme Court) may affect whether workers are defined as employees, and hence whether they are entitled to employee rights and whether the employer has to pay them under PAYE. The case was called Autoclenz Ltd v Belcher.
Autoclenz Ltd required its workers to be self-employed contractors and issued contracts to those workers, which they were required to sign in order to be offered any further work by the company. The company provided the workers with all the tools and materials they needed, but deducted a 5% charge for use of those tools and materials from the invoices it prepared on behalf of its 'self-employed' workers.
The workers were paid so badly that they made claims to the employment tribunal to be paid the national minimum wage and holiday pay. The tribunal agreed the workers were employees in spite of the contracts they were required to sign. When the case reached the Supreme Court it found that the written contracts were a sham and did not reflect the reality of the relationship between the workers and the company.
This case shows that the definition of a sham contract is very wide. If the contract you have with your self-employed workers doesn't reflect the true agreement between you and those workers, the written contract could be ignored by the Taxman and any court.
To ensure your self-employed contractors are not treated as your employees, check that all of the following documents truly represent the reality on the ground:
- Written contract with the worker, and with any agency that provided the worker;
- Security clearance and passes (different for contractors?); and
- Health and safety instructions (who is responsible for what?).
Autoclenz Ltd required its workers to be self-employed contractors and issued contracts to those workers, which they were required to sign in order to be offered any further work by the company. The company provided the workers with all the tools and materials they needed, but deducted a 5% charge for use of those tools and materials from the invoices it prepared on behalf of its 'self-employed' workers.
The workers were paid so badly that they made claims to the employment tribunal to be paid the national minimum wage and holiday pay. The tribunal agreed the workers were employees in spite of the contracts they were required to sign. When the case reached the Supreme Court it found that the written contracts were a sham and did not reflect the reality of the relationship between the workers and the company.
This case shows that the definition of a sham contract is very wide. If the contract you have with your self-employed workers doesn't reflect the true agreement between you and those workers, the written contract could be ignored by the Taxman and any court.
To ensure your self-employed contractors are not treated as your employees, check that all of the following documents truly represent the reality on the ground:
- Written contract with the worker, and with any agency that provided the worker;
- Security clearance and passes (different for contractors?); and
- Health and safety instructions (who is responsible for what?).
Wednesday, 5 October 2011
Student Loan Notices
As an employer you are required to collect repayments of student loans your employees took out through the Student Loan Company (SLC) while they were studying, during years after September 1998.
You are told to start making SLC deductions by a form SL1 from the Tax Office (HMRC). HMRC is currently tidying up the data it holds on employers who collect student loan repayments. You may receive an unexpected SL1 notice for a current employee from whom you are already collecting SLC deductions. Alternatively you may receive SL1 notices for employees who have left your employment. In both cases you should simply file the SL1 notices and take no further action.
If you have a SLC loan yourself and are self-employed, the SLC loan repayments should be collected through your annual self-assessed tax bill, which is generally split over three payment dates. You need to tell us about your student loan, so we can ensure the right boxes are completed on your tax return form.
If your self-employed profits are less than £15,000 per year, you are not required to make any SLC repayments. This also applies if your salary is under £15,000 or you have a number of jobs from which you earn under that threshold in each.
You are told to start making SLC deductions by a form SL1 from the Tax Office (HMRC). HMRC is currently tidying up the data it holds on employers who collect student loan repayments. You may receive an unexpected SL1 notice for a current employee from whom you are already collecting SLC deductions. Alternatively you may receive SL1 notices for employees who have left your employment. In both cases you should simply file the SL1 notices and take no further action.
If you have a SLC loan yourself and are self-employed, the SLC loan repayments should be collected through your annual self-assessed tax bill, which is generally split over three payment dates. You need to tell us about your student loan, so we can ensure the right boxes are completed on your tax return form.
If your self-employed profits are less than £15,000 per year, you are not required to make any SLC repayments. This also applies if your salary is under £15,000 or you have a number of jobs from which you earn under that threshold in each.
Stuck in the UK?
As an employer you are required to collect repayments of student loans your employees took out through the Student Loan Company (SLC) while they were studying, during years after September 1998.
You are told to start making SLC deductions by a form SL1 from the Tax Office (HMRC). HMRC is currently tidying up the data it holds on employers who collect student loan repayments. You may receive an unexpected SL1 notice for a current employee from whom you are already collecting SLC deductions. Alternatively you may receive SL1 notices for employees who have left your employment. In both cases you should simply file the SL1 notices and take no further action.
If you have a SLC loan yourself and are self-employed, the SLC loan repayments should be collected through your annual self-assessed tax bill, which is generally split over three payment dates. You need to tell us about your student loan, so we can ensure the right boxes are completed on your tax return form.
If your self-employed profits are less than £15,000 per year, you are not required to make any SLC repayments. This also applies if your salary is under £15,000 or you have a number of jobs from which you earn under that threshold in each.
You are told to start making SLC deductions by a form SL1 from the Tax Office (HMRC). HMRC is currently tidying up the data it holds on employers who collect student loan repayments. You may receive an unexpected SL1 notice for a current employee from whom you are already collecting SLC deductions. Alternatively you may receive SL1 notices for employees who have left your employment. In both cases you should simply file the SL1 notices and take no further action.
If you have a SLC loan yourself and are self-employed, the SLC loan repayments should be collected through your annual self-assessed tax bill, which is generally split over three payment dates. You need to tell us about your student loan, so we can ensure the right boxes are completed on your tax return form.
If your self-employed profits are less than £15,000 per year, you are not required to make any SLC repayments. This also applies if your salary is under £15,000 or you have a number of jobs from which you earn under that threshold in each.
Splitting Businesses to Avoid VAT
Now that the standard rate of VAT has been raised to 20%, some business owners are increasingly tempted to split their businesses into different entities, so the part with non-business customers or both parts falls under the compulsory VAT registration threshold when split. This enables them not to register to have to charge VAT to those customers. The Taxman is watchful of this type of tax planning and where he believes they have been artificially separated to avoid VAT, he will direct that the businesses should be re-aggregated.
A frequent target of the Taxman on business-splitting grounds are VAT-registered farms, where a member of the family runs a bed & breakfast business which is not VAT registered, from the same location. He will argue that because some buildings have both a farm use and a B&B function, the two businesses are part of a whole and should come under one VAT registration.
Although the use of the same building can be a factor that indicates two businesses are connected, the Taxman is required to consider a range of factors to determine whether the businesses are genuine separate entities. He must judge whether each factor points towards one business, two separate businesses, or is neutral. If the majority of the factors are either neutral or point towards separate businesses, the Taxman should not direct that the businesses be combined for VAT purposes. If you are not happy with the Taxman's decision you can appeal to the Tax Tribunal.
Where you operate two or more businesses within your family, the following questions can help you decide whether the Taxman will challenge your businesses as being artificially split:
1. Is the business designed to operate as an individual business, despite utilising central resources, for example a franchised business?
2. Is the business so intrinsically linked with other 'connected' businesses that it can only be considered to be one indivisible business, for example wet sales and catering in public houses and restaurants?
3. Is the business carried on in separate departments or divisions, but is in reality one legal entity, for example a quasi partnership?
4. How much independence does the business have from any other 'connected' businesses by way of legal and technical resources?
5. Does the business owner have autonomy in the way he/she operates the business, for example access to premises, opening times, recording sales, purchase of stock and materials, bank accounts and annual accounts?
6. What would happen if the business owner was unable to operate their business personally?
7. Has the business owner registered the business with HMRC for corporation tax or income tax separately from those businesses that are 'connected'?
8. Is the business owner working together with their partner/spouse in his/her business as a quasi co-owner or just assisting them as a family member in their business?
The Taxman has the power to direct that two or more businesses should be treated as one business for VAT purposes, even where those businesses are contained within separate legal entities, such as limited companies. Please discuss your business structure with us if you think it could be challenged by the Taxman.
A frequent target of the Taxman on business-splitting grounds are VAT-registered farms, where a member of the family runs a bed & breakfast business which is not VAT registered, from the same location. He will argue that because some buildings have both a farm use and a B&B function, the two businesses are part of a whole and should come under one VAT registration.
Although the use of the same building can be a factor that indicates two businesses are connected, the Taxman is required to consider a range of factors to determine whether the businesses are genuine separate entities. He must judge whether each factor points towards one business, two separate businesses, or is neutral. If the majority of the factors are either neutral or point towards separate businesses, the Taxman should not direct that the businesses be combined for VAT purposes. If you are not happy with the Taxman's decision you can appeal to the Tax Tribunal.
Where you operate two or more businesses within your family, the following questions can help you decide whether the Taxman will challenge your businesses as being artificially split:
1. Is the business designed to operate as an individual business, despite utilising central resources, for example a franchised business?
2. Is the business so intrinsically linked with other 'connected' businesses that it can only be considered to be one indivisible business, for example wet sales and catering in public houses and restaurants?
3. Is the business carried on in separate departments or divisions, but is in reality one legal entity, for example a quasi partnership?
4. How much independence does the business have from any other 'connected' businesses by way of legal and technical resources?
5. Does the business owner have autonomy in the way he/she operates the business, for example access to premises, opening times, recording sales, purchase of stock and materials, bank accounts and annual accounts?
6. What would happen if the business owner was unable to operate their business personally?
7. Has the business owner registered the business with HMRC for corporation tax or income tax separately from those businesses that are 'connected'?
8. Is the business owner working together with their partner/spouse in his/her business as a quasi co-owner or just assisting them as a family member in their business?
The Taxman has the power to direct that two or more businesses should be treated as one business for VAT purposes, even where those businesses are contained within separate legal entities, such as limited companies. Please discuss your business structure with us if you think it could be challenged by the Taxman.
Business Record Checks Update
The Taxman believes that a lot of businesses do not pay the right amount of tax because they don't accurately record their business income and expenditure. In other words their business records are not of a high enough standard to produce accurate accounts. We agree that many businesses do not keep perfect records but we work with business owners to help them retain the necessary documents, and use those records alongside a good understanding of the business, to produce a reasonable statement of profit or loss for the tax return.
Unfortunately the Taxman is not taking such a helpful approach. He is now sending out 120 tax officers to examine the un-sorted raw records held at thousands of businesses. If the tax officer (who is not a trained accountant), judges the business records to be inadequate the business owner could receive a penalty of up to £3,000.
Some businesses have been visited already as part of a training exercise for the tax officers. Following those 'test and learn' visits the tax officer may have made recommendations, but he won't have raised a penalty, unless there were absolutely no business records to examine.
Now the learning stage is over and the gloves are off. We expect penalties to be imposed on many businesses by these lightly-trained tax officers. If a tax officer asks to examine your business records, please contact us immediately. Potential penalties can be avoided if we are able to explain to the tax officer exactly how your basic business records are turned into an accurate profit/loss statement.
Unfortunately the Taxman is not taking such a helpful approach. He is now sending out 120 tax officers to examine the un-sorted raw records held at thousands of businesses. If the tax officer (who is not a trained accountant), judges the business records to be inadequate the business owner could receive a penalty of up to £3,000.
Some businesses have been visited already as part of a training exercise for the tax officers. Following those 'test and learn' visits the tax officer may have made recommendations, but he won't have raised a penalty, unless there were absolutely no business records to examine.
Now the learning stage is over and the gloves are off. We expect penalties to be imposed on many businesses by these lightly-trained tax officers. If a tax officer asks to examine your business records, please contact us immediately. Potential penalties can be avoided if we are able to explain to the tax officer exactly how your basic business records are turned into an accurate profit/loss statement.
Thursday, 15 September 2011
New Mileage Rates
Where your employees use a company car or van, but pay for the fuel themselves, the company can pay a fuel-only mileage rate for business journeys. This fuel-only rate is guaranteed to be tax free when it is equal to or less than the advisory fuel rates set by HMRC. These advisory fuel rates are now revised every quarter. The latest rates applicable from 1 September 2011 are shown below for different engine sizes, with the previous rates that applied from 1 June to 31 August 2011 shown in brackets.
Petrol & LPG Engines
1400cc or less: Petrol 15p (15p), LPG 11p (11p)
1401 to 2000cc: Petrol 18p (18p), LPG 12p (13p)
Over 2000cc: Petrol 26p (26p), LPG 18p (18p)
Diesel Engines
1600cc or less: 12p (12p)
1601 to 2000cc: 15p (15p)
Over 2000cc: 18p (18p)
Note there is now a different scale for diesel vehicles.
The advisory fuel rates are based on average fuel prices per litre:
- Petrol: 134.6p
- Diesel: 139p
- LPG: 75.8p
If the prices in your local area are significantly higher, or your company cars are less fuel-efficient than average, you can pay a higher mileage rate. You need to keep a record of how you calculated that higher rate.
Where your employees use their own cars for business journeys, you can pay a tax free mileage rate of 45p per mile for the first 10,000 business miles driven in one tax year, and 25p per mile for extra miles in the same year. This rate was increased from 40p per mile on 6 April 2011, so remember to pay the higher rate to your employees and to yourself when you undertake business journeys in your own car.
Where the company is VAT registered it can reclaim VAT on the fuel element of mileage rates paid to employees, if the employee supplies the company with VAT receipts for fuel showing enough VAT to cover the claim. The advisory fuel rates are purely for fuel. The 45p per mile rate is only partly for fuel, the excess above the advisory fuel rate is to pay for other costs of running the car which are incurred by the employee.
If you are self-employed, with an annual turnover below the VAT threshold of £73,000, you can use the 45p rate as an approximation for the cost of business journeys in your own car.
Petrol & LPG Engines
1400cc or less: Petrol 15p (15p), LPG 11p (11p)
1401 to 2000cc: Petrol 18p (18p), LPG 12p (13p)
Over 2000cc: Petrol 26p (26p), LPG 18p (18p)
Diesel Engines
1600cc or less: 12p (12p)
1601 to 2000cc: 15p (15p)
Over 2000cc: 18p (18p)
Note there is now a different scale for diesel vehicles.
The advisory fuel rates are based on average fuel prices per litre:
- Petrol: 134.6p
- Diesel: 139p
- LPG: 75.8p
If the prices in your local area are significantly higher, or your company cars are less fuel-efficient than average, you can pay a higher mileage rate. You need to keep a record of how you calculated that higher rate.
Where your employees use their own cars for business journeys, you can pay a tax free mileage rate of 45p per mile for the first 10,000 business miles driven in one tax year, and 25p per mile for extra miles in the same year. This rate was increased from 40p per mile on 6 April 2011, so remember to pay the higher rate to your employees and to yourself when you undertake business journeys in your own car.
Where the company is VAT registered it can reclaim VAT on the fuel element of mileage rates paid to employees, if the employee supplies the company with VAT receipts for fuel showing enough VAT to cover the claim. The advisory fuel rates are purely for fuel. The 45p per mile rate is only partly for fuel, the excess above the advisory fuel rate is to pay for other costs of running the car which are incurred by the employee.
If you are self-employed, with an annual turnover below the VAT threshold of £73,000, you can use the 45p rate as an approximation for the cost of business journeys in your own car.
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