Did you know you could be landed with a penalty if you fail to tell the Taxman when you become liable to pay tax? For example, when you become self-employed, or make a large capital gain. The deadline for declaring that you have income tax or capital gains tax (CGT) chargeable relating to the year to 5 April 2010, is 5 October 2010.
If you miss that deadline, the Taxman may send you a failure to notify penalty, which can be up to 100% of the tax due. However, if you pay all the tax due on time, which for income tax and CGT relating to the 2009/10 tax year, is by 31 January 2011, the penalty can be reduced to nil.
Where you have already received a self-assessment tax return form to complete for 2009/10 or a notice to file a self-assessment tax return online, your obligation to tell the Taxman is satisfied when you submit your tax return on time. But if you haven't got a tax return form, you need to ask the Taxman to set you up in the self-assessment system before 5 October 2010. We can help you with registration.
Once you are registered with the Tax Office, you should receive either a Tax Return form or a letter from the Taxman asking you to file a Tax Return online. The form or letter will include your Unique Taxpayer Reference number (UTR). If you submit a Tax Return that does not include your personal UTR number it may be rejected, and any tax payments you make will not be promptly matched to your records.
Friday, 15 October 2010
PAYE 'Errors'
You have no doubt heard on the news about the PAYE 'errors' affecting millions of people this autumn. The underlying problem is not new - the PAYE system does not cope well with taxpayers who have income from more than one employment or pension during the year. Under or overpayments of tax arise, and when the Taxman gets round to reconciling the tax and allowances due on the two or more employments, he issues a tax computation (form P800) to the taxpayer.
Unfortunately the Taxman did not do his reconciliations for 2008/09 (and in many circumstances for earlier years), so there are now two years' worth of forms P800 (2008/09 and 2009/10) on their way to up to 4.7 million taxpayers.
It is going to take some weeks to issue all of those forms, so you may not receive a letter immediately, if at all. If you normally complete a self-assessment tax return form you should not receive a form P800 as all of your tax liabilities are reconciled on the self-assessment form.
If you do receive a form P800, don't panic. In most cases it will show a repayment of tax, which will be sent to you within a few weeks. You do not have to supply any further details to the Taxman to get this repayment. To avoid fraudulent scams, PLEASE DO NOT respond to emails or telephone calls asking for your bank details in connection with a tax repayment.
If the form P800 shows that you owe some tax, you won't have to pay anything immediately. Indeed, if you owe less than £300 in total for 2008/09 and 2009/10 that tax will be written off and you won't have anything to pay. If the tax due is less than £2,000 it will be collected through your 2011/12 PAYE, so the amount will be deducted from your monthly salary in the year to 5 April 2012. If the tax due is more than £2,000 the Tax Office will issue a separate payment request, and ask for payments to be made in 2011. However, if you will have difficulty in paying the amount due, whether this is more or less than £2,000, you can ask to pay over an extended period of up to three years.
There is a possibility that you could avoid paying the tax due, where you can prove that the Taxman ignored information relating to your tax affairs for more than 12 months after the end of the tax year. This procedure is called Extra Statutory Concession A19, and you need to make a claim for this to apply.
We can help you check the P800 tax calculation, and to submit any claims needed.
Unfortunately the Taxman did not do his reconciliations for 2008/09 (and in many circumstances for earlier years), so there are now two years' worth of forms P800 (2008/09 and 2009/10) on their way to up to 4.7 million taxpayers.
It is going to take some weeks to issue all of those forms, so you may not receive a letter immediately, if at all. If you normally complete a self-assessment tax return form you should not receive a form P800 as all of your tax liabilities are reconciled on the self-assessment form.
If you do receive a form P800, don't panic. In most cases it will show a repayment of tax, which will be sent to you within a few weeks. You do not have to supply any further details to the Taxman to get this repayment. To avoid fraudulent scams, PLEASE DO NOT respond to emails or telephone calls asking for your bank details in connection with a tax repayment.
If the form P800 shows that you owe some tax, you won't have to pay anything immediately. Indeed, if you owe less than £300 in total for 2008/09 and 2009/10 that tax will be written off and you won't have anything to pay. If the tax due is less than £2,000 it will be collected through your 2011/12 PAYE, so the amount will be deducted from your monthly salary in the year to 5 April 2012. If the tax due is more than £2,000 the Tax Office will issue a separate payment request, and ask for payments to be made in 2011. However, if you will have difficulty in paying the amount due, whether this is more or less than £2,000, you can ask to pay over an extended period of up to three years.
There is a possibility that you could avoid paying the tax due, where you can prove that the Taxman ignored information relating to your tax affairs for more than 12 months after the end of the tax year. This procedure is called Extra Statutory Concession A19, and you need to make a claim for this to apply.
We can help you check the P800 tax calculation, and to submit any claims needed.
National Minimum Wage Changes
In the current recession you may have been forced to freeze or even reduce wages. If your workers are low paid you must be careful that you continue to pay at least the national minimum wage rate (NMW).
The hourly NMW rates increased on 1 October 2010 and now apply to workers in the following age bands:
21 and over: £5.93
18-20: £4.92
16 and 17: £3.64
Apprentice rate: £2.50
The apprentice rate applies to apprentices aged under 19, or those aged 19 or more in the first year of their apprenticeship.
The Taxman can impose penalties of up to £5,000 if you do not pay the statutory NMW rate, and you may even be tried in the Crown Court for non-compliance with the NMW rate regulations, leading to an unlimited fine. You must also pay any arrears of wages owed (for the previous 6 years), based on the current NMW rate, not the rate in force when your employee was underpaid.
The hourly NMW rates increased on 1 October 2010 and now apply to workers in the following age bands:
21 and over: £5.93
18-20: £4.92
16 and 17: £3.64
Apprentice rate: £2.50
The apprentice rate applies to apprentices aged under 19, or those aged 19 or more in the first year of their apprenticeship.
The Taxman can impose penalties of up to £5,000 if you do not pay the statutory NMW rate, and you may even be tried in the Crown Court for non-compliance with the NMW rate regulations, leading to an unlimited fine. You must also pay any arrears of wages owed (for the previous 6 years), based on the current NMW rate, not the rate in force when your employee was underpaid.
Taxman Brings in the Heavies
The Taxman has hired four debt collection firms to help collect an additional £140 million of unpaid taxes each year. Those firms are:
- Commercial Collection Services Ltd;
- Credit Solutions Ltd;
- Fairfax Solicitors Ltd; and
- iQor Recovery Services Ltd.
They will all be expected to operate under industry and Tax Office standards.
If you owe tax, even a just a few hundred pounds, you may well find a bailiff from one of those commercial firms on your doorstep. Before this happens you should receive a warning letter from the Collector of Taxes, but we know those letters can be out of date, contain incorrect figures or sometimes never arrive.
We are aware of some problems with corporation tax demands such as:
- Letters asking for tax to be paid but with no details of how the debt arose, or what period it is for;
- Demands sent where no corporation tax is due;
- Estimated tax bills issued and chased when in fact no tax is due.
If you receive a letter regarding an unpaid tax debt do not ignore it, even if the facts are incorrect and you don't owe the tax stated. If the Taxman's information is not corrected promptly you can expect to see the bailiffs and they can be hard people to deal with.
- Commercial Collection Services Ltd;
- Credit Solutions Ltd;
- Fairfax Solicitors Ltd; and
- iQor Recovery Services Ltd.
They will all be expected to operate under industry and Tax Office standards.
If you owe tax, even a just a few hundred pounds, you may well find a bailiff from one of those commercial firms on your doorstep. Before this happens you should receive a warning letter from the Collector of Taxes, but we know those letters can be out of date, contain incorrect figures or sometimes never arrive.
We are aware of some problems with corporation tax demands such as:
- Letters asking for tax to be paid but with no details of how the debt arose, or what period it is for;
- Demands sent where no corporation tax is due;
- Estimated tax bills issued and chased when in fact no tax is due.
If you receive a letter regarding an unpaid tax debt do not ignore it, even if the facts are incorrect and you don't owe the tax stated. If the Taxman's information is not corrected promptly you can expect to see the bailiffs and they can be hard people to deal with.
Monday, 2 August 2010
Withdrawal of CIS Gross Payment Status
Every month the Taxman's computer reviews the tax records for a number of contractors in the Construction Industry Scheme (CIS) who qualify for gross payment status. This means that tax does not have to be deducted from payments made by customers. Every contractor's tax record should be reviewed about once a year, but it is not possible to predict exactly when any particular firm will be reviewed.
If the tax compliance record is regarded as unsatisfactory, taking into account the acceptable minor breaches, the computer automatically issues a letter to the contractor informing them that their gross payment status will be withdrawn in 90 days. This is serious stuff as the withdrawal of gross payment status can mean the loss of large contracts, as well as cash-flow difficulties.
If you have recently had problems paying your tax on time, you may have agreed a time to pay arrangement with the Tax Office. Where the tax payments are made as per the agreed schedule, the Taxman should not issue penalties for late paid tax. Unfortunately the computer that performs the CIS review of tax records knows nothing about your time to pay arrangement, so any late payment of tax within the review period is marked as a failure. This can cause a notice of withdrawal of gross payment status.
You need to appeal in writing against that notice within 30 days of it being issued. Include in your appeal the following details:
- the date you or your firm requested time to pay from the Tax Office;
- which tax debts are included in the arrangement; and
- the agreed payment amounts and dates.
Your gross payment status should be restored if there are no other late tax payments or late tax forms delivered in the review period.
If the tax compliance record is regarded as unsatisfactory, taking into account the acceptable minor breaches, the computer automatically issues a letter to the contractor informing them that their gross payment status will be withdrawn in 90 days. This is serious stuff as the withdrawal of gross payment status can mean the loss of large contracts, as well as cash-flow difficulties.
If you have recently had problems paying your tax on time, you may have agreed a time to pay arrangement with the Tax Office. Where the tax payments are made as per the agreed schedule, the Taxman should not issue penalties for late paid tax. Unfortunately the computer that performs the CIS review of tax records knows nothing about your time to pay arrangement, so any late payment of tax within the review period is marked as a failure. This can cause a notice of withdrawal of gross payment status.
You need to appeal in writing against that notice within 30 days of it being issued. Include in your appeal the following details:
- the date you or your firm requested time to pay from the Tax Office;
- which tax debts are included in the arrangement; and
- the agreed payment amounts and dates.
Your gross payment status should be restored if there are no other late tax payments or late tax forms delivered in the review period.
Business Assurance Visits
If the Taxman suggests he should visit your business as part of their Business Assurance programme, should you agree? The answer is, almost certainly not!
The Business Assurance programme involves Tax Officers offering to visit new businesses to help them understand what sort of business records they should be keeping. During the visit the Tax Officer will ask the business owner how they record sales, purchases and expenses, how they handle cash, and how they calculate and record drawings or remuneration.
These questions amount to a tax compliance check and any answers you give will be recorded by the Tax Officer. What may not be recorded is any advice given by the Tax Officer in answer to your own questions. For example, you may ask: 'Is this expense tax allowable?' If the tax officer gives the wrong answer, and you act on it, you could be penalised in the future for getting it wrong.
Penalties for errors in tax returns are now dependent on your behaviour, so it is crucial that the Taxman does not form the impression that you have a careless approach to keeping business records. If you are offered a business assurance visit, either politely decline, or ask us to be present to ensure you are not tricked into saying something that may incriminate you in a future tax investigation. For any advice you need, you should talk to us, not the Taxman!
The Business Assurance programme involves Tax Officers offering to visit new businesses to help them understand what sort of business records they should be keeping. During the visit the Tax Officer will ask the business owner how they record sales, purchases and expenses, how they handle cash, and how they calculate and record drawings or remuneration.
These questions amount to a tax compliance check and any answers you give will be recorded by the Tax Officer. What may not be recorded is any advice given by the Tax Officer in answer to your own questions. For example, you may ask: 'Is this expense tax allowable?' If the tax officer gives the wrong answer, and you act on it, you could be penalised in the future for getting it wrong.
Penalties for errors in tax returns are now dependent on your behaviour, so it is crucial that the Taxman does not form the impression that you have a careless approach to keeping business records. If you are offered a business assurance visit, either politely decline, or ask us to be present to ensure you are not tricked into saying something that may incriminate you in a future tax investigation. For any advice you need, you should talk to us, not the Taxman!
VAT on Google Adwords?
Google Adwords is a popular form of marketing for getting your website onto the Google search results page. It is an international service for VAT purposes as it is sold to UK businesses by Google Ireland Ltd from Dublin.
If you are a UK business you should not be charged VAT on the cost of the adwords service, as it subject to the reverse charge regulations. This means, if you are VAT registered you need to add VAT at the standard rate applying in the UK to the adwords cost and add the gross cost to both your purchases and sales for the period. You pay the VAT due as if you had made the sale, and you reclaim the VAT due on your purchase of the same service. The net effect for a VAT registered business should be zero, unless it makes VAT exempt sales.
Certain accounting software programmes need some tweaks to cope with the reverse charge mechanism. Please ask us to check your system if you are not confident that it is processing the VAT on adwords costs correctly.
If you have been charged Irish VAT at 21% on your Google adwords, this may be because Google Ireland Ltd has recorded you as being a personal customer, not a business. If you are a UK business, not necessarily VAT registered, you can reclaim this erroneously charged VAT from Google Ireland Ltd. You cannot reclaim this VAT through the international VAT refunds service operated by HMRC as the VAT should not have been charged by Google in the first place. You should not include the Irish VAT on your UK VAT return as it is not correctly charged VAT.
If you are a UK business you should not be charged VAT on the cost of the adwords service, as it subject to the reverse charge regulations. This means, if you are VAT registered you need to add VAT at the standard rate applying in the UK to the adwords cost and add the gross cost to both your purchases and sales for the period. You pay the VAT due as if you had made the sale, and you reclaim the VAT due on your purchase of the same service. The net effect for a VAT registered business should be zero, unless it makes VAT exempt sales.
Certain accounting software programmes need some tweaks to cope with the reverse charge mechanism. Please ask us to check your system if you are not confident that it is processing the VAT on adwords costs correctly.
If you have been charged Irish VAT at 21% on your Google adwords, this may be because Google Ireland Ltd has recorded you as being a personal customer, not a business. If you are a UK business, not necessarily VAT registered, you can reclaim this erroneously charged VAT from Google Ireland Ltd. You cannot reclaim this VAT through the international VAT refunds service operated by HMRC as the VAT should not have been charged by Google in the first place. You should not include the Irish VAT on your UK VAT return as it is not correctly charged VAT.
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