HMRC consult on PAYE reporting requirements

HMRC have launched a technical consultation seeking comments on draft legislation which will amend the PAYE requirements (provided for in the PAYE Regulations) for employers in respect of car data reporting and optional remuneration arrangements. If enacted, the changes will apply from 6 April 2018.

Car data reporting requirements

Legislation was introduced at April 2016 that provided for employers to choose to tax most benefits-in-kind (BiKs) through their payroll rather than at the end of the year. These BiKs are reported to HMRC though Real Time Information (RTI), and remove the need for employers to submit forms P11D at the end of the year.

However, for company cars, HMRC still need employers to provide data regarding the cars and when draft legislation for voluntary payrolling was published for consultation in July 2015, HMRC advised that additional reporting requirements relating to car and car fuel benefit would be introduced for employers choosing to payroll car and car fuel benefit.

The changes to the PAYE Regulations being examined during the consultation period, set out what information employers will be required to report and how it will be submitted to HMRC.

Optional remuneration arrangements

Finance Act 2017 introduced legislation to remove the tax and employer NICs advantages of ‘optional remuneration arrangements’ (ORA) (commonly referred to as ‘salary sacrifice arrangements’). Broadly, An ORA is where an employee gives up cash pay in return for a benefit-in-kind (BiK), which was usually taxed on an amount lower than the pay given up, or left untaxed. The new legislation specifies that now, where a BiK is provided in conjunction with salary sacrifice, the taxable amount will be the greater of the BiK calculated under normal rules or the amount of salary sacrificed.

As the amount of the calculation will be different under ORA, the changes to the PAYE Regulations will clarify the taxable amounts that need to be reported either via Real Time Information, where employers are payrolling BiKs, or at the end of the year for non-payrolling employers.

Further details can be found online at https://www.gov.uk/government/consultations/draft-legislation-the-income-tax-pay-asyou-earn-regulations-2017. Comments on the draft legislation are invited by 28 November 2017.

Childcare Scheme Extended

HMRC have recently confirmed that the second phase of the roll-out of the new 30 hours free childcare has commenced.

Broadly, from September 2017, the new 30 hours free childcare offer for working parents of three and four year olds in England doubled the previous 15 hours of free childcare, saving eligible working families up to £5,000 a year. From 24 November 2017, the service will also be available to parents whose youngest child is under six or who has their sixth birthday on that day.

Eligible parents will be able to apply online via the Childcare Choices website. On registering, they receive a code, which in turn allows them to arrange their childcare place. Parents can take their code to their provider or council, along with their National Insurance Number and child’s date of birth. Their provider or council will check the code is authentic and allocate them a free childcare place.

Parents will be able to apply for tax-free childcare and the 30 hours offer in one go through the government’s digital childcare service. Eligible parents can benefit from both tax-free childcare and 30 hours free childcare at the same time.

According to HMRC, more than 275,000 parents have already opened childcare account. Of these, more than 216,000 parents received an eligibility code for 30 hours free childcare for September.

Over the coming months, HMRC will gradually open the childcare service to parents of older children, while continuing to make further improvements to the system. The gradual rollout helps HMRC manage the volume of applications going through the service, so parents should continue to receive a better experience and prompt eligibility responses when they apply – HMRC claim that almost all parents receive a response within five working days, and most get their decision instantly.

All eligible parents will be able to apply by the end of March 2018.

HMRC Launch Further Help-to-Save Consultation

Following an earlier period of consultation, HMRC have published draft legislation along- side a further technical consultation document, setting out proposals for the main features, processes and requirements of the new Help-to-Save accounts scheme, which is set to commence in 2018.

Help-to-Save will be targeted at working families on low incomes to help them build up their savings. The scheme will be open to around 4 million individuals who either receive universal credit and have minimum weekly household earnings equivalent to 16 hours at the national living wage, or receive Working Tax Credit (WTC).

Help-to-Save will work by providing a 50% government bonus on up to £50 of monthly savings into a Help-to-Save account. The bonus will be paid after two years, with savers able to continue saving for a further two years, meaning people can save up to £2,400 and benefit from total government bonuses worth up to £1,200. Along similar lines to Lifetime ISAs, bonuses on Help-to-Save accounts will be exempt from income tax.

Accounts will be available through the government’s chosen account provider, National Savings and Investments (NS&I). Customers will register for an account through the gov.uk portal. HMRC will carry out the necessary eligibility checks (using Tax Credits and Universal Credits data) and will pass the customers through to NS&I to set up an account if they are eligible. Eligibility queries will be handled by HMRC.

Help-to-Save accounts will usually mature after four years. Once an account matures it will automatically rollover into a successor account which will not attract a further Help-to-Save bonus. However, an account may mature earlier if the account holder dies or becomes terminally ill, with the bonus paid at this point.

The consultation ran until 27 October 2017. Responses are now being reviewed and the draft regulations will be revised as appropriate before they are laid before Parliament.

HMRC Launch New Business Support Service

HMRC have launched a new service designed to directly help mid-sized businesses as they expand and grow.

The new Growth Support Service (GSS) will be open to some 170,000 mid-sized businesses registered in the UK who are undergoing significant growth, and who either have a turnover of more than £10 million, or more than 20 employees.

Broadly, a business will be eligible under the ‘significant growth’ criteria if its turnover increased by 20% or more in the last twelve months, where this increase is at least £1 million.

HMRC’s GSS tax experts will offer dedicated support, tailored to the customer’s needs. It has been created to help growing, mid-sized businesses access specific information and services, including:

  • helping with tax queries about the growing business;
  • supplying accurate information and coordinating technical expertise from across HMRC;
  • supporting businesses to get their tax right first time and access relevant incentives or reliefs.

Businesses who meet the eligibility requirements can apply online; they will then be contacted by their dedicated growth support specialist at HMRC, to discuss their requirements. The bespoke service will generally last between three to six months.

According to HMRC, the top five industries and sectors that could benefit from the Growth Support Service are:

  • Manufacturing (for example building, printing or maintenance firms);
  • Information and communication (for example IT or software companies, film makers or publishers);
  • Administrative and support services (for example vehicle hire companies, recruitment agencies or call centres);
  • Professional, scientific and technical services (for example law and accountancy firms or quantity surveyors); and
  • Wholesale and retail (for example high street shops, food and drink outlets or car showrooms).

It is worth noting that the HMRC growth support specialists will only deal with tax-related matters. They will not, however, be able to give general business advice, tax planning or tax avoidance advice, or guidance on how businesses should grow.

Case Study: Double glazing salesman was self-employed

Employment status tax cases often make the headlines in the professional press and the June 2017 case of Tomlinson was no exception.

In this case, the First-tier Tribunal found that a double glazing salesman (Mr Malcolm Tomlinson) was self-employed and not an employee as he had claimed.

As with most employment status cases, this case focused on the details of the terms on which Mr Tomlinson was engaged with the company. Many facts of the case pointed towards a self-employed status, including the fact that there was no written contract in place and Mr Tomlinson was not required to give notice of leaving. He was paid on a commission-only basis and did not receive holiday pay, sick pay or pension contribution payments. He provided his own car, mobile phone and other equipment.

However, many other factors emerged which tended towards employed status. These included authority to sign initial customer contracts on behalf of the company; an expectation for working in the company showroom approximately two days a week; an expectation to complete a holiday request form; appearances in company advertisement; and an expectation that Mr Tomlinson would not work for competitors.

The First-tier Tribunal (FTT) worked its way through various factors which have historically been used to determine employment status cases. Such factors include control, equipment, financial risk and payment terms, personal service and exclusivity, mutuality of obligation, benefits provided, integration within the company’s business, and intention.

In concluding its review of the overall effect of all such factors, the FTT found that the details of this case did not clearly point towards either employment or self-employment. However, looking at the overall picture, the FTT’s view was that Mr Tomlinson was in business on his own account and was not therefore, an employee. The FTT concluded that it was decisive that both Mr Tomlinson and the company intended and believed that Mr Tomlinson was self-employed and had operated on that basis for almost 25 years.

As Mr Tomlinson had not discharged the burden of proof showing on the balance of probabilities that, during the period in question, he was employed under a contract of service, the decision that Mr Tomlinson was self-employed stood good.

New anti-money laundering regulations

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Pay) Regulations 2017 (SI 2017/692) took effect from 26 June 2017 and replace the previous 2007 Regulations with new statutory requirements for systems and procedures. Broadly, the regulations require firms undertaking certain financial activities to apply risk-based customer due diligence measures and take other steps to prevent the firm’s services from being used for money laundering or terrorist financing.

The regulations apply to a number of different business sectors, including financial and credit businesses, accountants and estate agents. Every business covered by the regulations must be supervised by a supervisory authority.

The 2017 Regulations stipulate that firms must appoint a money laundering compliance principal (MLCP) and that individual must be on the board of directors (or equivalent management body), or a member of senior management, where appropriate to the size and nature of the business. Firms must also appoint a nominated officer (i.e. the individual nominated to receive internal suspicious activity reports and who assesses whether a suspicious activity report should be made to the National Crime Agency (NCA)). The MLCP and the nominated officer can be the same person but the identities of each need to be communicated to the supervisory body within 14 days of first appointment.

Firms were required to have a money laundering reporting officer (MLRO) under the 2007 regulations, but they now need to make sure that the equivalent individual under the 2017 Regulations (the MLCP) is on the board of directors (or equivalent management body), or is a member of senior management, and that they have responsibility for compliance with the regulations.

HMRC supervises the following seven business sectors:

  • high value dealers;
  • trust or company service providers;
  • accountancy service providers;
  • estate agency businesses;
  • money service businesses;
  • bill payment service providers;
  • telecommunication, digital and IT payment service providers.

Where a business falls into one of these business sectors, it must be registered with HMRC. Failure to comply constitutes a criminal offence.

Further information on the regulations can be found on the gov.uk website. The Institute of Chartered Accountants in England and Wales (ICAEW) has also published an overview of the Money Laundering Regulations 2017, which provides helpful guidance on the changes.

Digital Tax Accounts and Making Tax Digital

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HM Revenue and Customs (HMRC) announced its new Making Tax Digital (MTD) in the March 2015 Budget but since then, there have been many consultations and changes in the implementation dates. The aim is for HMRC to be interacting digitally with all taxpayers.

MTD had been planned to start in April 2018. It will now start in April 2019 and only at that date for businesses with a turnover above the VAT threshold.

The end of the tax return

The original intention for small business owners had been the eradication of the annual tax return by 2020 (but see the heading below ‘when does it start..’) most businesses, self-employed people and landlords will instead be required to keep track of their tax affairs digitally and to update HMRC at least quarterly via their digital tax accounts, or more often if they’d prefer. HMRC has said that this doesn’t mean you’ll have to complete a full tax return four times a year; you’ll simply need to provide more regular updates online.

The introduction of a ‘real time’ tax system means that instead of reporting information on tax returns and paying liabilities long after the end of the tax year, you will be able to see a real-time view of your business tax affairs and liabilities through your digital accounts. This should make it easier to understand how much tax you owe and to budget accordingly.

Road Map

The Roadmap was issued in 2015 and this is the document outlining HMRC’s vision for reform and original intention for the end of the Tax Return by 2020. This document has now been archived and we must look to the commentary used in the overview paper updated on 13 July 2017 which only states with any degree of certainty that MTD will apply from April 2019 businesses above the VAT threshold and beyond that, we will have to lookout for updates.

HMRC has identified its ‘four foundations’ which will result in the transformation of the tax system and enable them to remove the requirement for Tax Returns to be filed. Under MTD, they are called reports and declarations instead of a tax returns or self-assessment as we know it.

Four foundations:

Tax simplified: taxpayers will no longer be required to provide HMRC with the information they already hold or have access to.

Tax centralised or in one place: Information will be retained in one centralised place and taxpayers will be able to see a full ‘tax picture’ of what taxes they pay and owe online, in their ‘digital account’ with HMRC. They will be entitled to set off overpayments of one tax against liabilities of another.

Making tax digital for businesses: businesses will be required (or their agents) to update/report to HMRC on a quarterly basis their accounting information prepared digitally and HMRC will use this to enable accurate interim tax calculations. Businesses will still need to make year end submission, which in essence is preparing their annual accounts that should reconcile their quarterly returns.
Making tax digital for individual taxpayers: enabling digital interaction with HMRC at any time and giving individuals a personalised picture of their tax affairs, along with prompts, advice and support.
Who does it apply to?

At this stage, the Making Tax Digital proposals are geared at sole traders and partnerships, as well as individual taxpayers. HMRC is also proposing that Making Tax Digital would only apply after £10,000 annual income or turnover, so a sole trader with one small business that makes sales under £10,000 a year would be exempt from MTD. However, a sole trader with two businesses, each making sales of £6,000 a year, would have to comply with MTD, because his/her total income for the year is £12,000.

If you have income taxed under PAYE and are also self-employed or have rental income, and the total of your self-employment and rental income is under £10,000 then you will no-longer need to complete a tax return. Instead, you will update your digital tax account. HMRC intends that usually any tax due will be collected through your tax code.

Personal Tax Account

Each individual will have a personal tax account. It enables them to register for new services, update their information and see how much tax they need to pay. Access to your personal tax account requires registration on the government gateway and your national insurance number. Access is available now.

Here is a link to the sign in or set up page: https://www.gov.uk/personal-tax-account

Here is a link (You-tube channel) to show you how to access your personal tax account: https://www.youtube.com/watch?v=7HL6Dc3QtsE

When does it start & How would Making Tax Digital work?

MTD was planned to start in April 2018. It will now start in April 2019 and only at that date for businesses with a turnover above the VAT threshold as mentioned above.

Changes to VAT reporting will come into effect from April 2019. From that date, businesses above the VAT threshold have to provide their VAT information to HMRC through Making Tax Digital software.

In their Overview paper which was updated 13 July 2017 HMRC state, ‘The government has committed that it will not widen the scope of Making Tax Digital for Business beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest.’

Businesses will send summary data to HMRC about their business each quarter, or more often if the business prefers. The summary data will consist of total income and total expenditure.

Businesses will need to send this information from online accounting – HMRC has confirmed that they will not be providing their own bookkeeping / accounting software and that the use of “digital record keeping software that links to and updates business’s digital accounts with HMRC” will be mandatory, except for taxpayers who are exempt from MTD.

Each business will have a proposed 10 months after the year end to file an “End of Year declaration”, submitting final figures.

How will tax payments work?

HMRC is not planning to change the current payment dates, but they have asked as part of the consultation if they should review the payment on account regime. Under MTD, businesses may have the right to make “voluntary payments” towards their tax liabilities, which would be aggregated together. HMRC has tentatively suggested it may need to be warned of upcoming voluntary payments.

HMRC has also said: “Under Pay As You Go, the customer will decide how often and what amount they want to pay. Payment will not have to be at any fixed time, or at regular intervals; the customer will retain control and choice, so they feel confident that they have made the right decision for their circumstances, and have the opportunity to amend their choices if circumstances change.

How will penalties work?

HMRC are proposing to abolish the current penalty system for late submissions and instead impose a “points” system similar to driving licence penalty points, with a financial penalty to be imposed only when the points reach a set level. That level is suggested as four points, with the slate cleaned after 24 months after the last points were added. Penalties for inaccurate information would only apply to the End of Year update and VAT quarterly returns.

HMRC issued a consultation and this has now concluded without a clear roadmap as to what these penalties will be, however, it appears that legislation for MTD will be included in the next Finance Bill which is expected to be introduced after the summer recess on 5 September 2017.

So what next?

HMRC have changed the timetable on a number of occasions and it appears that they are now going adopt a wait and see attitude to see how the pilot scheme and the scheme for VAT registered business works in practice before implementing a scheme for others caught within the MTD net.