HMRC new powers to deduct tax through PAYE

HM REVENUE & CUSTOMS will be able to deduct up to £17,000 per year of tax debts from high earners’ through PAYE under powers coming into force this week. The move represents a significant increase on the previous annual tax collection ceiling, which was previously set at £3,000.

HMRC sought to increase the limits on the debt it can collect through PAYE because it was “inefficient and unfair” to be forced to use more expensive debt pursuit methods when collecting larger sums. It added the new rules would also potentially help debtors on higher incomes as they would be able to stagger their debts over the tax year, instead of having to pay upfront.

The increased threshold is expected to bring in an additional £115m in 2015/16. It will not affect those earning below £30,000, who will still operate under the £3,000 limit. An incremental scale will be in place, with £17,000 limit reserved for those earning £90,000 or more.

A spokesman for HMRC said: “Taxpayers welcome the option to have tax debt collected by instalment. This is a very longstanding feature of the payroll system but the increase in the current threshold will allow more tax debts to be paid in this way.

“We will issue letters advising taxpayers that collection through their PAYE tax code is being considered to collect their outstanding arrears. The amount of debt to be collected through the PAYE code will then be shown on the Annual Coding Notice (P2) which is sent to the taxpayer between January and March 2015 before the new tax year starts on 6 April 2015.”

Tax change hits foreign buyers

The FT reports that a “little-noticed” tax change introduced in early August has added to the recent slowdown in sales of luxury London homes to foreign buyers. Non-domiciled residents must now pay tax of up to 45% when they use overseas assets as collateral to finance purchases in Britain, whereas previously, foreign assets such as stocks, shares and property could be used as security for borrowings in Britain with no tax charge. The move is being viewed as the latest in a series of government efforts to clamp down on foreign buyers. It comes after George Osborne announced plans in 2012 to impose CGT on expensive properties owned through companies, and after the government also imposed an annual tax on homes held in companies, which has raised £198m in 10 months according to HMRC figures.

 

OECD unveils tax plans

Moves to tackle corporate tax avoidance on a global scale have been unveiled by the OECD. The action plan is aimed at multinational companies that shrink their tax bills by shifting their profits from one country to another.The OECD says 44 nations making up 90% of the world economy favour its plan. Announcing the proposals, the OECD’s head of tax, Pascal Saint-Amans, said that they would “change the rules of the game” by making sure companies paid taxes in the country where profits were generated. At present, firms can exploit agreements intended to avoid double taxation of profits by using them to obtain double tax deductions instead. They also use internal billing procedures to ensure that profits are registered in countries where corporate tax levels are lower. Under the OECD plan, a country-by-country model would require firms to declare their revenue, profit, staffing and tax paid in each jurisdiction. 

HMRC PAYE RTI

HMRC has announced plans to exempt small employers with 49 or fewer staff from being issued with automated PAYE real-time information late filing penalties until March 2015. The CIOT has welcomed the announcement, with Colin Ben-Nathan, Chairman of the Employment Taxes sub-committee, stating:Smaller employers, in particular, need a longer period of time to adjust to PAYE and other administrative changes because they have very limited resources which are primary geared to servicing their clients and customers.”

Fake HMRC rebate emails increase by 47%

HMRC has issued a warning about email phishing scams which offer tax rebates in return for bank account or credit card details, after a sharp rise in reported attempts at fraud using this method.

In the three months prior to the 31 January filing deadline for online tax return submission, taxpayers reported 23,247 phishing emails to HMRC, a 47% rise on the same period the previous year. During 2013, customers reported over 91,000 phishing emails to HMRC. In response, HMRC closed 178 websites last month, up from 65 in January 2013. During 2013, HMRC closed down 1,476 websites sending these types of scam emails, which were based around the world, including the US and Russia.

The scam emails typically begin with a sentence such as ‘we have reviewed your tax return; according to our calculations of your last year’s accounts a tax refund of XXXX is due.’ Anyone who responds is at risk of having their personal and financial details passed on to criminal gangs

Gareth Lloyd, head of digital security at HMRC, said: ‘HMRC never contacts customers who are due a tax refund via email – we always send a letter through the post. “If you receive an email claiming to be from HMRC which offers a tax rebate, please send it to phishing@hmrc.gsi.gov.uk and then delete it permanently.’

Bogus HMRC emails have also been circulated to employers containing zip file attachments or hyperlinks, which HMRC warns should not be opened because they include a virus.

RTI

RTI – MICRO EMPLOYERS will be given another two years’ grace from compliance with real-time PAYE reporting requirements.

The deadline for compliance with real-time PAYE reporting (RTI) will be April 2016 for businesses with fewer than ten employees. Those with up to 49 employees will have up to April 2014 – itself an existing easement to send PAYE information about their employees in real time.

The latest easement, however, will also not extend to those that start up during the period.

HMRC’s director general for personal tax, Ruth Owen, said it had been “appreciated” that this had presented the smallest businesses “some challenges”. “This package strikes a good balance by ensuring RTI improves PAYE processes while minimising the impact on micro businesses and their agents by giving them up to two years to adapt.”

It is unfortunate that the existing easement has not been extended for those with 49 or fewer employees.

Companies House – are they being unreasonable?

Companies House have now started to send out Red Urgent Reminders for Annual Returns when the made-up-to date has only just passed. For clients who receive these notices from Companies House with the words URGENT REMINDER, is a worrying prospect, the content of these letters is also alarmist. The view of practioners and clients alike is that its unreasonable to scare people when there is no need and these notices are over the top. If the annual return is very overdue then fair enough, but a few days?

Child Benefit – What are the implications?

Next year many fathers will have the unpleasant shock of a tax bill for several hundred pounds because of child benefit paid to the mother.

The Budget announced that child benefit would be progressively withdrawn from households where someone earns at least £50,000. The benefit is withdrawn at the rate of 1% for every £100 above this threshold. So anyone earning £60,000 or more in effect gets no child benefit. This affects about one household in seven where child benefit is claimed.

This new provision throws up many anomalies. For example, it means that a two-income couple can earn £99,000 a year and keep all their benefit, while a single-income couple on £60,000 lose all theirs.

It also means that a couple can be better off separated than married. If a low-income mother no longer lives with the father she may be able to keep the benefit that would otherwise be lost if they were still together. This is not what we thought the prime minister meant when he said that marriage would be recognised in the tax system!

New income tax charge

We now know that this withdrawal of benefit is to be by a new income tax charge called “high income child benefit charge”. This is charged on the higher earner. So the mother may still receive the benefit while the father has to pay it all back through additional income tax. It does not need much imagination to think of the problems this could cause. If the mother does elect not to receive the benefit, she may at any time revoke the election and receive child benefit again.

Electing not to receive child benefit

It is possible for an election to be made so that child benefit is not received in the first place. In such cases, no high income child benefit charge is made. However, the right to make this election rests solely with the person who receives child benefit. This is usually the mother, so she alone can decide whether her partner is hit with this new charge.

A person can be liable for this new charge if they are the person receiving child benefit or their “partner”. This means a husband, wife or civil partner, or something with whom the person is living as such. So someone who moves into a house with a person receiving child benefit could find that they are liable to an additional income tax charge as a result.

Risk of a new tax penalty

There is another practical aspect. It is the duty of the person who is liable to pay the charge to notify HMRC. Most employees do not fill in a self-assessment tax return at all as their income is taxed at source under PAYE. From this tax year, all employees earning more than £50,000 and also receiving child benefit must notify HMRC. There will be penalties imposed if the person forgets or did not realise. No consideration seems to have been given to what happens if the mother will not tell her partner whether she is claiming child benefit or not. You could have a situation where someone believes that the mother is not claiming the benefit when she is.

A final point to note is that the new income tax charge arises when a person is entitled to receive child benefit, not when she does receive it. So if the mother simply does not bother to collect the benefit, the income tax charge is still payable but she is still entitled to receive it. The income tax charge can only be avoided if the mother specifically elects not to receive it.

Should there be a RTI plan B, say MP’s

HMRC is being ‘unduly complacent’ in regard to the rolling out of the Real Time Information (RTI) system and has been ordered to come up with a ‘credible’ plan B, according to a report by the Public Accounts Committee (PAC).

With four months before the main roll out begins in April, PAC is alarmed that RTI has been down-graded from green to amber by the government quango, the Major Projects Authority, while the ICAEW has also voiced concerns over the greater burden it will pile onto small businesses – and therefore the increased workload HMRC will have to take on.

 

An additional concern of the committee is the extra number of individuals who will be required to register for self-assessment as a result of the changes to child benefit.

 

Consequently, PAC has told HMRC to provide it with details of plans to reduce that predicted burden for small business, as well as create ‘credible contingency arrangements’ by March next year – should the main RTI roll out between April and October 2013 ‘not go according to plan’.

 

The concerns expressed by the MPs come off the back of their questioning of HMRC chief executive Lin Homer a month ago, where she confidently asserted that ‘there is no contingency plan’ for the overhaul of PAYE, that – it is hoped – will be fully implemented across the employer spectrum by October 2013.

 

Real time PAYE

Payroll reporting is changing – operating PAYE in real time

HMRC is introducing a new way of reporting PAYE – called Real Time Information, or RTI. From April 2013, employers will be legally required to report PAYE in real time. This means that information about all PAYE payments needs to be submitted to HMRC online each time a payment is made as part of the payroll process, rather than at the end of the year as they are now. RTI is the most fundamental change to PAYE reporting since its inception in 1944.

 

HMRC do admit that PAYE works well for the majority of people, particularly those with stable circumstances, but because processes have basically remained unchanged since they were introduced, there are some limitations. For example it is common now for people to have more than one concurrent job or pension, or have unpredictable employment patterns. So with information only going to HMRC once a year they are always playing catch up with these individuals’ tax affairs.

 

Universal Credit system

One of the areas that has caused concern for employers is the tight implementation timeline for such a big change to the PAYE reporting system. The Department for Work and Pensions (DWP) is overhauling the UK benefits system and is introducing a Universal Credit system which will combine many of the current benefits, tying in with the government’s ‘make work pay’ policy and helping to break the cycle of benefit dependency. In order for the new system to work, the DWP requires the information that RTI will supply about individuals’ income to ensure the correct entitlement to tax credit is given. The DWP is driving the timeline of ‘all on board’ by October 2013 so RTI must be used by all employers by this date to support the introduction of Universal Credits.

 

Main changes for PAYE under RTI

Employers will be required to send information to HMRC about their employees’ pay and deductions, before or at the same time as they are paid; The year end process of submitting P14s for all employees and a P35 summary and employer declaration will no longer be necessary and neither will the requirement for submission of the P38(A) annual return, and; The starter and leaver process is to be overhauled and under RTI, employers will not have to complete and send a form P46 for new employees to HMRC. The P46(Expat) form also ceases and the future of the P46(Pen) is currently under consideration.

 

Employers will still have to issue P60s to employees and pension recipients following the end of each tax year. Benefits in kind are not included under RTI so employers will still be required to submit forms P9D, P11D and P11D(b) following the end of each tax year.

 

Is this the first you have heard about RTI?

Despite a variety of communications from HMRC and other representative bodies to businesses, not everyone is aware of the RTI regulations. So if this is a totally new subject to you and you deal with paying employees and/or reporting PAYE to HMRC then it is important that you consider the following:

 

If you use payroll software, it will need updating so that it can process and submit RTI data – you may need to discuss this with your software provider

 

If you do not currently use payroll software, you will need to plan ahead now so that your business will be able to submit data RTI to HMRC electronically when required to do so.

 

If you pay your employees by direct Bacs you will need to include the hash cross references in your RTI submissions. You should speak to your Bacs Approved Solution Supplier or Bacs Approved Bureau about this.

 

Once you begin to operate RTI, if you do not submit your PAYE data to HMRC on time you may incur penalties.

 

We are already prepared for the introduction of RTI, so clients who have engaged us for this work just need to be aware of the change in filing requirements.

 

If you need any further information regarding this subject, please give us a call.