In this month’s enews we update you on the controversial new rules proposed by the government on residence and domicile.

We also include our usual round up of news. Please browse through this month’s articles using the links below and contact us if any issues or questions arise.

Illegal working changes

For many years, there have been requirements for employers to verify the identity of their workers, to prevent illegal working. The legislation was backed up with fines.

From 29 February 2008, the Immigration, Asylum and Nationality Act 2006 increased the civil penalty imposed on an employer to a maximum of £10,000 (previously £5,000) for every illegal worker employed in the UK. It also introduced a new criminal offence of knowingly employing an illegal worker, with a maximum penalty of two years in prison or an unlimited fine.

Employers can avoid both a civil penalty and committing a criminal offence by checking, on recruitment, that workers have a right to work in the UK. To obtain this protection, employers must make the checks before the worker starts work.

There are two lists of acceptable documents for checking identity, similar to the lists which employers have used since 1997. List A contains items such as a British passport, which have no time limits on working in the UK. List B contains a list of documents which carry restrictions on the amount of time individuals will be able to spend in the UK. A significant change is that employers will have to carry out annual checks for those workers whose documents appear on List B, such as work permit holders.

You may wish to review your procedures in light of these new rules.

Update on residence and domicile  

• individuals who are resident (but not domiciled or ordinarily resident) will generally have to make a claim to be taxed under the favourable remittance basis;
• individuals who are taxed on the remittance basis will not be entitled to the personal allowance or capital gains tax annual exemption. There will be an exception to this rule where the unremitted foreign income and gains are less than £1000;
• individuals who are resident (but not domiciled or ordinarily resident) for  longer than seven out of the past 10 years will only be able to use the remittance basis of taxation if they pay an annual charge of £30,000, again subject to the de minimis of £1,000; and
• amending the residence rules, so that days of arrival and departure to and from the UK will count towards establishing residence.

Expenses for employees

Normally, the payment or reimbursement of expenses or the provision of a benefit in kind is taxable on the employee. However, particularly with expenses, it may well be that the employee is entitled to tax relief personally on the same amount. In order to obtain the relief, the employee would have to write to HMRC or fill out a tax return.

To save all this paperwork, employers may request a dispensation from HMRC. If HMRC grant one, it means that they are happy that the reimbursement contains no profit element. In turn, this means that the expenses or benefits are not taxable but that the employee can not claim tax relief personally.

HMRC have issued a warning to employers regarding a change in their policy on dispensations. Normally, once a dispensation has been granted it would continue to apply until the qualifying conditions were no longer satisfied. If a dispensation had been operated incorrectly, it would only be revoked retrospectively in exceptional circumstances.

HMRC will now consider revoking a dispensation retrospectively where:

‘… there is any evidence of misrepresentation or negligence by an employer, or other person paying expenses or providing benefits in kind. Examples of this can include:

• if an application for a dispensation did not provide all the relevant information; or
• if there was a change in the way the expenses and benefits were made available to employees meaning the qualifying conditions were no longer met, and we have not been informed of the change. ‘

There are two important points to note. Firstly, HMRC state that this change will not affect the great majority of employers who apply for and operate dispensations correctly.

Employer and contractor returns interim penalties

HMRC have announced that they have started sending penalty notices where their records show that they have not received 2006/07 forms P35 and P14 (the employer’s annual return and end of year summary). Similar penalties are also being issued where 2006/07 form CIS36 (the contractor’s annual return) is outstanding.

These returns were due by 19 May 2007 and it is likely that these penalties are a follow up to penalties issued in September last year. The penalty is likely to be £100 per 50 employees and/or subcontractors for each month the return is outstanding, running from September 2007 to January 2008 i.e. four months.

However, no penalties should be issued where an appeal has been received against the September penalty and the appeal is still outstanding.

It is not unusual for HMRC penalties to be issued in error. If this is the case or if there is a reasonable excuse for the delay in sending in the return, penalties can be reduced or even waived altogether.

If you receive a penalty notice that you believe is wrong, please get in touch with us as soon as possible so we can resolve the matter for you.

Funds to help dispute resolution

The government has announced up to £37m of funding to prevent work place disputes unnecessarily going to employment tribunals. The measures are part of a package designed to simplify the dispute resolution system.

The extra funding will allow Acas to boost its advice services to make sure it is never too late to choose an informal resolution instead of a tribunal hearing.

Minister for Employment Relations, Pat McFadden, said:

‘The link between successful employment relations and productivity is clear. Early action can often prevent the need for tribunals, bringing enormous benefits to business and employees.

This new system will strike a balance between ensuring workers can protect their rights through employment tribunals while helping them to resolve disputes as early as possible.’

The changes are in addition to changes introduced by the Employment Bill, which is currently before Parliament. The Bill proposes removing fixed periods for conciliation after a claim is made to the tribunal, enabling Acas to get involved at any time until the tribunal reaches its verdict. The Bill is designed to deliver less formal processes to cut red tape and deliver quicker decisions on more straightforward claims. Initial estimates suggest that this approach could save businesses more than £175m a year.

Had problems filing your tax return on time?

It will come as little surprise that, once again, an HMRC online system crashed an important time of year. This time it was the self assessment online service that was disrupted on 31 January 2008 and 1 February 2008.

In response to these problems, HMRC have announced that any return (whether online or paper) received by midnight on 1 February 2008 would be treated as filed on time and so no penalty will be issued.

In addition, where taxpayers experienced problems with the service and were unable to file by midnight on 1 February 2008, HMRC will remove any late filing penalty and treat the return as filed on time where the problems with the HMRC service were the cause of the delay and the return was filed within a reasonable period afterwards.

In addition, penalty notices should not be issued for:

• online returns filed using the HMRC software on 2 and 3 February 2008; and
• paper returns received in local offices by close of business on 4 February 2008.

Finally, where a return is filed within a reasonable period and the delay was due to the problems with the HMRC service, HMRC will also remove the penalty for online returns filed on 4 February 2008, or later, and paper returns filed on 5 February 2008, or later.

As previously mentioned, it is not unusual for HMRC penalties to be issued in error. If this is the case or if there is a reasonable excuse for the delay in sending in the return, penalties can be reduced or even waived altogether.

If you receive a penalty notice that you believe is wrong, please get in touch with us as soon as possible so we can resolve the matter for you.

EMPLOYMENT RIGHTS - Statutory limits

The limits on payments and awards made to workers in certain employment rights cases rose from 1 February 2008. The increased limits affect:

• statutory redundancy payments;
• the basic and compensatory awards for unfair dismissal;
• the limit on guarantee payment made when employees are not provided with work; and,
• the minimum basic award for unfair dismissal in health and safety and certain other cases.

The main increases include:

• compensation for unfair dismissal - £4,400 (£ 4,200);
• limit on amount of the compensatory award for unfair dismissal £63,000 (£60,600).
• Maximum amount of a week's pay for the purpose of calculating the basic or additional award of compensation for unfair dismissal or redundancy payment - £330 (£310).

Benefits in kind and expenses in the payroll

HMRC have published a consultation document on payrolling benefits in kind. The idea is that payrolling benefits in kind would remove the need for employers to complete P11Ds.

Whilst this may seem like a good idea, particularly to HMRC, who would save massive administrative costs, there are many potential problems.

For example, how would a business which provides a company car to an employee cope, when the P11D calculations and reporting is currently done by their adviser after the year end? If the calculation is done at the beginning of the year, how will any changes to the company car be revised? How will reimbursed expenses be dealt with, particularly where an employee is able to claim tax relief personally?

The annual P11D/P9D/P11D(b) returns, together with the associated procedures, and the P46(CAR) could be abolished. Instead employers would be required to record on form P11 and report details of the value of the benefits and expenses they provide on a modified P14/P60, with a summary of the Class 1A NICs due being provided on the P35. There would be no need to report details of new company cars or changes in-year on P46 (CAR).

However, this system would involve information being reported earlier and tax due would need to be paid over sooner. For employees the most noticeable change would be in relation to the timing of payment of the tax due on their benefits and expenses.

As part of the proposals HMRC are also looking to abolish the £8,500 threshold, thus bringing all employees within the charge to tax on all benefits!

Whilst the plans to abolish P11Ds are not intended to take place until 2011, the removal of the £8,500 threshold is expected to take place before that.

Of course, we will keep you informed of any developments.

No PAYE/NIC or CIS deduction payments due

Even if no PAYE/NICs or CIS deductions payments are due for a given month or quarter, businesses are still generally required to notify HMRC by way of a ‘nil’ return.

In order to help with this, HMRC can be notified by completing an online form. This can be used to tell HMRC about a previous, current or future month/quarter where no payment is due.

This form must still be completed even if businesses have told the CIS helpline that they will not be paying any subcontractors for the coming months.

JANUARY 2008 - ENEWS

Welcome to the first enews of 2008. In this month's enews we report on a very busy time in the world of tax, with the filing deadline for self assessment tax returns keeping us all working hard.

We also report that after several delays, and much pressure from the business community and professional bodies, Chancellor Alistair Darling has issued some guidance on Entrepreneurs' Relief, a new capital gains tax relief. 

We also include our usual round up of news. Please browse through this month's articles using the links below and contact us if any issues or questions arise.

Entrepreneurs' Relief
In the Pre-Budget Report in October 2007 the Chancellor, Alistair Darling, announced a series of changes to the capital gains tax (CGT) regime for individuals and trustees. These changes included the abolition of taper relief and indexation relief and the introduction of a single rate of CGT of 18%. The changes take effect from 6 April 2008.

On 24 January 2008, in response to pressure from the business community, the Chancellor announced a new ‘Entrepreneurs' Relief'. The first £1m of gains qualifying for relief will be charged at an effective rate of 10%.

Gains in excess of £1m will be charged at 18%. An individual will be able to make more than one claim for relief, up to a lifetime total of £1m of gains.

Business leaders had been calling for the re-introduction of a form of Retirement Relief, which some of you may remember. The rules for retirement relief required you to have been in business for a number of years but the new rules are designed to be simpler:

• there will be no minimum age limit, and
• relief will be available where the relevant conditions are met for a period of one year.

The relief will apply to gains arising on the disposal of:

•·        the whole, or part, of a trading business that is carried on by the individual, either alone or in partnership, and

•·        shares in a trading company, or holding company of a trading group, provided that the individual owns broadly a 5% shareholding and has been an officer or employee of the company.

Commenting on the announcement Richard Lambert, Director General of the CBI, said:

‘This is superficially quite clever and on the surface might seem like a relief after three months of uncertainty, but even the smallest business owner will lose taper relief and indexation and be worse off.

The reality is that these revised measures will do nothing to help the real business powerhouses of this country. Although £1 million might sound a lot, it could have been built up over twenty or thirty years. It is clear that the real wealth and job creators of the UK's economy, selling assets for a lot more, will be seriously clobbered.

Today's changes still discriminate against the long-term holding of assets, in favour of short-termism, and will do nothing to restore stability to the life insurance market, which faces a period of turmoil.'

Please do get in touch if you have any immediate concerns.  We will let you have further detail once this is available.

Internet Links: HMRC guidance and CBI Press release

Residence and Domicile

Following the Pre-Budget Report announcement that HMRC would be reviewing the rules on residence, HMRC have issued some draft legislation which is expected to take effect from 6 April 2008.

The tax treatment and conditions that need to be satisfied for an individual to be non-resident and/or non-domiciled are complex. The aim of the proposed legislation is to ensure that individuals contribute in respect of the foreign income and gains which they keep abroad and on which they currently do not pay UK tax.

The proposed legislation includes:

• amending the residence rules, so that days of arrival and departure to and from the UK will count towards establishing residence
• individuals who are resident (but not domiciled or not ordinarily resident) will generally have to make a claim to be taxed under the favourable remittance basis. There will be an exception to this rule where the unremitted foreign income and gains are less than £1000.
• individuals who are taxed on the remittance basis will not be entitled to the personal allowance or capital gains tax annual exemption, and
• individuals who are resident (but not domiciled or ordinarily resident) for  longer than seven out of the past 10 years will only be able to use the remittance basis of taxation on payment of an annual charge of £30,000. This charge will not apply where unremitted foreign income and gains are less than £1,000.

HMRC confirm that the legislation is draft at present and should be regarded as ‘work in progress'.

If you are potentially affected by these rules or have any questions or concerns please do get in touch.

Internet Link:  HMRC residence and domicile

Money Laundering Regulations

From 15 December 2007, the Money Laundering Regulations 2007 require certain businesses to have systems in place to prevent money laundering and report suspicious transactions. These regulations replace the previous ones which have been in force since 2004.

Not all businesses have to operate the regulations but most UK financial businesses (banks, building societies, money transmitters, bureaux de change, cheque cashers, savings and investment firms) are covered. In addition, the regulations cover legal professionals, accountants, tax advisers, auditors, insolvency practitioners, estate agents, casinos, high value dealers and trust or company service providers.

If you operate in any of these areas you need to ensure that you are complying with the new regulations. If you have dealings with businesses in these sectors, such as ourselves, you may find you have to provide more information, for example confirming your identity. We will let you know if we require any further information.

HMRC have updated their guidance which can be found by visiting the link below.

Internet Link: HMRC Money Laundering guidance

PAYE end of year returns

HMRC are running a series of workshops on the online completion of end of year PAYE returns. You can use the link below to see when sessions are running in your area. 

The end of year forms P35 and P14, which include details of amounts paid to employees as well as deductions made under the CIS scheme, have to be filed by 19 May 2008.  Employers with more than 50 employees have to file online or face penalties. Smaller employers are entitled to a tax free incentive payment of £100 for filing the 2007/08 end of year forms online.

If we already deal with your payroll, you can be assured that we will deal with this on a timely basis for you. If however you would like some help in this area please do get in touch.

Internet Link: HMRC online filing

HMRC payments due 31 January 2008

HMRC have apologised for a problem that they have identified with the self assessment tax return. The problem apparently only relates to tax returns submitted prior to 31 October 2007 where the taxpayer asked for any unpaid tax to be collected directly rather than by a restriction in their tax codes for 2008/09. It is only possible to collect underpayments via a tax code restriction where you are an employee or company director, with sufficient pay to enable any underpayment up to £2,000 to be collected.

If you have received a statement advising you that your unpaid tax will be collected through your PAYE tax code and you would rather pay directly please let us know as soon as possible so we can sort this out.

If alternatively you are happy to have the underpayment collected through your tax code, please let us have a copy of your coding notice for checking when received.

Internet Link: HMRC working together

HSE launch campaign to stop slips and trips 

The Health and Safety Executive (HSE) have announced that they will run a workplace slips, trips and falls campaign in February and March this year. The campaign, which is called Shattered Lives, is aimed at workers who are most at risk of a slip, trip or fall in the workplace. These include not surprisingly construction workers and kitchen workers.

The HSE says that around 1,000 workers every month are seriously injured during these types of accidents.

Internet Link: HSE Shattered Lives

PAYE tax codes about to be issued

HMRC have advised that they are about to issue PAYE tax codes to employees for the 2008/09 tax year.

If you receive a coding notice it is worthwhile letting us have a copy for checking if you have any concerns. Employees who have the use of a company car may find they are worse off in the new tax year due to an increase in the percentage, linked to the car's CO2 emissions, applied to the list price of the car. 

HMRC's guidance on PAYE tax codes includes some frequently asked questions and can be found at the link below.

Internet Link: HMRC coding notice guidance

Holidays

On returning to work in the New Year, many will be reaching for the travel brochures to plan their next holiday getaway. Now would be a good time to ensure that your employees (or your own) holiday entitlement has been correctly calculated.  The minimum statutory holiday entitlement was raised from 20 days to 24 days per annum from 1 October 2007. This entitlement is inclusive of Bank Holidays. 

Where the holiday year end is not 30 September, then employees are entitled to a pro-rated entitlement. The Business Link website gives a link to enable individual entitlement to be calculated. This is particularly helpful for part time employees.

The further increase in entitlement from 24 to 28 days applies from 1 April 2009.

Internet Links: Business link holiday calculator and BERR website