Can I process my payroll once a year? Reply

Pay

Yes, HMRC are now able to process requests for annual payrolls.

An annual scheme must meet all of the following requirements:

  • all the employees are paid annually
  • all the employees are paid at the same time/same date
  • the employer is only required to pay HMRC annually

Once a business is registered as an annual scheme, an Employer Payment Summary (EPS) is not required for the 11 months of the tax year where no payments are made to the employees.

We all have busy schedules………

Annual schemes are likely to be adopted mainly by very small businesses and single person companies as you can pay all your salary in one go and save yourself 11 months of RTI reporting.

steve@bicknells.net

Have you renewed your tax credits? Reply

Tax Return Due Now

You need to renew if you receive an Annual Declaration form (TC603D or TC603D2) with an Annual Review notice (TC603R).

You don’t need to renew if you only receive an Annual Review notice (TC603R), as your claim will be renewed automatically. However you still need to tell the Tax Credit Office straightaway if:

  • you have had any changes in circumstances
  • your income is different to what’s shown in the Annual Review notice
  • there are mistakes or details missing from the notice

If you’ve been sent an Annual Declaration (TC603D or TC603D2) and don’t renew, the following will happen:

  • your payments will stop
  • you will have to pay back any overpayment from the previous tax year
  • you will also have to pay back any payments you’ve received from the start of the new tax year
  • you’ll get a statement from the Tax Credit Office about your tax credits payments
  • you will usually have to make a new tax credits claim if you don’t provide the information within 30 days

The HMRC calculator will help you understand whether you are entitled to tax credits and how much you could claim http://taxcredits.hmrc.gov.uk/Qualify/DIQHousehold.aspx

I know that many small business owners claim tax credits because in the early years of the business their income is low.

So don’t forget to renew by 31st July.

steve@bicknells.net

 

4 Week Payrolls lead to a £12m bill for Asda Employees…. 2

Close up of payslip

Asda employ 170,000 UK staff and they have received final demands from HMRC for outstanding tax bills ranging from £72 to £160 because they all potentially underpaid income tax last year (according to the Courier and Payroll World).

Assuming each employee only has to pay back the minimum amount, then Asda employees across the UK will have to give more than £12 million back to the taxman.

May be Winston Harrigan could help them this weekend, he loves surprises…..

www.thecourier.co.uk reported

Employees receive their pay every four weeks. This means that once every 20 years they are paid 14 times a year rather than 13.

PAYE (Pay as You Earn) tax contributions were not collected in the extra pay, meaning employees had, through no fault of their own, paid less tax for the year than they should have.

Employees began receiving letters from HMRC demanding they settle their tax bills last week.

You can read Asda’s advice at http://greenroom.asda.com/news-and-info/colleagues-affected-by-underpayment-of-tax-for-year-ending-5th-april-2013

HMRC have published guidance ‘Dealing with Week 53 payments’

PAYE (Pay As You Earn) tax is deducted differently from ‘week 53’ payments. HM Revenue & Customs (HMRC) treats it as a non-cumulative payment (also known as ‘Week 1’), meaning that it is treated in isolation and tax is deducted without taking into account previous pay and tax details. So the tax code you use should be non-cumulative in all cases.

This advice has only been given since the tax year end.

steve@bicknells.net

Business Plans – Do you really need one? 2

business plan tree

A business plan is a written document that describes your business. It covers objectives, strategies, sales, marketing and financial forecasts.

A business plan helps you to:

  • clarify your business idea
  • spot potential problems
  • set out your goals
  • measure your progress

But its no good unless you have business model that works as Doug Richards explains

Research by the national enterprise campaign showed that last year 484,224 businesses were started, compared to 440,600 in 2011.

According to the FSB at the start of 2012:
  • There were an estimated 4.8 million businesses in the UK which employed 23.9 million people, and had a combined turnover of £3,100 billion
  • SMEs accounted for 99.9 per cent of of all private sector businesses in the UK, 59.1 per cent of private sector employment and 48.8 per cent of private sector turnover
  • SMEs employed 14.1 million people and had a combined turnover of £1,500 billion
  • Small businesses alone accounted for 47 per cent of private sector employment and 34.4 per cent of turnover
  • Of all businesses, 62.7 per cent (three million) were sole proprietorships, 28 per cent (1.3 million) were companies and 9.3 per cent (448,000) partnerships
  • There were 907,000 businesses operating in the construction sector – nearly a fifth of all businesses

micro: 0-9 employees, small: 10-49 employees, medium: 50-249 employees (updated October 2012)

The best bit of advice I have heard is this piece from Doug Richards ‘Take the Order’

Once you have a business model that works, then create a business plan, here is a link to some free plans to get you started http://www.bplans.co.uk/sample_business_plans.cfm

steve@bicknells.net

 

IR35 – Why did Dragonfly Consulting get it wrong? 3

Retro Drama Woman

Dragonfly Consulting was a one man consultancy business, the one man being Mr John Bessell and his client was the AA (Automobile Association). It was landmark case in IR35 which was concluded in 2008 when HMRC won the case and claimed £99,000 in unpaid taxes and National Insurance.

First lets get Mike and Jeff to explain the basics of IR35 and employment status….

The key points being:

  1. Personal Service and Substitution
  2. Control
  3. Mutual Obligation

So let’s pick out the key points in the Judgement:

1. Personal service / substitution.

Mr Bessell was named as the Consultant in two of the lower level agreements; however the fact that his name was omitted from the other lower level agreements did not undermine the requirement for his personal service. Henderson J found that Dragonfly was a one-man company, whose raison d’etre was to supply Mr Bessell’s services – therefore it was obvious that the intention of both parties was that it would be Mr Bessell who would provide the services.

The existence of a clause in the lower level agreement demonstrating that a substitute could only be used where the AA had expressly agreed it, and the oral evidence given by AA’s representatives regarding substitution, resulted in Henderson J concluding that the findings of fact were unassailable – amply justifying the Special Commissioners conclusion that each notional contract would have been for the services of Mr Bessell, and that a substitute could be used only if the AA had firstly given notice that a particular substitute was acceptable.

2. Control

Henderson J agreed with the Special Commissioner that a schedule supporting the first lower level agreement demonstrated that the consultant provided by Dragonfly was to act under the direct supervision and control of the AA.

3. Intention of the parties

Henderson J summarised the position, acknowledging that statements by the parties disavowing any intention to create a relationship of employment cannot prevail over the true legal effect of the agreement between them.

It was accepted that, in a borderline case, a statement of the parties intention may be taken into account and may help to tip the balance one way or the other, however in the majority of cases such statements will be of little, if any, assistance in characterising the relationship between the parties.

whether the engagement was one of service or for services – therefore the hypothetical contract would not have included a statement of the intention of the parties. Even if it was found such a clause were to be included in the hypothetical contract, this could not by itself result in reach the opposite conclusion about Mr Bessell’s notional status as an employee.

4. Worker status.

The appellant contended that the Special Commissioner failed to consider a third intermediate category – that of ‘worker’.

Henderson J confirmed the general law of employment does not recognise a third intermediate category between employment and self-employment; therefore there was no reason why the Special Commissioner should have considered any other category. In the context of IR35 the only distinction to be made is whether the notional contract is one of service or not – and the Special Commissioner clearly had that in mind.

Henderson J concluded by stating that for the reasons given in his judgement the conclusion that Mr Bessell fell on the employment side of the line is unassailable.

The lessons we can learn from this are:

  • The contractual paperwork must be correct at every stage
  • Paperwork on its own is not enough and commercial reality may take precedence

steve@bicknells.net

 

3 ways to comply with Employer Auto Enrolment Obligations Reply

This is exactly how I pictured the partners lounge

Auto Enrolment has arrived and there is a lot to do……

The Pension Regulator website will help you create a stage by stage plan working back from the date when you need to start (staging date), it is a useful planning tool http://www.thepensionsregulator.gov.uk/employers/planning-for-automatic-enrolment.aspx

Most schemes will be set up with one of the following providers:

NEST – National Employment Savings Trust – NEST was originally created by the government – limited help for employers

The Peoples Pension – B&CE – B&CE is well known in the Construction world, they have online tools to help you

Now: Pensions – ATP (Denmark) – 45 year experience in pensions and many awards

You could use another provider and you should take independent expert advise, never give pension or investment advice unless you are qualified to do so.

If you are asked for advice remember to say ‘I know nothing’

But as an employer you do need to select a pension scheme for Auto Enrolment.

Then you need to consider how you will comply with your responsibilities and keep records for:

  • Contributions
  • Opting Out
  • Opting In
  • Earnings
  • Employee Records
  • Communication with Employees

Take a look at this video for middleware to get an understanding of how you could manage your compliance requirements

So here are your 3 basic ways to comply:

  1. Small Employers – you may decide to do it yourself using information on the Pension Regulators website and provider of your choice
  2. Pension Provider Portals – schemes like the Peoples Pension will have portals and tools to help you manage your auto enrolment pensions but it won’t cater for other benefits and other schemes
  3. Middleware – like the video above, this gives lots of functionality and will allow you incorporate other schemes and benefits but its not free

You might also find this blog worth reading ‘10 things you need to know about Pension Auto Enrolment’

steve@bicknells.net

Top 3 reasons to be a Freelance Contractor Reply

Young woman with checklist over shoulder shot

PCG published this story on 3rd July 2013:

Demand from UK businesses for contract workers is continuing to rise in 2013, which could be good news for freelancers looking to get their foot in the door on a lucrative new project.

According to the latest Report on Jobs from KPMG and the Recruitment and Employment Confederation (REC), the appointment of temporary workers increased significantly during May and could be set for further increases in the future, while the overall jobs market continued to improve.

Despite the economic downturn, companies are still on the lookout for talented new employees, with demand surging after a slowdown in April. The findings pointed to more vacancies in the private sector than public sector roles.

So why would you want to be a Freelancer.

      1. Pay rates – generally contractors are paid considerably more than employees
      2. Flexibility – you are your won boss but the downside is that you have to find work
      3. Tax – the following is from Contractor Weekly and is a quote from Seb Maley (QDOS)

“Operating through a limited company as opposed to an employee brings significant financial benefits. By taking a small salary and high dividends you pay far less National Insurance, saving around 26%. There are obviously associated costs involved in running your own company, such as accountancy fees and insurance, but the overall ‘take home’ pay will still almost certainly exceed that of an employee.

But with the benefits there also comes risks. The IR35 legislation could affect any contractors working through limited companies and it’s vital that you take steps to ensure you are compliant. Contracting is also far less stable than permanent employment; you have been engaged as a temporary resource and your client can terminate the agreement at any stage. There is also the issue of illness; as a contractor you won’t receive any sick pay from your client, so any days not worked will hit your finances.”

But on a final note makesure you have the right equipment as explained in this sketch

steve@bicknells.net

Tax on Prize Winnings Reply

Lottery scratch card

HMRC doesn’t regard lottery winnings as income, so all prizes are tax free, hooray!

But the problems start when you give the money away, as reported in the Guardian in 2012

The cash will form part of your estate and be liable for 40% inheritance tax (IHT) if it takes the value of your estate above the current threshold of £325,000.

Gifting millions will not save you from paying IHT either: HMRC will tax you on a sliding IHT scale should you die within seven years of gifting any cash to friends and relatives – a 20% reduction in tax if you die between three and four years after gifting, a 40% reduction between four and five years, etc). You can get around this by making sure the recipient signs an agreement that they will pay any IHT due if you do die within seven years.

The IHT issue also applies where you have a syndicate without a syndicate agreement.

The solution to this is to have a syndicate agreement , then you can look forward to spending your fortune.

The reasoning behind HMRC’s thinking goes back to the case of Graham v Green [1925] 9TC309 and concerned a man whose sole means of livelihood came from betting on horses at starting prices.

The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green [1925] 9TC309:

A bet is merely an irrational agreement that one person should pay another person on the happening of an event.

This shows that having expertise or being systematic (“studying form”) is not enough to create a trade of being a ”professional gambler”.

Some ”professional gamblers” do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward. Whether their gambling winnings are proceeds of that trade would depend upon the facts. BIM22017

The other problem for HMRC is that if you tax ‘winnings’ you would have to allow tax deductions for ‘losing’ and there are more losers than winners.

Things get complicated when it comes to sporting events, in general, amateur sporting prizes are tax free, here are HMRC’s examples for Community Amateur Sports Clubs:

Clubs may wish to arrange prize competitions where the nature of both the competition and the prize is such as to promote participation in the sport. In strictness there is nothing to permit this but where the value of prizes, are commensurate with amateur participation in the particular sport these would not prevent club from being registered. Competition prizes of sufficient value to attract professionals or such frequency that could be equated with payment to players would preclude qualification as a CASC.

Example 1 A Cycling club promotes races in which members and others, particularly local juniors, are encouraged to participate. Modest cash prizes are awarded and funded from entry fees and local sponsorship. This would be acceptable.

Example 2 A Golf club holds regular competitions for members throughout its season. Although individual events may be limited by gender or handicap, all members are able to participate in some of the competitions. Prizes of golf equipment, for example bags, shoes, balls or vouchers redeemable at the club shop are awarded. Again, this would be acceptable.

Example 3 A Bowling club organises frequent competitions for club members with cash prizes subsidised by a brewery. Senior players derive significant benefit from these arrangements. A club that subsidised its members in this way would be unlikely to qualify as a CASC.

When it comes to professional sporting events the tax can be significant and has led to problems attracting sporting stars.

Like most countries, the UK charges tax on appearance fees and prize money when non-resident athletes compete in Britain but, unlike many other countries, it also seeks to tax the athlete’s global endorsement income.

Based on the number of days spent competing in the UK, Her Majesty’s Revenue and Customs charges tax on a percentage of the athlete’s income earned elsewhere.

“It’s like me asking you to come to work today and pay three times in tax what you’re getting”

As reported in the Telegraph in February 2013.

steve@bicknells.net