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June 2011 - E-NEWS
Please browse through this month’s articles using the links below and contact us if any issues or questions arise.
- The taxman has seen the light at last!
- Collecting tax debts through PAYE
- Winning business referrals
- Early access to pensions ruled out
- VAT rule breakers targeted
- Cheque guarantee card scheme closes
- TUPE rules included in employment law review
- Bribery act takes effect on 1 July
- First automatic pension enrolment letters go out
- New growth fund opens for business
- Windows 8 already!
- IR35 still causing confusion
The taxman has seen the light at last!
Two useful developments have occurred on the tax admin front. Firstly, HMRC intend to scan incoming post. This will be introduced in phases during 2011/12.
The main benefits claimed by HMRC are pretty obvious, and if all turns out well it will make life easier. In particular:
- Scanning will ensure documents get to the relevant HMRC caseworker as quickly as possible.
- By assigning paperwork to cases electronically, HMRC avoid the need for manual distribution of letters and documents received by caseworkers.
- HMRC will be able to handle our calls to the caseworker about the case, without the delay of locating original paper copies.
The second development involves piloting real-time information from next April. This will enable volunteer employers to use the new system which, if all goes well, will become compulsory for all employers from October 2013. Real-time Information is intended to support improvements to the PAYE system, making it more accurate for taxpayers and easier for employers and HMRC to administer. HMRC say we all need a PAYE system that can meet the demands of the 21st century workplace and ensure that the tax system works better. We would all echo that, and let’s hope this is the answer.
Collecting tax debts through PAYE
Over recent years, HMRC has concentrated its debt collection resources, out of necessity, on high-value debts. Unsurprisingly, say HMRC, this has led to a considerable increase in the number of small debts, particularly those less than £1,000 in value. In most cases, the low value of these debts meant that taking action to enforce their payment would have been inappropriate.
However, the result of all this is that more tax debts will be reflected in your Code Number used by your employer. Specifically the intention is to increase the maximum amount that can be coded out from £2,000 to £3,000. This will clearly ensure that more people with small debts can benefit from this collection method, and HMRC can direct its resources to those who deliberately choose not to pay tax.
Any business with the goal of growing larger wants current clients to refer their friends. Professional services firms depend on people vouching for their expertise and talent. So how do you get your customers to talk about you in a positive light and refer some new business to you? It all begins with the service. Your firm must offer great service that cannot be matched by your competitors. Doing so helps create loyal customers who appreciate your firm’s passion for excellence. They will talk about this among friends and colleagues. Social media sites like Twitter, Linkedin and Facebook offer your customers a great opportunity to endorse your product or service by "liking" it – i.e. book-marking your businesses site.
Ask for a referral: When you interact with a client to close a deal or complete a piece of work ask them if the experience was positive and would they refer a friend. Chances are they will give you a referral – because you asked.
Let your customers know that you care: Soon after a business transaction completes – ask the customer for some feedback. This shows the customer that you appreciated their business and that you care about their needs as a customer. This “feel good” factor can and should result in the customer referring a friend to your business.
Spread the word: Ask customers for some testimonials. Put these in a word document and add in details of any awards, socially responsible activity undertaken by your firm, etc and make a pdf flyer detailing the positive attributes of your business. Now spread the good word by emailing this flyer to your contacts. Telling existing customers and potential future clients positive stories about your business can encourage them to refer a client to you in the future.
Say thank you: When a customer concludes their business with your firm, ensure to thank them. You can send them a card shortly after their purchase or simply email them thanking them for their business. This creates a positive image of your business in the mind of your customer and should result in a referral soon after.
Early access to pensions ruled out
People won’t be able to dip into their pensions early. The Government had been consulting on the possibility of giving people access to their pensions before they retire. One aim of the proposal was to encourage younger people to save more by removing the disincentive of locking up funds for long periods of time.
However, following the consultation, Mark Hoban, the financial secretary to the Treasury, said that there was “limited evidence that allowing early access would have a positive effect on overall pension contribution levels or provide significant help to individuals facing financial hardship”.
Instead, the Treasury has decided to examine ways of introducing greater adaptability to the savings system. Mr Hoban said: “We will work with the industry to develop workplace saving to supplement pension savings. In addition, we will explore other ways of making pension tax rules simpler and more flexible, for example by making it easier to deal with small pension pots.”
Planning for the day that we stop working has never been more important. If you would like guidance on how best to look forward to the retirement your hard work deserves, contact Richard Hurst, Director on 023 8046 1200.
HM Revenue & Customs (HMRC) has announced it is to target individuals and businesses that are trading above the VAT threshold but have not registered for VAT in a new drive against rule breakers
The campaign will be launched in the summer, following discussions with interested parties to help HMRC design the campaign. The VAT threshold is currently £73,000 turnover on a rolling annual basis.
Announcing the initiative on 20 May, Mike Wells, HMRC's director of risk and intelligence, said: “Our aim is to get as much input as possible into our future campaigns so that the views and experience of people and organisations outside the department play a fuller part in what we design for customers.”
Previous HMRC campaigns have targeted offshore investments, medical professionals and people working in the plumbing industry.
The department says its campaigns focus on areas where it has identified significant underpayment and that they provide straightforward opportunities for customers to put their records in order on the best possible terms, followed by swift action targeting those who choose not to take up those opportunities.
HMRC says it has raised over £500 million from voluntary disclosures and a further £100 million so far from follow-up activity.
Meanwhile, the first of a series of new HMRC task forces to tackle tax dodgers will focus on the restaurant trade, targeting businesses in London over the coming weeks.
The specialist teams will carry out concentrated compliance activity in specific high risk trade sectors and locations across the UK. The restaurant trade in Scotland and the North West will be the next areas targeted.
HMRC is planning a further nine task forces in 2011/12, with more to follow in 2012/13.
LINK: Introduction to VAT
LINK: Reporting tax evasion
Cheque guarantee card scheme closes
The UK cheque guarantee scheme, for businesses and individuals using cheques to make or receive payments, will close on 30 June 2011
The Payments Council, the organisation that sets the strategy for UK payments, set the date for closing the scheme in 2009, following a decline in the use of guaranteed cheques.
Under the scheme, a bank will currently pay a guaranteed cheque (one given to the recipient with a debit or credit card showing a cheque guarantee hologram for £50, £100 or £250 and where the recipient also copies the card number onto the back of the cheque), even if there is not enough cash in the account on which the cheque is drawn.
The last time a cheque can be accepted under this scheme will be when it is written on and dated 30 June 2011.
The Payments Council says that around one-third of guaranteed cheques are used in shops, one-sixth for bill payments and the remainder for a wide variety of purposes such as paying tradesmen, for leisure activities, for professional services, delivered items (e.g. milk), holidays and hotels.
But despite the axing of the guaranteed cheque scheme, the Payments Council says very little will change, adding: “As now, any business can decide it is prepared to accept a cheque without a guarantee: as with all types of payment, shops and businesses decide which payments they want to accept.”
It says: “You can be certain that cheque funds are yours (and won’t be returned unpaid unless you are a knowing party to a fraud) at the end of the sixth working day after you’ve paid in a cheque: so this is the point when it’s safe to release goods or services.”
Banks and building societies that provide cheque guarantee services have been working to advise businesses and individuals who use the system of the closure date and to provide details of alternative forms of payment. For businesses, these include debit, credit or charge cards, online banking, telephone banking and cash.
LINK: Payments Council
LINK: Timescales for cheque clearing
TUPE rules included in employment law review
The government has announced new areas it will consider reforming as part of its ongoing review of employment red tape, including the rules protecting employees’ terms and conditions of employment when a business changes hands.
Employment Relations Minister Edward Davey, who outlined the plans on 11 May, said: “The areas we are reviewing are priorities for employers. We want to make it easier for businesses to take on staff and grow.
“We will be looking carefully at the arguments for reform. Fairness for individuals will not be compromised – but where we can make legislation easier to understand, improve efficiency and reduce unnecessary bureaucracy we will.” The new areas to be considered for reform are:
- compensation for discrimination: with unlimited levels of compensation for cases of discrimination, the government says that employers worry that high awards may encourage people to take weak, speculative or vexatious cases in the hope of a large payout, which can lead to employers settling such cases before they reach a tribunal;
- collective redundancy rules: the government says employers are concerned that the current requirement that consultation over collective redundancy runs for a minimum period of 90 days is hindering their ability to restructure efficiently and retain a flexible workforce, with employers in financial difficulty worrying about how long they need to keep paying staff after it has become clear that they need to let them go;
- TUPE (Transfer Undertakings Protection of Employment Regulations) rules, which protect employees’ terms and conditions of employment when a business is transferred from one owner to another. The government says some businesses believe that they are overly bureaucratic.
The government will start reviewing these areas this year.
LINK: Employment law review
Bribery act takes effect on 1 July
Time is ticking away for businesses to make sure they have taken the steps appropriate to their operations to prepare for the Bribery Act, which comes into effect on 1 July 2011.
The implementation of the Act was held up following a delay in publication of guidance on its measures, which had been due early in the new year. The guidance was eventually published on 30 March.
A key element of the new Act is that it creates a new offence that can be committed by commercial organisations which fail to prevent persons associated with them from bribing another person on their behalf. The only defence will be to show “adequate procedures” (not defined in the Act) to prevent bribery.
The Ministry of Justice guidance says many organisations, particularly those whose business is carried out primarily in the UK, will face little or no risk of bribery.
But it adds: “If you operate overseas, the risks may be higher. Factors such as the particular country you want to do business in, the sector which you are dealing in, the value and duration of your project, the kind of business you want to do and the people you engage to do your business, will all be relevant.
“If there is very little risk of bribery being committed on behalf of your organisation then you may not feel the need for any procedures to prevent bribery. If, having assessed the position, there is a risk of bribery then, if you want to rely on the defence [of adequate procedures], the procedures you adopt should be proportionate to that risk.
“In micro-businesses it may be enough for simple oral reminders to key staff about the organisation’s anti-bribery policies.”
One area of concern over the Bribery Act has been how it will affect hospitality. The Ministry of Justice guidance says: “As a general proposition, hospitality or promotional expenditure which is proportionate and reasonable given the sort of business you do is very unlikely to engage the Act.
“So you can continue to provide tickets to sporting events, take clients to dinner, offer gifts to clients as a reflection of your good relations, or pay for reasonable travel expenses in order to demonstrate your goods or services to clients if that is reasonable and proportionate for your business.”
For specific questions or concerns relating to your business, you should always take legal advice from a solicitor.
LINK: Ministry of Justice guidance
First automatic pension enrolment letters go out
The Pensions Regulator has started writing to the first employers who will need to automatically enrol employees into a workplace pension scheme to remind them of their new responsibilities.
It announced on 17 May that over the next six months, it will be sending letters marking 18 months until the first automatic enrolment to nearly 600 of the UK’s organisations – together employing around ten million employees, about a third of the UK workforce – to alert them to their new pension duties, which are being introduced in stages, according to employer size.
The regulator is providing a five-point checklist alongside with the notification letters, plus further information on its website. In due course, every employer in the UK will receive least two letters as they approach their duty date.
Bill Galvin, chief executive of the Pensions Regulator, said: “Our message is that we urge every employer to check the approximate date they must comply. The date will vary between October 2012 and February 2016, depending on employer size.
“We are saying to the UK’s 10,000 large employers with more than 250 staff to check your date now, read our guidance and use the five-point employer checklist to help prepare.
“For smaller employers, many of which will not need to automatically enrol staff until 2015 or 2016, we suggest that for now you look up your duty date. Later this year we will be publishing a range of web tools to help smaller employers to understand what they need to do to comply.”
LINK: Pension reform
New growth fund opens for business
A new Business Growth Fund (BGF) has been launched to help Britain’s smaller and medium sized businesses with an annual turnover of around £10 million to £100 million.
The independent fund of up to £2.5 billion is backed by five of the UK’s main banking groups – Barclays, HSBC, Lloyds, RBS and Standard Chartered – working in collaboration with the British Bankers’ Association.
Speaking to mark the launch of the fund on 19 May, Business Secretary Vince Cable said: “The Business Growth Fund is ready to make substantial equity investments into ambitious mid-cap British companies who are set to create the business success stories of the coming years.”
The BGF will invest sums of between £2 million and £10 million approximately per business in return for a minimum ten per cent equity stake and a seat on the board for a BGF director. The fund will provide long-term equity investment for those growing companies which today do not have access to this source of capital.
Dr. Cable added: "Good investing requires local connections to find and assess opportunities, so for the fund to have a presence outside London – in both Birmingham and Edinburgh – is particularly heartening. British businesses must have access to the growth capital they need, wherever they are based."
LINK: Business Growth Fund
According to Microsoft, more than seven copies of Windows have sold each second since the launch of Windows 7 in October 2009. Unsurprisingly, given the popularity of the Windows operating system on home and business PC’s, Microsoft is already developing its replacement, Windows 8.
So what can we expect from the next upgrade to Windows? Apparently Microsoft has taken the lessons it learned from the Xbox and Microsoft Office and applied these concepts to Windows 8. Various technology news sources are suggesting that the new operating system will be optimised to work on tablets as well as traditional PC’s. This is in response to the increasing popularity of tablet computers since the launch of the Apple iPad.
Visually, Windows 8 will be similar to Windows 7 but will likely come with a Microsoft Office-style ribbon menu system. We will have to wait until the official launch of Windows 8 to make an informed comparison of the advantages of the new operating system over Windows 7. The launch of Windows 8 is likely to be in 2012.
The big question for businesses is of course whether to invest in Windows 7 or postpone computer upgrades until Windows 8 arrives. Given that Windows 7 has now proven itself as a stable, secure and reliable operating system, many businesses may choose to stick with Windows 7 and wait until Windows 8 has been around for a year or two (and all the bugs / glitches are sorted out). It is also worth considering that many offices still use Windows XP Professional and a jump to Windows 8 may require some training sessions for staff as well as upgrades to servers and network software.
One thing is for sure – the onward march of technology is relentless. Eventually businesses will have to move away from Windows XP which will cost in terms of staff training and hardware upgrades. It will be interesting to see whether Windows 7 or Windows 8 garners favour with business users.
No single issue has caused as much uncertainty and discussion in the world of contracting as IR35. In the current economic climate greater numbers of workers are moving in and out of contracting, making it more important than ever that freelance workers seek trusted, reliable advice.
Does it affect you?
Despite the confusion and dislike of IR35, every contractor needs to consider their status and take any necessary action. However, the legislation does not apply to all contractors. Current unofficial estimates state that around 20% of contractors are affected by the legislation, or deemed to be ‘inside IR35’, 20% are definitely outside and the rest are in a grey area in the middle. Determining whether contractors are affected by IR35 is complex and can change during the lifetime of a contract and is why contractors need to seek reliable advice from a trusted IR35 expert.
As well as the legal requirements, the financial aspect of IR35 is key for contractors, since those deemed to be ‘inside’ the legislation will pay significantly more tax. A contractor caught by IR35 will typically receive 20% less in their take-home pay than a contractor who falls ‘outside’. This equates to around £800 per month for a contractor earning £40 per hour. No one wants to pay more than the correct amount of tax and national insurance liabilities.
Defining self-employment
There are three major factors which, although not exhaustive, must be considered during an assessment of IR35:
- Control /independence – how much control does the contractor have in influencing how the project is run? Can they make decisions about timing or what equipment to use? Even a senior employee who may have substantial control over his or her own work will always be subject to some control from his or her employer. If control of this sort is absent or minimal then we are not looking at employment and IR35 cannot apply.
- Personal services/substitution – is the end client specifically seeking the skills of the individual or could another person be sent in their place to provide the service? Services which are, or can be, provided by more than one person are not personal services. IR35 legislation is set out in terms of a person being under an obligation to personally supply services.
- Mutuality of obligation – is there an obligation that the individual will be paid whether there is work or not? An employee would be expected to accept work and the employer to pay. If you were self-employed and there was no work you would be sent home and would not be paid. Absence of a sufficient mutual obligation means that IR35 cannot apply.
Dates to remember
IR35 reviews should be undertaken regularly but there a number of key points when they are crucial:
- Whenever the contract is up for negotiation or renewal, even if this is numerous times
- When end of year P35 and PAYE submissions are made (this is also a crucial time for a contractor to declare if they are working ‘inside IR35’)
- Between the end of the tax year and the following 31 January, when personal tax payments become due, but it is recommended that a review is always completed before self-assessment personal tax returns are submitted.
Don’t ignore it
Many contractors believe that HMRC’s provision for IR35 is under-resourced and the threat of investigation minimal. However, this mindset and approach could backfire because HMRC is becoming increasingly targeted in its methods for discovering contractors working for personal service companies and earning substantial incomes. It can often be an unrelated investigation of a client that leads HMRC to approach individual contractors – who are not difficult for HMRC to find because they are obvious in the accounts of end-clients or agencies, or through declarations on the P35 or personal tax return forms.
One effect of IR35 has been to drive greater numbers of contractors into PAYE schemes, such as umbrella companies. If, however they were to seek expert advice on their contract status, many contractors would satisfy self-employment tests and confidently run their own limited company, thus increasing the ability to maximise their income. By adopting a number of simple strategies, such as keeping a basic record of facts, contractors can protect themselves in the future against any adverse effects of an IR35 investigation. It is also crucial for contractors to keep accurate records so that if they are investigated they have all the necessary information to hand.
We can assist by advising on the self-employment tests the Revenue use and may be able to minimise the impact and tax cost of the IR35 rules through careful tax planning or the use of a structured contractor strategy arrangement in conjunction with Peak Performance Contracts.
For more information contact Alan Rolfe, Tax Manager on 023 8046 1200.
HWB
Chartered Accountants, Highland House, Mayflower Close, Chandlers Ford, Eastleigh,
Hampshire, SO53 4AR.
