HMRC are introducing “Real Time Information”.

Currently, HMRC don’t really know how much is owed on your company payroll until the P35 is submitted at the end of the year. This makes it hard to chase for outstanding amounts owed without guessing. Basically, what this means for an employer is that for every pay date a submission needs to be made to HMRC detailing the amount due.

When will this happen? The pilot is being rolled out in April 2012 and this will affect all employers from October 2013.

How will it work? Originally, HMRC wanted this bolted onto a BACS transmission, but the majority of small firms pay their staff by normal bank transfer and not through the BACS system, in fact there might even be one or two employers out there who still pay their employees by cheque or cash!

Instead, this will be an additional part of the payroll software used by employers or their payroll agents.

What problems might you encounter with this new system?

1. Please make sure your payroll figures are correct and complete before preparing your payroll, because once it’s been submitted to HMRC it will be very difficult to correct.
2. Please make sure your payroll records i.e. names, addresses, dates of birth, national insurance numbers etc. are also correct as one incorrect piece of data in the submission will prevent the whole submission from being accepted.
3. Regardless of which data is correct, yours or HMRC’s, if they don’t agree, it won’t be accepted. It remains to be seen how this one will be resolved – painfully, if the PAYE coding notices are anything to go by.
4. HMRC have identified 110 pieces of information they want for each employee, the list includes, passport number and “current gender”. Hopefully they’ll narrow this list down but clearly this will create more work for HR departments.

What else? Well P45′s are to be scrapped and instead we will have a “leavers statement”. We don’t know what the difference is yet. Hopefully the system will be refined before implementation though!

The tip of the iceberg? HMRC have also expressed a desire to have “Centralised Deductions”. What does this mean? Employers tell HMRC what each employees gross pay is to be, the employers then give the gross payment to HMRC who then pass the net pay onto the employees. No, we don’t think they understand what they’d be letting themselves in for either. If “Real Time Information” is a success then they might consider developing this idea, but it is just an idea at the moment.

Ben Storey FCCA

Courtley West

Chartered Certified Accountants.

Leeds.

Previously, smart phones were only exempt from tax if they were provided by the employer solely for business purposes. This tax exemption was, therefore, unlikely to apply to everyone.

Employees who have in the past paid tax and NIC’s can make a claim for a refund of any tax and NIC paid to date. The change is good news for employees as it means there’s no tax or NIC to pay on their first work mobile phone, regardless of how much the employee uses it privately.

However, HMRC has said the tax exemption applies only to devices primarily designed for voice communication and specifically says mobile devices that only provide Voice over Internet protocol (VOIP) – a technology for making free or cheap calls over the Internet – will not qualify.

This means that tablets and other similar devices will remain subject to the old tax rules.

If you any queries regarding this news please don’t hesitate to contact us.

We’re here to help.

Ben Storey

Courtley West

Historically input tax has never been claimable since VAT was first introduced in the UK but following the Danfoss and Astra Zeneca case, HMRC have concluded that the block on recovering input tax on overseas customers is inconsistent with EU law.

Going forward businesses can now claim the input tax incurred when entertaining overseas customers and subject to a four year rule HMRC will also allow claims for previously restricted input tax on the entertainment of overseas customers.

The VAT notice 700/65 was amended in November to reflect this change.

HMRC Brief 44/10 details this and also sets out three scenarios to help businesses to ascertain whether the input tax on entertainment costs is claimable:

1) Meetings in the office: HMRC considers that when an overseas customer is entertained in a staff canteen or similar to facilitate a business meeting, the input tax on such entertaining will be recoverable. HMRC takes the view that any private benefit derived by the overseas customer is accessory to the needs of the business

2) External meetings or events: where meetings cannot be held in house due to lack of space or facilities, the same general principle will apply as for meetings in the office, and the input tax will be recoverable. This will apply only to the basic provision of refreshments and food. If the expenditure goes beyond that, there should be a private use charge, or, alternatively, no claiming of the input tax

3) Corporate hospitality events: businesses sometimes offer customers or potential customers general hospitality, such as golf days and the like. HMRC will not allow the input tax deduction as such events are unlikely to have a strict business purpose.

Courtley West

Accountants in Leeds

After another year of working diligently with our clients we will be taking a well earned rest and the office will be closing for the Christmas break on Friday 23rd December at 12 noon.

We will be opening again after the break on Tuesday 3rd January 2012 at 9am.

We would like to take this opportunity to thank all of our clients. We really enjoy working with you. We love to help and if you know of any other businesses that could benefit from our help we’d be happy to hear from them too.

Wishing you all the very best for Christmas and a prosperous New Year.

Ben Storey FCCA

Courtley West

 HM Revenue & Customs recently said “business records checks are primarily a compliance check, not an educational exercise”.

However, this is not what was originally being sold to advisors. Letters sent to businesses as part of a pilot by HMRC recommended areas of improvement for record keeping and informed companies that they might receive visits within three months to check the improvements have been made.

Up until now, the theme had been one of informed education but that now seems to have changed with HMRC now calling it a compliance check.

HMRC responded to the change by saying “a policy of not charging a penalty for an initial finding of significant record keeping failure would risk creating the perception that there is no need to change behavior in relation to poor record keeping unless and until one has been caught out at least once.”

A fair argument but some are saying that the Taxman “jumped the gun” on the pilots. “The summary of responses said the pilot scheme began on 4 April but the first letter was sent out on 21 March. They jumped the gun. The original consultation said it would start in the second half of 2011.”

HMRC has provided a number of services to support businesses that have been affected by the economic downturn principally through Time to Pay (TTP) arrangements.

There has been a rise in the number of TTP requests being rejected by HMRC some of which are potentially good businesses but which have suffered misfortune beyond their control.

TTP arrangements are becoming harder to secure and the Revenue has effectively declared war on clearly insolvent businesses seeking arrangements which continue to incur losses without any realistic prospect of recovery. The argument is if a company cannot pay its current debt, it will most certainly struggle to pay debt going forward. HMRC, which has not held preferred creditor status since the Enterprise Act 2003, could potentially take security against tax arrears just as other lenders do.

Security may well have been offered to support a TTP proposal and declined by HMRC in the past, it is now reasonable to conclude that HMRC is ready to make such a move. The reason being a TTP can never guarantee the survival of a distressed business on its own, as potentially drastic changes may be required to turn such a business around, however, in the event of insolvency the prospects of a meaningful recovery to HMRC is enhanced.

Courtley West

Chartered Certified Accountants

Leeds