A progressive, South West based accountancy practice

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We’re great with tax!

  • We have had confirmation from HMRC that they are dropping their claim for tax on undeclared income against one of our clients. They have also agreed to our appeal against penalties levied, leaving the client with absolutely nothing to pay (including our fees which are paid by our insurers!)
  • Numbers have managed to reduce one client’s £35,000 tax bill by £5,000, working with her solicitor to clear up an issue that had been running for 4 years!
  • Many corrections were needed due to HMRC errors last week, which had led to incorrect demands being received by several clients. Numbers have been working hard to put our clients minds at rest after receiving these worrying letters!

A Government give-away (with conditions)

Introduction

One of the goods things to come out of recent budgets is the new holiday for Employer National Insurance Contributions (“NIC”). The Employment Allowance allows small and medium enterprises (“SME”) to deduct up to £2,000 from their employer NIC payments.

The details

The holiday is worth up to £2,000 per annum. This starts on April 6th 2014, and must be claimed by qualifying employers. HMRC are expecting employers to take the deduction as early as possible, so many will see the benefit on 19 May 2014 (when the first payment is NOT made.

You can only claim it once, even if you run more than one PAYE scheme. If you are part of a group, only one company can claim the allowance.

Who cannot claim?

The main exclusions are companies and organisations that provide “public sector” services. These include:

  • NHS services
  • General Practitioner services
  • the managing of housing stock owned by or for a local council
  • providing a meals on wheels service for a local council
  • refuse collection for a local council
  • prison services
  • collecting debt for a government department

but also includes those;

  • who employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
  • already claim the allowance through a connected company or charity
  • are a public authority, this includes; local, district, town and parish councils

How do we claim it?

The claim is made using your own payroll software, or by using HMRC’s own Basic PAYE Tools. You can check how much of the allowance you have claimed by logging on to HMRC’s online service and “Viewing PAYE Liabilities and Payments’.

Arrangements have been made for those employers who are exempt from online filing, and more detailed guidance is available on HMRC’s website.

Other issues

If you have more than one payroll, you can only claim against one of them. At the end of the tax year, if you have not claimed the whole £2,000, you can apply to HMRC to have the balance refunded on the second PAYE scheme.

If you do not apply for a refund, and have an unused balance (i.e. you have paid Employer NIC that you haven’t covered with the EA), you can set the balance off against future PAYE liabilities. Please note, you cannot generate an unused balance in any other way. Neither can employer NIC in excess of £2,000 per annum cannot be used to generate an unused balance.

You can claim EA up to four years after the tax year has closed, but HMRC will set off the refund arising against future or existing PAYE liabilities, unless you specifically ask for a refund.

So what will you do with the extra cash?

A maximum saving of £166.66 per month is not life-changing, but it can be put to good use.

You could give a pay rise to a lower paid worker. Passing on part of that could mean a significant increase (in percentage terms) for that employee. It can also help to head off any discontent. Pre-empting the rise in the National Minimum Wage (“NMW”) can present you as a caring employer, rather than one who has to be forced into giving pay rises.

However, you should consider taking the opportunity to remind them of the difficulties faced by small businesses, and their critical part in making you’re a success.

Alternatively, you could just bank the savings. Cash is king, and particularly when the banks are still not providing enough finance to the SME sector. £2,000 a year may not sound like much, but it can help as a source of free funding.

Perhaps a better alternative would be to use it to invest in updated equipment. If your credit rating is good enough, there are sources of cheap funding around. Replacing older computers, perhaps on a lease or HP contract, will increase productivity, and boost morale. It will also address the need to move on from Windows XP machines, following Microsoft’s withdrawal of support for that operating system.

Words of warning

It is unlikely, but you could lose eligibility part way through a tax year. If that happens, you have to make the appropriate change to your payroll software, and repay the Employment Allowance previously given!

If you use an outside payroll agency, you will need to advise them if you qualify, and of you cease to qualify. Some payroll agencies do not know enough about your business to determine whether you qualify.

If you change payroll software, you may need to file another EPS, to activate the Employment Allowance within the software, although HMRC will roll forward the entitlement each year.

Some employers run a separate payroll for paying senior staff, to maintain confidentiality. If you have more than one payroll, perhaps run by different providers, YOU will have to decide which one gets the EA, and advise all providers accordingly.

You can only deduct the EA from the Employer NIC, not the employee NIC and/or PAYE deducted. Make sure your payroll staff or provider know this, as there are now penalties for late payment of PAYE/NIC.

You will need to maintain records proving entitlement and the amounts claimed, for three years after the end of the tax year to which they relate. You cannot rely on HMRC to record the amounts claimed, and proof of entitlement.

What should we do next?

So there are a few thoughts for consideration. If we can help in your decision-making, please let us know.

Money Saving, Business Building, and Tax!

  
  • Our meeting room is now complete! We have been ‘mirroring’ presentations on Money Saving, and Business Building to clients using our new wall screen. We used this for the first time last week to present these new range of services. A tax review has been booked as a result! Using this new technology, we have conducted some internal software training with our team so that we can enhance our customer service levels.
  • We are excited to be running a tax presentation for a Barristers’ Chamber in the very near future.

Saving more money for our clients

  • Last week Emily cleared an £800 penalty, issued by HMRC in error for one of our clients. See their testimonial on our ‘Who Likes Us’ page.
  • We saved nearly £600 on a 1st VAT return for a client that was taken on last summer. As such, we have paid for ourselves! If you would like to know whether the FRS can save you VAT, contact us for a free review.
  • Tax refunds have been received for 4 clients totalling nearly £2,000. Again, if you want to know if we can do the same for you, get in touch!
  • We helped a client plan the sale of a property, and the transfer of some land to avoid unnecessarily paying £3,600 in capital gains tax.
  • Managed a client through the process of paying the tax on the sale of a commercial property, and distribution of the gains to their 8 shareholders in a tax efficient manner.

Welcome!

  • Welcome to our new clients Nicki and Maggie @The_Flowery As is our practice, they have fixed their price to suit their budget.
  • Welcome to Arlene, new business partner to our client Diane.

Can I avoid a tax investigation?

Introduction

So the return is in, and we can breathe a sigh of relief, but is it all over?

We are often being asked this question “What chance is there that I get investigated by HMRC?” The truth is that you cannot entirely eliminate the risk of getting investigated, but you can minimise it.

Some clarification

First we need to tidy up the terminology! The word “investigation” is emotive. It suggests that the person selected is guilty of some misdemeanour, or even a crime!

HMRC use various words on their website, and in their literature to describe the same thing. You might have a “check”, an “enquiry” or a “review”. All of these simply mean HMRC want to check that you are paying the correct amount of tax, and at the correct time.

Time limits

Generally, HMRC have 12 months from the date the return is filed to open an investigation into your return. The deadline can be extended if you file your return late, amend a previous return, or they can prove that you have deliberately misled them.

So I could get a random check, but how do I minimise the risk?

Submit your returns on time

Some people may be tempted to submit returns late, particularly if they have liabilities that they cannot afford to pay. It is much better to submit the return on time, and ask for time to pay. While the response can vary, you are much less likely to get a positive response if you have a history of filing later returns. This applies not only to tax returns, but VAT, PAYE and corporation tax returns as well.

Use the “white space” or attach additional documents (where possible)

Many investigations are raised simply so HMRC can understand figures that fall outside the “norm” expected. Using the white space to explain significant variations from previous years, or from industry averages, can help HMRC to accept the figures without opening an enquiry. If they still open an enquiry, it can help to minimise any penalties if you can show “that we have already told you about….”

Don’t fall out with your staff, spouse or lover!

Many investigations start with a simple tip off to HMRC, usually from someone with a grudge against the taxpayer. The people closest to you often know more than you care to think, and know “where the skeletons are”. While HMRC don’t always take up these leads, they can tip the balance. The worst case we handled was where a landlord fell out with his girlfriend who happened to be his boss’s daughter! He lost his relationship, his job and got a tax investigation all in one week!

Use a good accountant

HMRC will never admit it, but they do know which accountants are professional, and which ones are, shall we say, less than competent.  Using a reputable firm should ensure that your return is correct (assuming you’ve told the accountant everything). Even if it’s not, you may not have to pay a penalty, as using a good accountant demonstrated that you took “reasonable care” over the return, which is one of the main grounds for appealing against a penalty.

Fee protection

Most accountants also offer insurance against their fees if your return is selected for a “check”. Like most policies, they are always conditions, but generally claims are met.

Some accountant’s policies also give them access to free advice lines, so they can clear any difficult or contentious points before your return is submitted.

The policies are not expensive, and can often be part of a membership (e.g. FSB) or as part of your general business insurance.

It helps avoid that irritating position where you have to accept HMRC’s opinion, even though it’s wrong, because “it’s cheaper to pay the tax.”

In summary

You cannot eliminate the risk, but using a good accountant, and paying a small insurance premium, can put you in the best position to defend yourself.

Don’t be frightened by the prospect of an HMRC investigation, be prepared!

Business Services Launch

February sees the launch of our new business growth service. This service is designed to build our clients wealth, and help them to protect it from the HMRC – as far as is legally possible!
We are excited to have some new client meetings this week, and are looking forward to presenting these services during these meetings, in addition to introducing them to our existing clients.

Saving our clients more time and money

During January, we have filed 87 tax returns – saving our clients nearly £9,000 in late filing penalties. (including filing one tax return for a client who provided information after noon on the deadline day!)