Archive for October, 2014

Tax avoidance scheme users ordered to pay up

Thursday, October 30th, 2014

 

HM Revenue and Customs has sent notices to tax avoidance scheme users to pay over £250 million of disputed tax under the Accelerated Payments regime introduced in this year’s Finance Act.

The Financial Secretary to the Treasury, David Gauke, told MPs scrutinising the National Insurance Contributions Bill that over 600 Accelerated Payment notices had been sent since late August.

Despite recipients having 90 days to pay the tax demanded in the notices, avoidance scheme users have already begun to contact HMRC to arrange to make payments, covering over £25 million of disputed tax.

Many more users are also choosing to contact HMRC about settling their tax affairs rather than wait to receive an Accelerated Payment notice.

Financial Secretary to the Treasury David Gauke said:

Accelerated Payments are changing the economics of avoidance by removing the cash-flow advantage that avoidance scheme users have had until now. It is only fair that those who use avoidance schemes should have to pay their tax upfront, like the vast majority of other taxpayers who don’t try to shirk their responsibilities.

Jennie Granger, Director General of Enforcement and Compliance, HMRC, said:

HMRC is making good progress in tackling marketed avoidance as today’s figures illustrate. If anyone is concerned about being able to pay the notice they should contact us as soon as possible to discuss their options.

By January 2015, HMRC will be issuing 2,500 Accelerated Payment notices per month and it is on track to deliver notices to 43,000  tax avoidance scheme users, covering £7.1 billion of disputed tax, by the end of March 2016.

Are your workers employed or self-employed

Tuesday, October 28th, 2014

There can be savings, particularly for employers, if a worker can be paid as a self-employed person. This is particularly so in the construction industry where most workers are engaged by contractors as self-employed subcontractors.

What many contractors fail to realise is that they are required to reach a judgement on a worker’s tax status based on a rigid framework determined by HMRC. It is not sufficient to base this judgement on what produces the best tax and National Insurance outcome.

Getting this status issue wrong will likely result in an uncomfortable examination of engagement contracts by HMRC and expensive catch up payments if it is determined that certain self-employed sub-contractors are actually employees.

How then should a contractor make this judgement: employed or self-employed? We have listed below HMRC’s published criteria:

 Common indicators of employment

  • The contractor has the right to control what the worker has to do – where, when and how it is done – even if the contractor rarely uses that control.
  • The worker supplies only his or her own small tools.
  • The worker does not risk his or her own money and there is no possibility that he or she will suffer a financial loss.
  • The worker has no business organisation, for example, a yard, stock, materials, or workers. (These examples are not exhaustive.)
  • The worker is paid by the hour, day, week or month.

 

Common indicators of self-employment

  • Within an overall deadline, the worker has the right to decide how and when the work will be done.
  • The worker supplies the materials, plant or heavy equipment needed for the job.
  • The worker bids for a job and will bear the additional cost if the job ends up costing more than the worker's original estimate.
  • The worker has a right to hire other people who answer to him or her and are paid by him or her to do the job.
  • The worker is paid an agreed amount for the job regardless of how long it takes.

 

To make a decision on an individual case, you will need to consider all the details, and your overall judgement should not rely solely on the above notes. Determining status can be a complex process and one that should be undertaken rigorously.

What is the statutory minimum holiday entitlement?

Thursday, October 23rd, 2014

Paid annual leave is a legal right that an employer must provide. Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.

Self-employed workers aren’t entitled to annual leave.

Most workers who work a 5-day week must receive 28 days’ paid annual leave per year. This is calculated by multiplying a normal week (5 days) by the annual entitlement of 5.6 weeks.

Part-time workers

Part-time workers are also entitled to a minimum of 5.6 weeks of paid holiday each year, although this may amount to fewer actual days of paid holiday than a full-time worker would get.

For example a worker works 3 days a week. Their leave is calculated by multiplying 3 by 5.6, which comes to 16.8 days of annual paid leave.

Statutory paid holiday entitlement is limited to 28 days. Staff working 6 days a week are only entitled to 28 days’ paid holiday and not 33.6 days (5.6 multiplied by 6).

Bank holidays

Interestingly, employers do not have to give bank holidays or public holidays as paid leave. An employer can choose to include bank holidays as part of a worker’s statutory annual leave.

Pay when you are paid

Wednesday, October 22nd, 2014

Apart from the retail trade and internet traders most of us send an invoice when we provide our goods or services to customers and then wait for the period of credit to expire before we get paid.

During this waiting time we still have our own bills and wages to pay so the working capital we have to accumulate to finance monies owed by customers can be considerable.

And then, of course, there is VAT…

If we sell or provide standard rated supplies and are registered for VAT we have to add 20% VAT to our invoices.  The VAT added, in normal circumstances, has to be paid over to HMRC (less any VAT input tax we have been invoiced by suppliers) on a quarterly basis.

Accordingly, it is possible that we have to pay over VAT to HMRC before we receive the equivalent payment from our customers.

Acknowledging this injustice, especially for smaller concerns, HMRC allow registered traders to use their Cash Accounting Scheme (CAS). Simply put, if you qualify to use CAS you only have to pay VAT added to your invoices when your customers pay you. On the flip side, any VAT charged to you by suppliers can only be reclaimed from HMRC when you pay your supplier.

The scheme is only available if your expected taxable supplies in the next year will be £1,350,000 or less. Taxable supplies are defined as the value excluding VAT of standard, lower and zero-rated supplies you make.

There is no formal election required to use CAS but it is well worth crunching the numbers to ensure that you get a positive cash flow impact from doing so!

Reclaiming pre-registration VAT input tax

Friday, October 17th, 2014

If you have been trading for some time before you register your business for VAT don’t forget to consider your option to reclaim VAT on goods and services purchased prior to your registration date.

For example, if you are required to register for VAT from 1 January 2014, you only need to pay VAT on taxable supplies you make from that date. However, if you had bought goods or services prior to 1 January you may be able to reclaim the VAT you paid on them. You can generally reclaim VAT on goods you bought up to four years before you registered for VAT, and services you bought up to six months before you registered.

You can reclaim VAT on goods you bought or imported no more than four years before you were registered for VAT if all the following are true:

  • the goods were bought by you as the entity that is now registered for VAT (for example, the individual, business or organisation)
  • the goods are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply
  • the goods are still held by you or they have been used to make other goods you still hold

You can't reclaim VAT on any of these goods:

  • goods that you've completely used up before you registered for VAT (such as petrol, electricity or gas)
  • goods that you have already sold or supplied before being registered, or have used to make goods you have sold or supplied before being registered
  • goods that relate to supplies you make that are exempt from VAT

The word 'goods' includes goods that are intended for resale, and also goods that you keep as assets, such as computer systems, shop fittings, office equipment and furniture, tills, vans and other equipment. It also covers anything else you've bought that isn't a service, so it includes consumables such as stationery.

You can reclaim VAT on services you bought during the six months before you registered for VAT if both the following are true:

  • the services were bought by you as the entity (for example, the individual, business or organisation) that is now registered for VAT
  • the services are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply

You cannot reclaim VAT on any of these services:

  • services that relate to goods you disposed of before you were registered for VAT – for example, repairs to a machine you sold before you were registered
  • services that relate to goods or services you supply that are exempt from VAT

Examples of services you might have paid for when starting your business are legal and accountancy fees, services relating to setting up your computer and other equipment, and fees and services relating to your premises.

Don’t forget that if you make a claim to recover past VAT paid, the input tax recovered will effectively reduce the cost of goods and services that you have claimed tax relief on in past years. This will effectively increase your taxable profits in the year you make your claim. Even taking this tax adjustment into account it is still worth making a claim.

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