RTI (Real Time Information) – last Full Payment Submission (FPS) due soon

Exactly eleven months ago at time of writing, HMRC launched ‘RTI’ (Real Time Information) in the UK. This is the mechanism through which employees now have to report PAYE information for employees on the day it actually happens, or alternatively before that day, for example to confirm to HMRC each time an employee is paid through PAYE, including any NI or Income Tax deductions. RTI is, almost without exception, for all employees including those whose earnings fall below the NIC’s Lower Earnings Limit (‘LEL’), e.g. students.

The RTI reporting has to be done electronically using payroll software, whether that’s the employer themselves reporting it, or their nominated accountant, payroll bureau or bookkeeper. The information reported to HMRC will also now need to include new information which includes the usual hours worked by each employee and any unusual break in the normal working pattern, for instance if an employee takes unpaid leave. RTI also includes other changes to how various things are reported e.g. starter and leaver dates and also employers no longer need to submit end of year forms P14 and P35 because this will be handled on the last Full Payment Submission (‘FPS’) for the tax year in question – this is due in less than a month  at time of writing as the new tax year begins Read more

It’s official: thousands are on the wrong tax code!

With the tax return deadline being only hours away (midnight 31 January 2014) there is still time to get professional help if you need it – particularly because HMRC  often get it wrong according to new research by UHY Hacker Young.

In just one example, HMRC sent a tax bill to a pensioner which demanded over £576k in tax! With an income of only £11k per annum this was clearly incorrect but what if it had been only hundreds of pounds wrong – would the pensioner have noticed and, if so, would he have been confident enough to question it with the might of HMRC?

According to the research, HMRC employees have been making ‘basic’ errors which have led to problems such as people being on the wrong tax code and consequently underpaying or overpaying tax. While underpaying it may sound attractive on the face of it, chances are the system will catch up and then a correction will need to be made later on, leaving the taxpayer with an unforeseen bill to pay – a real blow for cashflow.

While the UHY Hacker Young research cites an error rate in 2013 of 37% in the sample tested, HMRC are arguing that the research is wrong and that their PAYE coding notices are 99% accurate. Either way, when you consider that Read more

‘Employment Allowance’ to save businesses up to £2k in NIC

In April 2014 the new ‘Employment Allowance’ will be introduced. This will cut up to £2k off the National Insurance costs incurred by businesses and save employers nearly £5.5 billion across the UK as a whole by the end of the Parliament. This equates to £200 per UK employee.

These savings will also be helped by the abolishment of the National Insurance previously paid by businesses for employees under 21 years of age (from April 2015) and by the increase in the “threshold before an employer has to begin paying National Insurance contributions for employees” (from April 2011).

George Osborne, Chancellor of the Exchequer, said:

“Small businesses make a vital contribution to our economy, creating jobs and stimulating growth. The ones I have visited today want to expand, take on new staff and make new investments so the actions we have taken to cut the jobs tax will be a real boost to them.” Read more

Autumn Statement by the Chancellor of the Exchequer

George OsborneOn 5 December 2013 George Osborne, Chancellor of the Exchequer, gave his Autumn Statement in Parliament. Key announcements included:

  • A rise for the Personal Allowance, as was long-anticipated, to £10,000 in 2014/15;
  • the higher 40% tax rate threshold also increasing to £41,865;
  • A new, transferable, tax allowance of £1,000 for married couples and those in civil partnerships from April 2015;
  • For employees aged under 21 employers will not have to pay Class 1 National Insurance (‘NI’) Contributions on earnings up to the Upper Earnings Limit;
  • Capital Gains Tax (‘CGT’) for future gains will now also apply to NON-resident individuals from April 2015 (previously this had been applied only to UK resident landlords);
  • For 2014/15 the annual ISA subscription limit will increase to £11,880 (of which £5,940 can be in cash);
  • There were also announcements relating to the continuing clamp-down on tax avoidance, improvements and plans for UK infrastructure, and the proposed inheritance tax (‘IHT’) simplification for trusts.

The full speech transcript can be read here or alternatively view the following video recording: Read more

Changes to Minimum Wage from 1st October

As explained in a previous blog post, Minimum Wage is defined as the lowest wage payable to most employees as fixed by law or union agreement. 

As from 01/10/09 new rates came in place:

•£5.80 – as the main rate for workers aged 22 and over;
•£4.83 – the 18-21 rate;
•£3.57 – the 16-17 rate for workers above school leaving age but under 18.

A very important change from 01/10/09 is that fact that employers running bars and restaurants can no longer be allowed to use tips to top up pay up to the minimum wage.

Workers will now be paid at least the National Minimum Wage and be paid their tips on top of this.

If your employer is paying you less than the Minimum Wage entitlement you must report this by filing an online complaint form.

If you have any queries regarding Minimum Wage or any other tax related question, please feel free to ring us on 020 8761 8000 or come to see us in our office in Tulse Hill on the South Circular.

Employed or Self Employed?

If you work for someone else, it is important to know whether you are working for that person as employed or self-employed as an independent contractor.
If you are the one having to employ somebody, it is your responsibility to correctly determine the employment status of that person.
A worker’s employment status will determine the charge to tax on income and the class of National Insurance contributions due.
It is necessary to determine whether the person works under a contract of service (as an employee) or under a contract for services (as self-employed or independent contractor).
There are some test and factors that can determine the worker’s right status. For instance if the workers are paid by the hour, week or month and if they can get overtime pay or bonus it means that they are employed. Also, if they work a certain amount of hours and they can be moved from task to task than again they are considered to be employees.
Important to establish is whether the workers can be replaced by somebody else and whether they are being told where, when and how to carry out their work. Again if the answer is affirmative than that worker classifies as an employee within the company.
If the workers are self-employed,the answer to all the following questions should be positive:
•Do they regularly work for a number of different people?
•Can they hire someone to do the work or engage helpers at their own expense (the so called right of substitution and engagement of helpers)?
•Do they carry a financial risk?
•Can they decide what work to do, how and when to do the work and where to provide the services?
•Are they providing the main items of equipment they need to do heir job?
•Do they agree to do a job for a fixed price regardless of the time it takes?

Very important to highlight the HMRC’s view of a worker : “Just because a worker is self-employed in one job, doesn’t necessarily mean he or she will be self-employed in another job. Equally, if a worker is employed in one job, he or she could be self-employed in another.
It is a general requirement that those wishing to take on workers consider the terms and conditions of a particular engagement to determine whether the worker is an employee or self-employed. If you any doubts, you can always ask your local Status Inspector for an opinion as to the employment status of your workers. Also there is an Employment Status Indicator (ESI) tool that enables you to check the employment status of an individual or group of workers.
Unfortunately, the status of self-employed workers is a favourite target of the Taxman, particularly during a PAYE compliance visit.
So take Taxfile‘s tax agents advice and protect yourself with a contract and and keep all the correspondence between you and the contractor covering the main points about employment status to avoid problems in the future.

Taxfile: Scholarship Income

By scholarship we mean an exhibition, bursary or any other similar educational endowment. If the holder of the scholarship is receiving full-time education at a university, college or school then the income from the scholarship is exempt from tax.
The rate of payment including lodging, subsistence and travelling allowances is now £15,480 a year, £1,290 a month or £297.92 a week. This rate has increased from £15,000 (rate used up to 01/09/2005) to £15480 (from 01/09/2007 onwards).
Important to note is that this exemption does not apply to payments of earnings made for any periods spent working for the employer during vacations.
If the rate exceeds £15,480 HMRC will look at the arrangements in detail. This is because the level of payment exceeds what might reasonably be described as a scholarship or training allowance. However, an increase in the rate of payment over the qualifying limit, part way through a course, will not affect the exemption applying to any payments for the earlier part of the course
One of the condition to be met by the employee receiving the scholarship, is that he/she must be enrolled at the educational establishment for at least one academic year and must attend the course for at least twenty weeks in that academic year.
Also, the educational establishments must be recognized universities, technical colleges or similar educational establishments, which are open to members of the public generally and offer more than one course of practical or academic instruction.
Very important to know is that the concepts of “earnings” and “scholarship income” are mutually exclusive.
In conclusion, it is important to remember that there are a few factors to consider when dealing with scholarship income:
•the relationship between the payer and the recipient;
•the nature of the course;
•where the course is being undertaken;
•whether it is full time;
• total amount.
So pop in to see us in our office in South London Monday to Friday and even Saturday now!
Any of our tax agents at Taxfile will be more than happy to help if you have any further queries.

Statutory Maternity Pay (SMP)

If you are expecting a baby, you might be entitled to Statutory Maternity Pay (SMP)to help you take time before and after the baby is born. This is a weekly payment from your employer.
Payments of SMP count as earnings so your employer will deduct tax and National Insurance contribution in the normal way.
In order to be eligible for Statutory Maternity Allowance you must meet certain conditions.
Firstly, you must have worked for the same employer continuously for at least 26 weeks up to and into the 15th week before the week the baby is due.
Secondly, you must give your employer sufficient notice of taking your SMP (28 days)and give him/her a form called MAT B1 Maternity Certificate from signed by a doctor or midwife after the 20th week of your pregnancy.
Finally,your earnings as an employee must be at least an average of £90 a week (before tax).
Statutory Maternity Leave is for 52 weeks. You may be entitled to receive Statutory Maternity Pay for up to 39 weeks of the leave.
For the first six weeks, your employer must pay you at the rate of 90% of your average weekly earnings.
For the next 33 weeks , your employer must pay you at either the standard rate of £117.18 or 90% of your average gross weekly earnings (if this 90% rate is less than the standard rate).
If your employer concludes that you do not qualify the he/she must give you a form SMP1.
Most women employees have the right to take up to one year’s (52 weeks’that is 26 weeks of Ordinary Maternity Leave and 26 weeks of Additional Maternity Leave) maternity leave. This does not depend on how long you have worked for your employer. The only employees who don’t have this right are:
•share fisherwomen;
•women who are normally employed abroad (unless they have a work connection with the UK);
•self-employed women;
•policewomen and women serving in the armed forces.
Taxfile‘s tax agents in South London and Exeter are here to help you if you have any questions regarding your entitlement to SMP.

National Minimum Wage

Minimum Wage is defined as the lowest wage payable to most employees as fixed by law or union agreement.
There are three different rates of Minimum Wage:
Adults’ rate for workers aged 22 and over
Development rate for those aged between 18 and 21
Young people’s rate for those older than school leaving age and younger than 18; you’re under school leaving age until the end of summer term of the school year in which you turn 16.
Almost everyone who works in the UK is legally entitled to be paid the National Minimum Wage.
However, you are not entitled to receive the minimum wage if you are in one of the following categories: a worker under school leaving age, genuinely self-employed,company director, prisoner, share fisherman, apprentice, an au pair,in the armed services or a voluntary worker.
Every year National Minimum Wage rates are being reviewed and if any changes take place they come in force from 1st of October. From 1st October 2008, National Minimum Wage increased from £5.52 to £5.73 an hour for adult workers.
The statutory hourly rate for 18 to 22-year-olds has also risen from £4.60 to £4.77, and for 16 and 17-year-olds has lifted from £3.40 to £3.53. Also the accommodation offset rate increased from £4.30(per day) to £4.46(per day).
It is worth mentioning the agricultural workers as different rates apply to them.
Also Piece workers (known as Output workers) are paid by the number of items they produce or tasks they perform rather than the number of hours they work. Piece workers must be paid at least the minimum wage for every hour they work or a fair piece rate for each piece produced or task performed.
Commission workers are paid entirely or partly on the basis of sales made. These ‘commission workers’ must be paid at least the national minimum wage.
Trainees and staff on probation are entitled to be paid at least the national minimum wage.
Very important to know is that the government is planning to introduce new regulations in April that will impose a £5,000 automatic fine on any employer failing to pay the minimum rate.
Serious cases could lead to a prosecution in a Crown Court where there is no limit to the fine that could be set.
If you suspect your employer is paying you less than the Minimum Wage than Taxfile‘s tax accountants in South London and Exeter recommend you downloading this form in order to make a complaint to the HMRC.

Non-taxable payments and benefits

Under general tax law, expenses payments and benefits made to certain directors and employees are taxable earnings (better known as remuneration).
As it is the case with most rules, there are exceptions where benefits or payments to an employee are not normally taxed:
• Annual parties or similar functions provided that the cost incurred by the employer for every employee is less than £150.
• Living accommodation related to the work.
• Equipment provided for disabled employees like a wheelchair or hearing aid and their private use
• The provision of goodwill entertainment for an employee.
• Late night taxis where an employee is provided with a taxi paid for by his employer for a journey from work to home.
• Work-related training expenses
• Long service and suggestion scheme awards provided that the cost to the employer does not exceed £50 per year of service for the employee.
• Meals and food vouchers where the vouchers are non-transferable, they are used
for meals only and the value of vouchers issued to employees does not exceed 15p for each working day.
• Mobile phones unless the calls paid by the employer can be converted into money by the employee.
• Parking spaces
• Removals expenses and benefits which exempts from tax the first £8,000 of removal expenses.
• Re-training expenses and courses for an employee who is about to leave or has left within the
previous year.
• Pensions on retirement or death
• Sports facilities generally available to the employer’s employees and members of their families
and households but not to the public.
• Medical treatment abroad
For more information on each of the non-taxable payments and benefits mentioned above just follow the HMRC link.
Alternatively, you can contact Taxfile‘s tax accountants in South London and Exeter for any query that you might have.