Category Archives: UK Tax

Radical New Plans For PAYE Scheme Detailed In Government Consultation Document

Reasons to Modernise the Pay as You Earn Scheme

The Pay as You Earn Scheme was introduced back in 1944 however much has changed in the UK labour market since then. Back in the 40s and 50s most employers ran a weekly payroll rather than a monthly payroll and made payments in cash rather than via an electronic payment system. When people left an employment an employer would quickly make payment and issue a P45 so that the worker could take the document to their next employment and keep everything in order. Today most employers make monthly payments and use an electronic record system meaning that it often takes a while for leaving employees to receive their P45. Often this means the new employer will use a P46 and consequentially a temporary tax code.

The complexity of the workforce has also increased substantially over the years with many workers receiving multiple sources of income today. The drive to a temporary workforce has driven this change. People in these situations may require several tax codes so it is harder to ensure the correct amounts of tax are deducted from each payment.

Overall the Government is looking to modernise the system in order to:

  • Reduce the private sector cost of administering the system (the Government estimates UK businesses spend a combined £0.7 Billion each year running PAYE)
  • Reduce the public sector cost of running the PAYE scheme. The HM Revenue & Customs spends around £1 Billion on PAYE each year
  • Improve tax deduction accuracy and reduce the need for repayments (at present around five million people receive a repayment each year)
  • Improve the efficiency with which student loan repayments are collected

National Insurance and PAYE Computer Service (NPS)

The HM Revenue & Customs now have a new National Insurance and PAYE Computer Service (NPS) up and running which is expected to significantly improve certain aspects of the PAYE scheme by creating a single tax account for each employee and pensioner. The record will include details of each persons:

  • Employment History
  • Historic Earnings
  • National Insurance Record

Previously, the HMRC system held details at employer level, so if an individual had more than one job, the record for each would be held separately. Details were not brought together until all the sources of an individual’s income were consolidated at the year end. The new service provides a joined up view of an individual’s employment and pension income and a complete contact history in which all information about an individual’s contact with HMRC is attached to their tax account.

Step 1: Real Time Information

In the consultation document the Government is proposing a two step solution to improve the PAYE scheme, step one being a Real Time Information system and step two a radical Centralised Deductions system.

Under the Real Time Information System employers paying electronically would send the HM Revenue & Customs details of an employees gross pay, income tax, national insurance and student loan deductions along with details of an employees identity. This information would be passed to the HMRC at the point that payment is made to the employee. The HMRC believe that such as system would:

  • Simplify the P45 / P46 procedure for people leaving the employment of one company and joining another
  • Reduce end of year workload for employers and the HMRC
  • Streamline the administration of the current system
  • Reduce fraud, errors and overpayments

Under the real time system employers would still remain responsible for the calculation and deduction of Income Tax, National Insurance Contributions and Student Loan Repayments.

Step 2: Centralised Deductions

Centralised Deductions represents a radical proposal to modernise the system, however it could only be implemented if the Real Time Information system ran efficiently.

Under the proposals the responsibility for calculating deductions under Pay as You Earn would move from the employer to the HM Revenue and Customs with employers sending the gross payment to the HMRC and the HMRC using a central calculator to calculate the deductions and then make payment to the worker minus the correct tax deduction. The HMRC would at the same time send the tax deduction directly to the Treasury.

The big benefit of this system would be the ability to do away with tax codes meaning a significant reduction in administration for the HMRC and UK employers. Information about deductions would not however appear on an employer generated payslip, instead individuals would be given access to their consolidated tax account which would show how the deductions had been calculated by the HMRC

The big issue with this system of course is the HMRC’s ability to administer the system without issue. At present it is difficult to deal with the HMRC and they do not have the best record in dealing with IT implementations.

Commonwealth Contractors

Commonwealth Contractors is a collection of highly skilled professionals from the Commonwealth and beyond. We partner with OISC Registered Immigration Partners capable of professionally representing Tier 1 Visa Applications / Extensions and Tier 2 Licensed Consultancy & Associated Trust Partners who may be prepared, where required, to sponsor a Medical, Information Technology or Engineering Professional on a Tier 2 Visa (formerly UK Work Permit).

To find out more call Commonwealth Contractors now on 0800 294 4388 or Submit your details now and we will get right back to you. Please be prepared to send a copy of a recent CV so that we can pass to interested partners.

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Contractors Call For IR35 To Be Abolished On New Government Website

The Deputy Prime Minister, Nick Clegg, said that “This site gives you the chance to tell us which laws and regulations you think we should get rid of. Your feedback will inform government policy and some of your proposals could end up making it into bills we bring before Parliament to change the law. We\’ve had an excellent response so far, receiving thousands of ideas, comments and votes. So if you see an idea here that you agree with, then rate it to move it up the list. If you have more to say about an idea, then add your comment. Or submit your own idea if it isn\’t yet on the site (the search box is a good way to check). And remember – we want you to suggest ideas for removing laws and regulations, rather than ideas for creating them.”

Commonwealth Contractors

Commonwealth Contractors is a collection of highly skilled professionals from the Commonwealth and beyond. We partner with OISC Registered Immigration Partners capable of professionally representing Tier 1 Visa Applications / Extensions and Tier 2 Licensed Consultancy & Associated Trust Partners who may be prepared, where required, to sponsor a Medical, Information Technology or Engineering Professional on a Tier 2 Visa (formerly UK Work Permit).

To find out more call Commonwealth Contractors now on 0800 294 4388 or Submit your details now and we will get right back to you.. Please be prepared to send a copy of a recent CV so that we can pass to interested partners.

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Contractors Set To Face Less Limited Company Red Tape

The Coalition Government has issued an online invitation to the public to nominate the unnecessary laws and regulations they would like to see scrapped. High on any Contractors list will no doubt be the scrapping of Intermediaries Legislation, otherwise known as IR35.

In a statement Nick Clegg said \”Too many of the business and voluntary groups I meet tell me they feel overwhelmed with forms to fill out and boxes to tick, whether it\’s a fledgling business looking to take on more staff, or a charity struggling with the complex record checks their volunteers have to undergo. But the key to all of this is you. You – the small business owner, the social entrepreneur, the volunteer. You know better than government departments, better even than Vince Cable, what rules and regulations are holding you back. The whole point of this exercise is to get Whitehall out of the driving seat. We want to know where regulation works, where it doesn\’t, and what we can do to help.\”

Although the announcement will be seen as a positive for the business community the real reason for the drive to streamline processes and scrap legislation is no doubt due to the fact that many Government departments, with the exception of the Department of Health, face major budget cuts. According to recent announcements budget cuts may be as much as 40% in certain departments therefore leaders will be looking at ways to scrap legislation and reduce administration in order to meet strict new targets. Unnecessary form filling takes up a good deal of time for entrepreneurs, small business owners and contractors in particular however on the flip side the Government also spends a great deal of time and effort collating information, getting it into the right format and generally utilising the information. Details of expected cuts are expected to be announced in the coming weeks.

Commonwealth Contractors

Commonwealth Contractors is a collection of highly skilled professionals from the Commonwealth and beyond. We partner with OISC Registered Immigration Partners capable of professionally representing Tier 1 Visa Applications / Extensions and Tier 2 Licensed Consultancy & Associated Trust Partners who may be prepared, where required, to sponsor a Medical, Information Technology or Engineering Professional on a Tier 2 Visa (formerly UK Work Permit).

To find out more call Commonwealth Contractors now on 0800 294 4388 or Submit your details now and we will get right back to you.. Please be prepared to send a copy of a recent CV so that we can pass to interested partners.

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20% VAT Rate Announced

British Retail Consortium Warning

Back in May the British Retail Consortium (BRC) warned that a hike in the VAT rate to 20% would cost ‘163,000 jobs over four years and reduce consumer spending by £3.6 Billion’. In a report carried out for the BRC by the Centre for Economics and Business Research (CEBR) the organisation concluded that there is no ‘silver bullet’ that will raise large amounts of revenue without causing significant damage to the UK Economy. The research found that a 20% VAT rate would:

  • Reduce the deficit by £11.3 Billion in year one but would result in 30,000 fewer jobs by the end of that year
  • Reduce consumer spending by:
    • £1.6 Billion in year two, AND
    • £3.6 Billion over four years
  • Result in 163,000 less jobs after four years

At the time the Director General of the British Retail Consortium, Stephen Robertson, said that “For the first time we have clear, independent evidence showing VAT and NI increases will have a deep and long-lasting impact on jobs and growth. The budget deficit is serious. It has to be tackled but proposals must be judged against the implications for jobs and growth revealed by this new information. The main tool has to be cutting non-vital public spending. Removing some of the previously-planned National Insurance increase and signals that the Chancellor will look for an 80:20 split between public spending cuts and tax rises are a welcome start. Business growth will get the country out of the hole it\’s in, led by retail. The Government must now deliver a route to stability that supports companies and customers by avoiding damaging tax rises.\”

KPMG Reaction

Commenting on the announcement the UK Head of Restructuring at KPMG, Richard Fleming, said that \”The full severity of the financial crash cushioned by government schemes such as \’Time to pay\’; low interest rates and low exchange rates have bought retailers precious time as they seek to remodel their operations to suit the new low-demand climate. Businesses which have been unable to resolve their problems in this period of grace now face a stark future.  Retailers and property businesses, such as in secondary shopping centres, have struggled to cope with the drop in demand.  With VAT now confirmed at 20% we could see consumer spend drop by billions.  Small comfort perhaps but retailers will be breathing a sigh of relief that they have until January to implement the change.  Companies need time to build in VAT increases and indeed bringing in the change brings a heavy cost pressure, most acutely felt by SMEs. Those retailers teetering on the edge may find the VAT rise pushes them over the edge. While we have seen a lull in insolvency numbers in recent months, we expect this trend to reverse, particularly in industries such as retail and leisure where improving consumer demand is vital.”

Commonwealth Contractors

Commonwealth Contractors is a collection of highly skilled professionals from the Commonwealth and beyond. We partner with OISC Registered Immigration Partners capable of professionally representing Tier 1 Visa Applications / Extensions and Tier 2 Licensed Consultancy & Associated Trust Partners who may be prepared, where required, to sponsor a Medical, Information Technology or Engineering Professional on a Tier 2 Visa (formerly UK Work Permit).

To find out more call Commonwealth Contractors now on 0800 294 4388 or Submit your details now and we will get right back to you.. Please be prepared to send a copy of a recent CV so that we can pass to interested partners.

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No News On IR35 Expected Until After Emergency Budget

There has been much speculation about the abolition of IR35 since the Queens Speech which included plans to remove barriers to flexible working, promote equal pay and make the taxation system fairer and simpler. The announcement followed the Conservatives letter to the Professional Contractors Group (PCG) on IR35 prior to the General Election and the positive news that Mark Prisk, the Conservative MP for Hertford and Stortford (and former Contractor) was appointed Minister of State for the Department of Business, Innovation and Skills.

Responding to the Queens Speech the Managing Director of the Professional Contractors Group, John Brazier, said that “This builds on the Government’s announcement to seek a replacement for IR35. By all accounts, the momentum is clearly building to consign this unfair and unclear piece of legislation to the scrapheap. In particular we warmly welcome the Government’s stated commitment to establish an ‘Office of Tax Simplification’. Once IR35 is placed under the scrutiny of such a body, it will be exposed for the iniquitous and overly complex block on enterprise it really is. Britain’s 1.4 million freelance workers are ready and willing to help the UK’s economic recovery. Any moves to simplify tax and reduce regulatory burdens will help nano-businesses. We will continue to work with Government, and keep the momentum building to abolish IR35 which, after all, has been PCG\’s core objective since inception.\”

Appointment of Mark Prisk MP

The appointment of Mark Prisk, the Conservative MP for Hertford and Stortford, to the position of Minister of State for the Department for Business, Innovation and Skills, has been welcomed by contractors across the UK. Mr Prisk is a former contractor who has spoken out many times against issues such as Section 660 and IR35.

In March 2010 while in opposition with the Conservatives, Mr Prisk wrote to the Professional Contractors Group (PCG) to set out the party’s stance on the issues of IR35 and small business taxation. In the letter he said that “I am pleased to confirm that, if elected, a Conservative Government would undertake a fundamental review of small business taxation matters, including IR35. We would do this by mandating the independent Office of Tax Simplification to conduct this review, working closely with tax experts and those affected. In this way we believe we would be able to replace a complex, uncertain and unfair tax regime with one which is clearer, stable and which would give people the confidence to start up and build their business.”

Commonwealth Contractors

Commonwealth Contractors is a collection of highly skilled professionals from the Commonwealth and beyond. We partner with OISC Registered Immigration Partners capable of professionally representing Tier 1 Visa Applications / Extensions AND Tier 2 Licensed Consultancy & Associated Trust Partners who may be prepared, where required, to sponsor a Medical, Information Technology or Engineering Professional on a Tier 2 Visa (formerly UK Work Permit).

To find out more call Commonwealth Contractors now on 0800 294 4388or Submit your details now and we will get right back to you. Please be prepared to send a copy of a recent CV so that we can pass to interested partners.

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Dangers Of A 20% VAT Rate

The research found that:

  • A 20% VAT rate would:
    • Reduce the deficit by £11.3 Billion in year one but would result in 30,000 fewer jobs by the end of that year
    • Reduce consumer spending by:
      • £1.6 Billion in year two, AND
      • £3.6 Billion over four years
    • Result in 163,000 less jobs after four years
  • A 19% VAT rate would cost 99,000 jobs over four years
  • A 22.5% VAT rate would cost 317,000  jobs over four years
  • The proposed 1% increase in Employees National Insurance Contributions and 0.5% increase in Employers NI will:
    • Reduce UK job numbers by 25,000 in the year one
    • Reduced UK job numbers by 109,000 after four years
    • Reduce consumer spending by:
      • £948 million in year one
      • £2.2 billion after four years

The BRC has called for the new Conservative / Liberal Democrat Coalition Government to reduce public spending rather than target tax increases, as mentioned in the run up to the General Election. The Queens speech included details of significant reductions in public spending with a number of high profile projects (including the National Identity Care Scheme and the next generation of Biometric Passports) being cancelled.

The Director General of the British Retail Consortium, Stephen Robertson, said that “For the first time we have clear, independent evidence showing VAT and NI increases will have a deep and long-lasting impact on jobs and growth. The budget deficit is serious. It has to be tackled but proposals must be judged against the implications for jobs and growth revealed by this new information. The main tool has to be cutting non-vital public spending. Removing some of the previously-planned National Insurance increase and signals that the Chancellor will look for an 80:20 split between public spending cuts and tax rises are a welcome start. Business growth will get the country out of the hole it\’s in, led by retail. The Government must now deliver a route to stability that supports companies and customers by avoiding damaging tax rises.\”

Commonwealth Contractors

Commonwealth Contractors is a collection of highly skilled professionals from the Commonwealth and beyond. We partner with OISC Registered Immigration Partners capable of professionally representing Tier 1 Visa Applications / Extensions and Tier 2 Licensed Consultancy & Associated Trust Partners who may be prepared, where required, to sponsor a Medical, Information Technology or Engineering Professional on a Tier 2 Visa (formerly UK Work Permit).

To find out more call Commonwealth Contractors now on 0800 294 4388 or Submit your details now and we will get right back to you. Please be prepared to send a copy of a recent CV so that we can pass to interested partners.

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HMRC Get Tough with Tax Evaders

In the last financial year to March 2009 the HMRC managed to grow revenue generated through tax investigations to £12.1 Billion, an increase of 7% on the previous year. Overall the HMRC has grown revenue generated through tax investigations by 64% since the creation of the organisation back in 2005.

The increase in tax revenues has been attributed to a tougher and more intrusive approach taken by the HMRC. However question marks exist over the bottom line increase in tax revenues with compliance costs reported to be very high. It is understood IR35 Investigations conducted by the HMRC cost the organisation significantly more than they generate however this obviously does not take into consideration the revenues generated by scare tactics, where an individual would rather play it safe than operate in a manner that would cause them to have sleepless nights.

Commonwealth Contractors

Commonwealth Contractors is a collection of highly skilled professionals from the Commonwealth and beyond. We partner with OISC Registered Immigration Partners capable of professionally representing Tier 1 Visa Applications / Extensions and Tier 2 Licensed Consultancy & Associated Trust Partners who may be prepared, where required, to sponsor a Medical, Information Technology or Engineering Professional on a Tier 2 Visa (formerly UK Work Permit).

To find out more call Commonwealth Contractors now on 0800 294 4388 or Submit your details now and we will get right back to you. Please be prepared to send a copy of a recent CV so that we can pass to interested partners.

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The end of IR35?

Introduced in 1999 to prevent contractors avoiding tax payments through intermediary firms IR35 has been a compliance nightmare not just for small businesses but also for the HM Revenue & Customs, who have spent a fortune trying to bring and win cases against Limited Company Contractors deemed to be ‘Outside IR35’.

Speaking to the Telegraph Mr Prisk said \”More often than not they (the Labour Government) have treated them (Limited Company Contractors) as if they are on the fiddle, which is wholly unacceptable. We want to reform the system,\” He went further by saying “the presumption that self-employed professionals are cheating the tax system must come to an end.”

The Conservatives are thought to be considering the radical option of allowing 600,000 Limited Company Contractors to opt out of employment. Instead of paying 11% Class 1 Employees National Insurance on their salaried income they would pay the Self Employed rate of £2.40 per week in Class 2 National Insurance Contributions. No mention was made of Class 4 National Insurance which the Self Employed must also pay on profits (Class 4 National Insurance is 8% between the lower and upper profits limit and then beyond it is capped at 1%.

Both the Conservatives and Liberal Democrats are though to be sympathetic to the idea of scrapping the expensive and difficult to enforce IR35 legislation. However both parties have stopped short of announcing that they will abolish the legislation, saying rather that they will look into it as part of wide small business taxation reforms. Mr Prisk is a former freelancer who has come out in support of the small business community for a number of years.

Commonwealth Contractors

At Commonwealth Contractors our partners specialise in looking after highly skilled professionals who operate limited companies, especially those expat consultants currently working in the UK on a Tier 1 Visa (formerly Highly Skilled Migrant Programme).

Many highly skilled professionals who come to the UK are recommended to go into a business with a Contractor Limited Company due to the favourable tax advantages, which include saving 11% Class 1 Employees National Insurance and 12.8% Class 1 Employers National Insurance. However many individuals who choose to go this way find it more difficult to qualify for a Tier 1 General extension after 3 years.

At Commonwealth Contractors we partner with OISC Registered Private Immigration Firms and Tier 2 Licensed Healthcare & IT Consultancies who may be prepared, where required, to sponsor an individual on a Tier 2 Visa (formerly UK Work Permit). Our OISC Registered Immigration Partners specialise in looking after high level professionals on Tier 1 Visa and offering professional Tier 1 application and extension services.

For more information call Commonwealth Contractors now on 0800 294 4388 or Submit your details now and we will get right back to you.

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31st January Tax Return Deadline

Submitting an Online Tax Return to the HMRC

In order to submit an online tax return to the HMRC you must first register to use the HMRC’s online services. Once information has been submitted the HMRC sends out at activation code (designed for security reasons) by first class post. You will need the code in order to log into your account and file the return. Application codes can take around a week to arrive so if you have not already arranged the document you will probably end up filing a late return, however you will not have to pay a £100 penalty so long as you pay all of the tax you owe to the HMRC before the 31st January.

Paying Tax to the HMRC

All payments to the HMRC for the year end April 2008 – April 2009 must be received by the 31st January 2010, the deadline is the same whether a return has been filed online or by paper. You can arrange to pay the self assessment tax payment by internet or telephone banking if you need to make an urgent payment. To do this you will need to provide the bank with:

  • The HMRC’s Bank Account Details: There are two offices which take payments on behalf of the HMRC, Cumbernauld and Shipley. To determine which one you need to make payment to use should refer to your payment reminder.
    • Cumbernauld Accounts Office:
      • Sort Code: 08 32 10
      • Account Number: 12001039
      • Account Name: HMRC Cumbernauld
    • Shipley Accounts Office:
      • Sort Code: 08 32 10
      • Account Number: 12001020
      • Account Name: HMRC Shipley
  • Your Self Assessment Reference Number: When making a Self Assessment tax return you will need to provide your Self Assessment Reference Number (also known as a Unique Tax Reference Number (UTR)) in order for the payment to be tied up with your records on the HMRC’s side. Your reference number will be in the reference number box on the payslip the HMRC sent to you. The number is made up of ten digits followed by the letter K

HMRC Online Services & Help lines

The HMRC’s online services are available 24 hours a day 365 days of the year. If you are having difficulties you should refer to:

  • The Online Services Helpdesk – 0845 60 55 999, OR
  • Self Assessment Help line – 0845 9000 444

Please note that www.CommonwealthContractors.com accepts no liability whatsoever to any user with regards to this article. Information has been provided simply to remind and inform users of the need to submit a tax return. Users are advised to visit the HM Revenue & Customs website for full details of submitting a UK Tax Return.

For more information on Commonwealth Contractors services and solutions call now on 0800 294 4388 or Submit your Details and we will get back to you

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VAT rate increases to 17.5% in 2010

When invoicing a client it is important to decide at what time the supply of services actually took place. To do this you use what is known as the ‘time of supply’ or ‘tax point’ rules. These rules are especially important when the rate of VAT changes, such as on the 1st January 2010. In short, Value Added Tax is due on whatever comes first, the date of invoice or the date of payment.

If you invoice a client on the:

  • 30th December 2009 for work undertaken in December 2009 you will need to invoice at the rate of 15%
  • 1st January 2010 for work undertaken in December 2009 you will need to invoice at the rate of 17.5%
  • 15th January (example) for work undertaken over the 1st January 2010 (e.g. 10th December 2009 to 10th January 2010)  you will invoice all work in 2009 (e.g. 10th December 2009 till 31st December 2009) at 15% and all work in 2010 (1st January 2010 till 10th January 2010) at 17.5%

On top of changes to the rate of VAT those Limited Company Contractors with an annual turnover (exclusive of VAT) of £100,000 or more will need to prepare to submit VAT Returns online and make payments electronically from the 1st April 2010. If you are a Contractor and you are planning on registering a Limited Company for VAT from the 1st April 2010 (regardless of turnover) you will have to file VAT Returns and make payments electronically.

Although registering for VAT online may seem like a big headache initially (i.e. going back and forward over Government Gateway documents and passwords!) it can actually save a lot of time and effort in the long run. By registering for VAT online and making payments electronically you can:

  • Save a lot of time and effort
  • Avoid costly mistakes
  • Make sure you do not miss a deadline (the HMRC will charge a financial penalty (normally £100 – £250) for non payment of VAT or missing a deadline)
  • Ensure payments are processed (you receive a submission confirmation from the HMRC)

For more information please see .

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If you operate a Contractor Limited Company and are looking for professional Accountancy services please contact Commonwealth Contractors today on 0800 294 4388 or Submit your details now and we will get right back to you. We partner with Chartered Accountant Partners who specialise in dealing with Contractor Limited Companies.

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