Tag Archives: UK Tax News

OTS expected to advise that Income Tax & NI should be merged

Following the General Election the Coalition Government set up the OTS to, among other things, overhaul the highly unpopular IR35 legislation, which requires contractors to prove that they are no de facto employees of their clients. However, it is understood the OTS will highlight in the interim report the difficulty of finding a workable alternative to the rules.

A source speaking to the Telegraph said that “There is a great deal of anger and frustration that the OTS missed an open goal and has ducked the issue of IR35 completely. Any move to merge National Insurance and income tax would be a long and controversial journey that would last for years and there is little political consensus for such a journey. In the meantime the spectre of IR35, which is accepted by all as discredited, would still be holding back the UK’s growing freelance sector at a time when the Prime Minister is encouraging ‘go-getters’ and declaring war on the ‘enemies of enterprise.’ Expect the sparks to fly when the report is published.”

However Ian Dewar, a small business tax convenor at the ICAS said that “The bringing together of NICs with income tax and the removal of the difference in rates between self employed and employed would not only introduce a huge simplification but also lessen concerns of tax loss due to employment status. Politically, the merger of income tax and NICs would require bravery as it would finally make people aware of their real marginal rates of tax. However, it would bring substantial benefits by simplifying the tax regime.”

The Office of Tax Simplification (OTS) is expected to publish its final report into small business taxation in the summer. Freelance Contractors around the country (and accountants / scheme providers) will no doubt be watching developments very closely.

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 and we will get 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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LLPs warned to get right paperwork in place from day one

Graeme Jump, Senior Counsel at Mace & Jones Partnership said “Frighteningly, this decision was only in respect of a trial of a number of preliminary issues, but it still took nine days of High Court time. It seems quite likely that there may be further litigation. Sadly this is yet another case where business people have exposed themselves to litigation costs many more times greater than the legal costs of getting their paperwork right at the outset. I’m talking maybe a hundred times more. This is not an isolated case. I fear there will be more unless the very expensive lessons in this case are taken to heart by the business community. LLPs have become an increasingly popular vehicle for business people. The attraction usually is that the business rather than the partners’ personal wealth is liable for debts if the firm goes bust. In a recession when firms can go under for reasons outside their control converting to an LLP is clearly a wise move. Moreover the cost of doing so is relatively modest. Nevertheless as this case so graphically demonstrates failure to properly draft the legal structure of the LLP can backfire badly.”

Limited Liability Partnerships are a relatively new form of business structure which effectively combines the flexibility of a traditional partnership with the ‘limited liability’ security of a corporation. In an LLP one partner is not responsible or liable for another partner’s misconduct or negligence and partners have a form of limited liability similar to that of shareholders in a corporation. Although the majority of freelance contractors in the UK choose to use Limited Companies it has been known for some to use Limited Liability Partnerships and take all income as self employed earnings.

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 and we will get 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 to start Business Record Checks

The four new HMRC / Business Link Resources;

  1. A PDF entitled ‘Keeping records for business – what you need to know’
  2. A PDF entitled ‘A general guide to keeping records for your tax return
  3. Guidance on setting up a basic record keeping system (in association with Business Link)
  4. Guidance on what records you should be keeping (in association with Business Link)

Brian Redford of the HM Revenue and Customs said that “It may seem like a challenge, particularly when you’re starting out, but keeping good records will bring real advantages to your business. Get a proper system in place and you’ll not only be confident that you are paying the right tax, but you’ll keep up-to-date with how much you owe suppliers and how much you are owed. Later this year, HMRC will start a programme of Business Records Checks that will look at the adequacy and accuracy of business records in SMEs to bring about a major improvement in the standard of record-keeping. Now is the time to invest a bit of effort to make sure your business records are perfect.”

Meanwhile the Recruitment and Employment Confederation (REC) has met for the first time with the Office of Tax Simplification (OTS) to discuss the much criticised IR35 Legislation. The Office of Tax Simplification was set up by the Coalition Government last year following the General Election in an effort to ‘identify how complex areas of the tax system affecting both businesses and individual taxpayers can be reduced’. The IR35 legislation will be at the top of the action list for freelance contractors and the REC will put forward their views and the views of UK recruitment agencies in an attempt to generate more workable legislation.

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 and we will get 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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More than 2/3 of UK Businesses say VAT Increase has not affected business

The research also found that nearly 50% of firms has spent less than five hours managing the VAT increase to 20% and 29% of small business owners chose to absorb the additional 2.5% cost increase rather than pass it on to their customers.

The Managing Director of Intuit UK, Pernille Bruun-Jensen, said that “It’s reassuring to know that many small business owners have been able to cope with the recent VAT increase despite widespread predictions of doom and gloom. As this is the third VAT rate change in less than three years, those business owners who have been around for a while may feel that they have had enough practice to cope with the changes!”

The Chancellor of the Exchequer, George Osborne, announced that the VAT rate would increase by 2.5% to 20% in the Emergency Budget last year and immediately many organisations, especially those in the retail sector feared the worst. 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) concluded that there is was no ‘silver bullet’ that would raise large amounts of revenue without causing significant damage to the UK Economy. At the time 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

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 and we will get 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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IFS Says 750,000 People set to pay 40% Tax from April 2011 Onwards

The effects of the change are expected to see the middle classes hit the hardest with the Institute for Fiscal Studies estimating that on average households across the United Kingdom will have to pay an additional £200 in 2011 / 2012.  The changes are bad news for many households who have already seen prices increase significantly. The Shadow Chancellor, Ed Balls, said last night \”I do not think that Mervyn King (the Governor of the Bank of England), in his heart of hearts, really believes that crushing the economy in this way is the right way to get the economy moving.\”

Professional Contractors across the UK (especially those using PAYE Umbrella Companies), will feel the pinch once the new tax bands come in. Many could be encouraged to move from their Umbrella Companies to their own Contractor Limited Companies (if they feel comfortable they will be outside of the IR35 Legislation).

Recently the Office of Tax Simplification (OTS), the body set up in July 2010 by the Coalition Government to identify & simplify individual & business related tax complexities, said that it is on track to deliver its initial report to the Government in time for the 2011 Budget. The body, an office of the HM Treasury, recently completed a series of events around the United Kingdom which looked at the problems everyday businesses and individuals face. The road-show included meetings with professional contractors affected by the IR35 legislation (reportedly a top priority for the office).

John Whiting, the Tax Director for the Office of Tax Simplification, said that \”I am delighted that these events were so well received and stimulated such valuable debate amongst those attending. That is exactly what we hoped for as we seek input to help us simplify Britain\’s tax code as openly as possible. Some points we had already identified, but others provided real food for thought – it\’s important we consider all ways to making taxation for small businesses in particular a little easier. I would like to thank all those who attended, and would like to remind anyone that couldn\’t make it, or anyone who has further ideas that we continue to welcome views on making small business taxation simpler for all.\”

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 and we will get 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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OTS says initial report will be provided in time for the 2011 Budget

John Whiting, the Tax Director for the Office of Tax Simplification, said that \”I am delighted that these events were so well received and stimulated such valuable debate amongst those attending. That is exactly what we hoped for as we seek input to help us simplify Britain\’s tax code as openly as possible. Some points we had already identified, but others provided real food for thought – it\’s important we consider all ways to making taxation for small businesses in particular a little easier. I would like to thank all those who attended, and would like to remind anyone that couldn\’t make it, or anyone who has further ideas that we continue to welcome views on making small business taxation simpler for all.\”

YourFreedom.hmg.gov.uk

Over the past few months the contracting community has been making its voice heard with regards to the IR35 legislation in more ways than one. Many freelance contractors have been calling for the abolition of IR35 on the Government’s new website, YourFreedom.hmg.gov.uk. The piece or tax legislation, which has been described as greatly ‘unfair’ by much of the contracting community, has been one of the most popular topics since the sites launch a few months. The new site has been designed to allow members of the public to comment on laws and regulations which the public would like to see the Government get rid of.

At the time 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

At Commonwealth Contractors we partner with OISC Registered Private Immigration Firms and Tier 2 Licensed Healthcare and IT Consultancies who may be prepared, where required, to sponsor an individual on a Tier 2 Visa (formerly UK Work Permit). If you are a highly skilled International professional and you would like to work in the UK Commonwealth Contractors can help. Our OISC Registered Partners specialise in Tier 1 General (formerly Highly Skilled Migrant Programme) visa applications and can assist those highly skilled individuals that either wish to apply or extend a Tier 1 General Visa.

For more Information call Commonwealth Contractors now on 0800 294 4388 or Submit your Details and we will get right back to you. Please see other areas of the Commonwealth Contractors site for interesting articles on tax, immigration and contracting.

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Clampdown by HMRC on Tax Evaders

According to Rachel Murphy at Hurst “Everyone knows taxes are largely a given but there are many legitimate ways they can be managed to lessen the burden. The risk is that the Treasury is increasingly merging the two premises of avoidance of tax – which is legitimate – and evasion, which is illegal, couching it in terms of what is \’acceptable avoidance\’ and \’unacceptable avoidance\’. However, with the economic situation as it is, we have to be aware of the political sensitivities and the pressure the Treasury are under to raise revenues. Individuals and businesses need to be aware of this and the increasing scrutiny their tax affairs will be under. If HMRC does start going through the affairs of business or individuals, it\’ll take time and energy to answer their queries. If you do get a letter or a call, don\’t ignore it – speak to your tax advisor about how to deal with it.\”

HMRC Clampdown on Offshore Service Providers

The HM Revenue and Customs recently searched the premises of the Montpelier Group (an Isle of Man based Contractor Tax Scheme) and arrested a 60 year old man as part of an investigation into tax avoidance. The HMRC also searched the company’s office in the UK as part of a targeted investigation, although it is not known whether foreign authorities searched the company’s premises in Barbados and Hong Kong.

The investigation comes following the approval of BN66 rules which cleared the way for the HMRC to seek taxes retrospectively from users of such schemes. Earlier in the year an IT Contractor who used the Montpelier Group for 7 years named Robert Huitson failed in an attempt to fight the HMRC, he lost nearly £85,000.

Contractors considering offshore tax schemes which save large amounts of tax are being asked to seriously consider their position before going forward. For many the idea of paying £85,000 in backdated tax and national insurance is financially crippling, and something which can lead many to bankruptcy.

Commonwealth Contractors

At Commonwealth Contractors we partner with OISC Registered Private Immigration Firms and Tier 2 Licensed Healthcare and IT Consultancies who may be prepared, where required, to sponsor an individual on a Tier 2 Visa (formerly UK Work Permit). If you are a highly skilled International professional and you would like to work in the UK Commonwealth Contractors can help. Our OISC Registered Partners specialise in Tier 1 General (formerly Highly Skilled Migrant Programme) visa applications and can assist those highly skilled individuals that either wish to apply or extend a Tier 1 General Visa.

For more Information call Commonwealth Contractors now on 0800 294 4388 or Submit your Details and we will get right back to you. Please see other areas of the Commonwealth Contractors site for interesting articles on tax, immigration and contracting.

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Spending Review of less concern to SMEs

The report found that 47% of SME managers saw the Spending Review and budget cuts as a threat to their organisation, compared to 60% of managers working at companies with more than 250 employees. SME bosses were also more confident about their job security, with just 8% admitting to feeling insecure about their roles, in contrast to 42% of managers working at larger companies.

The Chief Executive of the Chartered Management Institute, Ruth Spellman, said that \”Ultimately, the key to recovery is ensuring managers feel confident and optimistic about the future. Of course, managers and leaders must take some responsibility for developing the skills needed for success, but they are crying out for more support.\”

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 and we will get 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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ACCA Hopes That HMRC Is Geared Up To Deal With Tax Queries In Light Of PAYE Error

Chas Roy Chowdhury, the ACCA’s Head of Taxation said that “HMRC’s recent announcement is worrying for many ordinary tax payers. While it is important we pay the right amount of tax at the right time, it is also important that our tax authority bills us correctly and keeps correct records. It is also important that HMRC is geared up to deal with this mistake. I am concerned that they will not have the number of staff available to deal with queries from those who don’t want to use HMRC’s website. This will only add to people’s frustration. This issue highlights the problems caused by the complexity of the UK’s tax system. Only today we also hear that millions of pounds are owed to those who do their own tax returns due to errors in the self assessment system. Self assessment tax payers and employers are clearly having problems with tax codes. I know that many will be asking whether they can trust the UK\’s tax regime.”

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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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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