The latest edition of our newsletter, Pay Less Tax, is available to download.
Topics covered in this issue include:
Real Time Information is the biggest change to payroll in the UK since PAYE began… and that was when we were still at war with Germany!
It starts on 6 April 2013 and not non-compliance is not an option.
We’ve compiled some FAQs about RTI and have provided some answers on the North Devon Business Alliance blog.
If you don’t whether your payroll is ready for ready for RTI, or don’t even know what RTI is, then this series of articles should be a good place to start.
RTI – Frequently Asked Questions part one
RTI – Frequently Asked Questions part two
These posts have also been featured on the ICAEW Business advice service blog.
The time to get ready for Real Time Information is NOW
RTI (Real Time Information) represents the biggest change to payroll since the introduction of Pay As You Earn (PAYE) in 1944. It affects any business operating a PAYE scheme for its employees or directors.
RTI represents a change for employers from notifying HM Revenue & Customs (HMRC) about the deductions and payments they’ve made through a year-end return. Instead, employers will send electronic submissions to HMRC each time they pay an employee. Rather than submit a P35 and P14s each year in April or May, employers will tell HMRC about employee payments either before they are made or as they are paid.
So what can you do to get ready for RTI?
Don’t panic!
Start preparing your business now. The majority of businesses will start reporting under RTI from April 2013. We recommend that the necessary changes to payroll processes and procedures , including introducing new payroll software if you don’t use it already, are made as soon as possible.
Check if RTI fits into your existing payroll procedures
Find out how easy it will be to fit RTI into your current payroll solution. This is where an RTI ready payroll system, like Moneysoft or Qtac, will make things really easy.
Check that your current employee details are accurate
Your employee details must agree to HMRC’s own records. This is really important, because information will be submitted much more frequently. Many software packages will include the ability to check your data against HMRC’s at the push of a button.
Make sure you can submit data electronically
Under RTI, payroll data must be sent to HMRC electronically. It will no longer be possible for businesses to manually enter data onto the HMRC website. RTI ready payroll software will be able to send your information directly to HMRC.
Align your data
When you use RTI for the first time, HMRC will align their records of your employees with your own payroll records. This will make sure that data you submit in future is correctly recorded by HMRC. RTI ready payroll software will be able to guide you through this process, and identify and fix any issues quickly and easily.
If you’re worried by RTI and need help making sure your business is ready for its introduction in April, then get in touch today.
Your business could pay for this!
It’s well known that employers can use a tax break to exempt Christmas parties from a benefit-in-kind charge. But did you know the same exemption can apply to a summer outing?
Employees and their guests are not taxed on benefits where the annual costs of a party, outing or other function provided by the company does not exceed £150 per head, inclusive of accommodation, travelling and VAT. This exemption has some good advantages, but also some pitfalls which organisers and payroll staff must consider carefully.
For instance, a company might have a Christmas lunch costing £75 a head, where each employee could invite a guest, a summer ball for employees costing £100 per head and a barbeque for employees costing £30 a head. The exemption may only be used to cover a complete event, so it could not be used for the summer ball (£100), the barbeque (£30) and part of the Christmas lunch (£20). You have to decide which event comes within the statutory exemption, and which must be shown on the Form P11D.
You might expect, in the above case, that the logical answer would be to choose the summer ball and barbeque (totalling £130), making the Christmas lunch of £75 taxable. However, as most employees bring a guest at Christmas, the P11D figure would be 2 x £75 = £150. It would therefore be better for the company to claim exemption for the Christmas lunch and barbeque, totalling £105, but exempting an additional £75 for the Christmas guest. Employees and directors would then be taxed on £100 for the summer ball.
There can be difficulties where the total cost of the function divided by the number of attendees is near £150. The exemption applies to the facts on the day. If potential attendees fail to turn up and the total cost of the function divided by the number of people who actually attend exceeds £150, then the whole amount is taxable as a P11D item. If each employee had brought along a guest, the taxable amount would be £300+.
In some instances a company will provide several functions a year. The £150 maximum exemption still applies, and the company has to choose which event falls within the exemption. Where an employee attends several functions and the total costs exceed £150, then some of the costs will be a P11D item.
The whole cost of the event that exceeds the £150 threshold becomes taxable. So if you had a £1 party and £150 party, you wouldn’t want to have them in that order!
Photo by Rubber Slippers in Italy.
If your employer deducts Student Loan Repayments from your salary, then it’s really important that you keep your payslips.
Why?
HM Revenue & Customs relies on the employers filing their year-end payroll returns to provide them with the information about how much you’ve repaid in the year. Without this information they cannot update your records with the Students Loan Company.
If your employer goes “bust” HM Revenue & Customs will use the payslips to inform the Student Loan Company of the amount paid should the employer not file end of year returns, which will be the case more often then not.
If you haven’t kept your payslips in this scenario, then your only hope is the Insolvency Practitioner or Official Receiver, which honestly isn’t much of a hope.
Keep copies of your payslips or you might end up paying your Student Loan back more than once.
For the 2012-13 tax year we advise director/shareholders to take the following ‘optimum’ monthly amounts out of their personal company:
• Salary £624 a month
• Dividend £2,624 a month or £31,488 a year
This will mean that your company will now save Corporation Tax of £1,497 on the salary.
This gives a total amount of £38,976 from 6 April 2012 and you will pay no personal tax provided you have no other income.
You can of course take more from your company but each additional £1,000 of dividend taken will cost you £250 in personal tax up to the first £59,000 of net dividend. It becomes more complicated once your gross income exceeds £100,000 in a tax year because you start to lose your personal allowances.
Working from Home Allowance increased
In addition, the tax free working from home allowance is increased to £4 per week (from £3 a week in 2011/12). This amount can be paid in addition to the above amounts.
If you employ people then your 2011/2012 Employer Annual Return, forms P35 and P14, are due to be submitted online to HM Revenue & Customs by May 19.
There are two traps to watch out for this year.
Trap one
The long-standing concession, which meant that no penalty was charged for a late form provided it was received by May 26, no longer applies. If your return is even a day late you will receive a minimum penalty of £100.
Trap Two
Watch out for false notifications. Some employers failed to spot the difference between the test online submission of a P35 and the actual one because the on-screen readouts are almost identical.
This received a lot of coverage last year when employers thought they’d filed on time and only found out they hadn’t when £400 penalty notices turned up in September!
Following criticism at Tax Tribunal, HM Revenue & Customs has warned employers to double check a live submission has been made.
HM Revenue & Customs are concerned that many people employing home carers, such as nannies. are avoiding paying PAYE and Employer’s National Insurance Contributions by erroneously treating their carer as self-employed.
According to tax rules, employers have a legal obligation to operate PAYE on the payments to employees if their earnings reach the National Insurance Lower Earnings Limit (LEL). For the current tax year this is £107 a week, £464 a month or £5,564 a year.
At present, compliance doesn’t have to be too taxing as you can use the simplified PAYE deduction scheme (SPDS).
SPDS is mainly used by people who employ carers in their own home. It can only be used where the wages are less than £160 per week, or £700 per month, and in practice now offers few advantages over the standard PAYE scheme procedures.
The SPDS will be closed to new employers from 6 April 2012. All current users of the SPDS will have convert to standard PAYE procedures, including Real Time Information, from 6 April 2013. Although ‘care and support’ employers, (those engaging carers in their own home), will be offered to option to continue with monthly paper filing under RTI from 6 April 2013.
If you use the free HMRC Basic PAYE tools software, it’s time to download the latest version (number: 4.0.1.20252), from the HMRC website. This version allows employers to finalise the 2011/12 tax year and start the payroll process for 2012/13.
You may also want to check out the updated HMRC toolkit: National Insurance Contributions and Statutory Payments, which now includes information for closing the 2011/12 tax year.
If the form P35 for a PAYE scheme is not filed by 19 May after the tax year-end, a penalty of £100 is levied for each month the return is late, and for every batch of up to 50 employees in the PAYE scheme. In past years HMRC has dispatched the first penalties for late submission of forms P35 when at least £400 in penalties has accrued. This approach has been criticised by the tax professional bodies and by Tax Tribunal judges.
For the 2011/12 returns, HMRC has promised to send reminders employers by early May 2012, where a P35 form has not been filed. Interim penalty letters will be issued from 31 May 2012, warning the employer that a penalty for a late P35 has accrued, and how to avoid a higher penalty. The actual penalty notices will still be issued in September.
The guidance for submitting the P35 online will also be amended to alert employers to the danger of submitting test returns in place of live submissions. HMRC staff on the employer helpline will also be instructed to tell new employers about the filing deadlines.
If you’ve just received a penalty notice for late submission of your 2010/2011 P35, then it can be appealed. Contact us for details.
