Employer and Contractor Returns Interim Penalties

HMRC have announced that they have started sending penalty notices where their records show that they have not received 2006/07 forms P35 and P14 (the employer’s annual return and end of year summary). Similar penalties are also being issued where 2006/07 form CIS36 (the contractor’s annual return) is outstanding.

These returns were due by 19 May 2007 and it is likely that these penalties are a follow up to penalties issued in September last year. The penalty is likely to be £100 per 50 employees and/or subcontractors for each month the return is outstanding, running from September 2007 to January 2008 i.e. four months.

However, no penalties should be issued where an appeal has been received against the September penalty and the appeal is still outstanding.

It is not unusual for HMRC penalties to be issued in error. If this is the case or if there is a reasonable excuse for the delay in sending in the return, penalties can be reduced or even waived altogether.

If you receive a penalty notice that you believe is wrong, please get in touch with us as soon as possible so we can resolve the matter for you.

Internet Link: HMRC annual returns note

Update on Residence and Domicile

In the January issue, we reported on controversial new rules proposed by the government on residence and domicile.

As you may remember, the Pre-Budget Report announced that HMRC would be changing the rules on residence and domicile from 6 April 2008. The main proposals were:

  • individuals who are resident (but not domiciled or ordinarily resident) will generally have to make a claim to be taxed under the favourable remittance basis;
  • individuals who are taxed on the remittance basis will not be entitled to the personal allowance or capital gains tax annual exemption. There will be an exception to this rule where the unremitted foreign income and gains are less than £1000;
  • individuals who are resident (but not domiciled or ordinarily resident) for  longer than seven out of the past 10 years will only be able to use the remittance basis of taxation if they pay an annual charge of £30,000, again subject to the de minimis of £1,000; and
  • amending the residence rules, so that days of arrival and departure to and from the UK will count towards establishing residence.

There are many concerns about the new rules and charges. The Daily Telegraph reported that:

‘Low-paid foreign workers could be hit by the Chancellor’s plans to tax non-doms, accountants have warned.

After an outcry from high-earning people, the Institute of Chartered Accountants in England and Wales (ICAEW) said the changes will lead to “a tax rise for large numbers of low-earning non-domiciles”.‘

HMRC issued a letter making some changes to the rules. Some media outlets reported a government climb down but that is certainly not the case. Whilst certain unintended consequences have been clarified, all of the above details look as though they will go ahead.

If you are potentially affected by these rules or have any questions or concerns please do get in touch.

Internet Link: Telegraph article and HMRC letter

Illegal Working Changes

For many years, there have been requirements for employers to verify the identity of their workers, to prevent illegal working. The legislation was backed up with fines.

From 29 February 2008, the Immigration, Asylum and Nationality Act 2006 increased the civil penalty imposed on an employer to a maximum of £10,000 (previously £5,000) for every illegal worker employed in the UK. It also introduced a new criminal offence of knowingly employing an illegal worker, with a maximum penalty of two years in prison or an unlimited fine.

Employers can avoid both a civil penalty and committing a criminal offence by checking, on recruitment, that workers have a right to work in the UK. To obtain this protection, employers must make the checks before the worker starts work.

There are two lists of acceptable documents for checking identity, similar to the lists which employers have used since 1997. List A contains items such as a British passport, which have no time limits on working in the UK. List B contains a list of documents which carry restrictions on the amount of time individuals will be able to spend in the UK. A significant change is that employers will have to carry out annual checks for those workers whose documents appear on List B, such as work permit holders.

You may wish to review your procedures in light of these new rules.

Internet Link: Home Office Guidance

Benefits in Kind and Expenses in the Payroll

HMRC have published a consultation document on payrolling benefits in kind. The idea is that payrolling benefits in kind would remove the need for employers to complete P11Ds.

Whilst this may seem like a good idea, particularly to HMRC, who would save massive administrative costs, there are many potential problems.

For example, how would a business which provides a company car to an employee cope, when the P11D calculations and reporting is currently done by their adviser after the year end? If the calculation is done at the beginning of the year, how will any changes to the company car be revised? How will reimbursed expenses be dealt with, particularly where an employee is able to claim tax relief personally?

The annual P11D/P9D/P11D(b) returns, together with the associated procedures, and the P46(CAR) could be abolished. Instead employers would be required to record on form P11 and report details of the value of the benefits and expenses they provide on a modified P14/P60, with a summary of the Class 1A NICs due being provided on the P35. There would be no need to report details of new company cars or changes in-year on P46 (CAR).

However, this system would involve information being reported earlier and tax due would need to be paid over sooner. For employees the most noticeable change would be in relation to the timing of payment of the tax due on their benefits and expenses.

As part of the proposals HMRC are also looking to abolish the £8,500 threshold, thus bringing all employees within the charge to tax on all benefits!

Whilst the plans to abolish P11Ds are not intended to take place until 2011, the removal of the £8,500 threshold is expected to take place before that.

Of course, we will keep you informed of any developments.

Internet Link: Consultation document

Employment Rights – Statutory Limits

The limits on payments and awards made to workers in certain employment rights cases rose from 1 February 2008. The increased limits affect:

  • statutory redundancy payments;
  • the basic and compensatory awards for unfair dismissal;
  • the limit on guarantee payment made when employees are not provided with work; and,
  • the minimum basic award for unfair dismissal in health and safety and certain other cases.

The main increases include:

  • compensation for unfair dismissal – £4,400 (£ 4,200);
  • limit on amount of the compensatory award for unfair dismissal £63,000 (£60,600).
  • Maximum amount of a week’s pay for the purpose of calculating the basic or additional award of compensation for unfair dismissal or redundancy payment – £330 (£310).

Internet Link: Statutory Instrument