News Items – at 2nd August 2007

Businesses Affected by Floods

HMRC to waive interest and surcharges of late tax

The Government has announced that it will bring forward legislation in next year's Finance Bill which will allow HMRC to waive interest and surcharges on tax paid late due to the recent severe flooding.  It will apply retrospectively from 26 July 2007.   In the mean time, HMRC will exercise existing discretionary powers not to collect such interest and surcharges.

The legislation will allow HMRC to

• defer collection of taxes and duties, or agree instalment arrangements where customers are unable to pay as a result of severe hardship
• waive interest, surcharges and penalties for the period during which collection of tax or duty is deferred
• introduce practical arrangements where individuals and businesses have lost records in the flooding
• suspend debt collection proceedings
• defer compliance checks and investigations.

Customers having difficulty paying their taxes or duties, or sending in tax returns or other information as a result of the flooding are asked to contact HMRC as soon as possible. A dedicated telephone line has been set up for anyone affected by the floods – 08453 000157.  It is open seven days a week from 8.00 am to 8.00 pm.

Further information:
Tax help for those affected by floods 
http://www.gnn.gov.uk/Content/Detail.asp?ReleaseID=302763&NewsAreaID=2
Tax helpline for people affected by flooding  https://www.gnn.gov.uk/environment/fullDetail.asp?ReleaseID=303466&NewsAreaID=2

Double Taxation Conventions

Programme of work to March 2008

The Government reviews the UK's Double Taxation Convention (DTC) priorities each year to ensure that the treaty network continues to meet the needs of the businesses and individuals receiving income from abroad.  HMRC monitors the DTC networks of other countries and invites representations from business, individuals, representative bodies, other Government departments and others with an interest in this area.

In the year to 31 March 2008, HMRC plans to

• complete work on new DTCs with the Faroes, Macedonia, Moldova, Slovenia and Thailand; and on Protocols with Australia, Mexico, New Zealand, South Africa and Switzerland
• complete work on new Tax Information Exchange Agreements (TIEAs) with Jersey, Guernsey, the Isle of Man, Anguilla, Bermuda and the British Virgin Islands
• progress negotiations with Bahrain, the Cayman Islands, China, Croatia, Germany, Hungary, Luxembourg, Libya, Netherlands, Peru and Saudi Arabia
• commence negotiations with the Turks & Caicos Islands, the Netherlands Antilles, Aruba, the Bahamas and Panama on TIEAs.

The DTC between the UK and the Republic of Botswana, signed in Gaborone on 9 September 2005, entered into force on 4 September 2006.  In the UK the provisions of the Convention have effect from 6 April 2007 for income tax purposes.  In Botswana, the provisions took effect from 1 July 2007.

The DTC between the UK and Japan, signed in London on 2 February 2006, entered into force on 12 October 2006.  In the UK, the provisions of the Convention took effect from 6 April 2007 for income tax purposes.  In Japan, the provisions took effect from 1 January 2007.

The DTC between the UK and Poland, signed on 20 July 2006, entered into force on 27 December 2006.  In the UK the DTC has effect from 6 April 2007 for income tax purposes. In Poland, the DTC has effect from 1 January 2007.

A new comprehensive DTC between the UK and Macedonia was signed in Skopje on 8 November 2006.  The Draft Order will enter into force once both countries have completed their necessary legislative procedures and notified each other of that fact.

Further information:
Double taxation conventions  https://www.gnn.gov.uk/environment/fullDetail.asp?ReleaseID=
302459&NewsAreaID=2&NavigatedFromDepartment=False

Finance Act 2007

Provisions start to come into force

The Finance Bill 2007 received Royal Assent on 19 July and is now the Finance Act 2007.

The following provisions of the Act come into force from the dates indicated:

• Section 25 and Schedule 3 of the Act are effective from 6 April 2007.  They require income tax under PAYE to be deducted from payments made to employees of Managed Service Companies (MSCs). 
• The corresponding liability for Class 1 NICs has to be introduced by Regulations and the new Social Security Contributions (Managed Service Companies) Regulations 2007 come into force on 6 August 2007, the start of the first tax month after 19 July.  The earnings liable for Class 1 NICs are the same as those liable for PAYE tax and include the value of benefits provided in addition to payments.  The amount liable for NICs is aggregated with any other earnings for NICs paid in the earnings period.  The MSC is the secondary contributor.
• Additions are made to the Income Tax (Pay As You Earn) Regulations 2003 and the Social Security (Contributions) Regulations 2001 to allow the PAYE and NICs debts of MSCs to be transferred to other persons and to define the rules relating to such transfers.
• Section 108 provides HMRC with new powers to enquire into cases of suspected non-compliance by promoters of tax avoidance schemes and to enforce compliance in certain cases.  The measures are in force from 19 July.  Time limits for complying with these obligations are set out in the Tax Avoidance Schemes (Information) (Amendment) Regulations 2007 and come into effect on 1 September 2007.  The penalty regime is subject to House of Commons’ approval of the draft Tax Avoidance Schemes (Penalty) Regulations 2007 and they are unlikely to take effect  until November 2007.

Further information:
The Social Security Contributions (Managed Service Companies) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2070.pdf
Explanatory Memorandum to The Social Security Contributions (Managed Service Companies) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2070-em.pdf
The Income Tax (Pay as You Earn) (Amendment No. 2) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2069.pdf
Explanatory Memorandum to The Income Tax (Pay as You Earn) (Amendment No. 2) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2069-em.pdf
The Social Security (Contributions) (Amendment No. 5) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2068.pdf
Explanatory Memorandum To The Social Security (Contribution) (Amendment No. 5) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2068-em.pdf
The Disclosure of Tax avoidance schemes  http://www.hmrc.gov.uk/avoidance/index.htm The Tax Avoidance Schemes (Information) (Amendment) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2153.pdf
Explanatory Memorandum to Income Tax: The Employment Income (Meaning of Securities) Order 2007  http://www.hmrc.gov.uk/si/2007-2130-em.pdf
Draft Tax Avoidance Schemes (Penalty) Regulations 2007  http://www.hmrc.gov.uk/si/draft-tax-avoidance.pdf
Explanatory Memorandum to the Draft Tax Avoidance Schemes (Penalty) Regulations 2007  http://www.hmrc.gov.uk/si/draft-em-tax-avoidance.pdf

Additional Annual Leave

Regulations in force from 1 October 2007

The necessary changes to the Working Time Regulations 1998, which will introduce, in two stages, a new entitlement to 1.6 weeks of additional annual leave, have been made by means of the Working Time (Amendment) Regulations 2007.  They are effective from 1 October 2007.

Further information:
The Working Time (Amendment) Regulations 2007  http://www.opsi.gov.uk/si/si2007/uksi_20072079_en.pdf

Pensions Act 2007

Framework for further pensions reform in place

The Pensions Bill received its Royal Assent on the 26 July 2007 and is now the Pensions Act 2007.

The new Act, introduced by the Department for Work and Pensions (DWP), provides the statutory framework to:

• make it easier for a person to qualify for a basic State Pension by reducing to 30 the number of years needed to achieve a full basic State Pension
• simplify both state and private pensions
• make the basic State Pension more generous by restoring the link with earnings (by 2012 at the earliest)
• raise the State Pension age to reflect increasing longevity and to encourage extended working lives.

Further information:
The Pensions Act 2007  http://www.hmrc.gov.uk/news/pensions-act-2007.htm

Developers’ Corner

PAYE Online for Employers: End of Year 2008/2009

The first release of End of Year 2008/09 Internet technical pack is now available.  It includes the schemas and supporting documents for forms P14, P35 and P38A.
Further information:
Technical Pack for Software Developers  http://www.hmrc.gov.uk/ebu/endofyear2009.htm

Health Screening and Medical Check-ups

Formal exemption from tax liabilities

It has long been the stated practice of HMRC that, where employers provide employees with health screening or a medical check up, the benefit should not be considered as taxable. However, this view has recently been called into question and HMRC now considers that a tax charge might arise on such provision.

For the avoidance of doubt, and to ensure fairness across the workforce, it has been decided to introduce regulations to formally exempt from tax the provision of health screening and medical check ups where certain conditions are satisfied.  The exemption comes into force from 14 August 2007.

The conditions are that

• the provision is limited to one health screening and to one medical check-up each year
• health screenings are available to all employees, and
• medical check-ups are available to either
  • all employees, or
  • those employees who have been identified in a health screening as requiring a medical check-up.

A “health screening” is defined as an assessment to identify employees who might be at a particular risk of ill health.

A “medical check-up” is defined as a physical examination of an employee by a health professional which is limited to determining that employee’s state of health.

By formally exempting these benefits from tax, there is automatically an exemption from Class 1A NICs.  However, there is no automatic exemption from Class 1 NICs if the benefits are provided by means of non-cash vouchers.  To prevent a Class 1 NICs charge, new Regulations have also been made, also effective from 14 August 2007, that exclude the provision of non-cash vouchers to obtain health screening and medical check-ups, where the conditions of the tax exemption are met, from being treated as payments in kind.

Further information
Income Tax (Exemption of Minor Benefits) (Amendment) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2090.pdf
Explanatory Memorandum to the Income Tax (Exemption of Minor Benefits) (Amendment) Regulations 2007 and Explanatory Memorandum  http://www.hmrc.gov.uk/si/2007-2090-em.pdf
The Social Security (Contributions) (Amendment No. 6) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2091.pdf
Explanatory Memorandum to The Social Security (Contributions) (Amendment No. 6) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2091-em.pdf

P11D Expenses and Benefits Return

Changes to form for 2007/08

The mandatory provision of both the employee’s date of birth and gender if no NI number is available has already been announced.  A number of other changes to the form are also being made:

• the employee’s name box is split into two boxes, one for surname and one for forename(s), to provide more room for entering the name
• section G Vans has two boxes, one for the van benefit charge and another new one for reporting the cash equivalent of the van fuel benefit – the first time that this new charge has to be reported
• the boxes for reporting the benefit charge for each type of benefit provide a numerical link to the box number used on the Self Assessment Employment Form.  That form has been revised and the box numbers on the new Return are different from those used on the old Return.  Accordingly, the new numbers appear against each of the P11D boxes.  The following Table shows the changes.

Further information:
Notes for Payroll Software Developers  http://www.hmrc.gov.uk/comp/notes-10-35.pdf

Payments to the Account Office

Facility to notify a nil payment

A nil payment notification facility is now available online.  Instead of sending a nil payslip or phoning the Accounts Office if there is no payment due for a month or quarter, employers can simply enter their Accounts Office Reference Number and select the appropriate payment period.

Further information:
No PAYE/NICs Payment Due  http://www.hmrc.gov.uk/howtopay/paye_nil.htm

Deduction from Earnings Orders

New calculation specification

The Child Support Agency has published a new version of its guidance for employers and payroll system developers on the calculation of values under Deduction from Earnings Orders.
Further information:

Payroll deadlines during the next month

August 2 – This is the date by which any changes to the provision of company cars in the three months to July 5 must be reported using form P46(Car).

August 5 – This is the final day of tax month 4.  Tax and NICs etc for payments made in the tax month to August 5 are due for payment to the Accounts Office by August 19, or by August 22 if paid electronically.

August 17 – (August 19 is a Sunday) – For employers required to pay tax and NICs etc to the Accounts Office monthly, this is the deadline for payment to be received by the Accounts Office, unless made electronically.

August 22 – For employers required to pay tax and NICs to the Accounts Office monthly, this is the deadline for electronic payments to be cleared into the HMRC bank account.  Payments through BACS must be initiated by August 20 at the latest.

Payroll FAQ's

Filing Timetable for Forms P45 and P46

How and when should forms P45 and P46 be applied?

The following summary of the PAYE rules for the handling of forms P45 and P46 is based on guidance published by HMRC in the July 2007 issue of Notes for Payroll Software Developers.

P45(1) leaver information

Send to HMRC on the day the employment ceases or, if that is not practicable, without unreasonable delay. Submission on the employee’s final payday would be viewed as being made ‘without unreasonable delay’.

P45(3) starter information

Send to HMRC on the day of commencement. If not available, the P46 procedure should be followed.  Where

• previous employment ended in the current tax year – use tax code from P45(3) and, if the code is applied cumulatively, the taxable pay to date and tax deducted to date
• employment starts on or before 24 May and previous employment ended in previous tax year – use tax code from P45(3) on a cumulative basis
• employment starts after 24 May and previous employment ended in any earlier year – use Emergency tax code on a non-cumulative basis
• Where the P45(3) relates to a previous year, it may be necessary to adjust the tax code as directed in the current year’s E12 booklet.

P46 completed by employee

Allocate the tax code according to the employee’s selection of statement A, B or C

• statement A ticked – use the Emergency tax code on a cumulative basis
• statement B ticked – use the Emergency tax code on a non-cumulative basis
• statement C ticked – use tax code BR on a cumulative basis

The employee must sign the form.  Send to HMRC when the first payment is made.

P46 completed (in effect) by employer

Where the form is not completed properly by the employee, or the employee fails to complete a form, use tax code BR on a cumulative basis.  Send to HMRC when the first payment is made.

P46 followed by P45(3)

If P46 not yet sent to HMRC, i.e. because pay not yet calculated using the P46 tax code, follow the P45(3) procedures described above from the first payday, and send P45(3) to HMRC.

If P46 already sent to HMRC, i.e. because pay already calculated using the P46 tax code, follow the P45(3) procedures described above from the next payday, and send P45(3) to HMRC.

P46 followed by P6, followed by P45(3)

Where P46 procedures followed and form sent to HMRC, the employer then receives a P6 coding notice.  Apply the tax code and previous pay and tax details from the P6.  If the employee then provides a P45(3), ignore and destroy it.

Employer completes P46, employee completes P46, employee provides P45(3)

Where the employer (in effect) completes the P46, applies tax code BR and sends it to HMRC, the employee then completes a P46.  Apply the tax code from the new P46 retrospectively from the commencement date and send the new P46 to HMRC.  If the employee then provides a P45(3), follow the P45(3) procedures from the next payday, and send P45(3) to HMRC.

Employee provides more than one P45(3)

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