Unpaid VAT

Small businesses should be aware that HMRC is taking a much more proactive stance at recovering unpaid VAT.  HMRC is also less prepared than it was a year ago to allow businesses to defer tax payments under its "Time to Pay" scheme, so businesses really do need to get their payments in order or they could face the real risk of having their assets repossessed.

HMRC had previously reserved its use of distraint proceedings to recover unpaid payroll tax.  However, since the recession it has been far more active in recovering other types of unpaid tax, most notably value-added tax.

IR35 Business Entity Tests

HMRC has started the process of overhauling its operation of the IR35 regime for personal services companies with new guidance issued in May 2012 that sets out basic risk factors which they say will potentially increase a contractor's chance of being investigated.

This overhaul is clearly designed to facilitate an increase in IR35 investigations.  As expected following leaks last month, the 12 business entity tests set out in HMRC's 47-page intermediaries legislation guidance notes are illustrated by six example scenarios.  HMRC said the tests are designed to build up a picture of how a contractor's business works and how they provide their services.  The tests include the following:

• Business premises test - Does the business utilise business premises separately from the contractor's home or end client's premises.
• PII test - Does the contractor need professional indemnity insurance
• Efficiency test - Has the business had the opportunity in the past two years to increase its revenue by working more efficiently?
• Assistance test - Does the business employ any workers who bring in at least 25% of annual turnover?
• Advertising test - Has the business spent over £1,200 on advertising in the past year; entertainment does not count as advertising?
• Previous PAYE test - Has the end client engaged the Director during the previous 12 months with no obvious changes in the working arrangements?
• Business plan test - Does the company have a business plan with a regularly updated cash flow forecast, and does it have a separate bank account?
• Repair at own expense test - Does the business have to bear the cost of rectifying any mistakes?
• Client risk test - During the past two years, has the business been unable to recover payment amounting to more than 10% of yearly turnover.
• Billing test - Does the business invoice for work carried out before being paid and negotiate its payment terms?
• Right of substitution test - Does the business have the right to send a substitute?
• Actual substitution test - Has the business hired anyone in the previous two years to do the work it has taken on?

The HMRC guide explains that the tests are not set in stone, and are an extension of the risk-based approach it extends to all of its investigations.

The business entity tests are something against which you should be able to self-assess to see how you scored by their internal rating.  But HMRC aren't revealing what the detailed risk criteria are because of the fear people might arrange their affairs accordingly.

In any event the business entity tests are just a diagnostic tool.  The actual application of IR35 will always come down to employment status factors that must be tested against case law going back over 40 years and will always take into account contractual terms.

HMRC is apparently seeking to appoint specialist IR35 teams at offices in 3 areas of the UK to pilot the new diagnostics.

Anyone with concerns about the tests and the risk of investigation can contact us.

Queen's Speech

The Queen's Speech sets out to address legislation in the next twelve months.

The only Bill which reflects upon business is seemingly -

A wide ranging Enterprise and Regulatory Reform Bill covering competition, employment disputes, director's pay and regulatory reform.  Competition enforcement will be strengthened by merging the Competition Commission and parts of the Office of Fair Trading.  A Green Investment Bank will be established to promote private sector investment in a greener economy.  Reforms in the employment tribunal system will be achieved by providing more options for the early resolution of disputes through Acas.  On Director's pay, shareholders will be allowed a binding vote on the remuneration of directors.

This Bill applies to the whole of the UK, but with some parts relevant to England, Wales or Scotland only.

Walker Thompson Newsletter 55

We are delighted to welcome a new member of staff to Walker Thompson. Sharan Bansal has joined our bookkeeping and payroll department working alongside Tamar Smith. The recruitment is helping us to meet the needs of our expanding portfolio of clients and is part of our ongoing strategy. We feel she is going to make a great addition to our staff.

P11D DEADLINE LOOMING

The forms P11D, and where appropriate P9D, which report employees and directors benefits and expenses for the year ended 5 April 2012, are due for submission to HMRC by 6 July 2012.

RISING EMPLOYMENT STATISTICS

According to the latest statistics issued by the Office of National Statistics:

‘The unemployment rate was 8.3% of the economically active population, down 0.1 on the quarter. There were 2.65 million unemployed people, down 35,000 on the quarter. This is the first quarterly fall in unemployment since the three months to May 2011.’

EMPLOYER END OF YEAR FORMS

HMRC are reminding employers that in order to avoid penalties they must file the Employer Annual Return (P35 and P14s) online and on time.

OUTSTANDING SELF ASSESSMENT TAX RETURNS

HMRC are urging anyone who has still not completed their 2010/11 self assessment tax return to send it online before the end of April, or be charged daily penalties from 1 May.

HMRC ISSUE GUIDANCE ON RTI TO EMPLOYERS

HMRC have updated their guidance on Real Time Information (RTI). This new system of monthly PAYE returns is to be piloted from April 2012 and is expected to be compulsory for all employers from October 2013.

VAT ON HOT FOOD

HMRC are consulting on changing the rules on hot takeaway food to ensure that all food (with the exception of freshly baked bread) that is above ambient air temperature when provided to the customer is standard rated.

CHARITABLE GIVING - CAP ON TAX RELIEF

The government is proposing to restrict tax reliefs available to individuals such as charitable giving.