Employers' Digest May 2012 - Crowe Horwath International

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Employers' Digest May 2012 - Crowe Horwath International

May 2012

Issue 55

Employers’

Digest

Inside this issue

Intermediaries legislation

(IR35)

Tax cases

Company cars (joint ownership)

Salary sacrifice warning regarding National

Minimum Wage (NMW)

Status, status and more status

Intermediaries legislation (IR35)

A new unit has been set up by

HM Revenue and Customs (HMRC)

in Sheffield specifically to focus on

IR35 compliance. At the same time,

HMRC has issued an additional

guidance document available for

download on their website.

The guidance sets out 12 ‘business

entity’ tests and gives six example

scenarios to see whether IR35

applies. Contractors are encouraged

to apply each test to their business,

with each test carrying a score from

-15 up to +35. The tests include such

as whether the contractor operates

from business premises (20 points),

was previously a PAYE employee

(-15 points), can improve profitability

through efficiency (10 points) or has

engaged the services of a substitute

(20 points). The total score then

determines which of three risk bands

the contractor falls into and the likely

exposure to IR35 – the ‘risk’ being of

coming under close HMRC scrutiny:




low (over 20 points)

medium (10-20 points)

high (below 10 points).

HMRC meanwhile stress that

the bands are ‘on a spectrum,

not set pigeonholes’.

The IR35 Forum helped HMRC to

devise the ‘business entity’ tests and

with example scenarios. Although more

scenarios were agreed and discussed,

only six have been published in total.

Penalties – do not be late

Senior Accounting Officers

(SAOs)

Real Time Information (RTI)

continued on next page...


Crowe Clark Whitehill LLP

Intermediaries

legislation (IR35)

... from previous page

Given that the main tests of

employment status have not changed

over the years, and therefore remain

significant in determining the nature

of an engagement, it appears that

the pattern of work is a new area

contractor and engagers should

consider. The main message to

contractors is this: if you are going

to be engaged over a long period,

then you must be able to show that

you are working on and engaged

for specific projects in each case.

Despite the new guidance,

the only method, other than

involving HMRC, that can provide

much‐needed certainty for a

contractor unsure about their

employment status, is for the

contract to be professionally drawn

up and/or reviewed. However, as

recent status cases have highlighted,

it is important that the contract is

not hypothetical but reflects the

actual working practices in place.

All contractors should read the

guidance and consider if they are

high, medium or low risk and what

actions they may need to take, if

any. Engagers also need to be aware

of the guidance and recognise that

may find contractors pushing for

employee status or higher payments

in future, where they believe

they are in the high-risk band.

Tax cases

Company cars (joint ownership)

The case of G R Solutions Ltd v HMRC provides another example of an argument

where company car and car fuel scale charges apply as well as unusual car

ownership arrangements. The court looked closely at the expression ‘made

available’. HMRC won the case, by virtue of the legislation that states that

benefit in kind charges apply where:

1. ownership of the car does not pass to the employee

2. the car is available for private use (whether it is actually used or not)

3. the car is made available by reason of the employment.

The case is interesting because the car was jointly purchased. In the tribunal’s view,

the expression ‘made available’ should be considered at the point in time when the

vehicle is used, rather than the point in time when it is purchased, or the point in

time when a partial property title is transferred from the company to the employee

or vice versa. If at the time of use of the car, the company owns 90% of the car and

the employee owns 10%, that is the relevant circumstance to which the expression

‘made available’ must be applied.

Salary sacrifice warning regarding National Minimum Wage (NMW)

The UK’s biggest car dealer, Pendragon, has been hit with fines and compensation

orders totalling £35,000 after HMRC ruled that the company had paid at least 40 of

its staff less than the NMW.

HMRC said Pendragon deducted money for lease car payments and salary

sacrifice schemes, which reduced what some staff received as a basic wage

(without commission, bonuses or other extras) to a level below the statutory

minimum. The NMW is currently set at £6.08 per hour for staff aged over 21

(rising to £6.19 from September, in line with the recent Budget announcements).

Status, status and more status

The last few high profile cases to go before the tax tribunals concerning employment

status have all concluded that the relationship was one of employment. We had

Weight Watchers in December 2011, Philip John Wright in January 2012 and Barney

v. HMRC, also in January 2012. The most recent case is Eric Newman Developments

in February 2012.

It appears HMRC is actively increasing the number of enquiries being opened.

The stakes have never been higher. In some respects, it is surprising that it has taken

HMRC this long, as status is undoubtedly the main area where a large amount of tax

is at stake if an employer gets it wrong.

Eric Newman Developments was the latest victim in HMRC’s crackdown on false

self-employment. Although the liability was only £15,000 (excluding interest and

penalties), this only related to one subcontractor earning just £15,000 a year,

highlighting precisely how costly it can be for a business to get status wrong.

Some interesting points to note from this case are:

the company relied on contracts to add weight to their argument.

The problem with this however was that the contracts were poorly drafted




the contracts were also clearly backdated (the subcontractor did not move

into the address on the contract until some three years after its date)

at a meeting with HMRC, the company had confirmed that substitution

was not possible (they later gave witness evidence that it was)

in addition, the engager argued that the subcontractor was paid on a

‘price work’ basis when actually he was paid the same fixed amount each week.


Employers’ Digest May 2012

Penalties — do not be late

Whilst we still have some 2011/12 reporting deadlines to

comply with, now is a good time to look at the implications

for employers when mistakes are made. To recap, penalties

can be imposed when inadequate or incorrect information is

supplied to HMRC where:

late payments are made

a payment has been incorrectly treated for tax and

National Insurance (NI) purposes

returns are not submitted at all.

The penalty regime has changed over the last few years, with

this in mind a summary is detailed below.

Expenses and benefits — forms P9D and P11D

Late returns – forms P9D and P11D are due by 6 July

following the end of the tax year. The penalty for late filing is

a maximum of £300 per form initially, plus a maximum daily

penalty of £60 per form.

Incorrect returns – the maximum penalty is £3,000 per

incorrect form submitted to HMRC and the same again if

an incorrect form is given to the employee. This technically

also applies in situations where genuine business expenses

have been omitted from forms P11D even though no P11D

dispensation agreement is held.

However, we have rarely seen this penalty levied. It is more

likely that HMRC will ask the employer to settle all tax and

National Insurance Contributions (NICs) on the unreported

benefits on a grossed-up basis instead of the employee

settling the tax through the self-assessment tax return

system and the employer paying the NICs separately. By

doing this, there is a penalty from the gross up calculation.

NICs are also levied on the grossed up tax, in a similar way to

a PSA.

Termination/redundancy payments reporting

A report is due where the termination settlement exceeds

£30,000 and non-cash items have been included in the

settlement. Cash only settlements irrespective of amount

need not be reported.

The due date is 6 July following the end of the tax year in

which the reportable payments were made. You should make

a report to the Employer Technical Team, Employer Office,

BP4009, Benton Park View, Newcastle NE98 1ZZ.

In the event of a late or incorrect return, the penalties are

the same as those that apply for P11Ds for both late filing

and an incorrect return. However, it is not something we have

seen HMRC levy, and there is no set format for the return.

It is more likely that HMRC will collect any tax that they believe

is underpaid on a grossed up basis from the employer if a

problem arises.

See page 68 of HMRC booklet CWG2 for further information.

Share participation arrangements return — form 42

For companies with a number of different share based

arrangements, the number of reportable events in a year

may be high and so the potential penalties for late filing could

amount to a significant sum.

Late return – the due date is 6 July following the end of the tax

year. You should report the grant or exercise of share options.

The penalty for late filing is a maximum of £300 per reportable

event for each ‘responsible person’ (of which there can be

a few) plus a maximum daily penalty of £60 per return per

‘responsible person’.

Incorrect return – the maximum penalty is £3,000 per incorrect

return, HMRC does not usually charge such penalties in

practice where additional tax geared penalties are due on

underpaid Pay As You Earn (PAYE) and National Insurance (NI).

For further information, visit the HMRC website for

employment-related securities and reporting requirements.

Top tip – in summary, you should try to submit information to

HMRC as and when it is required. If a penalty is levied, you

should check the amounts and the reason before accepting

that it is due. You only have to look at the number of tribunal

cases across the taxes in recent years to realise that HMRC

does not always get it right!


Employers’ Digest May 2012

Senior Accounting

Officers (SAOs)

SAOs legislation requires the nominated SAO to ensure that the

company establishes and maintains appropriate tax accounting

arrangements – is this something your business currently has

in place

The new SAO manual has just superseded all the previous

HMRC guidance.

Real Time

Information (RTI)

The key points of RTI:

new payroll process

all employers need to be ready by April 2013

new alignment to the process to ensure HMRC and

employers/pension providers have the same information

new penalty provisions from 2013/14


HMRC offer basic free software but only for those with

fewer than nine employees.

How do businesses prepare for RTI

Key points for businesses to consider:

make sure you know what it is and what it means for

your organisation





review your human resources, finance, reward and payroll

processes including information flow

ensure you can make a full payment submission on time;

whether weekly or monthly

talk to your payroll software provider or bureau

check payment method e.g. BACS or other.

We hope you find this newsletter of interest. If you have any questions about any of the topics

covered, please call your usual Crowe Clark Whitehill contact or:

London

David Daly

020 Office 7842 locations

7364

david.daly@crowecw.co.uk

Susan Ball

020 7842 7238

susan.ball@crowecw.co.uk

Brian Robson

020 7842 7147

brian.robson@crowecw.co.uk

Cheltenham

Karen Goodwin

01242 234421

karen.goodwin@crowecw.co.uk

Kent

Simon Warne

01622 767676

simon.warne@crowecw.co.uk

Midlands

Paul Edwards

0121 543 1900

paul.edwards@crowecw.co.uk

Manchester

Steve Livingston

0161 214 7500

steve.livingston@crowecw.co.uk

Thames Valley

Stuart Weekes

0118 959 7222

stuart.weekes@crowecw.co.uk

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Isle of Man

01624 627335

The office in the Isle of Man is Crowe Clark

Whitehill LLC. It is a separate, independent

firm and not part of Crowe Clark Whitehill

LLP. Accordingly, neither firm can be held

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Crowe Clark Whitehill LLP is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legal

entity. Crowe Clark Whitehill LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically

disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member. © 2012 Crowe Clark Whitehill LLP

This information is published without the responsibility on our part for loss occasioned to any person acting or refraining from acting as a result of any information published herein.

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