PAYE: September tax refunds

HMRC have issued guidance on how employers should deal with tax refunds following the increase in the personal tax allowance, which is due to take place in September.

Author: Sarah Laing Editor, TaxationWeb News, http://news.taxationweb.co.uk

Employers will be aware that the Chancellor recently announced that the basic personal allowance for 2008-09 is increasing by £600 from £5,435 to £6,035 and the basic rate limit is reducing from £36,000 to £34,800. The new tax codes and rate bands must be used from the first payday on or after 7 September 2008.

Since the increase in personal allowance is to be backdated to 6 April 2008, the PAYE tax code for many individuals will change in September, and many employees will in turn, have less tax to pay for the remainder of the tax year. In addition, some employees may be entitled to a refund of tax that they’ve already paid so far this year. The usual procedure is for the employer to fund any such refunds out of their other PAYE deductions by reducing the next payment due to HMRC.

However, if the employer’s next payment is insufficient to cover the employee refund(s) they need to make, then it is possible to claim funding from HMRC to cover the balance.

Recent discussions have suggested that there is some uncertainty over the current HMRC views on Extra Statutory Concession A11 (split year treatment) and its application to ITEPA 2003, Part 7.

Sarah Laing
Editor, TaxationWeb News

This ESC is likely to be replaced by legislation at some point, partly because a review of extra-statutory concessions is in progress, but also because the Government announced during debates on the Finance Bill its willingness to consider the possibility of a statutory residence test.

However, to cover the period while the ESC remains in place, HMRC have published some new guidance, which is intended to give certainty during the period before a new legislative basis is introduced.

HMRC views on ESC A11 and its application to Part 7 ITEPA

The split year treatment applied by the concession to other (non-ERS) earnings means that for example, an employee who comes to the UK for a secondment beginning on 1 June would be regarded as not UK-resident and therefore not taxable in the UK on his or her general earnings from the same employment for the period from 6 April to 31 May of that tax year.

There is some uncertainty over whether HMRC has historically regarded the concession as applying to Part 7. This issue has recently become more significant, since the remittance basis legislation introduced by FB 2008 has potentially widened the scope of the ESC.

Year of arrival

While the view of HMRC has always been that the ESC does not apply to income falling within Part 7 in the year of arrival, it appears that some employers, taxpayers and their advisers may not have been aware of this. So for open years, and until a statutory basis is introduced, HMRC will accept that ESC A11 applies to such income in the year of arrival. See, however, the comments on section 62 and Chapter 3C charges in the paragraph headed “Other Charges” below.

Earlier years which are settled will not be reopened, whether ESC A11 has been applied to ERS gains or not.

HMRC reserves the right to depart from this position in cases of avoidance.

Year of departure

It has been set out in guidance that ESC A11 does not apply in the year of departure where a charge under chapter 3C applies. It may have been less clear that the ESC was not available where charges arise under other parts of the legislation Part 7.

Therefore, as for the year of arrival, for open years and until a statutory basis is introduced, HMRC will accept that ESC A11 applies in the year of departure except in the case of a charge under Chapter 3C in the year of departure where the position will continue to be that ESC A11 is not available.

Earlier years which are settled will not be reopened, whether ESC A11 has been applied to ERS gains or not.

HMRC reserves the right to depart from this position in cases of avoidance.

Further guidance on all these issues will be published in the HMRC Employment Related Securities Manual as soon as possible.

The Chancellor, Alistair Darling, has made a statement to Parliament on the Poynter Review into the loss of the child benefit data discs, and the Independent Police Complaints Commission (IPCC) report into the circumstances surrounding the data loss.

The full statement can be viewed on the HM Treasury website:

• Chancellor’s statement on Poynter Review

Following publication of the report, HMRC’s Acting Chairman, Dave Hartnett, has written to the Financial Secretary to the Treasury (FST), Jane Kennedy. In the letter, he said:

HMRC is absolutely committed to delivering all of their recommendations and to ensuring data security remains an explicit priority in the future.

Since the incident HMRC has significantly strengthened data security.

While the IPCC found no evidence whatsoever of misconduct or criminality by any member of HMRC, the two reports make it clear that the data loss was avoidable and a result of serious failings within HMRC. In short, it should never have happened.

Immediately following the data loss, both HMRC and the police carried out extensive searches in an attempt to locate the missing data. While the data has not been found I can confirm that there is no evidence of any fraudulent activity as a result of this loss.

The progress made by HMRC since the data loss occurred is acknowledged by Mr Poynter. He notes that of his 45 recommendations, which are designed to ensure HMRC achieves the highest standards of data security, HMRC has made good progress on 39, including 13 which have been implemented. He also notes that the issues that led directly to the data loss have now been addressed.

 A new comprehensive Double Taxation Convention between the United Kingdom and France was signed in London on 19 June 2008 by the Rt Hon Alistair Darling MP, Chancellor of the Exchequer, and Mme Christine Lagarde, the French Minister for the Economy, Industry and Employment.

Author: Sarah Laing Editor, TaxationWeb News, http://news.taxationweb.co.uk

The text of the new Convention can be accessed on the HMRC website. The text will be laid as a Schedule to a Draft Order in Council for consideration by the House of Commons later this year and will then also be available from the Stationery Office.

Welcoming the signature, the Chancellor of the Exchequer, the Rt. Hon Alistair Darling MP said: “This new Convention represents continued progress in our efforts to modernise our network of Double Taxation Conventions and marks a valuable step forward with one of the UK’s most important trading and investment partners.”

The Convention will enter into force once both countries have completed their Parliamentary procedures and it will replace the existing Convention which dates from 1968. The new Convention with France that was signed on 28 January 2004 will not now be presented to Parliament and will therefore not enter into force.

The provision of payment and deduction details to subcontractors and their agents has become a growing problem for HMRC and subsequently, they have confirmed that they will no longer provide this information on a bulk basis.

Author: Sarah Laing Editor, TaxationWeb News, http://news.taxationweb.co.uk

For a number of reasons, historically, some smaller subcontractors have often failed to keep the records of payments given to them by contractors perhaps because they have lost them or otherwise destroyed them. In addition, some contractors fail to give their subcontractors the required payment and deduction statements. If the subcontractor has not kept any other business records, the loss, or non-receipt, of the necessary payment and deduction statements can cause difficulties. This is because when it comes to the completion of their annual tax return, they do not have a full record of their earnings and receipts.

Subcontractors who believe they do not have a complete record of their payments and deductions at the year-end tend to contact HMRC for help. Typically, these subcontractors ask HMRC to give back to them details of their payments and deductions as reported on the returns of contractors for whom they have worked during the period, or year, in question. HMRC are often able to help out with this information where the subcontractor clearly has a genuine need for it. However, providing details of all payments and deductions reported on contractors’ returns can cause problems. HMRC cannot know at all times which contractors a subcontractor may have worked for nor can they ever be fully aware of what payments and deductions may have been made by any particular contractor. This is because the information held by HMRC is only as good as the information that contractors have returned. Although contractors are under a legal obligation to report this information to HMRC on a monthly basis, there have been occasions where a contractor’s monthly return has not been accurate, complete or even received by HMRC in the first place. Subcontractors that rely on this information as a complete record in order to complete their own tax returns run the serious risk that they are making an incorrect or incomplete return and could be making themselves liable to a penalty for doing so.

Over recent years, the provision of subcontractor payment and deduction details to subcontractors has become a growing problem with many subcontractors and some agents seeking to obtain this information from HMRC rather than keep their own records. This has led, in a number of instances, to excessive demands being placed on HMRC’s resources when requests have been made for payment details for scores of subcontractors at a time.
The HMRC CIS computer system was designed for HMRC staff to access information on a subcontractor by subcontractor basis in their normal day to day work. It was never intended to supply long lists of payments in paper form to subcontractors and their agents.

One of the aims of new CIS was to improve subcontractors’ compliance with their tax obligations. Continuing to provide this information, on demand, would simply condone the subcontractors’ failure to meet their obligations.

In order to stem the ever rising number of time and resource-intensive, multiple and bulk requests for data that HMRC are receiving, the Department will no longer be able to provide this information on a bulk basis.

Requests for missing details from individual subcontractors or their agents will continue to be provided when they can demonstrate that they have been back to the contractor concerned to request a duplicate or missing payment and deduction statement but have failed to obtain one. In cases where it is alleged that a contractor has refused to issue one or more original payment and deduction statements, HMRC will require the subcontractor or their agent to give details of the contractor so that further enquiries may be made.

Once HMRC are satisfied that a subcontractor has tried to obtain details of the missing payment and deduction statement, they will supply the missing information if they possibly can and, of course, where the information is currently held on the HMRC CIS system.

HMRC won’t, however, automatically be able to provide lists of all payments and deductions covering a full tax year.

Helping low-income customers affected by the changes to the personal tax system announced at Budget 2007

The Chancellor of the Exchequer, Alistair Darling, announced changes to the personal tax system to help low-income customers affected by the abolition of the 10% starting rate of income tax.

The Chancellor announced that the personal allowance for the 2008-09 tax year will be increased by £600 from £5,435 to £6,035, and the threshold at which someone starts to pay higher rate tax will be reduced by £600.

The point at which customers start to pay higher rate income tax is sometimes called the “higher rate threshold”. It is the total of the personal allowance and the basic rate limit. To reduce the higher rate threshold as announced by the Chancellor, the basic rate limit will be reduced by £1,200 from £36,000 to £34,800. Higher rate taxpayers will see no difference in the amount of tax they pay.

The full text of the Chancellor’s announcement is available on HM Treasury’s website.

Written by Alex Hawkes - Accountancy Age

The UK taxman is to broach the long-standing security of Swiss bank accounts, using access to the accounts obtained by Germany.

HM Revenue & Customs (HMRC) is linking up with the German tax authorities to make use of their recent disclosure agreements with the Swiss, The Sunday Times reported.

Tens of thousands of British people are thought to have bank accounts in Switzerland, whose banking system has long been a byword for hidden cash.

The German government has agreed a ‘mutual assistance’ treaty with the Swiss which states that banking secrecy cannot be used to block the release of documents in cases punishable by imprisonment.

HMRC will have to supply allegations to obtain information, however, and cannot ‘fish’ for information.

Drugs barons and City fraudsters are expected to be the first target of the probes.

The Sunday Times quoted ‘a senior official at HMRC’ saying: ‘Our reading of the law is quite clear. Germany has the agreement with the Swiss, and we have an agreement with the Germans…Until now we have not had the opportunity to get at the Swiss assets of British tax dodgers.’

The HMRC have published a new version of the popular booklet IR20. This booklet describes the residence rules and how to work out whether or not you are resident in the UK for tax purposes.

The IR20 has been updated and is temporarily available online only. This interim guidance is an update of a booklet published in December 1999.

HMRC will publish full replacement guidance of the IR20 to cover all changes to the residence and domicile rules made as a result of the 2008 Budget when they have been approved by Parliament and included in the 2008 Finance Act.

The IR20 can be found at: http://www.hmrc.gov.uk/pdfs/ir20.pdf

We are glad to confirm that the new SA Tax Return and most popular supplements for 2007/08 have been uploaded in our Tax Forms section.

The fresh tax return is VERY different from the previous ones, so if you have any issues with it, or its supplements, please do not hesitate to contact us on query@taxundo.com

You can also visit our Tax Calculator section, where you will find a selection of handy tools to calculate your tax online. The rates and allowances for the current year 2008/09 have been implemented, so you can make calculations for the whole period up to 5 April 2009

Income Tax Allowances:

The Chancellor announces the rates of allowances at the Pre-Budget Report which precedes the start of the tax year to which they relate. Generally speaking, Pre-Budget Report takes place in November or December.

(1) - These allowances reduce where the income is above the income limit by £1 for every £2 of income above the limit. They will never be less than the basic Personal allowance or minimum amount of Married Couple’s allowance.

(2) - Tax relief for the Married Couple’s allowance is given at the rate of 10 per cent.

Taxable Bands:

The Chancellor announces the taxable bands and the rates of tax at the Budget Report which precedes the start of the tax year to which they relate. Generally speaking, Budget takes place in March.

* There will be a new 10% starting rate for savings income only, with a limit of £2320. If an individual’s taxable non-savings income is above this limit then the 10% savings rate will not be applicable. There are no changes to the 10% dividend ordinary rate or the 32.5% dividend upper rate.