Employment tax updates: July 2014

The latest roundup of employment tax news and cases, including RTI penalties for late payments, updated guidance for agency workers, online registration for share schemes and HMRC’s penalty webinars on YouTube for tax agents and advisers

RTI penalties for late payments

HMRC has issued a note on penalties for employers’ annual and Real Time Information (RTI) returns, setting out ‘a series of measures which are intended to help in smoothing the transition to in-year penalties’. The aim is to ‘help avoid any confusion between the end of year penalties (currently in operation for 2013/14) and the new in-year (late-filing) penalties, which are due to commence in October 2014 with the first quarterly penalty notices scheduled for issue in January 2015’.

The business tax dashboard or liabilities and payments viewer already shows interest added automatically to payments that HMRC thinks were late.

Some of the charges will be annual for 2013/14 and there are now new monthly charges for 2014/15.

The RTI system will identify late filings (and employers should already be seeing generic notifications coming through to warn them that a deadline has been missed) and will charge penalties automatically from October 2014.

Late payment will be penalised on a ‘risk basis’ for 2014/15, as it has been to date, and automatic monthly late payment penalties have been deferred until next tax year. The delay is assumed to be down to the unreliability of the figures showing on the system, which are not processed in real time.

The guidance is available at http://bit.ly/1miNLGX.

Penalty webinars on inaccuracies

HMRC is developing a series of webinars on YouTube for tax agents and advisers starting with a pre-recorded webinar on penalties for inaccuracies in documents and returns.

The penalties webinar provides an overview of penalties legislation and explains behaviours that lead to inaccuracies.

HMRC says the webinar will also inform agents of what happens when there is a disclosure. In addition it will cover issues around the quality of a disclosure and the process behind suspending penalties; and what can be appealed.

There is also a plan to launch live interactive webinars in the summer which will give tax agents and advisers the opportunity to ask HMRC questions as they go along unlike the current system of submitting questions in advance.

HMRC to send out PAYE tax reconciliations for 2013–14

HMRC has started the automated end of year PAYE reconciliation process for tax year 2013–14 and will be sending out P800 tax calculations to those who have paid too little or too much tax under PAYE for that tax year.

The P800 tax calculations will be sent out until mid-September.

Those who have overpaid tax will, in most cases, receive a cheque within 14 working days from the receipt of a P800 tax calculation. Any employees who have underpaid tax will, in most cases, have the shortfall collected through their 2015–16 annual tax code over 12 months.

HMRC says that 85% of those in PAYE will have paid the right amount of tax for the year and will not receive a P800 calculation.

Temps and PSC guidance updated

HMRC has expanded its guidance in relation to agency workers, following the changes to the Income Tax (Earnings and Pensions) Act 2003 that took effect on 6 April 2014. Details available at (bit.ly/1j5QimB). The guidance reiterates HMRC’s view that the legislation, which was amended to deal with ‘false self-employment’, is unlikely to affect situations where the user of the service contracts with a personal service company (PSC) for the supply of an individual owner’s services. The rationale for this view is that payments such as dividends or loans by the PSC to the individual are not ‘remuneration received by the worker in consequence of providing the service’ and payments of remuneration by the PSC to the individual should be treated as earnings in any case, so the new legislation does not apply there either.

Clearly, the intermediaries’ legislation (IR35 and managed service company) remains an issue for PSC users even though the agency provisions will always take priority.

Liberation fall-out from pension changes

The pensions liberation changes announced in Budget 2014 are likely to lead to a host of consequential changes, including HMRC’s creation of a ‘fit and proper person’ test for pensions scheme administrators to take with effect from 1 September this year.

HMRC is also reviewing whether individuals aged over 75 should be entitled to tax relief on pensions contributions.

Online registration for share schemes

The 16th Employment-Related Securities Bulletin issued by HMRC (http://bit.ly/1mYdZjr) sets out frequently asked questions in relation to the online registration process with HMRC that should now be underway but has been delayed.

Only the employer can register a scheme: an agent cannot do this, but should be able to make returns in due course.

Holding companies often have no employees and no PAYE scheme, but the share scheme is usually found at that level in a group. Employers who need to register but have no PAYE reference can use any active PAYE reference for one of their subsidiaries. It would be a strange scheme indeed where there are no PAYE employees somewhere within the group structure.

HMRC guidance on share schemes

Those seeking guidance on HMRC’s withdrawal of the approval and clearance processes for Share Incentive Plans, Save As You Earn schemes and Company Share Option Plans will have to wait until later in July for the Employee Share Schemes User Guide to be updated.

It is worth noting, however, that it is the general non-statutory process that now applies (see http://bit.ly/1kC6ykW). Nevertheless, HMRC has agreed to deal with questions of principle if they are not covered in published guidance.

Case: vet wins FTT battle over unfair penalty for late PAYE

The FTT has allowed a taxpayer’s appeal against PAYE return late filing penalties, finding that reliance on his accountant who was suffering from ill health had amounted to a reasonable excuse for a taxpayer in a similar position and therefore by applying the ordinary principles of proportionality, fairness and transparency should also apply to this taxpayer.

In this case, Collins [2014] UKFTT 479 (TC), the taxpayer (Mr Collins) ran a veterinary practice with one employee and relied on his accountant (and friend), Mr Marley, to deal with his tax affairs. The PAYE return due for 2010–11 should have been submitted by 19 May 2011, but was not filed until 21 October 2011 and therefore HMRC issued Mr Collins with late filing penalties of £600.

Marley had suffered from ill health since 2004 and during 2010–11 his health substantially deteriorated, with him being admitted to hospital in May 2011 and in the opinion of his GP by August/September 2011 he had become unfit to work. He subsequently died.

Collins appealed against the penalty notices and referring to the case of Maxwell [2013] TC 02849 asserted that it was reasonable for him to have relied on Marley as his third party agent, thereby giving him a reasonable excuse.

Evidence was also provided to show that another former client of Marley had in similar circumstances put the same argument to HMRC and had succeeded in having his penalties reduced to nil.

HMRC argued that it was Collins’ statutory duty to ensure that his PAYE return was submitted on time and given that he was aware of Marley’s failing health he should have taken alternative action to ensure his return was submitted on time.

The FTT accepted that reliance on a third party per se was not sufficient to amount to a reasonable excuse, but it also noted that it was open to it to consider all of the circumstances.

On the basis that Marley’s health deteriorated in 2010–11 rendering him incapable of performing the functions for which he was retained and because HMRC had clearly accepted that Marley’s ill health had constituted a ‘reasonable excuse’ in another case, to ensure proportionality, fairness, transparency and consistency the FTT allowed Collins’ appeal.

CCH tax writer Meg Wilson said: ‘This case demonstrates the inconsistent treatment of different taxpayers in similar circumstances. It was lucky for the taxpayer in this case that the accountant acting for him at the appeal was able to provide evidence to prove the inconsistent treatment by reference to another one of his clients.

Employment updates by David Heaton and Lesley Fidler, Baker Tilly www.bakertilly.co.uk


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