Employment Tax Update - Summer 2011

Whilst the 2011 summer period represented the traditional, quieter period for employment taxes, in this edition of Tax Insight we summarise the main changes and updates which were published over the last two months:

National Minimum Wage

The Department for Business, Innovation and Skills has announced the new National Minimum Wage rates from 1 October 2011:

• the adult rate will increase by 15p to £6.08 an hour
• the rate for 18-20 year olds will increase by 6p to £4.98 an hour
• the rate for 16-17 year olds will increase by 4p to £3.68 an hour
• the rate for apprentices will increase by 10p to £2.60 an hour

Tax Avoidance

HMRC are aware that new tax avoidance schemes that seek to avoid Income Tax and National Insurance Contributions (NIC) are being advertised to contractors, highly paid employees and those using recruitment agencies. It is claimed that these schemes get around both the new disguised remuneration rules and the Agency Workers Regulations. These promoted arrangements surround payments passing through a series of companies, loans from a third party or an alleged “offshore” employer, a deed of covenant, secondments from one employer company to another or claims of self employment, etc.

In our opinion, such arrangements do not work and any employer considering adopting such aggressive plans should be aware that HMRC have already published confirmation that they will challenge these arrangements and litigate where necessary to recover unpaid tax and NIC.

Those intent on avoiding Income Tax and NICs by using trust arrangements should also be aware that there could be adverse Inheritance Tax (IHT) and trust tax consequences regardless of whether they themselves set up the trust. These include IHT charges when contributions are made to the trust, when funds are transferred from a trust to a sub-trust or removed from the sub-trust or when uncommercial loans are made by the trustees and at the ten year anniversary of the trust.

Changes to the way HMRC deals with Post

Those employers currently frustrated with the inability to discuss PAYE issues with a consistent team or individual case worker within HMRC will be further annoyed by the announcement that post received in respect of individual queries, for example Self Assessment will now be electronically scanned by HMRC and distributed across a national network of offices. This issue of a lack of consistency and both agents and taxpayers having to wait up to 3 weeks for a telephone response to relatively straight forward queries is one of a myriad of service issues highlighted at a recent meeting between advisors and the Board of HMRC. Whilst it is clear that service levels by HMRC have dropped significantly in recent months, some of the initiatives proposed at the London meeting may be adopted and matters improved but in the meantime, employers will continue to be frustrated by the lack of local service available.

Self Assessment Late Filing Penalties

Shortly after the 30 January deadline, all individuals who have not submitted their tax return receive an initial late penalty charge of £100. However, up until now, the £100 penalty was reduced to nil if no additional tax was subsequently shown to be due. From this year (i.e. for 2010/2011 tax returns et. seq.), a new penalty regime comes into force which will result in this fixed penalty remaining due, even where there is no additional tax payable through self assessment. Furthermore, where a tax return remains outstanding for three months after the filing date then further, automatic penalties of £10 per day will also take effect.

Should you have any queries then please do not hesitate to contact the Cobia team on 0845 226 0580.