Newsletter Summer 2011

1. Newsletter
216 West George Street
Glasgow G2 2PQ
Telephone 0141 226 8484
Facsimile 0141 204 4387
Email info@gillilandca.com
Gilliland & Company Registered to carry on audit work and regulated for a
range of investment business activities by the
Chartered Accountants Institute of Chartered Accountants of Scotland
Complex but SUMMER 2011
changing Employer Penalties
One of the Government’s early actions in Employers who fail to pay their PAYE liabilities on time every time and in full
July 2010 was to establish the Office of Tax may face penalties.
Simplification (OTS) to provide independent
advice on how to reduce the complexity of the Since 6 April 2010, HMRC have had the right to NIC etc per tax year. A further penalty of 5% may
impose late payment penalties on all employers, be charged if any amounts are still outstanding
existing tax system. The Chancellor even stated
regardless of size, who fail to make their monthly after 6 months and then again after 12 months.
in his Budget 2011 speech that:
or quarterly PAYE payments on time. The
‘Our tax code has become so complex that it payments covered by these rules not only include Don’t owe anything?
recently overtook India to become the longest PAYE but National Insurance contributions,
It is important to let HMRC know that you have
Construction Industry Scheme deductions and
in the world!’ nothing to pay either by:
Student Loan deductions.
The initial task of the OTS was to carry out • completing the online form: www.hmrc.gov.uk/
Unfortunately some employers may be blissfully payinghmrc/paye-nil.htm
two reviews. The first was to list all reliefs,
unaware that a penalty may be due as HMRC's
allowances and exemptions applying to • sending a signed payslip with the amount
approach during 2010/11 has been to issue a
businesses and individuals and identify those completed as “NIL”
warning letter only, and even this has been at their
reliefs that should be repealed or simplified to discretion. The receipt or not of such a warning
support the objective for a simpler tax system. • phoning 0845 3667816 with your HMRC
letter is not necessarily an indication that a penalty accounts office reference and advising them
notice will be levied. In fact HMRC have up to two which period no payment is due for.
Following the publication of the initial report the
years after the payment default to issue a penalty
Government intends to abolish 43 tax reliefs
notice. The penalties are risk assessed so HMRC Late returns
whose rationale is no longer valid. A minority may not charge the penalties to all late paying
of redundant reliefs will be repealed in Finance employers. However, HMRC have 2010/11 also saw the demise of the seven
Bill 2011. The other reliefs will be removed after made it clear that such notices days' grace for filing the P35 and P14
consultation. will start to be issued from end of year returns which have to be
May 2011. filed by 19 May following the end of
The second task was to identify the areas the tax year. These annual returns
of the tax system that cause the most day- So how do the need to be filed online by almost
to-day complexity and uncertainty for small all employers. Penalties for late
penalties work?
businesses and recommend priority areas for filing of these returns are currently
simplification. That initial report has resulted in No penalty will be imposed fixed at £100 per month for every
the announcement that the Government will for the first late payment in 50 employees.
consult on the integration of the operation of a tax year but subsequent
the income tax and national insurance systems. breaches may attract Please get in touch if you want
This major structural change will take time to penalties from 1% to 4% help with payroll issues or you have
depending on the number received a penalty notice which you
properly consider but we will keep you updated
of late payments of PAYE/ would like us to check.
on any important developments.
www.gillilandca.com
Gilliland & Company

2. Tax credit Getting the VAT job
errors done with the right tools
HMRC toolkits are issued to help taxpayers and For businesses
In the autumn Comprehensive agents to file accurate returns. They focus on using the flat
common problem areas for both direct taxes rate scheme,
Spending Review HMRC, like
and more recently VAT. VAT toolkits issued so far using incorrect
the majority of government include such areas as Input VAT, Output VAT and percentages
departments, were given strict Partial Exemption. and incorrect
targets to meet over the next four turnover figures
As well as covering specific technical areas the are common
years. toolkits emphasise the need for better record problem areas. This
keeping. This is critical as penalties may be is especially going to
The main headlines were:
incurred for filing incorrect returns (including VAT) be an issue for VAT returns spanning the change
• a 15% reduction in costs required before particularly if documentation is not available to in the standard rate of VAT on 4 January 2011.
2015 support the figures in the returns. The rest of this The new flat rate percentages must be applied to
article examines some of the key issues outlined turnover from 4 January 2011. Businesses must
• £900m to address the tax gap and tackle in the recently issued VAT toolkit on Output VAT. ensure they use their new flat rate percentage,
tax avoidance and evasion, bringing in an Further areas are considered in the toolkit itself. rather than just adding 2.5% to their old flat rate
additional £7bn per year by 2014/15 percentage. A revised table has been issued for
Output VAT problems this purpose. This can be accessed at www.hmrc.
• £100m to improve the operation of PAYE
gov.uk/vat/start/schemes/flat-rate.htm#sa
• measures to deliver £8bn of tax credit Outputs are often incorrectly accounted for
fraud and error savings by 2014/15 on occasional, miscellaneous and incidental Other errors regarding output VAT include
transactions, including on deemed supplies. incorrect zero rating of exports outside of the
• a five-fold increase in criminal For example, deemed supply occurs when the EU and dispatches to other EU countries. These
prosecutions business gives away gifts to one person costing supplies can only be zero rated when supporting
more than £50, or a series of gifts to the same documentation to prove movement of goods
• a new dedicated team of investigators to
person, or puts goods or assets to non business is held. For EU dispatches, the customer’s VAT
crack down on offshore evasion and
use. Output VAT must be charged by the business number must be obtained and quoted on the
• improving the scope of in-house debt to itself on the value of these transactions. This is invoice for zero rating to apply.
collection and placing up to £1bn commonly seen in the calculation of the fuel scale
per year of tax to private sector debt charge for supplies of fuel for private motoring, So finally, if you would like any help in calculating
collection agencies. but many taxpayers seem unaware of the need to output VAT or any other aspect of VAT please do
calculate the tax on other such supplies. not hesitate to contact us.
HMRC are starting to make progress in
some of these areas and have recently
launched a campaign to target suspected
fraudulent tax credit claims from the self- Not a pool car
employed. According to HMRC, in 2008/09
675,000 tax credit awards (8.9%) had There have been several recent Tribunal cases them as staff that needed cars for official use had
errors relating to income. The potential loss which illustrate the dangers of the tax rules on other pool cars available.
was £145m. what are generally known as pool cars. Pool cars
are tax efficient as there is no taxable benefit. The Tribunal found that the vehicles were not pool
HMRC have been writing to 12,000 self- However, as always, there is no such thing as a cars and that:
employed people who are claiming tax free lunch.
‘…the Appellant's lack of fiscal knowledge had
credits where they believe that those claims
The conditions for a car to be regarded as a pool caused him to fall foul of (the rules) which in his
are not genuine or accurate.
car and so tax free are: case became penal causing him to become liable
This is part of a wider government to a car benefit charge based on the £51,000 list
crackdown and HMRC and the Department • the car was made available to, and actually price of the cars which amounted to £9,156 per
for Work and Pensions have published a used by, more than one employee year. The independent dealer value of the cars
strategy designed to tackle error and fraud having regard to their age was some £6,000 for
• the car was made available, in the case of
in benefits and credits. each car meaning that the Appellant could have
each of those employees, by reason of the
bought the cars for less than the tax arising on the
employee's employment
Exchequer Secretary to the Treasury David car and fuel benefit.’
Gauke said: • the car was not ordinarily used by one of those
employees to the exclusion of the others In the second case, a Mercedes Benz CD320CDI,
‘HMRC is determined to take a tough owned by the company of which the taxpayer was
approach to targeting possible fraud • in the case of each of those employees, any a shareholder and director was claimed a pool car.
among tax credit claimants. Last year the private use of the car made by the employee
was merely incidental to the employee's other The taxpayer stated that the Mercedes was kept
Government launched radical proposals to
use of the car in that year and in a steel container at the factory and that it was
reduce the billions lost to tax credit error
never taken home. It was also only used to visit
and fraud every year. These losses are • the car was not normally kept overnight on or in
customers. However, there appeared to be no
unaffordable and unacceptable. the vicinity of any residential premises where any
mileage log. The Tribunal found that the taxpayer
of the employees was residing, except whilst
HMRC will now use credit reference failed to provide satisfactory evidence to show that
being kept overnight on premises occupied by
agencies and data-matching to spot all five conditions were met.
the person making the car available to them.
patterns of fraud. The department is also
In the first case, HMRC carried out an Employer The message is clear – the key to tax free success
employing additional investigators and are
Compliance Review and found that the company is to ensure all conditions are considered and in
examining each claim in high-fraud areas.’
had provided the taxpayer with vehicles for several particular, proper records maintained. Please do
If you have any concerns about tax credits, years. The taxpayer claimed that the vehicles were get in touch if you would like to discuss this area
please do get in touch. pool cars but no one else was available to use further.

3. Let’s go Real Time - Minimizing IHT by
maximising relief
the future of PAYE Agricultural Property Relief (APR) is an important relief
for landowners as it reduces the value charged to
In July 2010 HMRC issued a Consultation Document looking at major
Inheritance Tax (IHT). During lifetime it is available to
reforms of the PAYE system using real time information. You may have read relieve a charge that might arise on a gift to trust. At
or heard about elements of the system but we thought that we would try to death it has the effect of providing IHT relief on both
dispel a few myths. estate assets and reducing any additional charges
on lifetime gifts. The rate of relief is frequently 100%
The project consists of two separate system, with better administration and although some tenanted land only secures 50% relief
elements: reductions in fraud, error and overpayment. to the owner. It is also necessary that the owner either
occupied the property themselves for the purposes
• Real Time Information (RTI) would The basic process would be: of agriculture for the two years prior to a transfer or
collect information about tax and
• most employers would be required by that the property was occupied by someone else for
other deductions automatically each
regulation to use the Bacs system to the purposes of agriculture in the seven years prior to
time employers ran their payroll.
transmit RTI information with payment transfer.
This information would be submitted
automatically to HMRC at the same time instructions;
A significant change in the scope of APR has been
employees were paid. • a common standard will be used for the made following pressure from the EU. The relief used
• Centralised Deductions (CD) would build transmission of RTI data at all stages of to be limited to property in the UK, Channel Islands and
on RTI by moving the responsibility for the payments infrastructure from payroll the Isle of Man but is now extended to property situated
calculating and deducting tax, national software through banking interfaces and in the European Economic Area. This relief is effectively
insurance and student loan repayments Bacs submission software to the Bacs backdated although time limits mean that the earliest
from employers to the electronic payment system itself; year which may now benefit is the tax year 2007/08.
system. • smaller employers (fewer than 50 The property must fall within the definition of agricultural
It appears that the Government have decided employees) who do not pay their property. Bare land used for agriculture qualifies
to proceed with a phased introduction of employees via Bacs will initially be able to without restriction. Problems can arise where a claim
RTI with a pilot beginning in 2012 and then submit RTI from their software, or via an is made for APR in respect of buildings, especially
implementation from April 2013. It also agent, using an internet channel through residential buildings on the farm. The requirement is
appears that CD will only be considered once the Government Gateway. that the buildings must be occupied for the purposes
RTI has been fully introduced and this seems Employers would still need to issue payslips of agriculture and must be of a character appropriate to
unlikely before 2015. to their employees and issue P60s at the the agricultural property.
year end.
RTI A recent case has held that a property left unoccupied
CD because the farmer was in hospital and then a nursing
With RTI, employers paying employees
home could still qualify because all his effects were still
electronically would send HMRC details of The basic concept is that HMRC would in the property and he was playing an active role in the
employees’ pay, the deductions of tax, NIC construct a central calculator to work out business almost up to his death.
and student loan repayments and information the correct deductions of tax, national
about employees’ identities. insurance and student loan repayments The issue of large residences claimed as farmhouses
from an individual’s pay. The employer remains a problem area and one in which HMRC are
The information would be produced
would send the gross payment through the likely to take an interest. It is clear that HMRC expect to
automatically by the payroll system at the
electronic payment system to the central see that the farming operations are controlled from the
point of making the payment and would be
calculator where the deductions calculated house and will then consider whether its character is
sent to HMRC via the electronic payments
by HMRC would be made automatically. appropriate. This will involve looking at the physical size
system as part of the payment instructions.
The resulting net payment would then be of the house and its relationship to the farm. A large
HMRC think that this could simplify sent to the individual’s bank account and property with a small area of farmland may struggle
the processes when people the deductions would be paid to qualify for relief. HMRC accept that the issue is a
change jobs, with no directly to the government. question of fact in each case.
need to complete a
P45/46 but with Agricultural purpose
As employers
a notification Assuming that the property qualifies as agricultural
would no longer
through the property it must still pass a test of being used for
be responsible
new electronic agricultural purposes. These are not comprehensively
for the tax,
system. defined in legislation, apart from one or two exceptions
they would
Individuals
not need to such as the breeding of racehorses on a stud farm
changing
operate tax which is given specific legislative approval. However
jobs in the
codes. other common farming activities do qualify and HMRC
year would
also accept that seed and tree nurseries and growing
be more Obviously, grass for turf all qualify. On the other hand, occupation
likely to pay things are in for livestock other than for food for human consumption
the right their infancy does not qualify. Neither does sporting rights nor the
amount of and there will use of land for purposes other than agriculture such as
tax. It could be a lot more grouse moor. Schemes to preserve habitat for wildlife
also do away information to will generally qualify if it is managed in the right way.
with end of come in future
year information. months. We will keep This relief and other IHT reliefs may be available on
Access to real time you fully informed of lifetime gifts as well as on your estate so if you would
data would also improve developments. like us to review their availability please do not hesitate
the benefits and tax credits to contact us.

4. Funding not to be Short life not short thrift
taken for granted Some unwelcome capital allowance reductions are set to come
into operation from April 2012 but it's not all bad news…..
Obtaining finance to help start, grow or develop a
business can be a difficult task. However, grants and First the bad news acquisition. The AIA reduction from
April 2012 makes the SLA election
other financial support may be available to help the The Annual Investment Allowance more attractive to a wider range of
business realise its potential. (AIA) provides 100% relief on qualifying businesses.
plant and machinery expenditure
Grants are contributions awarded to businesses or individuals to but it is to reduce from £100,000
assist with specific projects or activities. These can be obtained
And better
to just £25,000. Further, the main
from a number of different types of body which include government writing down allowance (WDA) which The lifetime period for SLAs has been
departments, local development agencies, local authorities or applies generally to any expenditure in extended to eight years from the end
councils and charitable organisations. excess of the AIA in the current period of the accounting period of acquisition
(or brought forward from previous for additions on or after 1 April 2011
Investment in growth is a key objective of the current Government.
accounting periods) will reduce to for companies or 6 April 2011 for the
Grants and other methods of support, therefore, are still available to
18% annually from the current rate of self employed. This makes it more
both new and established businesses in spite of spending cuts on
20%. This means lower tax relief on useful as it means more assets could
the whole.
expenditure in the period of acquisition benefit from SLA election.
Eligibility for grant funding can be dependent upon your location, and delayed relief in later years for
business size and industry sector. Some areas, for example, are both unincorporated and corporate
eligible for government funding through schemes to improve local businesses. Example
social deprivation or unemployment.
But it gets better A business purchases qualifying
Grants or other support can be obtained to provide funding for a plant for £100,000. It has an
One way of obtaining more capital estimated business life of 6 years
diverse range of purposes. Some key types of support include:
allowances earlier is to make a and no scrap value.
• Investment in capital to create new jobs or safeguard ‘short life asset (SLA) election’. This
existing ones facility has been available for many • If acquired in the year to
Government grants have previously been available for investment years but the 2012 changes and an 31 March 2012 it would be
in business through various grants. Grants within this remit are announcement in Budget 2011 has totally relieved by the AIA and
often still offered at a local level. put the SLA back on to centre stage. a SLA election would not be
worthwhile.
• Investment in environmentally friendly assets Up until now it has been possible to
0% loans of £3,000 to £100,000 are available from the Carbon make a SLA election on most assets • If acquired in the year to 31
Trust. with an expected useful life to the March 2013 and no SLA
business of four years or less from election is made then total
• Activities stimulating regional development
the end of the accounting period of allowances over the 6 year
Regional development agencies, often distributing European
acquisition. Fast moving technology period would be £77,200
funding, offer a range of grants to businesses to develop their
like computers would be a good comprising the £25,000 AIA
local area.
example of a potential SLA. However, and £55,200 WDA over the
• Investment in innovation, research and development cars are specifically excluded from 6 years. Further tax relief will
Government grants are available to small and medium sized SLA treatment. Such an election continue to be obtained in
businesses for the research and development of technologically means that the asset is placed into a future years after the asset
innovative products and processes. Grants are often made which single asset pool for capital allowance has gone!
cover a proportion of costs directly attributable to the activities. purposes. Initially it is eligible for the
• If instead a SLA election
• Employment and training same allowances (AIA and WDA) as
had been made on this
A number of different types of grant are available ranging would have applied if placed in the
asset acquired in the year to
from those helping with additional costs incurred in employing main plant pool. However, on disposal,
31 March 2013, the shortfall
disabled employees, to those helping with training and staff where there is an unrelieved balance still unrelieved in year 6 could
development expenditure. of expenditure, an extra allowance can have been claimed meaning
be claimed. This equates to writing an extra £22,800 overall.
Applying for a grant off the whole cost of the asset over its
economic life to the business. In fact,
The exact nature of the application will differ dependent on the
a SLA election should only ideally be The best for last
type and source of funding being applied for. Formal application
made on assets which are likely to
will normally be preceded by discussion with the funding body.
lose value quicker than they receive This would be worth a minimum
The application is likely to then require completion of the relevant
tax relief. This is because where assets £4,560 in tax saving (based on the
paperwork in addition to a sound business plan, as the overall pot
hold their value well this could result current basic rate of income tax
for funding is often restricted.
in a clawback of some or all of the tax excluding any national insurance
Monies received will often require match-funding and performance relief given. saving or alternatively the small
criteria to be met, with a potential claw-back where funds are not company corporation tax rate) and
used for their designated purpose. Many small (and possibly medium significantly more for individuals and
too!) businesses have not found it companies subject to a higher rate
The process of obtaining grant funding can be daunting due to the advantageous to make SLA elections of tax.
detailed information requirements of the application but we can on additions since April 2008 due
assist with the process, or in preparation of a business plan. to the availability of the AIA. Most If you would like any advice on these
small businesses found that the AIA changes, or capital allowances in
So if you are thinking about applying for grant funding, please covered their additions in full, thus full general, please do not hesitate to get
contact us to help you secure the best outcome. tax relief was obtained in the year of in touch.
Disclaimer - for information of users: This newsletter is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this newsletter can be accepted by the authors or the firm.