If you provide services through your own personal service company you will be aware of the tax law known as IR35. This tax rule imposes an extra charge on your company, if you would be treated as an employee of your customer or customers, if you worked for the customer directly. It is very difficult to pin down when IR35 should apply, as it depends on the relationship between the contractor and the customer, which will be different in every case.
The Taxman thinks he can generalise about what makes some companies fall within IR35 and others escape it. He has drawn-up a set of business entity tests, complete with a scoring system, to help you judge whether your business would be at high, medium, or low risk of being investigated for falling under IR35.
These business entity tests are not derived from the tax law. They merely represent the Taxman's view of the risk of a business falling within IR35.
The scoring attached to the tests is controversial, as it penalises businesses that have no bad debts, never pay to advertise and operate from the owner's home. These IR35 business entity tests do not change the IR35 law one bit, and will probably be ignored by the Tax Tribunal.
If you choose to use the IR35 business entity tests, you don't have to declare your score to the Taxman, the tests are merely for your own guidance. However, if you are concerned that the business entity tests produce a high risk score for your business, we should discuss why this is the case. Are there any changes which can be made to the way your business operates which would make it less likely to be caught by IR35?
We can advise you on the correct tests for IR35, which would be recognised by the Tax Tribunal, so do ask if you would like some reassurance.
The Taxman has wide powers to inspect your business, but he is supposed to give you at least seven days notice to check on your business property, computer or business records. He is permitted to turn up without warning, but only if tax is immediately at risk, such as where fraud is suspected.
In spite of these strict rules, tax inspectors do try to examine business records without a prior appointment, or where an appointment has been arranged, the officers may turn up hours early before the tax adviser has arrived. If the Taxman pitches up at your workplace and demands access to your business records, know your rights:
Remember if tax officers turn up unannounced, call us without delay!
It's time to complete forms P11D, to report expenses (which were not included in your dispensation agreement with the Tax Office) and benefits paid to your employees in 2011/12. The P11D details can be submitted online using the free HMRC software or using your own payroll software. Alternatively you can complete individual paper forms, or submit a schedule to the Tax Office containing details for all your employees. Whichever method you chose, the deadline is the same: 6 July 2012.
Be careful not to submit the same P11D details by two methods: say online and in paper form, as this will only confuse the HMRC computer!
Some other common mistakes made when completing forms P11D include:
We can help you with your P11D forms, which can be quite a nightmare if you have lots of employees who received benefits or expenses.
Between now and October 2012 around 5.1 million taxpayers will receive notice of a tax under or over-payment, arising from the PAYE reconciliation exercise for 2011/12. These PAYE adjustments are the natural result of calculating whether each taxpayer has paid the right amount of tax through PAYE or not.
The PAYE system does not cope well when a person has several employments or pensions running concurrently, or changes the benefits in kind (such as a car or medical payments) part way through the tax year. As a result the amount of tax deducted from salary or pension is not perfect, although more problems are being overcome every year.
When the HMRC computer calculates that you have under or over-paid tax for the year it will send you a tax calculation on form P800. We will not get a copy of the P800 as your tax agent, so if you want us to check the figures for you please send us a copy.
If you are going to check the tax calculation yourself, start with the forms P60 or P45 you have received from your pension provider or employer for the tax year. First ensure you are comparing documents for the same tax year, the latest P800 form should be for 2011/12, but you may be sent calculations for earlier tax years. Is all the tax deducted as reported on the forms P60 also shown on the P800? There have been cases of HMRC mixing up the PAYE records of two taxpayers, so watch for any discrepancies in your taxed income figures.
You also need to check that your full personal allowance has been included, and the amounts for benefits or other income are accurate. These figures are often estimated at the beginning of the tax year, and may not have been amended to reflect the true amounts.
If you need any assistance please contact us.
Q. I'm an IT contractor currently working for a government department through my own company, for £300 per day. I've heard that all contractors will have to go on the department payroll. I don't want to be a wage-slave, so what should I do?
A. The government has announced that all senior appointments in government departments, such as executive positions, will have to be paid through payroll. This does not apply to other contractors. However, other government department contractors who are engaged for six months or more, and who are paid more than £220 per day, must when their contracts come up for renewal, or start afresh, include terms that allow the government department to seek formal assurance that income tax and NI obligations are being met. We can help you provide this assurance if it is requested.
Q. I don't have the all the figures needed to complete the tax credits renewal form, and I'm worried I'll lose my tax credits as the deadline is 31 July. The main problem is my income is as a musician as I don't know what my total income is until I receive the royalty statements.
A. Don't panic. You are required to return the tax credits renewals form by 31 July, or renew by phone, but you can submit estimated figures for 2011/12. When your self-employed accounts are ready you can submit the final figures and your tax credits award will be adjusted as necessary. As long as you submit final figures by 31 January 2013 you should not lose your tax credits.
Q. What's all this about RTI? Do I have to do something by October? Is it going to cost me more?
A. Real Time Information (RTI) is a new way of submitting PAYE information to the tax office. All employers will have to use RTI by October 2013 (not this year), but some employers are starting to use RTI early in a test phase from April 2012. The aim is to add more employers to the RTI project at intervals, depending on how the first tests go. The tax office says your payroll software should cope with RTI when the time comes. We suggest you ask your software provider when their RTI update will be ready, and how much it will cost. We can help you prepare your payroll for RTI. This involves checking you have the full name, gender, date of birth and accurate NI number for every employee, including those who earn less than the NI threshold.
19/22 - PAYE/NIC and CIS deductions due for month to 5/6/2012