August 2014 Newsletter – Accelerated Payments

If you were advised to include a DOTAS number on your tax return, and HMRC has already opened an enquiry into that tax return you should watch the post for a tax demand headed “Accelerated Payment Notice”. This could arrive at anytime from now until April 2016.

If you receive an accelerated payment notice you can’t appeal against it, but you can ask HMRC to reconsider the amount demanded within 90 days. We can help you with this.

You may also want to consider some other options such as:

– negotiating a settlement with HMRC to resolve the dispute over the tax scheme you used – there may well be interest and penalties to pay.
– asking the Tax Tribunal to close the enquiry into your tax return – this is an option if you really believe the tax you avoided is not due, i.e., the scheme works; or
– asking for a payment arrangement in which you agree to pay the tax demanded by instalments.

We should discuss the consequences of paying the accelerated tax demand on the rest of your tax affairs; will you be able to meet your other tax liabilities when they are due?

Where the employee earns at least £111 per week the employer must pay SMP at these rates for the following periods:

– for the first 6 weeks – 90% of the employee’s average weekly earnings (AWE);
– the remaining 33 weeks – the lower of £138.18 or 90% of their AWE.

If a bonus is paid in the crucial “relevant period” – which is used to calculate the employee’s “average weekly earnings” – the SMP payable for the first six weeks automatically increases. The remaining 33 weeks of SMP are not affected as that period is paid at a flat rate where earnings exceed £153.53 per week.

The relevant period is a period of at least 8 weeks ending on the pay day before the “qualifying week”. The qualifying week falls 15 weeks before the expected birth date, so you need to know the expected date of birth before timing the bonus payment.

Say the expectant mother normally earns £520 per week, she will receive £468 per week in gross SMP for the first six weeks. Her employer will pay class 1 NICS of £260.82 on top of this SMP and will be able to recover: £468 x 1.03% = £2,892.24. If the class 1 NICs on the SMP are covered by the employment allowance of £2,000 for the business, the employer effectively recovers £2892.24 against an SMP cost of £2808.

However, paying a large bonus won’t necessarily be tax effective; it depends on how much NICs can be covered by the employment allowance.

Say the employee receives a bonus payment of £2,000 in the relevant period, this bonus generates an employer’s NICs bill of £276, and increases her AWE and hence her SMP for the first six weeks to £675 per week. Her employer can recover £675 x 1.03% for six weeks = £4171.50.

But this is a marginal increase from £2892.24 which was recovered without the bonus; an increase of £1279.26 for paying out £2447.40 (bonus + NICs on the bonus and SMP).

There is a calculator on the GOV.UK website that can help you work out the SMP that will be due, and you can change the answers to each question to see how difference in pay will change the SMP. We can also help you crunch the numbers.

We will do this for you when we complete your tax return, but please remember to provide us a copy of your investment statement that shows the refunded commission.

HMRC should send you an ESL form to complete if you have filled in box 8 on your VAT return. Don’t ignore it, as the deadline for returning the form is just 14 days from the end of the quarter. If you chose to complete an online version of the ESL you have 21 days from the end of the quarter. These deadlines are much shorter than that for your quarterly VAT return.

We can complete and submit the ESL online on your behalf.

The disposal made in July 2011 should have been reported on your 2011/12 tax return as part of your provisional claim for roll-over relief. You should now write to the tax office to withdraw that provisional claim and declare the full taxable gain. The tax will be payable immediately and interest will run from 31 January 2013.

Q. I work as a self-employed courier for a large courier company who operates self-billing for VAT purposes and pays me monthly. I have just registered for VAT which has been back-dated to 1 May 2014. What should I do to collect the VAT due for May, June and July?

A. You should ask your customer if it is acceptable for you to issue a VAT only invoice to them. Calculate the VAT due as if the total amounts you have received in May to July under self-billing are the net amount of your fees for the period. You should also supply your customer with a copy of your VAT registration certificate, so the company knows to add VAT to your self-billing invoices in the future.

Q. My personal service company is about take on an IT servicing contract in Belgium. The customer will pay me a rate for every day I attend their premises, on top of my fee for the whole contract. This ‘per diem’ rate is less than HMRC’s benchmark rate for expenses when working in Belgium. Can it be paid directly to me personally or should it be paid to my personal service company?

A. The ‘per diem’ rate should be paid to your company and be included in its turnover for VAT purposes, so treat it as a gross receipt including VAT. Your company can pay you expenses for working abroad, at or below the HMRC agreed benchmark rates. Do not short circuit this by accepting the per diem rate straight into your personal bank account as this will create a VAT mess.

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