Sunday, 31 January 2010

HMRC’s blunder over employees’ tax codes

It has been announced that HMRC has issued a whopping 25 million PAYE tax codes for 2010/2011, double that of the previous tax year, as a result of having moved into a new computer system. However, according to the Chartered Institute of Taxation, a substantial proportion is wrong!

May we use the opportunity to urge both employers and employees to check their new codes on coding notices they receive and never assume that what the taxman sends is correct, especially for employees with multiple employments or pensioners who work part-time. Furthermore, HMRC may try to collect tax on an individual’s investment income through their PAYE tax code. After all, any errors are likely to result as much in tax overpayments (and hence reduction in their take-home pay) as in underpayments, which eventually will have to be put back.

Tax amnesty for doctors

HMRC has announced on 11 January 2010 the launch of the so called “Tax Health Plan”. This is a disclosure opportunity for medical professionals registered with the General Medical Council. It applies to all taxes and duties. Disclosure of income other than received as a medical professional is not part of the arrangement. Deadline for registering for THP is the 31 March 2010 and disclosure and arrangement to pay all tax and penalties by 30 June. Penalties will be 10% for those who qualify for the opportunity and no penalty will apply where the total unpaid tax/duties are less than £1,000. In addition, interest will apply; the fact that disclosure is required for the last 20 years may well result in penalties and tax eventually exceeding the unpaid tax!

HMRC has said that they have received information from NHS trusts, private hospital and medical insurers such as BUPA. HMRC has said that, from next April, it will be using the information at their disposal to investigate medical professionals who have not declared their full income. Taxpayers who do not disclose may face penalties between 20% and 100% of tax evaded.

Chancellor delivers his Pre-Budget Report

The main points were:
  • Small businesses: Previously planned corporation tax increase for small companies postponed.
  • Businesses: The Business Payment Support Scheme has been extended. Businesses that can demonstrate that they need time to pay, can defer VAT, PAYE and NI, CIS, income tax or corporation tax payments.
  • VAT: VAT to return to 17.5% on 1 January 2010. From April 2010, VAT payments and returns will be online. Businesses and agents should register now.
  • Workers: 0.5% increase in NI contribution for employers, employees and the self-employed from April 2011. This means that the employer’s rate will rise to 13.8% and the employee’s rate to 12%. The threshold for paying NIC for employees will rise to £135 per week. NIC rate on earnings above £43,888 per annum will double to 2%.
  • Salary sacrifice schemes: Workers who enjoy tax-free lunches at their office canteens will lose the perk from April 2011.
  • Benefits: Company car drivers whose private fuel is paid by their employer will see the figure used as the basis for calculating the benefit in kind which is chargeable to tax and Class 1A NICs increased from £16900 to £18000 from April 2010. Furthermore, from April 2012, all CO2 emissions thresholds are to be moved down by 5g/km. This will mean that the 10 per cent band will apply to company cars with CO2 emissions up to 99g/km, pushing the vast majority of vehicles into a higher tax bracket. There will be no benefit in kind on electric cars from 2010.
  • Middle earners: Freeze of threshold at which 40% income tax is paid, resulting in 70,000 more people to become higher rate taxpayers.
  • High earners: Those with “gross income” more than £180,000 (including employer’s pension contributions) to lose higher-rate pension tax relief from April 2011. For those with “gross income” £150,000 and over, tax relief on pension contributions will be restricted.
  • Bankers: Introduction of a one-off windfall 50% rate for a bank payroll tax on bonuses exceeding £25,000.
  • Pensioners: Basic state pension to rise by 2.5% in April 2010 from £95.25 to £97.65 for a single pensioner (from £152.30 to £156.16 for couples).
  • Welfare: Child and disability benefits to increase by 1.5%.
  • Tough new anti-avoidance proposals will be rolled out demanding harsher penalties for failing to disclose aggressive tax schemes to the authorities.
  • Inheritance tax: The Inheritance tax threshold for individuals (nil-rate band) has been frozen at £325,000 for 2010/11 rather than raising it to £350,000 as it had been previously announced. The IHT threshold for married couples is also staying the same at £650,000.