All employers should be aware that changes have been introduced to the penalties that will automatically be levied after 6 April 2009 if you fail to observe your obligations regarding payment of National Minimum Wage rates.

From 6 April 2009, a new automatic penalty will be levied where HMRC compliance officers find arrears of the National Minimum Wage (NMW).

Penalties will range from £100 to £5,000 and those employers who settle within 14 days of notification will receive a 50 per cent discount of the penalty for prompt payment. The penalty must be paid in addition to any arrears owed to the workers. The most serious cases of non compliance may be tried in a Crown Court and subject to an unlimited fine.

To reflect this change, the current system of separate NMW enforcement and penalty notices will be replaced by a combined notice of underpayment and penalty. This will be issued whenever HMRC discover that arrears were outstanding at the start of their enquiries.

The notice will detail the amounts due to workers and any penalty due on those arrears. For PAYE reference periods starting on or after 6 April 2009 the penalty will be half the total underpayments shown on the notice. HMRC can pursue arrears claims for workers going back up to six years.

You will be able to appeal both the amount of the arrears and the penalty to an Employment Tribunal (an Industrial Tribunal in Northern Ireland) under new appeal rights. You can call the National Minimum Wage Help line in confidence on Tel 0845 6000 678.

The rates are as follows:

The rates set are based on the recommendations of the independent Low Pay Commission. The rates change on 1st October each year.

National Minimum Wage rates applicable from 1 October 2008

• Workers aged 22 and over – £5.73 per hour
• Workers aged 18-21 –         £4.77 per hour
• Workers aged 16-17 –         £3.53 per hour
• Accommodation offset –      £4.46 per day (£31.22 per week)

The basic rules for employers with new employees are important for any business.

There is no ‘Casual Labour’ exemption, if you take an employee on with intention of keeping them for just a couple of weeks on a temporary basis – the rules still apply.

If the correct PAYE and NIC is not deducted off employees, then the Employer will be held liable for any shortfall discovered.

If a new employee does not have a P45 from their previous job, then they must sign a P46 (or if they are students working only in the holidays, a P38S).

If they tick Boxes A or B – they will be on the emergency PAYE code (of 647L in 2009/10)

Employees on the basic code of 647L will pay no tax on earnings up to £125 a week, above that tax is deducted at 20%.

National Insurance Contributions are paid by the employee (11%) and employer (12.8%) on earnings above £110 per week.

If the week’s earnings are between £95.01 and £110.00 per week there are no contributions deducted but the employee is still credited with a basic National Insurance contribution. For this reason a form P11 (deduction sheet) must be maintained throughout the year for the employee.

If the employer does not pay an employee more than the NIC LEL (Lower Earnings Level) (of £95 a week in 2009/10), they do not have to prepare a P11 deductions sheet for them or include them on the year end P35. However, the employer must still have a record of wages paid to each employee in each week or month.

A dispensation removes the requirement to return to HMRC on P11d forms expense payments which are not taxable. If no dispensation exists the employee then has to submit a claim that the expenses reimbursed were incurred solely in relation to the business, and are therefore not taxable.
In short a dispensation can save work for the employer, the employees and HMRC.

For example the provision of business travel for an employee is often included in a dispensation. Items covered by a dispensation do not have to be returned on the annual P11D form.(Payments for the use of a company car or van are not included here as they are covered by separate rules.)

For some businesses this could take some of the pain out of this annual chore.

HMRC require that you need to have the following systems in place to qualify you for a dispensation, they are:

You must have an independent system in place for checking and authorising expenses claims. At a minimum, this means having someone other than the employee claiming the expenses check that:

* the amount claimed isn’t excessive
* the claim doesn’t include disallowable items

If it is not possible for you to operate an independent system for checking and authorising expenses claims, for example, because you are the sole director of your company and you have no other employees, you will only be able to obtain a dispensation if you:

* ensure all expenses claims are supported by receipts for the expenditure
* demonstrate that the claim relates to expenditure that can be covered by a dispensation, your receipts may be sufficient for this purpose, but if not you must retain additional information.

Once a dispensation is granted it will last indefinitely although HMRC may review from time to time to make sure the conditions under which the original grant was made still apply.

Generally speaking dispensations are granted from the application date. However HMRC may agree to apply the dispensation from the beginning of the tax year in which you apply. It’s not too late to apply for 2008-09, call if you would like assistance to do this.

Any salaried employee of a business can be paid a long service award. The way in which the award is given can radically influence the tax treatment!

All cash awards are taxable. They will be treated as part of your remuneration and subject to deduction of tax and National Insurance. Cash awards include:

* a payment including a cheque (This also rules out National Savings Certificates, premium bonds and so on.)
* a cash voucher
* a credit token
* shares other than those issued by the company employing the person who receives the award
* an interest or rights over securities or shares

Non cash awards are tax free if certain conditions are met. The conditions are:

1. The award must be made to mark a period of not less than 20 years service with the same employer.
2. It must not be a cash payment.
3. The taxable value of the award must not be more than £50 for each completed year of service.

For most employees the amount of the award is determined as the cost to the employer. For lower paid employees it is the second hand value of the award.

If the award exceeds the £50 for each year of service limit, only the excess is taxable.

If an employer makes multiple awards to the same individual, say after 20 years and then again after 30 years; each award qualifies as a separate award – this further concession does not apply unless there is a gap of at least 10 years between the awards.

If you have clocked up 20 years service you could receive goods to the value of £1,000 and pay no tax or National Insurance – that buys a lot of golf equipment!

You may have in the past overpaid VAT output tax or underclaimed VAT input tax, and this might date back many years. Now is the time to claim the overpayment back from H M Revenue & Customs.

– Claims can be back dated to April 1973, or the date of your VAT registration if later.
– But the deadline for submitting a claim is the end of this month, 31 March 2009.

It is possible to base a claim on a reasonable and valid estimate if the underlying records no longer exist. Claims can include a request for interest.

The following list includes items for a possible claim:

* Mileage costs paid to employees
* Staff expenses
* Subsistence
* Recovery of VAT on imports

If you are at all unsure about VAT that has been added to particular supplies you have made, or whether VAT should have been recovered on certain costs, please call.

Following changes to the law, H M Revenue & Customs now have much stronger powers to require that you provide evidence to back up entries on your tax returns. For business owners this means your accounting records and supporting documentation need to be of very good quality.

If HMRC can demonstrate that your records are less than effective you will face penalties.

The legislation requires you to:

“keep all such records as may be requisite for the purpose of enabling him (you) to make and deliver a correct and complete return for the year or period.”

In future you will need to keep a careful eye, not only on the results generated by your accounting software, but also on the completeness of the underlying records. It may well be the case that we offer you advice to improve the way you process and maintain records.

Records include supporting documentation such as, accounts, books, deeds, contracts, vouchers and receipts.

We are now delighted to offer all clients an easy to use online accounting system. We have held off from doing this for a long time, in an effort to ensure that the solution we offer is the best. That means easy to use, and useful information graphs, and reports at your fingertips.

If you would like us to review your accounting systems and record keeping prior to the tax year end please give us a call.

From 1 January 2009 HMRC have issued revised fuel rates for car users.

These rates apply when:

employees are reimbursed for business travel in their company cars; or
employers require that employees repay the fuel element of private motoring.
The rates can also be applied to calculate the deemed VAT input tax (included in the fuel element), in mileage rates paid to employees for the business use of their own cars.

The new rates per mile are:

1400cc or less: Petrol 10p, Diesel 11p, LPG 7p.

1401cc to 2000cc: Petrol 12p, Diesel 11p, LPG 9p.

Over 2000cc: Petrol 17p, Diesel 14p, LPG 12p.

Limited companies are required to file a copy of their accounts each year with Companies House. If you file even one day past the filing deadline you will be penalised. The late filing penalties which will be imposed from 1 February 2009 are increasing dramatically!

The new fines for private companies are:
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Not more than 1 month – £150 (presently £100)

More than 1 month but not more than 3 months – £375 (presently £100)

More than 3 months but not more than 6 months – £750 (presently £250)

More than 6 months – £1,500 (presently £500 between 6 to 12 months, £1,000 over one year)
The new fines for public companies are:
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Not more than 1 month – £750 (presently £500)

More than 1 month but not more than 3 months – £1,500 (presently £500)

More than 3 months but not more than 6 months – £3,000 (presently £1,000)

More than 6 months – £7,500 (presently £2,000 between 6 to 12 months, £5,000 over one year)
Additionally if you were late filing in the previous year (and the previous financial year had begun on or after 6 April 2008) the above fines are doubled.
The new fines also apply to flat management and dormant companies.

The message is clear. If you are responsible for the management of a limited company make sure you leave plenty of time to prepare and file accounts on time.
Filing deadlines
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Companies with accounting periods beginning on or after the 6 April 2008 should note the following changes to the filing deadlines with Companies House.

1. Private companies and LLPs – the delivery deadline has been reduced by one month from 10 to 9 months.

2. Public companies – the delivery deadline has been reduced by one month from 7 to 6 months.

Consequential changes include:

Full calendar months for filing periods have been introduced. Where the accounting period ends on a month end date the accounts filing period will end on a month end date. (Except for the first accounting period)
.

Qualifying companies can still file abbreviated accounts.

If you are the owner of a company it is a breach of Company Law, except in specific circumstances, for you to borrow money from your company. Ironically there are no fines payable if you break this particular aspect of company law! However there are a number of tax consequences, two of which are outlined below.

Benefit in kind

If a director’s loan is overdrawn by more than £5,000 (you owe the company money) you will be deemed to benefit from this arrangement and suffer a benefit in kind charge as a result. This charge can be avoided if you allow the company to charge you interest on the overdrawn position. The rate of interest charged needs to be at the official HMRC rate or higher. This will of course increase the amount you owe if simply charged to your loan account and will potentially increase the company’s taxable profits.
Corporation tax

If the overdrawn position continues for more than 9 months after the end of a relevant accounting period your company’s corporation tax bill will be increased by 25% of the loan amount. For instance if the company year end was 31 December 2007 and at that time the overdrawn director’s loan amounted to £20,000, and this amount was still outstanding at 1 October 2008, you would have to pay over an extra £5,000 in corporation tax at that later date. This Section 419 liability could be reclaimed if the loan was subsequently repaid – the tax paid would actually be repaid 9 months after the accounting year end, during which the loan repayment occurs. This rule applies whether you are a director or not, and even if the loan is made to the spouse of the shareholder for instance.