Entries from August 2006 ↓

The construction industry is gearing up for its own version of IR35 when the new Construction Industry Scheme (CIS) comes into force next year.
From next April, a series of checks, registrations and verifications will need to be carried out to determine whether subcontractors are employed or self-employed for tax purposes.
HM Revenue & Customs (HMRC) has issued ten key facts to advise contractors and sub-contractors of their responsibilities.

Ten key facts
1. Cards and certificates will be replaced by a simple verification process.
2. There will be no more annual returns.
3. Vouchers will be replaced by monthly returns.
4. Contractors will need to verify with HMRC that the subcontractor is registered for CIS and how they should be paid. Most existing subcontractors will not need to be verified as nearly all subcontractors, who are already registered with HM Revenue and Customs, will move over to the new scheme.
5. Verification can be done over the telephone.
6. During verification, HMRC will tell the contractor whether to pay a subcontractor gross, net of the standard deduction or net of the higher rate of deduction.
7. Where a subcontractor is not known to HM Revenue & Customs, deductions will be made at a higher rate.
8. Subcontractors starting work in the construction industry on a self-employed basis after 5 April 2007 (or whose temporary registration cards have expired and were not renewed by 5th April) will need to register for the new CIS.
9. If HM Revenue & Customs has no previous record of the subcontractor, the subcontractor may be asked to come in to a local office with two forms of identification to register for the new CIS. This is a one-off process.
10. In the first year, contractors won’t need to verify any subcontractors that they have paid since 6 April 2005, as long as the contractor has seen the subcontractor’s registration card or tax certificate that was valid until at least April 2007.

Taxpayers who do not pay their taxes and national insurance contributions on time will be hit with higher interest charges from 6 September 2006. The main interest rate changes are as follows:

Personal taxes
Late payment of income tax, national insurance contributions, capital gains tax, stamp duties – rate increases from 6.5% to 7.5%.

The rate of interest on overpaid income tax, national insurance contributions, capital gains tax, stamp duty, stamp duty land tax and stamp duty reserve tax (repayment supplement) changes from 2.25% to 3%.

The rate of interest for late payment or repayments of inheritance tax rises from 3% to 4%.

Company taxes
The rate of interest on unpaid corporation tax increases from 6.5% to 7.5%.

The rate of interest on overpaid corporation tax changes from 3% to 4%.

Company identity fraud is on the increase. Fraudsters have targeted small businesses to try to get hold of secure authentication codes for Companies House files, which could then be used to set up fake companies and to steal money, goods and services.

We have heard report of bogus calls from people pretending to be Companies House officials. Companies House, has posted a notice on its website confirming that they will never contact small businesses by telephone to ask for authentication codes.

UK students who have holiday jobs can pay no tax on their earnings by completing a P38(S) form.

Conditions
In addition, the students must meet the following conditions:
- be planning to continue being a student until after 5 April in the tax year
- not have a total income from all sources (apart from student loans, scholarships and educational grants) of more than the personal allowance (£5,035 in the tax year 2006/2007).

Not all employers will be aware of this procedure so students should always take the initiative and ask their employer for the form - it saves the hassle of reclaiming tax at the end of the year.

Unfortunately, there is no exemption for National Insurance Contributions on holiday jobs and no exemption at all for regular Saturday jobs.

If you are about to set up in business as a contractor or freelance consultant there are several options open to you.

Follow this link for a summary of the pros and cons of limited companies, umbrella companies and composite companies.

The Rolling Stones, the world’s oldest rock band, has paid just £3.8m in taxes in two decades of music making and touring.

According to The Independent, Mick Jagger and company, earned £240m over the last 20 years, but paid just 1.6% of this back in taxes because the band operates through a Netherlands based company.

The band’s tax rate is so low because there is no direct tax on royalties in the Netherlands, unlike in other countries.

A group of tax experts has called on Revenue and Customs to stop trials of new “interventions” for unrepresented taxpayers.

The Low Incomes Tax Reform Group (LITRG) of the Chartered Institute of Taxation claimed that taxpayers involved in the trials who do not have tax advisers were being put in a “very difficult” position because their rights and safeguards were uncertain.

The group called on HMRC to explain what happens if they find something wrong and make an adjustment to someone’s tax return: “Will that be the end of all of HMRC involvement in relation to that matter or will another bit of HMRC approach the same individual in a few months’ time and go over the same ground because they are from another part of the HMRC empire?”

John Andrews, Chairman of the LITRG said: “If someone has a qualified and competent tax adviser acting for them, an intervention will be an inconvenience, though dangerous if the client does not consult the adviser.

“For the unrepresented, there is much more fear, and a lack of understanding as to what HMRC may mean. There is no way of answering back or challenging; no idea of what the intervention may mean for pension credit, tax credits, housing benefit etc. An unequal struggle.”