Working Together issue 16

Contents

Review of Self Assessment

Three new measures to improve Self Assessment (SA) for taxpayers and agents are being taken forward as a result of the Inland Revenue's review of the system. The review consulted on how to make SA simpler for customers, to improve the quality of our outputs and to improve the efficiency of SA processing. The recommendations which are being taken forward in the short term include a short four page Tax Return, new criteria for completing SA Returns which will take thousands of people out of the system and the use of telephone contact to resolve minor queries on SA Returns.

Short Tax Return

The new four page Short Tax Return (STR) for people with simple tax affairs has already been piloted with 50,000 taxpayers in 4 Area Offices. Interim results of independent research with taxpayers and agents involved in the pilot have shown widespread and positive support for the STR and the accompanying simplified guide.

April 2004 we plan to introduce the form to more taxpayers over a wider area. Tax agents are therefore more likely to find some of their clients receive the STR. Our aim is to roll the STR out nationwide in April 2005.

As well as being shorter than the main Return, the STR is also simpler. For example, there is no facility to include a self-calculation. Taxpayers are encouraged file by 30 September so we can calculate their tax position for them and let them know how much to pay in good time for January. Where an STR is filed after September or people want to make a rough calculation for their own purposes, a simple guide will be included in the 2004 version.

The STR has been designed so that the information provided on it can be captured automatically on to the Revenue's systems, using automated data capture (ADC) technology. This will ensure the processing of these Returns is more efficient and accurate. The use of ADC places great importance on the use of the printed form we issue, to ensure the precise accuracy of print format and colouration. We therefore do not have plans to produce a substitute of the form for 2004. We appreciate that tax agents who use software may not wish to complete a STR manually and they can, of course, use their normal software to complete a main Return or file online.

People qualifying for an STR will be those with simple affairs, for example some employees (other than company directors) with P11D benefits, self-employed with a turnover less than £15,000 (three line account cases), pensioners in receipt of state retirement pension, an occupational pension or a retirement annuity. In addition, they may have straightforward investment income, or a modest amount of income from property.

To be able to use the STR, a person's affairs have to fit a tightly drawn set of criteria. People will therefore be selected automatically on the basis of the information from their previous year's Return. However, Returns filed close to the January filing date are less likely to be processed in time for an STR to be selected for the following year. In those cases people will receive a main Tax Return. Filing earlier in the year will ensure that the STR is sent to an eligible person the following year. People sent the STR whose circumstances have changed and who are no longer eligible will need to request a main Return instead. The STR guide explains who can use the form.

The STR will not be available from the Revenue website, Orderline, or local offices (except where the original is lost or destroyed).

Although the Revenue will issue STRs based on information from the preceding year's Return, it remains the taxpayer's responsibility to check their eligibility to complete the form. Their circumstances may have changed during the year, which might mean an STR is no longer appropriate. Details of eligibility are set out clearly at the front of the guide. During this year's pilot we have also been testing 'telefiling', which allows people to file STR information over the telephone using a voice recognition system. Callers needing further advice during the process are connected to the Revenue helpline. Although the take-up is still fairly limited, those using the service have found it to be helpful. We therefore plan to continue the small pilot next year.

New Criteria for Those Who Need to Complete a Self Assessment Tax Return

Many people will no longer need to complete an SA Return under new criteria to be published in April. With the help of Working Together partners and others we have concluded that there are certain groups of people, who currently receive Returns, whose affairs can be adequately dealt with using the PAYE system. We have consulted widely on these proposals and the new rules will be introduced in April 2004. The new criteria will also be published on our website around the same time. Generally the types of people who will no longer need to complete an SA Return are those very straightforward affairs.

The changes mean:

  • higher rate employees with simple affairs will no longer be sent an SA Return;
  • the limit for claims to professional fees/expenses dealt with outside an SA Return will rise to £2,500 (from current limit of £500);
  • the investment income limit will rise to £10,000 (from current limit of £8,500);
  • some relaxation to the rules for pensioners (where further liability can be recovered through the PAYE coding).

After 6 April 2004 when a 2003-04 or later Return is filed and captured onto our systems it will be automatically checked against the new rules. Where appropriate, the process will automatically:

  • Stop the issue of any further Returns if the person longer meets the new SA criteria.
  • Send a letter to the taxpayer and agent (where authority held) explaining the change in procedure and setting the taxpayer's responsibilities.
  • Notify the PAYE coding record of any changes required for the following year.
  • Identify those cases where taxpayers need to return certain information (i.e. investment income) affecting coding, on a coding review form (the 'P810') which sent the following April.

The system will identify likely candidates, such as pensioners and individuals on low incomes, for a manual review. Because these cases are likely to be more involved, they will be checked by staff to see whether they meet new criteria. If so, the record will be noted that a Return need not be issued and a letter issued to the taxpayer and agent).

Some taxpayers may prefer, for varying reasons, to continue to receive an SA Return. As long as we are notified we override the signals on the system and the taxpayer will continue to receive Returns.

Keeping the taxpayer better informed of his or her tax situation is a key part of this initiative. The letters sent people no longer receiving a Return set out the circumstances in which they may need to request a Return in the future. And, from next year, where employees become liable to higher rate tax, but do not meet the new criteria, we will send them a letter informing them what they are required to do if they have any additional liability. Furthermore, all taxpayers that are newly set up in SA will receive a letter explaining why they will be receiving a Return and how to get help.

Minor Queries

Increased use of the telephone will help resolve problems which arise where staff have difficulty in understanding the customer's entries on their Return. Up until now, we have adhered closely to the amendment of a Return either on the basis of an 'obvious error' or following an enquiry. But we have become increasingly aware of many situations where a simple conversation with the customer can resolve minor issues.

These issues include incorrect completion of the gross, net and tax boxes in respect of investment income, confusion over claims to married couple's allowance or the amount of the state pension, or a clear misunderstanding of the employment benefit figure provided by the employer. The new way of handling 'minor queries' by telephone contact with the taxpayer or their agent has been successfully piloted for over a year. Staff, customers and agents have all welcomed the exercise, which helps to improve the accuracy of our processing and saves unnecessary correspondence. Following the success of the pilots we plan to roll this out nationally in April 2004, for the capture of the 2003-04 and subsequent Tax Returns. The SA Review has made a number of other recommendations, which are currently under consideration.

More information will be provided as we gain a better understanding of how and when they can be taken forward. The Review team is grateful to everyone who has been involved in giving their views on SA, whether in agent workshops or in interviews with independent researchers. Working Together colleagues, in particular, have contributed greatly to this work. Consultation has been facilitated through the SA Review Consultative Group, whose members represent a wide range of representative bodies.

PAYE Notice of Coding Pilot

A pilot of a new design P2 (PAYE notice of coding) is being run in the South West of England. The pilot P2 will be a more personalised notice to the customer incorporating only the details of their tax code and clear explanatory notes that are tailored to the circumstances of the individual.

This notice will not require the supporting P3 leaflet, although the notice will tell customers that they can obtain a new leaflet 'Paying the Right Tax on Your Pay or Pension' which will be available on request.

We started to issue the first new design P2s from 26 January to customers whose employer or pension payer is dealt with in the South West of England. The notices will have P2 (New) at the bottom left of the page. Tax advisers will receive copies of the notices just as they do now.

We issue P2 notices to enable employees and pensioners to check that their allowances and deductions included in their code number are up to date. Research has shown that many customers do not understand the contents of the P2 and that the P3 leaflet is also not properly understood.

Although some customers already contact us about the P2, many of these are seeking clarification and others don't realise that they need to contact us to tell us about changes that may affect their code.

We hope that the new design P2 will encourage people with a change in circumstances to contact us and give us the opportunity of updating their records. We shall be evaluating the pilot later in the year and welcome feedback and comments on the new style of notice.

Self Assessment 2003-04 Tax Returns

From 6 April 2004, the 2003-04 Tax Returns will be available to view on the Revenue's website. You can however view the changes in advance by visiting: www.inlandrevenue.gov.uk/sa_drafts/index.htm

These draft versions are provided for software and substitute form developers to create their products.

This year, here are some of the changes:

  • There is a change to Question 19. There is now a Question 19A, which should be completed if a charity is nominated to receive all or part of a repayment. In all other repayment claims, question 19B should be completed.
  • Question 18 now incorporates a box 18.2B for total Class 4 NIC due. This figure was previously on the Selfemployment Pages.
  • There have also been changes to the Class 4 NIC boxes on the Self-employment Pages, Partnership Pages and Lloyds Underwriters Pages, and also the IR220, to take into account changes in respect of deferment of Class 4 NIC.
  • There is a new Helpsheet IR236, 'Foster Carers and Adult Placement Carers'.
  • The Tax Calculation Guides have some changes. The main items are the removal of Children's Tax Credit and the addition of a Working Sheet for Class 4 NIC. Self Assessment Tax Return Guides Copies of the:
  • SA1000 Self Assessment Tax Return Guide for Individuals
  • SA1001 Self Assessment Partnership Tax Return Guide
  • SA1002 Self Assessment Trust and Estate Tax Return Guide incorporating related forms, notes and Helpsheets are produced and issued on an annual basis as a service to tax advisers and Revenue staff.

For 2003-04 we will be using the agent details held on the Self Assessment system for bulk mailing purposes. We will send at least one copy of these Guides to any agent with more than five clients on the Self Assessment database. If you previously ordered extra copies then we will do our best to send you the correct number. If you have requested 'top up' Guides these should be with you within ten days of your initial delivery.

If you need extra copies after your supplies have been delivered, you can order them by:

  • e-mailing saorderline.ir@gtnet.gov.uk
  • faxing your order to the SA Orderline on 0845 9000 604
  • telephoning the SA Orderline on 0845 9000 404
  • completing the tear-off re-order card that will come with your supply of the Guides and sending it to: SA Orderline PO Box 37 St Austell PL25 5YN

Any additional orders must clearly state how many copies of each of the three Guides (Individual, Partnership or Trust) are required and where they are to be sent. Also, as last year, you will be asked to supply your Agent Code (located the Client's Account Information sent out in December and June).

Please allow sufficient time for your order (initial plus top up) be received before contacting the Orderline. Please note that the SA Orderline will not be able to process any orders for Return Guides until after 6th April 2004.

The Tax Offices do not hold any copies of the SA Guides issue to tax advisers. However, if you find that the name and address details shown on the distribution are incorrect, or there is a duplication, please contact your Tax Office and ask them to correct the details held on the Self Assessment computer system.

We do not intend to do another print run so order sufficient guides to meet your needs. After 6th April 2004, you'll be able to view the forms, notes and help sheets and download them from the Revenue website at www.inlandrevenue.gov.uk/sa

As a result of the feedback we received following the article issue 13, from 6 April 2004 we will not include leaflets SA354 ('Understanding Your Tax Calculation') and SA357 How to Pay') with the agent's copy of the SA302 Tax Calculation.

Filing Corporation Tax Returns

There has been a marked rise this year in incorporations and the most recent Revenue figures suggest that new companies are being formed at a rate of around 35,000 each month. Many of these new companies are not represented.

Historically, unrepresented companies tend to seek assistance as the new directors sit down to do their first CT return. Clearly, with the large rise in new incorporations, there may be issues of scale, not just for the Revenue, but for the profession too.

We know too that many previously self-employed clients are incorporating and that they are retaining their existing advisers. We know that some advisors are more used to the world of ITSA. There are a number of differences between ITSA and CTSA. Not least of these is the late filing penalty. is crucially important that CTSA returns are filed on or before the due date if a late filing penalty is to be avoided. CTSA has two elements to the late filing penalty, a taxgeared amount (that can be reduced if the liability is less than the Revenue's determination), and the Fixed Penalty, which is now issued automatically by the Revenue's computer system. The important point to note here is that this penalty (which can be as much as £1,000) is not reduced if the liability reduces, and remains due even if there is no CT liability in the year.

Remember too that clients need to pay CT before the filing date and if they pay too little, they will be charged interest on the balance.

There is a lot more about CTSA this website

Help and Contacts include: Corporation Tax Online Services

There you can phone for advice. The Inland Revenue has an Online Services Helpdesk.

Phone: 0845 60 55 999
Minicom: 01274 534600
Fax: 01274 534618
e-mail: helpdesk@ir-efile.gov.uk

Corporation Tax e-services

There are two services available:

  • View Payments and Liabilities.
  • File Returns.

View Payments & Liabilities

This service gives immediate access to payment and liability details, including information on how payments have been allocated between accounting periods. In addition, following feedback from users of the service, interest calculations are now provided.

File Returns

CT e-filing was introduced on a trial basis in March 2003 and since July 2003 has been regarded as a live service. From the outset the service proved to be basically reliable, but we have kept the service low-key, whilst we adopted some of the suggestions made by early users. We have now started to promote the service widely, and you may have seen recent advertisements in the national and trade press.

A range of CT e-filing software products is available from the Inland Revenue and commercial software suppliers. Details can be found at www.inlandrevenue.gov.uk/efiling/ctsoft_dev.htm. The Inland Revenue software is intended, primarily, for cases that would in the paper world, be suitable for the 'Short Calculation'. But it also supports the equivalent of supplementary pages (excluding CT600H and CT600I) and accounts and computations as attachments (as pdfs).

We are aware that clients may be concerned that e-filing a Return increases the likelihood of the Revenue making enquiries. This is not the case. Whatever the medium of communication used, the Revenue is applying exactly the same rules when selecting cases for enquiry. However as completeness and arithmetical checking is included when efiling a return this does reduce the need for the Revenue to have to ask for missing items or correct basic errors.

Form P11D(b)

Local Working Together meetings have been passing on comments regarding the confusion over whether form P11D(b) needed to be submitted if the boxes on form P35 for 'No P11D and no P9D due' had been ticked. To overcome this, form P11D(b) for 2003-04 has been amended to include a note that advises it does not need to be completed where form P35 has been completed to show that forms P11D are not due.

National Insurance Contributions – Did You Know…?

Working Together partners have told us that many tax advisers want to know more about National Insurance issues. So here's a small selection of the type of issues that are being raised. You'll find more on the Revenue website. If you would like to know more about any aspects of National Insurance, please let the Working Together Team have your feedback.

What is Deferment?

Deferment means someone is 'putting off' paying some of their National Insurance contributions in one or more employments or as a self-employed person. Their actual liability is calculated approximately 18 months after the tax year has ended.

Who can apply for Deferment?

If a taxpayer is both employed and self-employed or they work for more than one employer and the earnings on which they pay Class 1 National Insurance Contributions (NICs) are above the Upper Earnings Limit, they may overpay NICs. To prevent them from paying too much, they may be able to defer payment of some of their NICs, provided they meet the deferment criteria. If they are granted deferment a check is always made to ensure that they have paid the correct amount of NICs.

What are the Deferment deadlines?

Applications to defer Class 1 contributions should be made before 14 February in the relevant tax year. To defer Class 2/4 contributions for 2004-05, you should apply before 6 April 2004.

What is the difference between Small Earnings Exception and Deferment?

Deferment of Class 2 and/or Class 4 contributions is appropriate for those people who are employed and selfemployed and are liable to pay Class 1, 2 and 4 contributions on an amount of earnings and profits that exceeds 53 times the Upper Earnings Limit. Deferment is only appropriate when the self-employed earnings are above the lower profits and the Small Earnings Exception limits. Small Earnings Exception can be claimed by anyone who is solely self-employed, or who is employed and selfemployed, and has self-employed profits below the Small Earnings Exception limit.

If Small Earnings Exception is granted, there is no requirement to pay Class 2 NICs. Deferment does not give an exception from liability however, it simply postpones that liability until a full calculation of NIC liability, taking all factors into account, can be made.

How are Annual Maximums calculated?

The maximum amount of National Insurance Contributions that someone has to pay in any one tax year will depend upon the level of their earnings and the number of employments they have. For most employees the maximum will be 53 Class 1 contributions on earnings at the Upper Earnings Limit plus an additional 1% on all earnings above 53 times the Upper Earnings Limit. The maximum for people who are self-employed will be 8% of profits up to the upper profits limit plus 1% on any profits above the upper profits limit. The maximum for self-employed people also includes 53 Class 2 contributions.

The maximum for a person who is both employed and selfemployed will depend upon the amount of earnings they receive as an employee and the amount of their profits but the maximum will never exceed the employee maximum.

Who is entitled to a refund?

If someone did not apply for deferment in time (by 14 February for Class 1 deferment and before 6 April 2004 to defer Class 2/4 contributions for 2004-05) and they have paid more than their annual maximum for contributions, they may be able to get a refund.

If they have paid:

  • Class 1 contributions with more than one employer, they may be able to get a refund of Class 1 contributions.
  • Class 1 and Class 2 contributions, they may be able to get a refund of Class 1 and/or Class 2 contributions.
  • Class 1, Class 2 and Class 4 contributions, they may be able to get a refund of Class 4 contributions. If they have paid too much in Class 1 and Class 2 contributions, they may also be able to get a refund of Class 1 and/or Class 2 contributions before receiving any refund of Class 4 contributions.

If you wish to apply for a refund of Class 1 or Class 2 contributions, you need to contact Refunds Group. Their address is Inland Revenue, National Insurance Contributions Office, Refunds Group, Benton Park View, Newcastle upon Tyne, NE98 1ZZ.

If you wish to apply for a refund of Class 4 contributions, you need to get claim form CA5610 from Deferment Services at the same address or telephone:

084591 followed by:

55651 / 55006 / 55425 if the last two numbers of the NINO are 00 to 33

59703 / 55653 / 57227 if the last two numbers of the NINO are 34 to 66 or

59383 / 59463 / 55654 if the last two numbers of the NINO are 67 to 99

Employers - Online Filing and Electronic Payment

In issue 12 we told you about changes to the way in which employers have to file their P14 and P35 End of Year Returns.

By May 2005, large employers (with 250 or more employees) must have started filing this information online. Medium-sized employers (50 to 249 employees) must start filing online by 2006. Employers with fewer than 50 employees do not have to start filing online until later, but they can get up to £825 tax-free for taking it up early.

In November 2003 we wrote to every employer telling them when they had to start filing online and sent them a copy of Do it online – your guide to filing PAYE returns and paying electronically'.

Online Filing - Sending the Whole Return

Online filing does not alter the current rules (Regulation 43 SI1993/No. 744) about what details and employer must send in and when.

A return (a P35 and at least one P14) is due when a P11 is maintained for at least one employee. A complete online return must consist of the P35 and P14s.

The new online filing rules only apply to the P35 and P14s, although employers can send and receive other forms and returns online, including the P11D, P11D(b) and the P38A.

Nil Returns

Employers do not have to return P35 just because we sent them one, where there are no P14s. They can let us know by phone or letter, or by sending in the blank P35 with a note saying that no return is necessary. There is no on-line facility for doing this.

Sometimes an employer must file a nil return, for example, when all of the employer's employees are paid at or above the National Insurance Lower Earnings Limit but below the Earnings Threshold. P14s should be completed, even though no National Insurance contributions are deducted.

Making Sure Returns Meet the Quality Standard

All returns filed online from 2004-05 must meet our Quality Standard. If they do not, they will be rejected. The Standard sets out the minimum standard of accuracy for returns filed online. See 'Inland Revenue Notes for Payroll Software Developers', Series 10, Number 14 (July 2003) for more information. www.inlandrevenue.gov.uk/comp/index.htm

Sending a Return in Parts

Not all employers will want to file the P35 and P14s as a single return. For instance, an agent may deal with the P14s and the employer the P35. Or the agent may deal with a particular group of employees.

From April 2005 (the 2004-05 return), employers will be able to send their online returns to us in parts from more than one source. We will hold on to each part until we have the whole return (checking that it meets our Quality Standard).

A return filed in parts can be made up of information sent to us online, on paper or magnetic media. Employers need to establish what information is being sent to us, and by whom and make sure each part carries the right details. All parts of the return must be filed online to avoid online filing penalties see below) or to qualify for the tax-free payments. See Inland Revenue Notes for Software Developers', Series 10, Number 15 (September 2003) for more information. www.inlandrevenue.gov.uk/comp/index.htm

Amended' Returns

There has been no change in the Regulations that say that employers must make one complete return of everything that is required by law by the filing date. If they do not, they will face penalties under S98A(2) Taxes Management Act TMA) 1970. And an incorrect return may mean a penalty under S98A(4) TMA 1970.

If an employer needs to send us any corrections to a return, the new P14s must only include details of the corrected items and the amount of the change. They must not be a replacement of the whole P14. For example, an increase in the pay figure of £500 should be shown as +500. From April 2005, employers will be able to send us the corrected details online.

Magnetic Media

Returns, or parts of a return, made by magnetic media including floppy disc, CD-ROM and any other media written to the requirements of CA51/52 Technical Guide 'Submitting Year End Returns on Magnetic Media') are not online returns. Employers can use magnetic media to send information where the return is made in parts and it will be subject to all the validation requirements set out in CA51/52.

But using magnetic media for any part of a return may mean the employer will face a penalty because magnetic media is not online. You can find CA51/52 at www.inlandrevenue.gov.uk/ebu/ebu_paye_ts.htm Penalties

Under Regulation 46ZG S.I. 2003 No. 2494, employers should file their whole return online or face a penalty of up to £3,000 for sending a return or part of a return on paper or magnetic media. Employers will find that they still face a penalty even if they try to put things right by filing the return online again, because the first part of the return was not made in the right way.

The penalty for not filing a return online applies regardless of when the return is made. What matters is that the whole return - whenever it is filed - must be sent online and of the required quality. Existing penalty provisions, in S98A(2)(a) and (b) TMA 1970, still apply where a complete return – transmitted by whatever medium - is not made by 19 May.

Accounting for the Tax-Free Payments

Small employers with fewer than 50 employees can get up to £825 tax-free if they start filing online early.

The tax-free payments will need to be shown in the accounts, for example as 'other operating income'. As these payments are not taxable, the tax computation should be adjusted accordingly.

Electronic Payment

From 2004-05 large employers must pay their monthly in year PAYE, NICs, deductions from payments to subcontractors and student loans repayments electronically in full and on time. If the employer does not do so, they will incur a surcharge.

Last November we wrote to those employers that our records showed had 250 or more employees to tell them that they were affected. We will be writing to these employers again in the near future to give them more information about the new legislation.

For electronic payments, the payment date is extended from the 19th to the 22nd of the month. To take advantage of this new date, employers must arrange to make payment in sufficient time to be sure that we receive cleared funds by that date (payment reaches our bank account by 22nd).

Cleared payments must be received by the previous Friday where the 22nd falls at a weekend or bank holiday.

Electronic payment methods acceptable to the Inland Revenue are:

  • bank or building society Internet service
  • BillPay (payment by debit card over the Internet)
  • telephone banking
  • BACS direct credit
  • CHAPS
  • Paymaster.

Employers who receive a payslip booklet can also pay by:

  • Bank Giro, and
  • Alliance & Leicester Commercial Bank (previously known as Girobank).

Any employer can take advantage of the new later payment date if they pay electronically.

The Benefits of Paying Electronically

There are a number of benefits. Paying electronically is:

  • more secure
  • guaranteed to reach the payee
  • a better way to control cashflow
  • a chance to lower handling costs and bank charges.

Default

A default notice will be issued to large employers each time that the value of a monthly payment (or any part of it) is received after the payment date.

An employer can appeal against the default notice. The appeal must be made in writing within 30 days of the date on the notice, and include the:

  • PAYE reference
  • PAYE scheme name
  • reason for the appeal
  • appellant's position in the business
  • appellant's signature (the name must be printed in capitals below the signature), and
  • date.

Surcharges

If the Revenue does not receive cleared funds for the full monthly payment by the new payment date, we will impose a surcharge at the end of each tax deduction year.

The amount of the surcharge is based on a percentage of the total amount of tax/NICs payable for the year as shown on the employer's end of year return, form P35 and including deductions from subcontractors and student loans.

Each default within a surcharge period attracts a percentage rate that increases as the number of defaults rises. The actual percentage used for the annual surcharge calculation is therefore the total of the percentages that apply to each of the defaults within the year.

The surcharge period starts at the point in the deduction year in which the default first occurs and does not end until there has been a complete tax year with no defaults. In practice once default has occurred it could take an employer as long as 23 months to be completely clear of a surcharge.

For example if the employer defaults in May 2004 (deduction year 2004-05) they will need to ensure they do not default again in the remainder of deduction year 2004-05 and do not default at all in deduction year 2005-06.

Each default is counted within each surcharge period. The first two defaults in a surcharge period are charged at zero per cent. Further defaults are counted and are charged at increasing percentage rates as shown in the following table.

Default number
(within the surcharge period)

Specified Percentage
%
1 0
2 0
3 0.17
4 0.17
5 0.17
6 0.33
7 0.33
8 0.33
9 0.58
10 0.58
11 0.58
12 and more defaults 0.83

For more about due dates for payment and paying electronically:

  • go to www.inlandrevenue.gov.uk/howtopay/paye.htm
  • see 'Do It Online: Your Guide to Filing PAYE Returns and Paying Electronically'
  • call Accounting & Payments Service Cumbernauld (01236 783717), or
  • Shipley (01274 539328).

Lines are open 8am to 5pm.

New Tax Credits – Renewals and Compliance

Existing claimants do not need to initiate contact with us to finalise their award for 2003-04 or renew their award for 2004-05. We will be writing to them to explain what they need to do. But please note that we are unable to copy this correspondence to tax advisers. During the renewal period, tax credit payments will continue to be paid to claimants on a provisional basis.

Starting in April 2004 we will write in detail to claimants (over a period of several weeks) telling them how they should finalise their award for 2003-04 and make their claim for 2004-05, if appropriate. We think about 70% of claimants will have to provide income details and confirm their circumstances over the period of their 2003-04 award. The remaining 30% - families receiving only the family element of child tax credit - will not need to contact us at all unless they have changes to report in their circumstances or income for the last tax year.

Claimants who need to provide information have until 30 September 2004 in which to do so. Once the information has been provided we will finalise the 2003-04 award and, if appropriate set up an award for 2004-05. In the meantime, their awards will run on. If they do not have details of their actual income for 2003-04 (as may well be the case for the self-employed), they can provide an estimate by 30 September 2004 and finalise the figure by 31 January 2005.

We will have a comprehensive publicity campaign to draw these messages to claimants' attention.

Our strategy is to prevent non-compliance in tax credits, and detect and correct it where it occurs, through a combination of:

  • verification checks which we carry out on all tax credit claims - these involve cross-checks of information shown on claims with other government databases and with childcare providers, and enquiries with claimants where necessary to resolve any apparent discrepancies;
  • investigations into tax credit claims and awards selected through risk assessment - compliance officers in Tax Credit Office and Area Claimant Compliance Teams (or Special Compliance Office where serious fraud is suspected) carry out this work.

This is the first year of the new tax credits, and we have largely focused our efforts so far on helping claimants to get it right. After the end of the year when income figures for the year are known we have the opportunity if necessary to enquire into finalised awards. And where an enquiry into a Self Assessment Tax Return uncovers an understatement of income which affects a tax credit award, we shall seek to ensure that changes are reflected in the award.

Class 2 NIC - Notification of Self-Employment

From 31 January 2001, anyone who becomes liable to pay Class 2 National Insurance Contributions (NIC) must register within 3 months from the end of the month in which their liability commenced in order to avoid a penalty of £100.

Some of you have told us that you feel that this period is too short. Some of you have said that this is causing difficulty and would prefer a period of 12 months. Furthermore that the 3 month deadline may deter people from registering at all and is particularly problematical for those in the construction industry who may be self-employed for some weeks, then employed, then self-employed again, etc. Do they need to register each time they become self-employed again?

In his report 'The Informal Economy', Lord Grabiner said that the period then allowed for notifying chargeability to tax (6 months from the end of the relevant tax year) was too long for new businesses to notify the Revenue of their existence. Lord Grabiner made a specific recommendation that someone starting in a business of any kind should be required to notify the Revenue immediately or within a very short period of having started in that business. The Government accepted this recommendation. As for those who move in and out of self-employment within the same year, once they have registered for self-employment and the Construction Industry Scheme, a Self Assessment record will be opened and they can apply for a Registration Card.

There will be no need for them to re-register on a future occasion unless they have previously told the Revenue that they have ceased self employment on a permanent basis and finalised their SA affairs and now wish to re-start.

You can find out more about the Class 2 NIC late notification penalty in Tax Bulletin 53A (August 2001), which is available on the Revenue website at www.inlandrevenue.gov.uk/bulletins/index

Agent Authorisations

There have been some complaints from tax advisers about Area Offices and Contact Centres refusing to discuss their clients' tax affairs even though a form 64-8 (agent authorisation) had been sent to the Revenue some time ago. Dealing with agents is an important part of the way the Revenue does business and we want to make sure that our processes run smoothly.

We understand that not accepting replacement 64-8s by fax from bona fide agents who already act for the taxpayer has caused real frustration. We said we would accept a replacement 64-8 by fax in certain circumstances (see issue 13, page 2). We also improved our processes to ensure that all offices are aware of the action they need to take on receipt of form 64-8.

You do not have to send in separate forms 64-8 to different parts of the Revenue (Tax Office, NICO, Tax Credits Office, etc). The receiving office will pass on the details to any other relevant office. We know that this has sometimes not worked as well as we would like and we have reinforced our instructions to staff.

Despite this, feedback from local Working Together meetings and the representative bodies suggests that there are still widespread problems in processing agent authorisations quickly on our systems so that we can deal with agents as soon as possible after they have been appointed. We have recently issued new instructions to prioritise the processing of agent authorisations. We are also investigating whether there are any gaps in the data on our systems for agents who have been acting for their clients for some time.

Draft Legislation – Reform of Construction Industry Scheme

The Inland Revenue has published draft primary and secondary legislation, along with explanatory notes, for the reform of the Construction Industry Tax Scheme. You can find these on the Revenue website at:

www.inlandrevenue.gov.uk/cis/cis-primary.pdf and www.inlandrevenue.gov.uk/cis/cis-secondary.pdf

Comments on this draft legislation should be sent, as early as possible but no later than 17 March 2004, to:

Chris Hasler Revenue Policy, Personal Tax Room 92 New Wing Somerset House Strand London WC2R 1LB Email: chris.hasler@ir.gsi.gov.uk

Your comments may be made public unless you indicate that you want them to remain confidential.

The final version of the primary legislation will appear in Finance Bill 2004. The final version of the regulations will be made after the Finance Bill receives Royal Assent in summer/autumn 2004.

Background

In Budget 2002 it was announced that Inland Revenue would draw up proposals for the reform of the Construction Industry Scheme. A Consultation Document was issued in November 2002 and the legislation has been drawn up in order to take account of the Ministerial objectives for the new scheme, the responses received to the Consultation Document and the ongoing discussion at the formal and informal Industry review panels.

Regulatory Impact Assessment

A partial regulatory impact assessment was published with the Consultation Document in November 2002. This is in the process of being updated and will available shortly.

editorial

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