Scottish accountants could find themselves paying a different rate of income tax to their English counterparts in four years time after the Scotland Act was given Royal Assent.

The Scottish Parliament has been given the power to set its own rate of income tax and it is thought this will start happening in April 2016. The Scotland Act also allows for the creation of new taxes north of the border as well as the devolution of additional taxes.

HMRC will apply any changes to income tax through the PAYE system for employees and pensioners. Prior to April 2016, employers will receive tax codes from the Revenue, which will identify Scottish taxpayers. Employers will then need to deduct the appropriate rate of tax, which could be lower, higher or the same as the rate for other UK taxpayers.

The Revenue will issue further guidance, but the issue of residency is already causing concern. The new rates will only apply to taxpayers whose permanent abode is in Scotland.

Michael Moore, the secretary of state for Scotland, said that the granting of Royal Assent marked a historic day for the country and its voters.

The Scottish parliament has been given the power to make huge decisions that will impact the economy. The Scottish parliament will have the responsibility for raising about 33% of the country’s budget.

It’s taken a long time and a lot of hard work to get these new powers, but they are essential if the country is going to proceed with devolution, he added.

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HMRC is moving forward with its plans to implement Real Time Information and has received the first set of returns from its pilot scheme.

Ten volunteer employers were involved in the initial pilot and they will be joined by another 310 employers and pension providers between May and June.

Real Time Information is designed to make life easier for everybody to administer PAYE. Pension providers and employers will inform the Revenue each time they make PAYE payments instead of the current system of reporting at the end of the financial year.

Providing the pilot scheme is successful, as many as 1,300 volunteer employers will be using RTI by this September.

The Exchequer secretary to the Treasury, David Gauke, explained that RTI brings PAYE into the 21st century. Taxpayers will see the benefit as they will be taxed correctly when they change jobs and employers will no longer need to go through the onerous end-of-year PAYE processes.

HMRC is one of the initial volunteers and Stephen Banyard, the Revenue’s acting director general in charge of personal tax, said the pilot gave them the ideal opportunity to iron out any problems before more employers start using the system.

He explained that HMRC is working in close conjunction with employers and payroll providers, but by taking part in the pilot, the Revenue can see how RTI works from an employer’s point of view.

If all goes to plan, the majority of employers will need to start using RTI next April and it will mandatory by October 2013.

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Most contractor accountants probably agreed with the FPB when it criticised the Revenue for closing down its online services throughout the Easter holidays.

Just before the holiday, the Forum of Private Business said the shutdown showed HMRC did not understand the needs of businesses. The Revenue only announced it would close down the entire online network a few days before the 2011-12 financial year came to an end. Its IT systems were to be out of action throughout the holiday so that upgrade and maintenance work could be carried out.

Although the majority of services should have been back online by 6am on the 10th April, some would not be available until the 11th.

This shutdown affected anybody wanting to file PAYE, Self Assessment, Corporation Tax and CIS returns, as well as those submitting stamp taxes, pension schemes and Child Trust Funds.

The online VAT filing service remained online until midnight on the official deadline date and was then taken offline for a few days.

A Revenue spokesman said systems had to be taken down so the department could ready them for the new tax year and more scheduled maintenance might need to take place in October.

Phil Orford, the FPB’s chief executive, said the work took place at a totally inappropriate time and businesses will struggle to understand why HMRC is upgrading its systems at such a critical time in the tax calendar. The fact that the Revenue only gave businesses a few days notice of the shutdown showed it did not understand their needs.

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Contractor accountants may be aware that as from the 6th of April, HMRC will be allowed to request a financial security from businesses it thinks are in danger of defaulting on their NICs or PAYE payments. Companies that fail to comply with this requirement will be committing a criminal offence and could face a fine of up to £5,000.

Roy Maugham, one of UHY Hacker Young’s tax partners, said that these new rules are designed to stop companies deliberately defrauding the Revenue, but the current economic climate means that honest businesses that are struggling to survive could also get caught in the security net.

HMRC has strongly denied that genuine businesses will be affected, saying the new rules target those employers who make deductions from their employees but have no intention of passing on the income tax and NICs to the taxman.

However, as Maugham points out, businesses that are already struggling will have to borrow money to pay this security, especially at HMRC has clamped down on the Business Payment Support Service, which allowed businesses with financial difficulties more time in which to settle their tax liabilities.

The size of the security deposit will be based on the perceived risk of default, and with bank loans hard to come by, this could compound existing problems for some firms. Maugham went on to say that a lot of businesses that withhold NIC and tax are simply trying to keep afloat and these new rules could mean they have to make a choice between criminal prosecution or mass redundancies.

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HMRC raked in an additional £4.06 billion through its investigations into corporation tax last year.

The Large Business Service compliance unit has doubled the amount it raised in just five years. According to McGrigors this proves that the coalition is not giving into the needs of big business as some people have implied.

Jason Collins, a partner at the law firm, the Revenue is trying to get as much money as they can from investigations into big corporations. UK Uncut and other tax lobbying groups in the UK claim the government has gone soft on large businesses, but these figures prove this is not true.

The Treasury is trying to make Britain a more attractive place for companies to operate in by reducing the rate of corporation tax. However, big businesses might think twice about setting up here if they believe HMRC has a strategy to squeeze large corporations dry, he added.

Meanwhile, the LITRG has issued guidance so that taxpayers can check their new PAYE code is correct.

By early March, HMRC will have issued about 18 million coding notices to pensioners and employees informing them of their PAYE code for the tax year beginning in April.

There are sections in the guide explaining the basics of PAYE codes, how to check your code online if you are a self-assessment taxpayer and how to contact HMRC by phone if you have problems.

There have been problems with Revenue coding notices over the last couple of years and every taxpayer should check their code carefully and query anything they do not understand. Failure to do so could mean you pay more or less tax than you should do and this can lead to problems further down the line.

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Contractor accountants need to be aware that HMRC intends to code out employee debts of less than £3,000 through the PAYE system.

As from April this year, the Revenue will be able to change an employee’s tax code to reflect debts of up to £2,999 providing he or she pays their tax through PAYE. Pensioners owing tax to HMRC will also receive an amended tax code.

If an employee’s income or circumstances have changed during the year, he may not have paid sufficient tax. If this were to occur, the employee will receive a form P800 Tax Calculation informing them of the amount owing.

HMRC’s guidance on the use of PAYE for recouping underpayments of tax says the underpayment will normally be included in the following year’s tax code if it is less than £3,000. The money will be reclaimed in equal instalments, usually over a period of 12 months. Therefore if you did not pay sufficient tax in the 2010-11 tax year, this will be recouped in the tax year beginning 6^th April 2012.

The Revenue began sending out letters to people who owed small amounts of tax last August. Tax credit claimants who owed money to HMRC started getting similar letters last October. The letters explained that this year’s tax code might be adjusted to take the amount owing into consideration and offering taxpayers the final chance to settle in full or contact the government department to make alternative payment arrangements.

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HMRC is going to help employers improve their PAYE data.

Targeted Employer Support will be available to more than 1,000 employers who HMRC has identified as having problems with the quality of the PAYE information they submit. Between July and October, HMRC piloted face-to-face support visits with 12 employers and said they resulted in significant improvements in data quality.

Accountants will be aware that some companies struggle to comply with the complex PAYE system, and the Revenue now seems to have recognised this fact. The majority of employers do submit accurate data, but those that don’t could be causing problems for their employees. If employees do not pay the right amount of PAYE, they could find they are unable to claim certain benefits in the future.

The Revenue often encounters problems matching employers’ data with its own records. This can happen when a date of birth or National Insurance number is either entered incorrectly or is missing. Another common error is misspelt, incorrect or fictional names.

Stephen Banyard, HMRC’s acting director general for personal tax, said the Revenue is working tirelessly to improve data quality before the introduction of Real Time Information. In addition to TES visits, the department intends to improve the guidance it provides on PAYE data.

He went on to say that the pilot schemes had been successful and provided HMRC with the data it needed to compile the materials used for interacting with employers.

A pilot Real Time Information programme will begin with 300 volunteer employers next April.

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Accountants may want to encourage their clients to take part in HMRC’s pilot of the real time information initiative.

So far, only 300 businesses have agreed to take part in the initial pilot starting next April. The employers who take part will need to file their PAYE returns online each time they pay their employees. Real Time reporting will become compulsory in October 2013.

HMRC wants another 1,300 companies to take part in the initial pilot and a further 250,000 employers to join the scheme in November 2012 after the findings of the initial pilot have been assessed.

Stephen Banyard, who is currently acting director general for personal tax at the Revenue, said increasing the number of companies taking part in the pilot will ensure RTI is implemented smoothly. Although it may seem to be an ambitious target, it is achievable because we know RTI is still on track.

HMRC has considered all possible issues, including practical and technical ones, and the department is confident that it has the capacity to increase the pilot by more than 300% by next July, he added.

The Government says businesses will save £300 million in 2014-15 because they will no longer need to submit P45s and P46s. The Exchequer will also save around £395 million that year because it will be receiving more accurate data. But, businesses will probably face one-off costs during implementation. For example, RTI will run in conjunction with the BACS computerised payment system, so all companies will need to process their payroll online.

Small businesses in particular may find the transition period both difficult and costly!

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Contractor accountants may be interested in the latest plans to make UK personal taxation more transparent and easier to understand.

David Gauke, the exchequer secretary to the Treasury, last week laid down the Government’s vision for a simpler system.

It’s no secret that a lot of taxpayers find tax confusing and the Government has now said it wants people to be able to understand what they pay. In a discussion paper entitled “Modernising the Administration of the Personal Tax System” the coalition has set out a range of ideas to help people obtain access to information about their personal taxes.

The government wants to hear the opinions of taxpayers, tax professionals and representative bodies on a variety of issues. For example, the consultation asks which areas of the personal taxation system cause the most difficulty and how technology could be used to provide taxpayers with better access to their personal tax records.

As part of its plans to overhaul our tax system, the Government has also published a paper summarising the current state of play with regards to the integration of income and National Insurance. Technical working groups are currently being established to explore the possible options and employers, payroll and tax professionals are being invited to join these groups and provide their opinions.

David Gauke explained that the tax deduction on a payslip is the only way that people know how much tax they pay, but the Government wants to make the whole system more transparent so that people understand their tax rate, the amount they currently pay and how much they should pay.

It was a busy week last week as far as income tax related plans were concerned. The Government also published its draft Real time Information regulations, which it hopes will improve HMRC’s administration of PAYE.

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Accountants may be interested to read the latest Office of National Statistics research concerning UK householders VAT expenditure.

The data shows that the UK’s poorest households now pay more VAT in proportion to their total income than they did twenty-five years ago, whilst in the richest households, the proportion remains the same.

In 1986, VATable items accounted for 45% of the poorest 20% of households’ weekly expenditure. By 2001/02 they were spending 58% on items that attracted VAT. That percentage has dropped slightly, but in 2009/10 they were still spending 55% of VATable items.

Over the same period, the percentage of income the richest 20% of households spent on VATable items remained virtually unchanged. The ONS research does not take into consideration the period since the VAT rate increased to 20%.

Still on the subject of VAT, employers need to be aware that changes to the VAT regulations concerning salary sacrifice come into force from the 1^st of January next year.

In the past, salary sacrifice schemes have proved popular in part because they brought with them tax advantages, such as reduced PAYE and NIC liabilities and a VAT advantage.

However, as from the start of 2012, employers who recover VAT on benefits and then pass them on to employees under a salary sacrifice arrangement will have to pay VAT on the amount sacrificed.

HMRC says that schemes such as the Cycle to Work scheme will fall under this new arrangement, as will food and catering provided by an employer. Childcare, pensions and private health insurance salary sacrifices will remain unaffected by the new regime.

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Accountants may be interested to know that HMRC is considering changing the PAYE system so that employers who are closely connected can be treated as a single entity for the purposes of PAYE. If such a move were implemented, it would reduce both costs and processing time.

HMRC has now issued a consultation document that discusses how PAYE Pooling might operate and requesting feedback from interested parties. The scheme would be optional and organisations would be able to decide whether they wanted to come under a pool reference of several employers.

The new pool reference would cover all employee tax records, and the Revenue would treat the pool of companies as a single entity for PAYE. Moving to a ‘PAYE pool’ would not have any direct affect on an organisation’s employees. They would still retain the same employer and their employment contracts should remain the same.

HMRC has not published its definition of ‘connected employers’ in the context of PAYE Pooling, but a spokesperson for the Revenue said it expects to be able to apply different criteria for public bodies and private businesses. As far as private entities go, HMRC will be seeking some commonality in ownership and business, whilst for public sector bodies it would be looking for those that were grouped together under a particular health authority or local council.

The Revenue has also made it clear that payroll agents would not be eligible to join the new system.

The PAYE Pooling consultation runs until the 15^th of December.

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Employers might like to seek the services of a contractor accountant to sort out their PAYE paperwork after HMRC said it found a number of mistakes in 2009/10 returns.

Every year, employers are duty-bound to send HMRC details of their employees’ tax and National Insurance contributions. However, as the Revenue has revealed, this data is not always accurate and this can lead to problems for everybody concerned. In addition to costing time and money for both the employer and HMRC, employees might find the incorrect amount of income tax is deducted from their salary.

HMRC says that employee names are often entered incorrectly on year-end returns. For example, 507 individuals apparently have the name “A N Other”, 824 have the surname “Unknown” and a further 75 have the family name “Casual”. Furthermore, incorrect dates of birth meant that 40 employees were still working at the ripe old age of 200!

Jim Harra, the direct of customer operations at the Revenue, explained that most employers do complete their PAYE returns correctly. But it is imperative that they double-check their employees’ personal data in order to prevent problems occurring in the future.

Meanwhile, David Cameron has admitted that businesses have not been taking advantage of the National Insurance Holiday scheme.

When the PM first unveiled the scheme, he expected around 400,000 small firms to apply for the holiday and be exempt from paying NICs on their first ten members of staff. However, only 7,000 firms have enrolled on the scheme so far.

Ed Miliband, the leader of the Labour party, said this was further evidence that the growth policies laid out by the coalition simply weren’t working.

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