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Confusion over employment allowances and furlough

Confusion over employment allowances and furlough

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De you remember this article - Confusion over employment allowances and furlough - https://www.accountingweb.co.uk/tax/business-tax/confusion-over-employme...

Many must have had HMRC checks in PAYE and furlough. Not sure what your outcome was. We had the same issue per HMRC check where the HMRC inspector was adamant that the client was not entitled to Employment Allowance.

We said to her that her own technical team over chat said to us that it is ok to claim this the way we did post furlough as long as the overall PAYE&NIC is over £4k for 12 months.

HMRC inspector was being difficult and said that the policy team sitting above technical team (never know a policy team existed!) said what we did was was incorrect and hence issued us with an assessment and a massive penalty.

We appealed to the trinunal and today we receive a reply in our favour.

Fellow accountants, do not give in to HMRC inspector, they are poorly managed and have no knowledge of how PAYE works but have been assigned a task to deal with.

Good afternoon Mr ,

XXX Limited
CFSS-XXXXX

Following a notification to me after the appeal to the tribunal regarding the assessment of £xxx in relation to the employer allowance, I have been tasked to reduce the total assessment by that amount.

I will reduce the total assessment to £xxxx

Your client should pay the sum of £2500.58 assessment after I have written to him.

I will send a letter to your client in due course in relation to the revised assessment.

I will send a HRA document to your client again as a reminder with my letter of revised assessment.

There may be a penalty on this assessment. We will write separately about the penalty if it becomes due.

I trust you and your client will be pleased with this outcome.

Kind regards

Replies (9)

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By Wanderer
28th May 2021 17:21

Well done, and thanks for sharing.

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Replying to Wanderer:
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By jayesh21
01st Jun 2021 08:58

Welcome

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By Hugo Fair
28th May 2021 18:29

Well done for sticking to your guns - and I agree that HMRC inspectors don't seem to have either the knowledge that would once have been expected of them, or the nous to go and check with someone who does if necessary.

However, one point in OP is incorrect ...
... you say "as long as the overall PAYE&NIC is over £4k for 12 months."
I suspect it's just finger trouble on the keyboard, but EA allows eligible employers to reduce their annual employer's class 1 NI liability by up to £4,000 ... not EE's NICs or Tax (or indeed SL deductions etc).

And just to be crystal clear, this liability figure does not include any ER class 1 NICs that would normally have been an employer liability, but that were covered by (the earlier variants of) CJRS claims where the ER was allowed to include these amounts in the claim.

EDIT: There's a more complex point regarding the fact that ER class 1 NICs don't have to be "over £4k for 12 months" ... the £4k is the max EA that can be claimed, but a lower claim is valid where liabilities don't reach the £4k cap.
This is where the inter-action with CJRS threw HMRC into confusion & turmoil - but is a (fairly) long story, so I'll leave that for another day unless anyone out there particularly wants to know more?

BTW, I've no idea why your client was instructed to "pay the sum of £2500.58" by the tribunal - but presume that this had nothing to do with the issue in discussion here?

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Replying to Hugo Fair:
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By jayesh21
01st Jun 2021 08:59

Yes you are correct.

The £2500 was requested to be paid because the HMRC nutter argued that the furlough was announcesd per government on 23 march and hence the claim should be from 23rd march and not 1st march unless the clients business was shut down from 1st March.

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RLI
By lionofludesch
28th May 2021 19:41

Personally, I thought you were grand if you didn't claim EA until month 5. There are scenarios where the total secondary NI bill would be less than £4000 but a claim would be advantageous against months 5-12.

HMRC often back down if you challenge them. I haven't had many genuine point of law disputes but I've won all but one.

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Replying to lionofludesch:
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By Hugo Fair
28th May 2021 21:20

"There are scenarios where the total secondary NI bill would be less than £4000 but a claim would be advantageous against months 5-12."
True, but HMRC's systems can't cope with this scenario (specifically you can't use RTI to claim EA for only some months of the year) - which is what I alluded to in my threat of a 'long story'!

An attempt at the short version:
* EA is a YTD (not periodic) allowance, and in those long forgotten pre-covid times when it came on the scene HMRC cut corners in the system design.
* Basically the employer (actually strictly the PAYE scheme) was only given one route to claim or unclaim it (via a checkbox in the EPS).
* This meant any decision submitted was binary (either Yes or No) AND applied to the whole tax year.
* So if, for instance, you claimed it in Month 1 and then 'stopped' doing so in Month 4, this was interpreted as withdrawing the original claim (and all/any allowance claimed to-date was immediately added back to your amount due for payment).
* But it also meant that if you only first claimed it in, say Month 6, then HMRC's system would attempt to deduct the full £4k from what you were due to pay that month (reserving any amount left in the £4k pot for next month).
[Note: 'what you were due to pay that month' is calculated as the difference between this & previous month's YTD values. not from this month's values].

So then along came the CJRS ...
* In its early incarnation this included reclaiming the ER NICs - with the obvious (but not to HMRC) danger that an existing EA claim with a CJRS claim on top would result in the same ER NICs being reclaimed twice!
* The initial reaction was to issue guidance telling employers that they should repay some of the CJRS claim - but without any indication as to how that should be calculated.
* This was followed by new guidance that employers should 'switch-off' their EA claim - but again without any indication as to how to get any remaining EA that might still be 'due' after CJRS stopped paying for ER NICs.
* Arguments raged back and forth (between HMRC and Institutes and others, and within factions in HMRC) ... and I'm no longer sure as to the final guidance (which obviously became irrelevant after 5th April).

I believe HMRC wanted employers to phone in - and, in the scenario you outline, agree a 'reduced amount of EA' that could only be applied by HMRC staff (not via RTI)!

Fortunately all my clients had liabilities in excess of £4k (even after the relevant element of CJRS claims had been accounted for) ... so I just ignored the guidance and left the EA claim flag set to Yes.

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Replying to Hugo Fair:
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By lionofludesch
28th May 2021 23:38

If HMRC's software isn't up to the job, it's not the employer's fault and he shouldn't be prevented from making a valid claim. I made sure that the correct amount was paid in month 5, notwithstanding what HMRC said was due.

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Replying to lionofludesch:
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By Hugo Fair
29th May 2021 00:18

We're not disagreeing ... but it's why I fear for the future.

You (or I or anyone competent) calculate the correct amount and pay it over.
HMRC screw up the calcs at their end, so expect the wrong amount and then tell you you've over-/under-paid.

All that is 'automated' so, as well as being faced with the waste of time that goes with valid appeals, you now have to deal with de-skilled HMRC staff (because their computer must be right). This is what also happened at the Post Office!

I had cases in the first couple of years of RTI when HMRC unleashed the hounds of hell (aka debt collectors) on medium/large companies with an unblemished record of timely returns and payments for 20+ years ... purely on the basis of data corrupted at their end. Each took weeks of effort over several elapsed months to 'resolve' - which simply meant that HMRC eventually adjusted their records to be correct, but never apologised or explained what had gone wrong!

This is what I fear for MTD and the rest of the poorly designed 'everything digital' coming down the track, when HMRC's core systems are still antiquated and lashed together with rope and prayers.

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Replying to Hugo Fair:
RLI
By lionofludesch
29th May 2021 18:05

Hugo Fair wrote:

We're not disagreeing ... but it's why I fear for the future.

You (or I or anyone competent) calculate the correct amount and pay it over.
HMRC screw up the calcs at their end, so expect the wrong amount and then tell you you've over-/under-paid.

All that is 'automated' so, as well as being faced with the waste of time that goes with valid appeals, you now have to deal with de-skilled HMRC staff (because their computer must be right). This is what also happened at the Post Office!

I had cases in the first couple of years of RTI when HMRC unleashed the hounds of hell (aka debt collectors) on medium/large companies with an unblemished record of timely returns and payments for 20+ years ... purely on the basis of data corrupted at their end. Each took weeks of effort over several elapsed months to 'resolve' - which simply meant that HMRC eventually adjusted their records to be correct, but never apologised or explained what had gone wrong!

This is what I fear for MTD and the rest of the poorly designed 'everything digital' coming down the track, when HMRC's core systems are still antiquated and lashed together with rope and prayers.

Fair point well made and the Post Office debacle is a good analogy.

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