Question: We have just taken on several self-assessment clients based in Wales and one has raised the question about the impact of the new Welsh income tax rates and how it will affect their future liabilities. Can you confirm the position?
Advice: Following the partial devolution of fiscal policy to the Welsh Assembly announced back in 2016, the power for the Assembly to introduce new Welsh income tax rates comes into force in April 2019. This follows the devolution of Stamp Duty Land Tax – to be renamed Land Transaction Tax – and Landfill tax, which both came into effect in April 2018.
The new powers will allow the Assembly to set rates of income tax for Welsh residents at a different rate to that of England and Northern Ireland. Scotland have had the power to set their own rates since 2017.
However, for any practices on/near the England-Wales border there will be no current requirement to learn and account for a different set of income tax bands. The Welsh assembly recently confirmed that they will stand by the pledge made by the Assembly leader in 2016 that income tax rates will not change during the life of the current Assembly. This will see income tax rates remain in line with England and Northern Ireland until at least May 2021.
However, for those practices with clients in Scotland, 2017/18 saw the introduction of the new rates and this will continue for 2018/19 and beyond.
Question: My client is an OMB employment agency run by one director. Due to ill health they have not placed any staff this year, but they have received a penalty notice for failure to submit Employment Intermediary returns during the year. Is this correct?
Question: My client is a self-employed builder who in the past has needed to use sub-contractors to help with some larger projects. HMRC have issued penalties for not submitting the employment intermediaries returns. Is this correct?
Advice: These questions are very similar in so much that small businesses who have not used any sub-contracted or any self-employed labour during a particular quarter have been caught out by HMRC’s guidelines on agency reporting requirements under the Employment Intermediaries legislation.
HMRC guidance does state that once a business is within the guidelines they are required to submit nil returns for each period. The Employment Intermediaries legislation applies if all of the following criteria are met. They:
• are an agency or intermediary that supplies the services of individuals to a client;
• have a contract with a client or clients;
• provide more than one worker’s services to one or more clients because of your contract with those clients;
• provide the worker’s services in the UK – or if the services are provided overseas, that the person is resident in the UK;
• make one or more payments for the services (including payments to third parties).
Reporting can be made weekly, monthly or at any other interval, but a report must be submitted at least once every three months since the guidelines first applied. This includes nil returns.
Forms for submitting full reports, nil reports and also advising HMRC that the guidelines no longer apply can be found on HMRCs website.
Question: My client is a small builder. Previously, most of his work was labour only and used the 14.5% sector for builders where materials are less than 10% of turnover. However, more recently his jobs have fluctuated between ‘labour only’ and ‘labour and materials’. The latter enjoys a lower FRS percentage of 9.5%. Can we change percentages each quarter depending upon the type of work he has done?
Advice: There is no guidance on this specific issue, although Section 11.3 of VAT Notice 733 advises that if the nature of the business changes then you can change to the appropriate FRS percentage for the new type of business from the date of the change (you must write to HMRC to advise them accordingly).
To do this potentially multiple times a year would make it impractical to manage for the taxpayer, accountant and HMRC. Remember, the purpose of FRS is not financial gain but the reduced burden of administration for the taxpayer.
We believe HMRC would treat this in the same way as changes to a business that has activities that fit into two or more FRS sectors, as advised in section 4.9 of VAT Notice 733.
If there is a change in the turnover generated by the different sides of the business to the point that the other business activity become dominant, then change FRS percentage at the anniversary of joining the scheme and notify HMRC accordingly. While in this client’s situation it will cost them financially, it would be more manageable and fulfil the purpose of the scheme.