UK construction companies expected to pay £47 million in late filing penalties

A recent article AccountingWeb reveals some rather interesting statistics on the CIS penalties for late monthly returns that UK Construction Companies have racked up since last October:

Rebecca Benneyworth writes:

The number of penalty notices issued for late CIS monthly returns are shown as:

• October 2007: 35,919 (> £3.5M)
• November 2007: 44,921 (> £4.4M)
• December 2007: 37,618 (> £3.7M)

She adds, “So a total of 118,458 notices were issued in a three month period, bringing in fines of at least £11.8 million (as the minimum penalty is £100). Assuming that these three months are representative of a normal quarter, this would bring an annual yield from penalties for the new CIS 300 to over £47 million.”

Source: AccountingWeb / Hansard

Although we don’t know how many of these automatic penalties were issued in error (and hence would be invalidated under an appeal), we do know that the standard fine is £100, and the serious fine as high as £3,000 per subcontractor per month, which suggests a yield from just the monthly return of £47 million per year. Read more

Small family-owned businesses to be penalised this April

The Government is planning to launch a new Family Business Tax in this year’s Budget, which it claims is intended to tackle “income shifting”.

Please take a few moments to tell them why they should reconsider their plans, and forward this blog post to anyone you think might also be concerned at the new tax rules.

Remember - if you own a business jointly with a family member or anyone else, this will affect you: don’t miss your opportunity to do something about it.

The new laws, due to come into force from April 6th 2008, will:

• mean a significant tax rise for jointly-owned businesses where profits are distributed equally between a husband and wife (or other family members / civil partners) and the recipients make differing contributions to the business - in some cases, even business owners who are not related to each other will be hit

• deny married couples who are equally exposed to the risks of running a business the right to an equal share in the rewards if the business is successful

• penalise people who followed the Government’s long-standing advice to set up businesses jointly

• make it impossible for businesses to self-assess their tax bills, and leave them perpetually looking over their shoulder in fear of an aggressive investigation by HMRC, in which they will have to prove that they have done nothing wrong

• be totally inconsistent with divorce law, as couples will be entitled to equal shares in the value of the business in a divorce, but not to equal shares in the profits while they are married

• be totally inconsistent with capital gains tax rules, as couples will be entitled to equal shares in the proceeds from business when it is sold, but not to equal shares in the profits when they own it

• reverse the independent taxation of spouses in respect of couples who own businesses, even though the Treasury’s consultation paper does not explain what has changed that would justify this reversal

• impose crushing burdens on small businesses who will have to record every contribution made to the business, simply to defend themselves against an attack from the Revenue - that time could be better used generating wealth for the economy

• fail to recognise that dividends or other profit distributions are a reward for taking risk and are not simply income comparable to a salary.

Take Action

Please sign the petition on the 10 Downing street website:
http://petitions.pm.gov.uk/IncomeShifting1

The petition asks the Prime Minister to abandon the current plans to introduce a new “income shifting” tax on family businesses.

Please also consider writing to your MP on the subject and asking them to support Early Day Motion 714 against the proposals. Advice on how best to go about it is available from the PCG here:
http://www.pcg.org.uk/cms/index.php?option=com_docman&task=doc_download&gid=367

There is further information about the “income shifting” Family Business Tax at www.familybusinesstax.co.uk.

The above information is taken from the Professional Contractors Group (PCG) membership mailing, and is reproduced with permission.

HMRC eFiling, “a bit of a disaster” says BASDA Chairman

“A bit of a disaster” is how the new HM Revenue & Customs (HMRC) Payroll eFiling programme was described, according to Dennis Keeling the outgoing BASDA Chairman, in a recent YouTube video. 

In the video, Dennis Keeling is interviewed by PayPerShop presenting a highly critical analysis of HMRC’s new amendments to Payroll eFiling.

Dennis Keeling, BASDA Chairman (speaking on Payroll eFiling at SoftWorld)

He comments on the new HMRC Payroll eFiling programme calling it, “a bit of a disaster” citing that now the “Government has run out of money” for implementing the Carter 1 recommendations (specifically for end of year filing) falls to the software vendors to ensure that their products are compliant with the Carter “Review of HMRC Online Services” report.

Dennis goes on to say that come next April, all supporting software will need to be rewritten in order to support the Carter 2 (mid year filing) recommendations as well as the older Carter 1 recommendations, since our Government wants to run at least parts of both at the same time.

This means that if you use software to produce your P45/P46 (and you have to file online by law by April 2008 if you have more than than 50 employees) substantial parts of it will need to be rewritten by April 1st 2008 in order to support the new recommendations, but still keep the existing system for filing the payroll year end returns.

But I bet your current payroll software package won’t be ready on April 1st…

“Learning from lessons of the past”
Earlier this year, HM Revenue & Customs introduced a whole new taxation scheme for the Construction Industry, called the Construction Industry Scheme. If you’re a regular reader of my blog, you’ll probably know all about the failings of this scheme by now. If you don’t - please select the “Construction (new CIS)” category and catch up

This scheme was introduced on April 6th with absolutely no live black box testing. In other words, a whole new taxation scheme went live - with supporting software infrastructure and software products from third party software houses - all without adequate testing. The first time monthly returns were tested with real data was the day when a real monthly return was submitted. Nobody knew what might happen if the Gateway servers were innundated with requests (they crashed, of course), or were sent real life data which caused them to congest. Of course nobody knew, because there was absolutely zero live testing. No beta testing. No testing, period.

This lead to a long period of confusion by customers, HMRC with their head in the sand and software developers working all hours to ensure that customers were well supported. Meanwhile, presumably as a way to appease the electorate, HMRC promise not to fine anyone whilst the new software system problems are worked out. It turns out that contractors could still lose their gross payment status if not compliant during this time (such as if a monthly return couldn’t be submitted online in time) - even if it wasn’t their fault.

In short, it was a costly disaster for the industry and the software developers. Presumably this cost was not incurred by HM Revenue & Customs, who refuse to provide adequate testing facilities for the software requirements that they impose. Dear reader, do you think that HMRC’s own basic software offerings are untested like this?

A quick word to HMRC: A simple solution to resolving this mess would be to offer a proper test service for payroll testing, in a copy of the live environment. This would allow all software developers to be confident when releasing software to customers that it has at least been tested before the 1st April.

“When you consider that some very large companies are now going to be forced to file P45/P46 electronically, you’d have expected that [they] would have tested their software before going live.”

“To leave it until the last minute just isn’t the way you should do it”
- Dennis Keeling, BASDA Chairman.

If nothing is done (and I suspect this is the case), come 1st April there may be vast problems which by their nature are unforeseen. Going by last April with new CIS, I would expect to see a good mix of technical failure in vendor software, misunderstandings by customers, HMRC software failings, Government Gateway collapse, and a confusing PR backpedalling by HMRC and who knows what else? Perhaps the air conditioning for the HMRC servers will break like they did this year and all the machines will switch off?

My advice to anyone using Payroll software would be to check their software support license or maintenance agreement. Your software vendor is most probably already acutely aware of the Carter review implications and from past experience will likely schedule a “patch”/”fix” or “update” to their software shortly after 1st April as support tickets start to flood in. Remember, this new eFiling mechanism won’t be tested and there are no plans by HMRC to allow software vendors to test in live either!

If you are not covered by a support or maintenance agreement, you might find that the software you use will not appear to function correctly for online filing from April 1st 2008. In which case, I advise getting the arrangements for software support in place, in time for April 1st. Also make sure you know how to apply any updates from your software vendor. It goes without saying that software from us - is automatically updated with little or no effort from the customer.

Make sure that your software license entitles you to updates and fixes next April.

I’ll give the last word to Dennis, “This could be one of the worst disasters we’ve had in a long time”. And I agree.

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