Tax Bulletin

Tax Bulletin

It's Official

Excerpts from the Revenue's 73rd Tax Bulletin.

PAYE online

Nearly two million letters will be sent by the Inland Revenue in November to tell every employer in the UK about filing their 2005-06 employer's annual return (P14 and P35) online.

What the letters say will depend on how many employees are shown on the Revenue's records on 24 October 2004. Large employers (more than 250 employees) will be told that they must pay electronically and send their return online for 2005-06. Medium-sized employers (50-249 employees) will have to send their return online for 2005-06. Small employers (fewer than 50) will get a tax-free payment of £250 if they send their return online for 2005-06. Employers will be able to appeal if they think the Revenue has put them in the wrong employer size.

Anyone who has not had a letter by 1 December must contact his Revenue office (sic). Agents who act as the employer's correspondence address will get the letters and must make sure that their client sees a copy, as the employer is still responsible for making sure that the Revenue gets a return. Employers should give a copy to anyone who helps them with payroll.

The letters will spell out how employers are affected by online filing for 2005-06. They do not alter what employers were told in November 2003 about qualifying for a tax-free payment or the need to file online for 2004-05.

Offshore funds

The Finance Act 2004 contained some of the most significant reforms to the offshore funds rules since they were first introduced in 1984. Offshore funds are the overseas equivalents of UK collective investment schemes, such as unit trusts and open-ended investment companies. The changes affect the rules which determine whether an offshore fund can qualify for distributor status, which in turn determines the tax treatment of UK investors in the fund. An article in the Bulletin provides information on the objectives behind the changes, the technical detail of the changes, and some clarification of how the changes impact on funds and investors. Readers are referred to the Bulletin article for the detail, but brief extracts follow.

The changes fall into three main areas. They all affect whether or not an offshore fund can be certified as having distributor status.

Pressure for change came from offshore fund managers who argued that the structure of the rules as they existed before the Finance Act 2004 constrained their commercial operations. A particular concern was the rule which said that distributor status could be granted for a fund only if all the sub-funds and classes of interest also demonstrated that they met the 85% distribution test. Fund managers argued that this limited their ability to design products for markets where there were different preferences between annual income and accumulation of income.

Another frequent comment made during the consultation was that fund managers had to spend a considerable amount of time converting their accounts figures for the purpose of measuring UK equivalent profits. Before the changes, these were based largely on profits computed for the purposes of corporation tax, but excluding chargeable gains and including UK company dividends. However, interest income and income from derivative contracts were still based on the relevant measure for income tax. Fund managers argued that they should be allowed to rely solely on their accounts, but if this was not acceptable, at least move to a full corporation tax basis.

Employers' annual returns 2004-05

Employer's annual returns for 2004-05 must show the right National Insurance number. Employers must make every effort to find out the number and date of birth so that employees' NICs can be set against the right person's record.

From 2004-05, the temporary number TN+date of birth+gender will no longer be an acceptable entry, and returns showing TN will be rejected. Temporary references are sometimes sent by the Revenue to the employer in the format: two numbers, one letter and five numbers. These references should not be used by employers as they are temporary and will become redundant when the National Insurance number is identified. Returns using these temporary references will be rejected from April 2005.

There is a National Insurance number tracing service. The employer must fill in an employees National Insurance number trace form (CA 6855) and send it to: Inland Revenue, National Insurance Contributions Office, Additional Business Workstream, Room H4002, Benton Park View, Newcastle Upon Tyne NE98 1ZZ.

If an employer has not been able to find out the National Insurance number, the relevant field of the P14 should be left empty, but the date of birth and the gender must be entered in the date of birth and gender box.

The foregoing are extracts from longer articles in the Tax Bulletin, to which reference should be made for details of the full text. Information regarding subscription is available from Sylvia Brown, tel: 020 7438 6373. Bulletins can be downloaded free of charge from www.inlandrevenue.gov.uk.

Issue: 3981 / Categories: