It's official
HMRC published their Tax Bulletin 85 on their website recently. Extracts of two articles follow. In addition, the Bulletin contains an update on double taxation agreements and mentions that HMRC are reviewing their PAYE payment processes 'to encourage employers to pay their PAYE on time'.
Retirement annuities
From April 2007, under legislation introduced in FA 2004, all retirement annuity income, with the exception of purchased life annuities, will be classed as pension income and taxed under PAYE.
The change brings retirement annuities into line with personal and occupational pensions from UK pension schemes which are generally also subject to PAYE. Some 1.2 million individuals receive income from retirement annuity contracts. About half of them have claimed exemption from tax and so receive their payment gross. The rest have tax deducted at the basic rate, and for those who are basic rate or higher rate taxpayers this is not a problem. But HMRC estimate that there are around 200,000 people who are not liable to pay tax, are only liable at the 10% starting rate, or are liable at basic rate on part of their annuity income, and who are having basic rate tax deducted from all of their annuity.
HMRC are creating new PAYE schemes for every annuity provider, and setting up new tax records for all of the annuitants who are not currently on our databases.
Although tax overpaid can be repaid for all in date tax years, many pensioners have never made a claim. This new process will provide the information HMRC need to identify who these pensioners are, and to make a renewed effort to help them claim and receive their repayments.
In addition, the personal and financial circumstances of many annuitants have changed since they completed the R89 certifying that at that time they were not liable to pay tax on their income. Where HMRC identifies anyone who should have paid tax prior to April 2007 but has not, they will not take any action either to assess those years or take any action to recover any tax arrears, unless deliberate avoidance is suspected.
In February, HMRC will send every annuitant a notice of coding form P2 telling them how their PAYE tax code number has been worked out.
Providers often sell on their annuity books to new providers. This can complicate the PAYE records setting up process, especially during the transition period from now until April 2007. HMRC are working with providers to minimise this, but say that they cannot cover every eventuality. Furthermore, some providers want HMRC to give them tax code numbers for every annuity which they pay to the same person. So HMRC know that some pensioners will get up to 15 envelopes from HMRC on the same day, containing what will appear to be duplicate tax codes.
Where the retirement annuity is the only PAYE source of income of an existing self assessment taxpayer, HMRC's new retirement annuity contract unit at Leicester will take responsibility for any self assessment record immediately. Where there is already an existing PAYE source, the record will not move. The telephone number for Leics & Northants self assessment queries is 0845 302 1445. The Leicester unit will also take responsibility for repayment claims from the year ending 5 April 2007.
All retirement annuity contract work will be dealt with by the new unit in HMRC's Leicester and Northants Large Processing Office. It will handle all taxpayer enquiries, whether by letter or by phone. There is a dedicated phone helpline for annuitants on 0845 366 7868.
This week's Readers' Forum contains a query on a retirement annuity paid to a non-resident, see page 153.
R&D tax credit
HMRC has set up seven specialist research and development tax credit units around the country. The units have been operating since 1 November 2006 and will deal with all R&D tax credit claims from companies apart from those dealt with by the Large Business Service. The aim of these specialist units is to improve the handling of claims by concentrating the work in a smaller number of locations staffed by specially trained officers. This should lead to greater consistency from HMRC in dealing with claims and more certainty for companies making claims.
Another important role for the new units will be to raise awareness of the scheme among eligible companies, their agents and organisations such as Chambers of Commerce, Regional Development Agencies and Business Link Offices. In 2005, HMRC commissioned a survey of nearly 1,000 companies carrying out research and development. The survey found that 82% of respondents were aware of the relief prior to the survey, and that 71% of those respondents who thought their company was eligible had already made a claim. Of those companies that had made a claim, around three-quarters found the claims process easy or fairly easy. The survey showed that companies with fewer than ten employees were less likely to have a good understanding of the scheme or to have claimed.
From 1 November 2006, therefore, companies and agents should send corporation tax returns with research and development tax credit claims to the specialist unit dealing with the postcode for the location of the main research and development activity of the company. There are four general exceptions to this:
- Companies dealt with by the Large Business Service.
- Companies dealt with by the specialist pharmaceutical units in Manchester, Cambridge and Croydon should continue to send their returns to their current tax office. Pharmaceutical companies dealt with by the Reading office should now send their claims to Southampton.
- Companies dealt with by small company enterprise centres in Maidstone and Cardiff should continue to send their returns to these offices.
- Companies dealt with by HMRC Charities in Bootle should continue to send their returns there.
Companies in Wales, Scotland or Northern Ireland that are not in the four categories above should send their claims to the Cardiff unit.
There will be a transitional period running from 1 November 2006 to April 2007 in which the corporation tax responsibilities for most companies with existing claims will be transferred to the appropriate specialist unit. Companies and their agents affected by this will be kept informed during the process.
The intention is that in most cases the research and development specialist unit will deal with all aspects of a company's corporation tax return if it includes a research and development claim. Where the research and development claim is only one relatively minor element of the tax affairs of very large companies or groups, the main tax office will stay the same, but the research and development claim will be handled with input from the appropriate specialist unit. These cases will be identified by the specialist units on a consistent basis, so companies who think they may be covered by this situation should follow the general advice to send their R&D claims to the appropriate specialist unit.
In addition, the Department for Trade and Industry, in conjunction with HMRC and HM Treasury, has published a brochure of case studies, 'R&D tax credits — what's in it for you?', illustrating companies' experiences of claiming tax credits.
Tax Bulletin 85, October 2006
Authorised investment funds
The proposed 6 April 2007 start date of the facility to enable non-taxpaying UK investors to receive interest from authorised investment funds gross has been deferred by the Government in response to representations from industry. The consultative process has thrown up problems which are likely to arise where investments are held through fund supermarkets or other types of indirect arrangements. In exploring this with industry representatives it has also recently become clear that there may be wider difficulties for industry in implementing systems to allow payments to be made gross.
Rather than deal with each of these areas separately, HMRC want to work with the industry to address all the issues around gross payment of interest distributions. To allow time for further consultation, a Treasury order removing the 6 April 2007 start date for gross payment to UK-resident investors who are not liable to tax will be laid shortly. This will not alter or affect other existing requirements to pay gross to, among others, non-residents and managers of ISAs and PEPs.
www.hmrc.gov.uk
