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PAYE online
HMRC are making changes to the way that their internal processes deal with PAYE. From April 2007, they are introducing an automatic process to change tax codes during the tax year for benefits in kind that employers report on form P11D and P46(Car). The aim is to speed up the rate that HMRC process the information and update the current year tax code, in advance of settling the previous year's liability. Details of code changes will be notified by the normal process. According to HMRC, employees will have more accurate tax deductions and employers will benefit from more accurate and timely handling of benefits-in-kind information they have supplied, for example a change in company car, resulting in fewer enquiries from employees about their tax.
From April 2007, HMRC will also automatically bring together pay and tax information for an individual from forms P14 into a single total, irrespective of the number of jobs they have had during the year. This will enable HMRC to check more quickly that the right amount of tax has been paid and reduce the number of enquiries they have to make.
There will be no change to National Insurance processing arrangements.
HMRC Brief 15/07, 13 February 2007
2007-08 codes
HMRC will send 2007-08 P9 coding notices to employers and agents during the week commencing 19 February. Code numbers will be sent online if employers have registered for online services, and will be available to view through their PAYE online page.
HMRC will send code numbers to agents online where they have authority. Code numbers will not be sent to 'filing only' agents. Agents can see code numbers for all their clients for seven days from the time HMRC make them available.
Paper P9s will be sent between 26 February and 9 March.
www.hmrc.gov.uk
Money laundering regulations
HM Treasury has published draft Money Laundering Regulations 2007 for consultation. These regulations will repeal and replace the 2003 regulations. The document includes an accompanying narrative for the draft 2007 regulations that summarises the proposals and questions in the previous consultation, the responses and the resulting policy.
Responses should be sent by 2 April 2007 to: MLD3 Consultation, Room 4/15, 1 Horse Guards Road, London SW1A 2HQ, e-mail them to: MLD3consultation@hm-treasury.x.gsi.gov.uk.
SP withdrawal
HMRC have announced that Statement of Practice SP13/91, 'Ex gratia payments made on termination of an office or employment due to retirement or death' has been withdrawn. Paragraphs 7 and 8 of this statement, broadly speaking, permitted certain small payments to be made tax-free. This applied where HMRC would have exercised their statutory discretion to allow a tax-approved retirement benefits scheme to make payments of a particular kind.
The tax rules in FA 2004, Part 4 relating to what are now registered pension schemes became effective from 6 April 2006. The previous practice which permitted these tax-free payments is not compatible with the new registered regime, whereby a lump sum payment made without a relevant pension would generally be subject to income tax as an unauthorised payment; hence the withdrawal of SP13/91.
Ex gratia payments on retirement or death from 6 April 2006 will constitute an employer-financed retirement benefits scheme, for tax purposes and detailed guidance on the tax treatment of such schemes is set out in the Employment Income Manual.
HMRC Brief 17/07, 15 February 2007
Charitable advantages
HMRC have updated their guidance on the tax advantages of charities at www.hmrc.gov.uk/charities/tax/advantages.htm. The guidance gives detailed information on ensuring payment of income or interest gross from the following sources:
- bank interest
- building society interest
- interest already received net of tax
- income from certain fundraising activities
- income from trading
- income received after tax has been deducted.
The updated page also provides information for those wishing to use HMRC Charities' special process for charities to claim repayments without completing a tax return.
www.hmrc.gov.uk
CIS factsheets
HMRC have published factsheets on the new construction industry scheme in a number of languages to help subcontractors when the new scheme starts on 6 April 2007. The following factsheets have been translated into Albanian, Bulgarian, Czech, Hungarian, Latvian, Lithuanian, Polish, Portuguese, Romanian, Russian, Slovakian and Turkish:
- CIS 342 — Registering for New CIS — advice for subcontractors;
- CIS 343 — Applying to be paid gross — advice for subcontractors;
- CIS 344 — Getting paid by a contractor — advice for subcontractors
HMRC's business support teams are giving local seminars on the new scheme through to at least May. Details are at www.hmrc.gov.uk/bst.
www.hmrc.gov.uk
Trusts change
Legislation is to be included in Finance Bill 2007 to amend an omission relating to payments received by trustees which are made by a company buying back its own shares in the recent trust modernisation legislation in FA 2006. A second small omission has since been identified in the 2006 legislation relating to a further category of capital receipt within TA 1988, s 686A which is treated as income in the hands of the trustees — chargeable event gains arising from some types of life insurance policy, capital redemption policy or life annuity contract. This time the omission relates to interacting legislation for trustees' tax pools.
When trustees make a discretionary payment from income to a beneficiary, that beneficiary is treated as receiving a gross amount of income carrying a credit at the rate applicable to trusts (40%). The credit is given to the beneficiary because the trustees will already have paid tax on the income as it arose to them. Real tax paid should go into the tax pool but tax covered by non-payable tax credits or notional tax credits should not. There is a notional tax credit of 20% on some chargeable event gains which should not enter the tax pool. However, the legislation relating to the tax pool was not amended at the time of Finance Act 2006 to ensure that it did not do so. The amending draft legislation therefore now rectifies the position.
The proposal is to rectify this for the tax year 2007-08 onwards. For certain chargeable events gains on life assurance policies arising to trustees in the tax year 2006-07 only, the notional tax credit of 20% would, exceptionally, enter the pool. However, the 2006-07 tax calculation and the Tax Calculation Guide that accompanies the trust and estate return both adopt the tax pool treatment that was intended rather than the statutory basis that currently exists. This means that the calculation only allows the real tax into the tax pool. Any notional tax treated as paid at 20% is not. HMRC advise trustees and their agents, who have chargeable event gains in 2006-07, to make a note in the additional information box in the return, saying that the tax pool should be increased by the amount in box 9.30 as the legislation has not yet been amended.
The trust legislation is being replaced, as part of the Tax Law Rewrite programme, by provisions in the Income Tax Bill (later to be the Income Tax Act 2007). The rectifying draft legislation for this omission therefore amends what is presently clause 498 of the Income Tax Bill.
Comments on the draft legislation should be sent by 28 February 2007 to Andrew Hayward, Charity, Assets and Residence, HMRC, Room G45, 100 Parliament Street, London SW1A 2BQ, e mail: andrew.hayward@hmrc.gsi.gov.uk.
Continuing problems with trust tax pools were identified in Update, Taxation, 19 October 2006, page 56. Life policy gains of trustees are intended to be charged at the trust rate by TA 1988, s 686A, with (anomalously) a limited dividend rate credit then going into the tax pool by virtue of s 687(3)(bc). However, says Malcolm Gunn of Squire Sanders & Dempsey, 'HMRC appear to have concluded that the full 40% credit has to go into the tax pool because the gains are primarily charged at the trust rate under s 686 by virtue of ITTOIA 2005, s467(7)'. He says that 'this is a generous interpretation'. It will be amended to allow 20% into the pool with effect from 6 April 2007.
www.hmrc.gov.uk
Retail prices index
The all items retail prices index for January 2007 is 201.6.
