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Budget day
The Chancellor of the Exchequer will make his Budget statement on 22 March 2006. Unusually, this gives nearly five weeks notice, compared to barely two weeks of recent years. Perhaps Mike Truman's comment article 'Looking for a date', Taxation, 24 February 2005, exhorting the Chancellor to announce the Budget date well in advance, has had some effect …
Tips
Following further legal advice, HMRC now consider it necessary to make additional changes to Booklet E24 Tips, Gratuities, Service Charges and Troncs and, pending these being made, the booklet is being withdrawn. The changes only affect National Insurance liability.
The February 2005 version of the booklet advised that where payments of gratuities form part of contractual pay or are used to meet obligations under national minimum wage legislation, they are liable for National Insurance contributions and fall outside the disregard for gratuities even if they are allocated to employees by a tronc run independently of the employer. HMRC, having decided to accept the further legal advice referred to above, have decided that the E24 has to be changed.
The main changes are that HMRC say that with regard to the national minimum wage, provided the employer is not:
- making the payment directly or indirectly to the employee from sums previously paid to him; or
- allocating the tips directly or indirectly to his employees, the tips are not liable for National Insurance.
Where tips are contractual, HMRC now accept that these sorts of payments also fall to be disregarded from earnings and so are not liable for Class 1 National Insurance to the extent that the employer is not allocating, directly or indirectly, the tips.
HMRC will withdraw booklet E24 and revise it. HMRC will write to employers who have had a compliance visit, and paid Class 1 National Insurance on the tips as part of a settlement, telling them about the changes and refund arrangements.
Richard Clarke, tax director, PricewaterhouseCoopers, said that this announcement is 'very welcome and provides yet further clarity on the tax treatment of tips and troncs'. He says that 'businesses that have settled with HMRC may be due significant repayments; in some cases HMRC enquiries may have led to insolvency so compensation may be due'.
Mr Clarke adds that 'at long last the guidance seems to bring HMRC into line with what we had always thought the position to be'. He urges businesses to contact the Revenue, through their advisers, as soon as possible to determine how these changes impact them.
www.hmrc.gov.uk
Hand in hand
A new unit has been set up by HMRC to work with tax advisers. A spokesman for HMRC explains the purpose of the unit saying that 'tax advisers play a central role in making the tax system work' and that HMRC want 'to give them a bigger opportunity than they have had in the past to carry out that role'. HMRC believe that advisers could do more 'to help improve the operation of the tax system, e.g. to promote filing, to work with us on beating missing trader fraud'. They also want advisers to relate their experiences of the tax system and also to hear about HMRC's concerns. The idea of the unit is to 'give a focus to that work'.
HMRC believe that a good relationship exists between them and advisers and are keen to extend that good relationship to as much of the adviser population as possible. As to monitoring advisers' work, HMRC recognise that 'professional members' organisations provide a framework of regulation for advisers/agents and that this forms a sound basis of regulation for the majority of advisers'.
HMRC want to establish a better working relationship with advisers and are in the early stages of developing this work. HMRC say that they 'currently have many diverse contacts with advisers and these strands need to be identified and brought together. HMRC wish to develop the relationship with advisers/agents, setting out what we expect from agents and taxpayers. This will inevitably improve filing and accuracy, allowing HMRC to better target resources to avoidance and fraud'.
While this unit has not been widely publicised, HMRC are talking about the unit at the Tax Faculty roadshows currently taking place around the country, (contact 01635 588898 for details of the roadshows). Francesca Lagerberg, Tax Faculty chairman, says that it is a good idea for HMRC to develop its relationship with advisers in a positive way. The average tax adviser has, say, at least 100 clients, so by having a good relationship with the adviser, HMRC reaches those 100 taxpayers in a more effective way. Advisers deal with taxpayers and understand their concerns about the tax system; communicating these to HMRC makes sense. Equally, Francesca says this relationship needs to be a 'two-way street, with both sides listening to each other', so that HMRC hear about taxpayers and advisers' concerns and ideas, but also discuss their concerns with the advisers.
