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PAYE problem
Simple assessment calculation results in demand for tax.
HMRC sent my client a tax calculation for 2019-20 showing, erroneously, tax owing (all tax due actually being paid at source under PAYE).
The calculation contains two separate line entries for income and tax paid from my client’s former employer. The first line shows the cumulative amounts for the nine months from April to December 2019, and the second line shows the amounts for the whole of the tax year, as reflected on the form P60.
There was a change of ownership of my client’s employer company as at the end of December 2019 and it seems that the new owner transferred the payroll records to new software (going by a change in format of the monthly payslips) so the employer’s RTI submissions for the first nine months of the tax year have been duplicated.
Copies of the monthly payslips have been given to HMRC, but HMRC insists that it is up to my client to persuade the former employer to correct the error by way of submission of an EYU or FPS. Despite repeated requests to the former employer, this has not happened.
HMRC is threatening to take action for payment of tax owing, stating in its letter (on form OCA234) that ‘We cannot stop the process to collect this. We’ll continue to collect it until your employer corrects the end of year details by sending us the EYU or FPS. When we receive the EYU or FPS from them, we’ll update your pay and tax details and send you a new calculation.’
HMRC refuses to engage directly with the former employer who is unlikely to cooperate unless HMRC intervenes.
It seems unreasonable that HMRC is taking this stance and, in effect, transferring its responsibility for administering the PAYE system to my client. Please can readers assist?
Query 19,847 – James.
Sponsorship
Use of horse-riding in a van hire business?
My client runs a successful van hire business in a large midlands town.
As might be expected, almost all of its customers are from the local area. My client’s company is intending to sponsor some show jumping events around the country and it will come as no surprise to some that his daughter is a horse rider who may be competing in some of these events. He has asked me about tax relief for the sponsorship.
I said that a claim would be almost certain to fail, on the basis that an event in, say, the southwest of England, is unlikely to create customers for a local business in the midlands. The purpose of the expenditure would be to support his daughter’s horse-riding activities rather than promote the van business. He accepts this, but has asked about the expenditure on more local events where there might be potential customers for the business.
Would that still be disallowed under the wholly and exclusively rule, or would at least some relief be available?
Query 19,848 – Van Driver.
New tax basis
Tax planning advice on a change of assessment basis.
I was looking through HMRC’s autumn Budget 2021 tax-related documents to check for matters that may affect my clients. The most wide-ranging measure is the reform of the basis period for assessing profits from self-employment.
The department’s notes say: ‘On transition to the tax year basis in the tax year 2023-24, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief given.’ I realise that this is still some way in the future, but I wondered whether there were any basic tax-planning measures or income and payment timing issues that should be considered in advance. I am thinking in particular about matters that could affect the tax-efficient use of the overlap relief and other allowances.
It occurred to me that this might be something worth thinking about before 2023 and I look forward to thoughts from readers.
Query 19,849 – Overlord.
Retail export scheme
Dealing with VAT on gift vouchers.
One of my clients sells up-market and very expensive glassware. She issues gift vouchers to her customers but has never accounted for VAT until the voucher is redeemed. I think this is incorrect and that the tax point for VAT purposes is when the money is first received.
However, my client thinks this would be wrong: she has three retail stores – there are no online sales – one of which is in Belfast, and she said that some sales from this store are for non-EU customers under the retail export scheme so would not have any VAT to declare. So how would she get the VAT back for these sales if she paid VAT when the vouchers are issued? I thought the retail export scheme had been abolished when we left the EU, so this also sounds wrong.
Finally, do we have an error correction problem? About 25% of the vouchers are never redeemed so my client has received money for these vouchers and never accounted for VAT. A voucher expires six months after the issue date. My client started issuing vouchers at the beginning of 2019.
Can readers clarify things, please? Query 19,850 – Val.
