You, the holiday season, & HM Revenue & Customs
We are now entering the serious part of the holiday season, and many of you will already be packing the sun cream. Hard though it may be, you should give the taxman a thought in your holiday plans. Well yes you may find him on the next sun bed to you but this is not what I mean. Before going away you should make sure that you will not miss any of their deadlines.
For those under self assessment, it is very likely that you have a second instalment due for payment on 31st July 2011. HMRC do not consider being on holiday ample excuse to miss this payment date and interest will accrue from the first day that it is late. If you intend asking the Collector for time to pay, he will not appreciate it if you have paid for a holiday in preference to your taxes.
Incorporated businesses usually need to pay their tax liability within nine months and one day after the company’s year end and therefore if your year end falls within October or December then the payment date could fall within the holiday period. It should be noted that any companies asking for time to pay, should not be declaring and paying any dividends between the date that the accounts are approved and the corporation tax payment date, as HMRC will usually deny them time to pay.
For any employers the PAYE liability is either a monthly or quarterly responsibility and this should not be overlooked in the rush to get away. There are interest and penalty consequences for paying late. Those affected by the construction industry scheme (CIS) are very likely to lose their ‘gross status’ by paying PAYE (and their own self assessment liabilities) late.
Even when on holiday HMRC are likely to have a slice of their cake. If you are going abroad you are likely to be paying ‘Air passenger duty’, ‘Insurance premium tax’ (on holiday policies) and do not forget the ‘anything to declare channels upon your return. You might think staying at home will avoid this but there is always VAT on any home purchases.
For those of you looking to turn business trips into holidays, remember HMRC are aware that people like to take advantage of business trips in this way. This in itself is alright and even makes sense, but HMRC will seek to disallow any personal element claimed in your accounts. HMRC’s suspicions will be aroused where a spouse, who has little or no involvement with the business, also attends the trip. A sensible apportionment of the costs in the first instance would probably satisfy any query by HMRC without them going into too much depth. If they find no apportionment has been made and, despite the fact that you say you attended one meeting in a week long stay, they would probe much more deeply.
If you are not sure if you have any payments looming, perhaps you should telephone your accountant before you go away and hope he is not already on his holiday!
All self-employed workers should hold public liability insurance.
Provision of equipment
Where practical, the worker should supply at least some of the important equipment or tools. Of course, the extent to which equipment is required depends upon the nature of the work.
What about the construction industry?
The construction industry is subject to exactly the same rules as any other type of industry. However, there are some special considerations.
Where the work entails use of heavy equipment or expensive plant, it is sometimes recommended that contractors hire the equipment to their subcontractors, who then include the cost within their ‘price for the job’.
Such arrangements may seem artificial, and there is the danger that with substantial hire costs being included in the pricing, the subcontractor’s turnover may breach the VAT threshold and therefore require them to register for VAT. However, this is not necessarily a bad thing because VAT registration is often cited as further evidence of self-employment.
With regard to pricing work, a competitive tender is best, but in practice it should not really matter who makes the first suggestion of an appropriate price.
Although there is a special scheme for taxing construction industry workers, registration as a subcontractor under the scheme in itself does not necessarily prove self employment status.
What about personal service companies?
These guidelines apply equally to the so called ‘IR35‘ rules to test whether a worker would be treated as an employee of the client, if it were not for the existence of an intermediate service company.
Generally, however, in this circumstance it is the responsibility of the personal service company to decide if the contract is one of employment and any liability for treating it incorrectly is also that of the personal service company.
The personal service company is responsible for operating PAYE and NIC’s on the receipt of payments from any contract that does not satisfy the ‘IR35’ rules.
Contractors working through their own limited companies, but engaged on work in the public sector (broadly, government departments, local councils, schools, universities, NHS trusts and other public bodies) will be subject to PAYE and primary NIC on the payments made to their companies if the payer decides that they fall within IR35; in other words, the burden of proof has been removed from the contractor, and placed on the public sector engager, or the agency through which the contractor is paid.
Visit the HMRC site for their view on employment and self-employment.
Contact us if you would like further help or advice on this subject.
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