Update: tax

Tax return deadlines and e-filing

Lord Carter of Coles produced a report around Budget time (March 2006) recommending '“ among other things '“ that the self-assessment filing deadlines for the tax year ending 5 April 2008 be brought forward to 30 September 2008 for paper filing and 30 November 2008 for e-filed copies. However, representatives of the tax profession did not agree and gathered information from tax practitioners to show why this would not work. This resulted in Lord Carter reviewing and revising his recommendation, with the deadline for paper filing changing to the end of October and the e-filing deadline remaining at 31 January following the tax year-end. The Government has accepted Lord Carter's revised recommendations.

Work and Families Act 2006

The Work and Families Act received Royal Assent on 21 June 2006 and will have significant impact on maternity/paternity leave and pay. The new rules will apply to employees whose babies are born or placed with them for adoption on or after 1 April 2007.

Employers will need to prepare for the following changes:

- The extension of the statutory maternity and adoption pay period to 39 weeks for women whose babies are due or adopted after 1 April 2007. Draft regulations propose that all pregnant employees or adopters will be entitled to 52 weeks leave, possibly from April 2008.

- The extension of the notice period from 28 days to 8 weeks for employees wishing to return to work earlier than the end of their statutory maternity or adoption leave period. The Government hopes that this will give employers more time to plan for their employees' return to work.

- The introduction of new rights for employers and employees to 'keep in touch' during their maternity or adoption leave period. Under current legislation, employees are at risk of bringing their leave to an end if they work during their statutory leave. The new regulations enable an employee on maternity or adoption leave '“ with the agreement of her employer '“ to work for up to ten days during her leave without bringing that leave to an end. Employers cannot insist that employees do any work during their leave nor is there a right to be offered work during maternity or adoption leave. Furthermore, if an employee does work, her leave period will not be extended. These days will be known as 'keeping in touch' days.

- Under the new regulations, employers will be entitled to make 'reasonable contact' with employees during maternity or adoption leave. This will include contact to establish and discuss return-to-work dates.

- The removal of the small employer (businesses with five or fewer employees) exemption from automatic unfair dismissal claims where they do not hold a post open for an employee returning from additional maternity leave.

- The extension of the right of carers to request flexible working to care for disabled adults. The law at present provides that only parents of children under 6 and parents of disabled children aged up to 18 are entitled to apply to work flexibly. The new legislation is expected to cover an employee who is caring for or expects to care for a husband/wife, partner/civil partner or a relative, or an adult who lives at the same address as the employee.

The following proposals are still under consideration.

- That the current entitlement to four weeks paid annual leave, including public holidays, be extended to give employees the right to paid annual leave for public holidays in addition to their statutory four weeks.

- That the Secretary of State has the power to increase annually the maximum amount of a week's pay (currently £290) which is used to calculate the amount of unfair dismissal compensation, statutory redundancy payments and payments made on the insolvency of the employer.

HMRC '“ letters to small businesses

HMRC has started to send out 'enabling letters' or what it calls 'small business letters' to a selection of smaller self-employed taxpayers. (Authorised agents will be sent a copy of the letter that was posted to their clients.) The letters highlight common errors and answer some Frequently Asked Questions to help individuals fill out their tax returns correctly. Taxpayers should be aware that receiving a small business letter does not necessarily mean that HMRC consider their previous tax returns to have been incorrect. Individuals with particular concerns should contact their tax advisers.

HMRC '“ interventions

HMRC is undertaking a series of pilots around the country as part of its review of 'interventions' powers. These pilots are voluntary reviews, often in real-time, enabling HMRC to discuss situations with taxpayers. The intention is to get people on track with their tax compliance without the heavy formality of the enquiry procedure.

The intervention programme began on 10 July 2006 and has no fixed date to end. There are six types of intervention involving letters or telephone calls currently being tested in pilot exercises. Many taxpayers and their agents have received letters already. However, in some cases, the area of concern relates to a year for which the normal enquiry window has closed. For example, the letter may refer to a source of income which appears to have been omitted from the tax return for the year ended 5 April 2004, for which the enquiry window typically closed on 31 January 2006. HMRC has confirmed that this is not an error but it envisages using the interventions in relation to closed years where it is considered appropriate.

Those selected for inclusion in the small-scale trials are chosen on the basis of an identified risk and are being asked to take part on a voluntary basis. Agents will be copied in on all letters sent to their clients and, where an individual has a tax agent, any telephone contact initiating an intervention will be made to the agent.

Anyone receiving such a letter should contact their professional adviser to discuss whether there may have been any omissions in the tax return for the year in question.

HMRC '“ interest rates

New interest rates have been announced on direct and indirect taxes and National Insurance Contributions (NICs) paid late and overpaid. These rates, which take effect from 6 September 2006, are set out below.

Income tax, NICs, capital gains tax, stamp duties, etc.

The rate of interest charged on income tax, NICs, capital gains tax, stamp duty, stamp duty land tax and stamp duty reserve tax paid late, tax credits overpayments in cases of fraud, neglect and on penalties charged, and on tax charged by an assessment for the purpose of making good to the Crown a loss of tax wholly or partly attributable to failure or error by the taxpayer changes from 6.5% to 7.5%.

The rate of interest on overpaid income tax, NICs, capital gains tax, stamp duty, stamp duty land tax and stamp duty reserve tax (repayment supplement) changes from 2.25 % to 3 %.

Income tax on company payments that became due on or after 14 October 1999.

The rate of interest on late payment of income tax on company payments which became due on or after 14 October 1999 changes from 6.5% to 7.5%.

Inheritance tax, etc.

The rate of interest for late payment or repayments of inheritance tax, capital transfer tax and estate duty changes from 3% to 4%.

Change in bonus rates for SAYE Sharesave Schemes

HM Treasury has announced changes in the bonus rates for the Save As You Earn (SAYE) Sharesave Schemes, which took effect from 1 September 2006. These bring them broadly in line with other interest rates. The new bonus rates are as follows: [TABLE]

Contract type Bonus rate

(Previous rate in brackets) Effective interest rate

(Previous rates in brackets)

3-year 1.8 x monthly payments (1.4) 3.19% (2.49)%

5-year 5.5 x monthly payments (4.4) 3.46% (2.79)%

7-year 10.3 x monthly payments (8.4) 3.52% (2.91)%

Employees who sign up to SAYE will receive the bonus rate for the relevant contract that was in force at the time they joined the scheme. They will not be affected by future bonus rate changes.

The Early Leaver Rate, which applies to those who withdraw their funds after 12 monthly contributions, but before the 3-year anniversary, have also been adjusted as follows:[TABLE]

Pre-September 2006

From September 2006

Early Leaver Rate 1.5% 2%

Use of advisory fuel rates

The advisory fuel rates have been updated with effect from 1 July. They apply where employers:

- reimburse employees for business travel in their company cars; or

- require employees to repay the cost of fuel used for private travel.

The rates below apply to all journeys on or after 1 July 2006 until further notice.

[TABLE]

Engine size Petrol Diesel LPG

1400cc or less 11p 10p 7p

1401cc to 2000cc 13p 10p 8p

Over 2000cc 18p 14p 11p

NI and student loan problems

An HMRC 'computer glitch' has left half a million individuals with gaps in their NI records due to the compulsory/incentivised e-filing for employers (first affected returns due by 19 May 2005) where processing was massively delayed.

Among the half a million affected are students with loans from the Student Loans Company. Their delayed annual statements did not go out until September and, for some students, did not show any repayments in 2004/05.

Indeed, a small number of cases could show a repayment for 2005/06 (already processed) but none for the previous year. Similar strange phenomena could also occur with NIC records.

Tax case '“ Consultant Psychiatrist v HMRC SpC 557

The appellant undertook a training course with a view to obtaining a further professional qualification, which was an essential part of her job. She had to pay for it herself and sought to claim tax relief for the cost from her employment income (formerly known as Schedule E earnings). Her contract of employment stated that it was 'expected' of her to take this course but the Special Commissioner held that as continuing professional education the course was not undertaken 'in the performance of the duties of the employment'. Even if it had been undertaken 'in the performance of the duties of the employment' the cost would not have been incurred necessarily, although it would have been incurred wholly and exclusively in the performance of such duties.

Carol Mead is a senior tax manager at accountants and financial advisory group Smith & Williamson; Tel: 020 8492 8600; E-mail: carol.mead@smith.williamson.co.uk; www.smith.williamson.co.uk

Disclaimer
By necessity this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Article correct at time of writing.