16.09.2011

Employers check the status of  your sub-contractors, latest tax treatment of Swiss bank accounts and important changes to payroll.

 

Please click on the links below to read each article.

Sub-contractor or employee?  

Agreement reached on treatment of Swiss bank accounts 

Important payroll changes from 1 October 2011

 

 

Sub-contractor or employee?   

A recent Supreme Court decision has highlighted the need for employers to check that the sub-contractors they use really are sub-contractors, not employees – and this judgment must be based on the reality of the situation, rather than purely the contractual terms. Otherwise, businesses wrongly treating individuals as sub-contractors could incur unwelcome tax liabilities.

The case involved Autoclenz, a provider of car-cleaning services to motor retailers and auctioneers. Car valeters working for the company signed contracts which contained statements to the effect that they were self-employed and they were taxed on this basis. However, the car valeters subsequently claimed that they were ‘workers’ within the meaning of the National Minimum Wage Regulations 1999 (NMWR) and the Working Time Regulations 1998, and that consequently they were entitled to holiday pay and to be paid in accordance with the NMWR.

The contracts included clauses that were inconsistent with a contract of employment. For example, one clause allowed a sub-contractor to engage one or more individuals to carry out the valeting on their behalf (a ‘substitution’ clause) and another provided that the sub-contractor was not obliged to provide services (a ‘no obligations’ clause).  

Nevertheless, the Supreme Court upheld the findings of the Employment Tribunal that the car valeters were in fact employees of Autoclenz; it ruled that the contractual terms could be disregarded as they did not reflect the true agreement between the parties – the reality of the situation in practice.

Although the Autoclenz case focuses on pay rates and rights, it has implications for the tax liabilities of businesses as well.

Contact:

Patricia Goldie, Manager, Employment Tax

 

Agreement reached on treatment of Swiss bank accounts 

On 24 August the UK government reached agreement with Switzerland on measures to deal with undisclosed bank accounts held by UK residents.

The full text of the agreement will not be published until it is formally signed, which is expected to be within the next few months, but the key details are as follows.
 
UK residents who currently declare income from Swiss bank accounts to HMRC are unaffected. They will simply be asked to authorise disclosure of their details by the Swiss banks to HMRC (via the Swiss tax authorities), which will enable HMRC to check the details with those they already hold.
 
UK residents with undisclosed funds in Switzerland will not have their details passed to HMRC but they will be subject to two tax charges from 2013, which will be deducted by the Swiss banks and paid over to the UK Exchequer without identifying the account holders concerned.
 
The first will be a one-off ‘catch up’ charge of between 19% and 34% of the balance in the account, depending how long it has been open. This will be treated as settling any outstanding income tax, CGT, IHT or VAT liabilities in relation to the funds in the account. If the account holder prefers to authorise disclosure of the details and to pay outstanding tax, interest and penalties under normal rules he may do so. 

The second will be an annual withholding of 48% on interest, 40% on dividend income and 27% on capital gains. It is not clear how the amount of the gain will be determined. This ongoing charge is clearly intended to replace normal assessment of the income to UK tax, but it is not yet clear whether submitting to the process will be formally treated by law as amounting to compliance with an individual’s tax obligations in respect of the amount concerned.

The agreement will also include some extensions to the information exchange provisions in the existing UK-Switzerland double tax treaty.
 
Comment by the Swiss Bankers Association suggests that the agreement will not apply to individuals who are resident but not domiciled in the UK, but this has not been officially confirmed. If this is the case, clearly some mechanism will be needed for such individuals to satisfy the banks of their status.
 
The 48% rate is, of course, less than the top UK tax rate of 50%, which has led to criticism from some campaigning bodies. However, the deduction will be suffered earlier than an assessed payment to tax would be, which reduces the possible benefit to negligible proportions. It is therefore most unlikely that anyone would wish to move disclosed funds from the UK to Switzerland simply to take advantage of the 2% disparity.
 
There are many questions still to be answered about the arrangements, and the position will become clearer when the text of the agreement is published. We will issue further updates as more information becomes available.

Contact:

Morag Page, Director, Personal Tax

Important payroll changes from 1 October 2011 

National minimum wage

The new rates from 1 October 2011 are as noted below:

16-17 years  £3.64 to £3.68
18-20 years  £4.92 to £4.98
21+ years    £5.93 to £6.08
The rate for a first year apprentice is increasing from £2.50 to £2.60 per hour

Default retirement age 

From 1 October, employers can no longer use the default retirement age to compulsorily retire employees.

NEST (National Employment Savings Trust)

From October 2012, all employers will be legally required to assist employees working in UK to save for their retirement. As an employer you will have to ensure your employees are part of a company pension scheme which meets or exceeds the legal standards set by NEST. Standards include a minimum contribution to be paid by the employer into each employee’s fund.

NEST is being launched this year to enable employers to sign up before the legal deadline.
As well as having a monetary hit on employers, there will be a requirement for record-keeping.  You must keep track of who is eligible to join, then automatically enrol your employees; if employees opt out of NEST then auto enrolment must take place 3 years later.

Real Time Information (RTI)

From April 2012, there will be pilot schemes running Real Time Information.  RTI will require returns to be sent online to HMRC after each pay period rather than at 6 April, which will allow HMRC to see how much PAYE is due at that point and not just at the tax year end.  RTI will become mandatory between April and October 2013 depending on the number of employees you have.

Some of the detail is still on the drawing board and software suppliers are updating programmes to cope with the information required.

Contact:

Donald Forsyth, Partner, Business Advisory Group

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