To help you complete the P11D form for the 2011/12 tax year, we’ve developed a comprehensive e-learning course.

Each module covers a section of the P11D and you can choose which ones to complete based on your learning needs.

In addition to the P11D course we have also developed other e-learning resources covering the following:

• Financial Reporting Standard for Smaller Entities (FRSSE)
• Accounting Standards
• Professional Ethics

View the P11D e-learning modules now

The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with a member of AAT staff, or raise your query by email.

Opinions and comments expressed within CPD Interactive are those of their authors alone, and do not necessarily reflect the opinions of the AAT or any AAT employee. The AAT is not responsible for the content of such opinions and comments. The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with amember of AAT staff, or raise your query by email.

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Company taxation

Incorporation check-list

Cessation on incorporation for IT – use cessation rules;

No CAs, but balancing adjustments UNLESS S266, CA 2001 election made;  this transfers P&M across to the new company at TWDV (needs joint election) (see below);

Value for goodwill (for valuation see below)?

Need to tell HMRC about the new business (the incorporation will automatically generate a new companies enquiry form).

National Insurance:

No more Class 2 – tell HMRC;

No more Class 4;

Class 1 and class 1A;

Benefits?

Suggest keep cars out of company (at least to begin with);

Mobile phone OK – no tax charge on one phone;

Pension contributions OK – but make sure reasonable level – must meet wholly and exclusively test.

Laptop OK, provided minimal private use,

VAT

Likely to be a TOGC – but need to carefully check

Taking old VAT number across? – suggest not.

CGT

Gains on incorporation – ie on disposals?

If yes – how big?

Within the annual allowance? – live with them?

If bigger than annual allowance consider the reliefs:

S162, TCGA 1992 – all or nothing- rather restricted; will apply automatically unless election made –see HMRC Helpsheet 276.

It may be beneficial NOT to go with S162 and instead pay the tax.  Then the cash that the company owes for the assets will be available tax free in the company.

S165, TCGA 1992 – more flexible. Normally used for gifts of business assets, but it works very well on incorporation. Assets can be sold at an undervalue (could reduce tax bill).

Tax elections on incorporation

S266, CAA 2001  – transfers P&M to company at TWDV – saves the balancing adjustments.

Address

H M Revenue and Customs

Address

Date

Dear Sir

Insert Business names

Joint Election under S266, CAA 2001

We the following parties jointly elect under S266, CAA 2001 for the plant and machinery of:

XXXXXXXXXX

Signed: 

To be transferred at TWDV to:

XXXXXXXXXXXX

Signed: 

The business  of the sole trade was transferred on   XXXXXXXXX

 Yours faithfully 

S178 ITTOIA  2005 Stock election – saves a hidden tax charge when stock is transferred to a company (which must be normally at MV)

 Address

H M Revenue and Customs

                                                                                                                                    Date

Joint Election under S178, ITTOIA 2005

We the following parties jointly elect under S178 ITTOIA 2005, for the stock of:

XXXXXXXXXXXXXXXXXX

Signed:

To be transferred at cost (or actual sales value if higher), to

XXXXXXXXXXXXXXXXX

Signed:

The businesses of the sole trade was  transferred on XXXXXXXXXXXXXXXXX

(This election must be made before the first anniversary of the normal self-assessment filing date for the tax year in which the cessation occured)

Incorporation

Can be done through a company formation agent, but I highly recommend doing it online yourself through the Companies House website – It’s good experience, quick and easy.

It costs £18.

Valuing goodwill – the superprofits basis. 

This is a common method of valuation.

It takes the superprofits out of the profits and multiplies it by a multiple between 1 and 3.

Example: 

Fred’s business (he is a sole trader) has made profits of £50,000 for the last three years.

What is the value of goodwill on incorporation – assume there is no personal goodwill?

Ave profits    £50,000

Cost of a person to run it (including employers’ NICs) say: £30,000.

So superprofits are £20,000. 

So a reasonable goodwill value is 2 x £20,000 = £40,000.

This can be purchased by the new company.

The cost is amortised over say 10 years.

The amortisation value will stand for tax and no adjustment is necessary only when all of the goodwill is the “right” goodwill, ie the sole trade started after 1 April 2002. 

If the sole trade started after 1 April 2002, then the above will NOT work.

Suggested Specimen voucher

Any Company Ltd

Directors:

Mr Smith;                                                                              Company Address

Mrs Smith.                                                               

                                                                                                Date

Name of shareholder

Address of shareholder 

Dividend for the period ending (financial year ended xx.xx.xx)

Number of shares                          X ordinary shares of (nominal value)

Dividend                                                                   £X

Tax credit                                                                 £X

Please keep this voucher with your financial records.  It is needed to support dividends declared in your tax return.

Yours sincerely 

(Signature)

Company secretary 

The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with a member of AAT staff, or raise your query by email.

Opinions and comments expressed within CPD Interactive are those of their authors alone, and do not necessarily reflect the opinions of the AAT or any AAT employee. The AAT is not responsible for the content of such opinions and comments. The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with amember of AAT staff, or raise your query by email.

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Hello to everyone reading this Blog, where my priority at the start of May and indeed since the end of the last tax year, has to be the completion and submission of the end of year PAYE returns. The statutory PAYE returns to be filed by 19 May 2012 are the P35 Employer’s Annual Return, P14 End of Year Summary and the P38A Employer supplementary return.

The P38A Employer supplementary PAYE return is for “Workers for whom you have not completed a form P14 or form P38(S) for the year 6 April 2011 to 5 April 2012.” The form states “You must complete this form if you answered ‘No’ to question 1 of the checklist on your Form P35 Employer’s Annual Return.” It is a form that gets overlooked by employers and it should be considered as part of our PAYE year end filing checks. We have to complete one of the two declarations covering workers for whom neither a P14 nor P38(S) return is being submitted. The declaration on the front of the form removes the need to complete a list of casual workers earning below the income tax threshold.

Employers are asked to “Look at your records for each worker and consider whether:

1. you hold a form P46 Employee without a form P45, that has been completed at either Statement A or Statement B by the worker

2. the worker was paid less than £102 every week, or £442 if paid monthly.

If the answer is yes to both questions there will be no need to complete the back of the form and the employer’s signature and a date is all that is required to complete the declaration on the front of the form. The two sections A & B on the back of the P38A restrict the amount of reporting.  Casual workers earning less than £102.00 in any week, or £442 if paid monthly and taken on for a week or less do not need to be reported at Section A or B. 

Casual workers employed more than once in the tax year, but for separate engagements of up to a week, will have to be reported at section B of the P38A if they were paid more than £102 in total in the year to 5 April 2012. Harvest workers are also included in Section B and the Employers Guide to PAYE and NIC, CWG2, gives more advice on their special treatment. I will be asking my clients if any other payments have been made that should have gone through the payroll or might need to be included here.

There is one statutory PAYE return that does not have to be submitted to HMRC, but it must be completed and retained for at least three closed tax years and that is the P38(S) Student Employees return. My advice to you is to make sure that these forms have been completed and signed by both the student employee and the Employer; also checking that no student has been paid more than the personal allowance limit of £7,475 for 2011/12. If any student employee was paid more than £7,475, tax should have been deducted using Code 0T and if necessary, I would now add the student to the end of year return and prepare a P14.

For most of us, we must file the P35 and P14’s online and we have a choice of filing the P38A online or in paper format, but each of these returns must be filed by the 19^th May 2012 deadline. The exceptions to online filing are domestic employers using the simplified deductions scheme, care and support employers (that is people who employ someone to provide care for them or a member of their family at home), but not where the returns are submitted by an Agent like you or me and certain religious groups that are exempted. None of the exemptions apply if any of these employers previously claimed the incentive payments for online filing.

Now before we start thinking of preparing the PAYE returns, let’s check that we have the online filing details? A year ago, but after the 2010/11 PAYE returns had been filed, I took over the payroll for a small client and when I checked the file last month I couldn’t find a password; which meant that I had to log on and click on lost password. I then had to provide the user ID, PAYE and Accounts Office reference numbers for the Employer and I am patiently waiting for the new password to arrive! I have checked all my other User ID’s and Passwords and I am happy that I should have no problem filing all my other PAYE returns. Do you need to do this now or do you need to register for online filing for any Clients that haven’t done this before? The message has to be to check this out now and not leave it too late! HMRC’s diary in Employer Bulletin 41 states that 9 May 2012 is the “last date to register to use PAYE Online for Employers if you are required or intend to send your 2011-12 Employer Annual Return online.”

There are other checks that need to be carried out and we must remember that HMRC has a ‘quality standard’ for completing PAYE returns, which may be rejected if they fail the standard. There is a lot of helpful information on the HMRC website, in the Employer section and through your MYAAT account you can access the Payroll Year End Podcasts where I offer you some guidance on completing the PAYE annual returns.

I have already filed some of my Client’s PAYE returns and for each of these my first task was to do an ‘annual earnings period’ check for the directors. I spotted the need for this for the Managing Director of one Company because he received a regular monthly salary of £2,500 and when asked I was told that he had a bonus of £18,100 before he went on holiday. Here’s my calculation: 

Had I overlooked this check, the Director’s Primary Class 1 NICs would have been underpaid by nearly £1,100. He wasn’t very happy about this, but in future the annual earnings period basis will be used and he will pay the full amount of NICs on his bonuses. HMRC does have an online tool for checking the director’s annual earnings period NICs, but unfortunately it is for the current year, 2012/13, which is not much good for checking last year’s figures. It is useful for doing this check during the tax year; particularly when a director leaves and the NICs must be recalculated before the final payment of salary is made. It may be too late after the director has left to recover the unpaid Primary (employee) NICs. The Secondary (Employer) NICs will not be underpaid because there is no Upper Earnings Limit (UEL).

Another important reminder is that 31^st May 2012 is the last date for giving a 2011/12 form P60 to each employee working for the employer on 5 April 2012.

Some news on the CIS front! HMRC has provided some guidance on setting of and claiming repayment of CIS deductions in Employer Bulletin 41 that was published last month. An extract from that guidance is provided below:

If you are a company that has an entry in box 28 of your P35 annual return and have identified an overpayment, you must send a written request to Customer Operations Employer Office, Room BP4009, Chillingham House, Benton Park View, Longbenton, NE98 1ZZ or FAX 0191 225 6677 to request a refund or set off. HMRC will not always set off overpayments as a matter of course but a written request from you may help us meet your requirements as best as possible. Your request should clearly state which liability you would like the CIS overpayment to be set off against and include all relevant tax reference numbers. Please keep a copy of your written request for reference.

HMRC has since published a leaflet setting out how subcontractors that are limited companies should reclaim any deductions they have had taken from their payments under the Construction Industry Scheme. You can get a copy of the leaflet by going to the HMRC website and clicking on CIS in the blue Employer box, then click on ‘CIS what’s new.’ The leaflet sets out what is required before claiming a repayment of CIS deductions, including registering as a subcontractor, setting up a PAYE scheme and ensuring that the company has received and kept the payment and Deduction Statements from the Contractors. There is then a series of questions and answers and a reminder of the HMRC contact numbers.

On the subject of contacting the HMRC CIS helpline, I was at a client recently and was told that the Client had been having problems with the CIS Helpline, which surprised me because I have always found the staff there to be very helpful. It was a verification problem and involved an Eastern European worker where there was some doubt about the spelling of the Christian name. I called the CIS Helpline from my Client’s office and very quickly obtained confirmation that standard rate deductions could be made and was provided with a verification number. My client wondered why it was so easy for me and really the only problem I had was understanding the broad Scottish accent; which as I said to the HMRC Officer, was quite funny when coming from someone with another ‘Celtic accent.’ But then those of you that know me will understand that I am a bit deaf! However, the point about this story is that before I made that call I made sure that I had all the information readily to hand; Contractor details for the security checks, subcontractor details (name, UTR and NINO). I also explained the problem of the uncertainty of the spelling of the Christian name; was it an I, J or L, so as my ‘Brown Owl@ wife would say, be prepared! And, don’t forget to record the name of the officer, date and time of the call.

Well folks, that’s it for now. I am going to switch my attention to the P11D Podcasts that I will be presenting in the Studio next week and I am looking forward to a couple of days in Bath on the weekend to celebrate my 30 year old “baby’s” birthday.

 All the very best!

 Mike

The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this conditionmay result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with a member of AAT staff, or raise your query by email.

Opinions and comments expressed within CPD Interactive are those of theirauthors alone, and do not necessarily reflect the opinions of the AAT or any AAT employee. The AAT is not responsible for the content of such opinions and comments. The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with amember of AAT staff, or raise your query by email.

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Click here to view a step by step guide on how to download an AAT branch recording

Download the presentation slides here

UK Budget update – Part 1 (PC or laptop version)

UK Budget update – Part 1 (Smartphone version)

___________________________________________________________________________________

UK Budget update – Part 2 (PC or laptop version)
 
UK budget update – Part 2 (Smartphone version)

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UK budget update – Full version (PC or laptop version)

UK budget update – Full version (Smartphone version)

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Opinions and comments expressed within CPD Interactive are those of their authors alone, and do not necessarily reflect the opinions of the AAT or any AAT employee. The AAT is not responsible for the content of such opinions and comments.

The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with a member of AAT staff, or raise your query by email.

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The ADR covers both direct tax and VAT. In the pilot the cases were selected from those which had gone for internal HMRC Review and were headed in the direction of a Tax Tribunal.

The results suggest that ADR might work at an earlier stage in the Compliance Check Process, as 60% of the disputes which entered the pilot were either fully or partially resolved.

ADR may be suitable for cases where the accountant’s perception is that the inspector is refusing to accept a reasonable explanation or continuing to ask for information which is of no relevance to the point in question. Cases that would be suitable for ADR include situations where further clarification, further information or more suitable evidence could be provided to enable one party to better understand the opinion of the other party.

ADR involves a person from HMRC called a ‘facilitator’, who has not been involved in the dispute before, and who will work with both the client/representative and the HMRC case owner to try and obtain an agreement between them. Although the facilitators are from HMRC, feedback from the first stage of the pilot was unequivocal in that they had been fair and even handed towards all parties.

Involving a facilitator may provide an objective view of the issues, open up communication between you and the inspector and hopefully give some direction to the case. This could bring the issue to a close much sooner and avoid the need to go to tribunal. Therefore saving time and money on expensive litigation, as well as avoiding any unnecessary stress on your client.

HMRC has extended the pilot to cover more regions. To see if your client’s business operates in the area covered by the pilot please refer to the SME business area map {link to http://www.hmrc.gov.uk/adr/map.pdf }

More information about ADR can be found on the HMRC webpage at Alternative Dispute Resolution trial for Small and Medium Enterprise customers {link to http://www.hmrc.gov.uk/adr/index.htm }

HMRC has advised on their website that “Taking part in the pilot in no way prejudices your customer’s case and it does not affect their right to have an internal review or to take their appeal to Tribunal”.
If you have a client that you feel may benefit from their tax dispute being referred to ADR then the AAT strongly recommends that you: 

• talk through the tax dispute with your client to see if, under the circumstances, it would be suitable to refer the case for ADR

• obtain written consent from your client prior to referring their case to ADR.  

If you would like a case to be considered for the ADR process, please call HMRC on 01492 523747 between 9.00 am and 4.00 pm, Monday to Friday. Your application will be considered, and you will hear back from HMRC within 30 days.

I would like to hear about your experience of ADR so please let me know if you refer a client’s case for ADR by emailing me at ADR@aat.org.uk.

Aleem Islan

Technical Manager (Accounting)

AAT

The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this conditionmay result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with a member of AAT staff, or raise your query by email.

Opinions and comments expressed within CPD Interactive are those of theirauthors alone, and do not necessarily reflect the opinions of the AAT or any AAT employee. The AAT is not responsible for the content of such opinions and comments. The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with amember of AAT staff, or raise your query by email.

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The proposal applies to sole traders and partnerships with receipts of less than £77,000 (which is the current VAT registration threshold) would be eligible, and they could continue to use cash basis until their receipts rise to more than £150,000 in any year. The consultation document mentions that there are around 3.5 million individuals undertaking a trade or profession, and of these around 3 million have a turnover below £77,000.

Sole traders and partnerships that meet the turnover criteria will be allowed to choose between using the normal tax rules or the Cash Basis. 

Establishing whether it is beneficial for a qualifying sole traders and partnerships to be using the normal tax rules or the Cash Basis will depend on the details of the proposals. 

The Cash Basis:

• should mean that that businesses will be required to keep simpler and less detailed records
• uses a standard mileage rate for business use of cars
• proposes a flat rate of expenses for business use of the home
• proposes a flat rate adjustment for the private use of business premises
• fixed assets such as plant or machinery and vans can be expensed – however, fixed assets such as land, property and shares cannot be expensed
• on changing to the Cash Basis the transitional arrangement allows businesses to write-off in full any unrelieved amounts on fixed assets

There are a few disadvantages to the Cash Basis for examples:

• there is no interest relief on bank loans
• companies and LLPs are excluded so un-incorporating to use the Cash Basis would mean the loss of limiting personal liability
• there would be no “sideways” loss relief
• there would need to be a change of year end date to 5 April which may mean the advancing of tax payments for the year before they join
• where mileage rate is claimed for any motor vehicle while using the cash basis, the business would be required to continue to use the mileage rate approach in respect of the particular motor vehicle, if the business exited from this regime.  

Clearly, the proposals in the consultation will affect the clients of licensed members and the work that licensed members undertake for their clients.

Licensed members, who are businesses themselves may also be personally affected by the proposals in terms of their own tax liabilities.  

Further Information

The consultation document can be downloaded from the HMRC website at: 

Simpler Income Tax for the Simplest Small Businesses

Responding to the HMRC Consultation  

The AAT will be drafting a response to this consultation and we would like to reflect the views of the membership. Members may have a diverse range of views and some of these views may be at odds. Therefore the AAT will have to use ‘poetic licence’ in order to consolidate the range of views and give a cohesive response. We would like to clarify that views are not attributed to individuals and your name will not appear in the AAT’s response to HMRC.

We would welcome your views and we have provided some questions below to assist you. 

Consultation Questions

Do you think the proposal will be an opportunity or a threat to the work that you undertake for your clients? Please explain the reasons.

Given that businesses can decide whether to use the normal tax rules or the Cash Basis, do you think that the proposals will be an opportunity or a threat to businesses? Please explain the reasons.

You may have read the consultation document, in which case, what are your views on the issues raised in HMRC questions on page 24 and 25 of the consultation document?

Please email you views and comments to the AAT by 31 May 2012.

Please include your name and membership number in case we need to come back to you for clarification on any points that you have raised. As we mentioned before, views are not attributed to individuals and your name will not appear in the AAT’s response to HMRC.

The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with a member of AAT staff, or raise your query by email.

Opinions and comments expressed within CPD Interactive are those of theirauthors alone, and do not necessarily reflect the opinions of the AAT or any AAT employee. The AAT is not responsible for the content of such opinions and comments. The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with amember of AAT staff, or raise your query by email.

The AAT is unable to monitor material prior to its posting but monitors the content of this site daily and will remove any offensive or defamatory material when it is identified. However, there is potential for such material to be displayed for sometime before it is discovered by the AAT. If you see any material that you think may be offensive or defamatory, please bring it to the attention of the AAT by telephoning the number or emailing the address below.

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One of the first actions arising from the initiative was a series of visits by members of HMRC to practitioners’ offices to hear about and experience, at first hand, the issues we, as agents, experience on a daily basis.   At the same time a series of reciprocal visits by practitioners to HMRC offices were organised to observe post and call handling processes.

In December members of the steering group, arising from the initiative, convened to examine what had been learnt and to agree specific targets for delivery over the next three, six and nine months.

Two key targets for delivery in the first quarter of 2012 were identified:

• An email pilot, and
• A mutually acceptable solution to the problem of accumulated P35 penalties. 

I am delighted to report significant progress on both issues.

An email pilot is now up and running with a group of volunteer practitioners. Indeed, some of you reading this article may well be involved!

Turning to P35 penalties two issues were identified:

• The failure to issue penalty notices until September, four months after penalties had started to accrue.

Non HRMC members of the steering group were clear that the fact that employers were not warned earlier was both unfair and as a consequence unacceptable and reflected badly on HMRC     

• The second problem was some employers failed to realise that they had only sent a return in “test” mode rather than in “live”, leaving them subject to a penalty when they honestly thought they had complied.

In March as a direct consequence of the initiative HMRC announced a number of significant changes to the P35 process, as follows:

• Push back the date of issue of the notification to file a P35 from mid-February to late March 2012 so that employers will receive it much nearer to the end of the tax year.  
• Issue employers with a reminder in late April 2012 where they believe a 2011/12 P35 remains outstanding at that date.
• Introduce a P35 interim penalty letter which will be issued at the end of May/beginning of June, reaching employers before the second penalty date. The letter will explain that a penalty has potentially accrued and what to do to avoid it increasing. HMRC worked with the Tax Faculty and other professional bodies on the content of this letter and it has been tested on some employers and payroll agents.
• Improve the online guidance for submitting P35s online, including specific advice about the “test-in-live” service to reduce the number of employers who believe they have successfully filed when in fact they have only made a test submission. The on screen messages have also been redesigned to make it much clearer that even when a successful test transmission has been made, a live transmission is still required.
• Instruct Employer Helpline staff to tell employers about filing dates when setting up new employer schemes to help them avoid a penalty.
• Improved information on the P35 and reminders.

The above measures are very welcome and represent a very real step forward. They are without doubt a victory for common-sense and should help employers to either avoid incurring unnecessary penalties in the first instant or, if a penalty is incurred, give them an opportunity to cap it after the passing of the first deadline. At the very least employers will no longer live in ignorance of, the fact that, penalties are racking up until the first found penalty deadlines have passed!

Paul Aplin (ICAEW) said “the issue has been a major irritation to employers and practitioners and has resulted in a number of tribunal cases. The agreement represents tangible evidence that the joint initiative is capable of producing results.”

By the time of hosting this article we will have met again, I am optimistic that we will be looking at real progress on all of the work targeted area.  Indeed, anecdotal evidence from members suggests that there have already been improvements in post response times.

Whilst there is still a long way to go I am cautiously optimistic over the direction of travel.

Co-authored by:

Brian Palmer, AAT representative on the Joint Tax Agent Strategy Steering group

Paul aplin, Chairman of ICAEW Tax Faculty Technical Committee

The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with a member of AAT staff, or raise your query by email.

Opinions and comments expressed within CPD Interactive are those of their authors alone, and do not necessarily reflect the opinions of the AAT or any AAT employee. The AAT is not responsible for the content of such opinions and comments. The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with a member of AAT staff, or raise your query by email.

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Past Legislation  For the purpose of  “achieving fairness” the previous government wished to restrict the tax relief on higher earners and in Finance Acts 2009 and 2010 introduced changes to take effect from April 2011, to restrict pension tax relief to the basic rate for those with gross incomes exceeding £150,000, by means of a complicated “high income excess relief charge” together with anti-forestalling provisions to discourage individuals with earnings over £130,000 from increasing their normal contributions by more than £20,000.    

Finance Act (FA) 2011  Chancellor George Osborne, accepting that the rules should reflect a measure of fairness, opted to simplify the legislation to restrict relief. The Finance Act 2011 abolished the 2010 rules before they came into effect in 2011, enabling subscribers to obtain tax relief at their highest marginal rate but FA 2011 Schedule 17 considerably reduced the Annual Allowance albeit with provisions to carry forward unused allowances and amended provisions relating to the Annual Allowance Charge. Nevertheless, the anti-forestalling measures remain for 2009/10 and 2010/11, with some modifications. 

FA 2011 Schedule 18 reduces the lifetime allowance from 2012/13 but the Lifetime Allowance Charge tax charge remains broadly unchanged.  

Current Rules While there is no limit to contributions made by a member, employer or other person to a registered pension scheme, the maximum amount of contributions on which a member can claim tax relief in any tax year is the greater of

• the ‘basic amount’ – currently £3600, (see relevance of this below)
• the amount of the individual’s taxable UK earned income for the tax year, subject to the limit of the annual allowance (see below).   Tax relief on pension contributions is at the highest marginal rate.

The maximum age is 75 and the individual must have taxable UK earnings or have been resident in the UK in the tax year or at some time in the previous 5 years when membership of the pension scheme began or the member or spouse has earnings from overseas Crown employment. Unused tax relief cannot be carried backwards or forwards to other tax years.

Tax relief is given in a variety of ways on contributions paid to registered pension schemes depending on the type of scheme.

In the net pay arrangement of an employer’s occupational pension scheme, the employer deducts the pension contribution from gross pay before income tax is deducted. In this way employees obtain tax relief attheir marginal rate of income tax without needing to make an additional claim. 

Under tax relief at source contributions are usually paid to a personal pension scheme net of the basic rate, The scheme administrator claims back tax from the government at the basic rate and grosses up the pension fund. Where tax is paid at the higher or additional rate, the difference is claimed back from HMRC usually through the Tax Return.

A relevant UK individual who has no relevant UK earnings in a tax year may still qualify for tax relief on contributions into a registered pension scheme up to the ‘basic amount’ in a tax year. The basic amount is currently £3,600. However tax relief can only be given if the contribution is made to a scheme that operates the relief at source system.

Where gross contributions are made directly to a registered pension scheme, a claim can be made a claim to HMRC to obtain the tax relief on the contributions paid.

Employers are able to claim as a business expense for their separate contribution payments.

Annual Allowance

From 2011/12 the annual allowance is considerably reduced from earlier years as follows. An Annual Allowance Charge may arise where an individual’s total pension input exceeds the annual allowance. See annual allowance charge below

The above limits are subject to the three year carry forward rule whereby any annual allowance not used in the previous three tax years before the current tax year can be carried forward to be added to the annual allowance of the current year, but for this purpose the annual allowance for 2008-09, 2009-10 and 2010-11 is deemed to be £50,000.

There is a strict order in which the annual allowance is used up in this way. The annual allowance in the current tax year is used first. The unused annual allowances from earlier years are then used, applying the earliest tax year first.

This may allow a higher amount of available annual allowance to off-set against a particular year’s pension input amount. The three year carry forward rule allows an individual to make occasional large amounts of pension savings without having to pay the annual allowance charge, for example a contribution to a self employed individual’s pension scheme that is larger than normal in a year of large profits above the standard annual allowance level. 

Unused annual allowances are only available for carry forward where they arise during a year in which the individual is a member of a registered pension scheme at some point in the tax year, even if the pension contribution for that year is nil. So, where no contribution has been made for the past three years, potentially a contribution of up to £200,000 would be available for the current year if the individual has sufficient taxable income and could claim tax relief at 50% on contributions above £150,000 before April 2013. Fears were expressed in the press that the cap announced by the Government to be introduced in Finance Bill 2013 on income tax reliefs claimed by individuals from 6 April 2013 might interact with pension tax relief. However, the Chancellor announced that the cap will apply only to reliefs which are currently unlimited and confirmed thatpensions tax relief is excluded from this overall cap, as it has its own inbuilt cap.

An unused annual allowance can be carried forward automatically.  Where an individual has unused annual allowance that they want to use to set off against an annual allowance charge for a later year, they are not required to include this on the Self Assessment tax return for the year in which the unused allowance arose or for the year that they want to set this off against an annual allowance charge.

Schedule 17 contains transitional rules. Because it had been previously announced that the annual allowance for 2011/12 was to be £255,000, some individuals may have already made pension savings of more than £50,000 for that pension input period before the announcement was made on 14 October 2010 that the annual allowance would be reduced to £50,000 and it is possible that an individual was already making pension saving in a pension input period that had started in 2010/11 but will end in 2011/12. The transitional rules provide that the annual allowance tax charge will not apply to any pension saving of more than £50,000, subject to a maximum of £255,000, where that saving was built up before 14 October 2010 for pension input periods ending in 2011/12.

HMRC have released a pension savings annual allowance calculator to work out pension savings and unused annual allowance at  

                http://hmrc.govuk/tools/pension-allowance/index.htm

More recently, the Government announced on 30 March 2012 that they are aware of a number of instances where the annual allowance legislation in Finance Act 2011 does not work as intended or could be improved and that they expect to publish draft regulations for consultation in the autumn. The Government also stated their intention to make a number of technical improvements to the annual

allowance rules through secondary legislation using existing regulatory making powers (relating to the time of notice for Scheme Pays).

Annual Allowance Charge

There will be no annual allowance tax charge where pension saving for the tax year is less than the individual’s available annual allowance. Nor does the annual allowance apply for the tax year in which an individual dies, so there will be no annual allowance charge for that tax year.

The Annual Allowance Charge arises where an individual’s total pension input for a tax year exceeds the amount over the available annual allowance, except where the benefits are in the form of a serious or severe ill-health lump sum.

The individual pays tax at his marginal rate and will be required to show on the tax return for the relevant tax year the amount by which the total pension input amount exceeds the annual allowance, as increased by any available unused amount carried forward. The relevant tax return boxes are in the Additional Information pages (SA101) -“Pension savings tax charges”, but see Scheme Pays below.

Calculating the pension input can be complex (see Finance Act 2004, as amended by Schedule 17, FA 2011). From 6 April 2012 the pension scheme administrator should automatically advise if pension savings exceed £50,000 in a single scheme – a pensions savings statement, but an individual may be a member of several schemes. The scheme administrators should be contacted if in doubt.

HM Revenue & Customs were asked to look again at their interpretation of how the carry forward rules work for the annual allowance for transitional years of 2008/9, 2009/10 and 2010/11. On 24 November 2011 HMRC issued the following statement.

“ As a result of this review the guidance on how carry forward works for the transitional years has been revised and can be accessed by the link below”.

Annual allowance – carry forward rules for the transitional years

Scheme Pays FA 2011 (at S237B FA2004 as amended by Sch. 17)

Normally it is the member who is responsible for payment of the annual allowance charge. However, if the pension input amount in one pension scheme is more than the annual allowance i.e. £50,000 for 2011-12 and the amount of the annual allowance charge is more than £2,000 then the member can ask their scheme to pay the annual allowance charge for the member out of personal benefits by giving notice to the scheme.

The member must tell the scheme that they wish to use Scheme Pays by 31 July in the year following the tax year in which the annual allowance charge became due.  For the tax year 2011-12 only, this time limit is extended to 31 December 2013.

Lifetime Allowance Charge

While there is no limit on the amount of benefits a person may be entitled to from a pension scheme, the Lifetime Allowance is the maximum amount of pension and/or lump sum that an individual can draw from all pension schemes that benefit from tax relief. The Lifetime Allowance Charge is levied when a pension scheme pays out benefits exceeding the lifetime allowance. Any amount over the lifetime allowance taken as a lump sum is taxable at 55% and any amount over the lifetime allowance taken as a pension is taxable at 25%. The charge will normally be deducted by the scheme administrator from the payment.

Finance Act 2011, Sch. 18 reduced the Lifetime Allowance from £1.8m to £1.5m from 6 April 2012, with the following provisions:

• The Treasury has power to increase this in future years
• There was the opportunity to apply by 5 April 2012 for “Fixed protection”
•  protected lifetime allowance of £1.8 million for individuals who may have already built up pension savings on the expectation that the lifetime allowance would remain at £1,800,000. Fixed Protection carries the following restrictions:                                                                                                                             
• no new contributions can be paid into a money purchase arrangement.                                                                                       
• the amount of benefits built up each year under a defined benefit or a cash balance arrangement to be limited and no benefit accrual.                                                                               
• the individual will not be able to open a new pension arrangement under a registered pension scheme, unless it is to receive a transfer of rights from an existing pension arrangement with restrictions on where and how benefits can be transferred                                                                                                                                                                                                                       
• restricted to those who do not have enhanced or primary protection under earlier years provisions.

HMRC put into context the size of pension benefits which would trigger the lifetime allowance charge with these indicative examples: savings of more than £1.5m in a money purchase scheme, or a final salary scheme with a pension of £75,000 pa or £65,000 after a separate lump sum of three time annual pension.

The legislation (s216, sch.32 of Finance Act 204 and The Registered Pension Schemes (Authorised Payments Regulations 2009) specifies the various occasions when an individual will use up all or part of their lifetime allowance, if the benefit is large enough. These are termed Benefit Crystallisation Events (BCE), basically receipt of a lump sum, becoming entitled to receive a scheme pension or certain increases, or entitlement to a lifetime annuity or a drawdown or when a member of a scheme reaches 75 with undrawn funds, and certain (not all) lump sum death benefits.  The legislation distinguishes between different benefit payments through different BCEs because each needs to be valued in a different way in order to obtain an appropriate measure of its capital value.

Note: The above summary is intended to give a broad overview of the legislation. As pension schemes legislation is lengthy and complex detailed advice should be sought in particular situations.

Con Kelly  ATT  FMAAT

20 April 2012              

The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with a member of AAT staff, or raise your query by email.

Opinions and comments expressed within CPD Interactive are those of theirauthors alone, and do not necessarily reflect the opinions of the AAT or any AAT employee. The AAT is not responsible for the content of such opinions and comments. The Association of Accounting Technicians (AAT) provides CPD Interactive to facilitate its members’ free discussion of accounting issues. Persons using CPD Interactive must not post offensive or defamatory material. Breach of this condition may result in disciplinary or legal action. If you are in doubt as to whether material is suitable for posting, please telephone the number below to discuss this with amember of AAT staff, or raise your query by email.

The AAT is unable to monitor material prior to its posting but monitors the content of this site daily and will remove any offensive or defamatory material when it is identified. However, there is potential for such material to be displayed for sometime before it is discovered by the AAT. If you see any material that you think may be offensive or defamatory, please bring it to the attention of the AAT by telephoning the number or emailing the address below.

For assistance, please telephone 0845 863 0794 or email cpdinfo@aat.org.uk.

Charity accounting update

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Risk management for charities

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Trustees’ responsibilities

Click here to view a step by step guide on how to download an AAT Podcast

If you’ve enjoyed this podcast you may also be interested in the next two charity accounting podcasts recorded by John Caladine.

Risk management for charities

Charity accounting update

Members’ Weekender 2012 – effective accounting in challenging times

The fourth annual Members’ Weekender will be held in Bristol on 18 – 19 May 2012. The Weekender is a residential conference held over two days where members attend lectures and workshops hosted by key UK speakers, representatives of respected accounting firms, accountancy professionals and Central Government departments. Find out more and book here

Have you attended one of our local branch events?

Our national branch network provides an excellent opportunity to keep up to date with your CPD as well as offering the chance to meet AAT peers in your area. We cover a wide range of topics with highly respected speakers, and all of our events are free. View events in your local area