New game of give and take
Recent pieces of legislation have given SMES a potential boost – but red tape looms, writes Rob Stokes
THE Lord giveth and the Lord taketh away. So do the Chancellor of the Exchequer, The Treasury, and HMRC. Taking: April 6 will bring new Real Time Information (RTI) rules on PAYE, which experts warn will place a heavy burden on small businesses.
Giving: January 1 brought a tenfold rise from £25,000 to £250,000 for two years until December 31 2014 in the Annual Investment Allowance (AIA) limit to how much investment in qualifying assets such as computers and machinery may be set against tax.
What with widespread HMRC publicity about crackdowns on this or that, accountants report rising disquiet among clients.
“They are becoming more wary of dealing with HMRC,” says Kirsty Wilson, senior tax manager at Glasgow accountants Aber- crombie Gemmell. “Enquiries from HMRC are increasing a lot and many clients consult us before dealing with these, even with simpler issues such as PAYE.”
Currently, firms make monthly PAYE payments to HMRC which normally include aggregate totals for tax deducted, student loans deductions, and employee and employer national insurance contributions; full personal data for each individual is usually submitted in the annual P35 and P14 return.
But from April 6, employers and pension providers will have to submit information to HMRC regarding deductions made for PAYE, NIC and student loans per employee ‘ when or before’ the payment is made.
Soem ployers, or their accountant, bookkeeper or payroll bureau, will have to: send details to HMRC every time they pay an employee, at the time they pay them; and use payroll software to send electronically.
“Most companies are having to update PAYE systems,” says Wilson. “They need the usual relevant information such as name, address, national insurance number, date of birth and so on. This may not necessarily be in one place: it may be split between Human Resources and PAYE.”
“RTI will put a lot of businesses
off expanding,” warns Chas RoyChowdhury, head of taxation at the London based Association of Chartered Certified Accountants (ACCA) and who sits on the HMRC RTI Customer User Group.
“ACCA has pressed for changes to be reported on the 19th of the month when you make PAYE returns. It would have no extra cash-flow or borrowing requirement for the (UK) government and would lift an enormous burden off many smaller businesses,” he adds.
Based on the experience of participants in the RTI Customer User Group, he fears many small businesses will struggle to track without installing more sophisticated IT than they currently possess or feel comfortable using.
“Some ex-members of the User Group are submitting RTI returns on a daily basis in order to deal with the ‘on or before’ issue, which is not really tenable for any business,” Roy-Chowdhury says.
“We’ve taken the matter up with officials at (the UK) Department of Business, Innovation and Skills, but we find it very difficult to get through to have a real conversation with the Department of Work and Pensions (DWP). HMRC are pig-in-the-middle.”
“RTI will be a good thing longterm,” Wilson concedes. “It will track changes before the end of the tax year, which can cut down on the need to pay additional tax or to get a rebate. But initially, it means a greater administrative burden for SMEs.”
Ricky Murray, a partner at Johnston Carmichael agrees: “From
‘RTI WILL BE GOOD IN THE LONG TERM BUT INITIALLY IT MEANS A GREATER BURDEN FOR SMEs’
the revenue’s point of view it’s looking for a more transparent system, one that will let them detect over or under payments more quickly. It’s more red tape, and a further cost to employing people in your business.”
Existing staff will, he says, have to take on that burden or get additional resource and he adds that some companies are already looking at outsourcing their payroll systems.
On the enhanced AIA Murray says that raising the annual limit to £250,000 is an improvement but notes the uncertainty about when it will come back down again.
“That doesn’t help businesses with their capital expenditure planning. So I’m concerned that people will enter into a commitment like that for a tax reason rather a good business reason.”
In the main, though, he says it is a positive measure in that anyone who has to spend money “is at least getting that enhanced allowance and it will help some companies kick-start the business with some orders or investing in machinery.
“Enhanced AIA is not driving investment much, especially among SMEs,” Kirsty Wilson says. “Remember that when the government reduced the allowance down to £25,000, they estimated that 95% of businesses would be unaffected by that, so that tells you something. We have many clients who were not even using the £25,000 allowance.”
A typical investment need for a small firm might only run to a new IT system or a vehicle, both of which qualify for the allowance.
For the small proportion of companies actively looking to invest, enhanced AIA does actually encourage them to do so in the desired period, says Wilson.
“For some larger clients, particularly in construction and manufacturing, the £250,000 limit is of interest and really can have an impact on their tax bill for the year,” she adds.
“A key point to consider is when the investment is made. If an accounting period spans January 1, 2013, then firms need to look at aggregate investment for the year and to understand rules around time apportioning. It can get slightly complicated as to what allowances are available in the period.”
Wilson cites the example of a hypothetical company with a yearend of July 31, 2013, and which incurred qualifying expenditure of £50,000 on IT and vehicles up to December 31, 2012, and a further £100,000 on machinery in the seven months to July 31 this year.
The AIA limit for the company’s financial year would be £156,250 (for the five month period August 1 to December 31, 2012, five twelfths of £25,000 = £10,417: from January 1 to July 31, 2013, seven twelfths of £250,000 = £145,833).
Under the previous limit, only £25,000 of the expenditure on IT and vehicles would qualify for AIA. The remaining £25,000 of that investment would be allocated in the accounts to plant and machinery and would receive Written Down Allowances at 18%.
The balance of AIA available for the seven months to July 31 this year would be £131,250 (£156,250 - £25,000), more than covering the £100,000 of qualifying expenditure on the machinery. The £31,250 excess of the AIA (£131,250£100,000) would be lost, as it does not roll over into the company’s next financial year.
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