Business and personal tax changes introduced

As well as changes to the rules governing employers and businesses, this April's common commencement date also introduces some amendments to the tax system.

Income tax

For tax years starting on or after 6 April 2009, the threshold below which taxpayers don’t have to make in-year payments on account of their annual income tax liability under the self assessment system rises from £500 to £1,000.

New penalty system for tax return mistakes

A new penalty regime for tax errors comes into effect as of 1 April.

Anyone who takes reasonable care to get their tax return right will not be penalised, even if they make a mistake, HM Revenue and Customs has confirmed.

Reasonable care is defined by HM Revenue and Customs as: keeping accurate records to make sure tax returns are correct; checking what the correct position is when a taxpayer doesn’t understand something; and telling HM Revenue & Customs promptly about any error that is discovered in a tax return or document after it has been submitted.

If reasonable care isn’t taken, and this results in a tax underpayment, then the errors will be penalised. In cases of carelessness, the penalty is set at 30 per cent of the understated tax, although the figure can be reduced, depending on the circumstances in which the disclosure is made, if the taxpayer notifies HM Revenue and Customs of the error.

In cases where taxpayers deliberately understate the amount of tax they owe, the penalty is 70 per cent of the understated tax and 100 per cent where the taxpayer takes steps to hide the error.

HM Revenue and Customs has said that the new penalties apply initially to income tax (including self assessment), VAT, PAYE, National Insurance contributions, corporation tax, capital gains tax and the Construction Industry Scheme, and to errors in tax returns or other documents for periods starting on or after 1 April 2008 and that are due to be filed on or after 1 April 2009.

However, any returns that are about to be completed for the 2007/08 year, like self assessment returns, are subject to the old penalties.

PAYE

Firms with 50 or more employees need to file their employee starter and leaver information online as of 6 April. The information includes: P45s part 1 (details of employees leaving); P45s part 3 (new employee details); P46s (for employees without a P45); and P46s (Pen) containing new pension details. Employers who fail to submit the information online could face a penalty.

Forms are filed online using HM Revenue & Customs’s PAYE Online for Employers service, but firms first need to register to use the system at http://www.hmrc.gov.uk

VAT

There are changes to the VAT flat rate system. As from 6 April, businesses can qualify for the flat rate scheme by now only meeting the first of two tests: that its taxable income must be less than £150,000. The second test, that its total income is less than £187,500, goes. The turnover point at which a business must leave the scheme increases to £225,000.

From 1 April 2009, the process for handling VAT disputes also changes. The existing system involving local reconsiderations, followed by appeals to the VAT and Duties Tribunals, is replaced by a new structure.

The new system begins with an internal review. This will be optional; that is, the appellant can either request the review or proceed straight to the new Tribunal system.

If the findings of the internal review are not to the appellant’s satisfaction, a further appeal to the Tribunal is still available. The internal review will be carried out by a specially trained officer who has no connection with the officer who made the disputed decision or his/her line management, and a decision must be given within 45 days (unless another period is agreed between the parties).

The new Tribunal is structured on a two-tier basis. Most appeals will now be heard by a single Tax Chamber in the first-tier Tribunal but adverse decisions of that Tribunal will be appealable to the second-tier Upper Tribunal.

Business rates

From 1 April, the threshold at which an empty property becomes liable for business rates increases to a rateable value of £15,000 from £2,200. This is a temporary increase for 2009/10.

The rule that premises must be on the rating list on 1 April to qualify for small business rate relief in that year is dropped. The change allows small businesses to claim rate relief from the date they occupy a property in a financial year, even though it was first registered on a ratings list after 1 April.

Depending on the agreement of the local council, businesses may be able to spread payments for certain backdated business rates bills over up to eight years.

Car benefits

The rules on reporting car benefits change as from 6 April 2009.

Employers must complete and file form P46 (Car) when any of the following happens: an employee or director is provided with a first car, available for private use; an employee or director is provided with a second or further car, available for private use; the car provided to an employee or director is changed; an employee who has been provided with a car starts earning at a rate of £8,500 or more per year, or becomes a director; and a car is withdrawn from an employee or director.

As from 6 April, employers no longer need to complete a form P46 (Car) when one car is replaced with another, although the form must still be used to report the other changes.

Old P45 forms replaced

As from 6 April, the old A5 version of the P45 form is no longer be valid.

It is superseded by the new A4 version which was first introduced in October last year. The new P45 includes details of the employee’s date of birth and their gender.

HM Revenue and Customs has said that any back stock of the A5 P45s should be destroyed by 6 April and that employers must use the larger format instead.

New compliance and inspection rules

As from 1 April 2009, new legislation affects the way that HM Revenue and Customs conducts enquiries, visits and inspections.

The changes in the rules mean there will be new information and inspection powers for HM Revenue & Customs, new record keeping requirements for taxpayers and new time limits for tax assessments.

To help taxpayers understand the new rules, there is a downloadable podcast at http://www.hmrc.gov.uk/podcasts and more details at http://www.hmrc.gov.uk/about/new-compliance-checks.htm

Effectively, the new legislation means that HM Revenue and Customs now has: one set of powers to inspect business records, assets and premises; the ability to see statutory business records without a right of appeal; the ability to look at records for PAYE, income tax, the construction industry scheme, capital gains tax and corporation tax during the tax year before a return has been submitted; a new power to correct obvious errors in a tax return based on information held by HM Revenue and Customs; and a single approach across all taxes for asking taxpayers and third parties for extra information.

Taxpayers, though, get some extra safeguards.

As part of the changes, there are new rules on the way that HM Revenue and Customs must carry out its compliance checks. These include: a new four-year time limit for assessments and claims; a streamlined process for closing corporation tax assessments; a new ban on inspecting purely private dwellings without consent; a requirement for HM Revenue and Customs to give at least seven days prior notice of a visit, unless an unannounced visit is necessary or a shorter period is agreed; a new requirement that unannounced visits must be approved beforehand by a specially trained HM Revenue and Customs officer; and a statutory requirement on HM Revenue and Customs to act reasonably.