Welcome to the November 2012 Newsletter from Connolly Accountants Ltd

The past month has seen the introduction of a raft of changes for employers, and it seems that there are plenty more yet to come.

Following the roll-out of the pension auto-enrolment regime, together with the new cost recovery initiative from the Health and Safety Executive, employers are now being urged to prepare for the introduction of Real Time Information, which will see fundamental changes to the way in which they must report payments and deductions they have made under Pay As You Earn (PAYE).

Meanwhile, the Government has unveiled controversial new plans to introduce 'owner-employee' contracts, which would allow staff to take tax-free shares in a business in exchange for sacrificing key employment rights. While billed as a means of helping SMEs to hire staff, opponents have warned that the contracts could instead act as a 'charter' for rogue employers.

All change for Pay As You Earn - are you ready for Real Time Information?

With effect from April 2013, HM Revenue & Customs (HMRC) is introducing a new way of reporting PAYE, known as Real Time Information, or RTI.

The new system introduces significant changes to the way in which employers must report the payments and deductions they have made under PAYE.

Under the Pay as You Earn system, employers deduct an appropriate amount of income tax and national insurance contributions (NICs) from employees' wages, in accordance with PAYE codes, tables and other instructions and procedures laid down by HMRC. Over the course of a year, the amounts deducted should be a close match to the actual tax and NIC liability due.

Employers deduct the tax and NICs, add their own employer's NICs, and pay the total to HMRC, net of certain adjustments, every month or quarter. However, it is not until the end of the tax year, when the annual return is completed, that the overall liability is reviewed and calculated.

Under this system, inaccuracies can go undetected for long periods of time, with the result that individuals can go for extended periods inadvertently paying the wrong amount of tax.

The aim of RTI is to help to ensure that individuals pay the correct amount of income tax and NICs throughout the year.

While some essential aspects of the new system will remain the same, under RTI employers and pension providers must submit information to HMRC regarding deductions they have made for PAYE, NICs and student loans when or before each payment is made, rather than at the end of the year.

HMRC also hopes to reduce the administrative burden on businesses. Under RTI, there will no longer be a need to submit forms P14, P35 or P35A, and the PAYE end of year reconciliation process will be simplified.

RTI is being phased in from next April, with all micro, small and medium-sized businesses, and most large employers and payroll bureaux set to begin sending payroll information to HMRC in real time from this date.

Getting RTI-ready

It is essential to prepare for the changes ahead of time, in order to ensure that your payroll data is accurate and in an appropriate format for RTI. The information you submit will be matched against records held on HMRC's database, and any discrepancies could lead to inaccurate tax calculations or trigger a compliance check.

Our online RTI guide provides an overview of the new requirements, including useful tips to help make sure you are ready for the changes, and information on the various types of RTI submission you may need to make. To view the guide, visit our hot topics section here.

We can assist with all your payroll needs - please contact us for further information.

Government unveils controversial 'rights for shares' scheme

The Government has unveiled its plans to introduce new owner-employee contracts, which would allow employers to offer tax-free shares to staff, in return for those staff giving up specified employment rights.

The scheme offers owner-employees between £2,000 and £50,000 of shares, which are exempt from capital gains tax (CGT).

However, in return, employees must give up key rights relating to unfair dismissal, statutory redundancy pay, flexible working and time off for training, and would have to give more notice of an early date of return from maternity or adoption leave.

The scheme is intended to offer additional flexibility to small and medium-sized firms, but would be open to all employers. While employee-owner contracts would be optional for existing employees, businesses could choose to offer only this type of contract when taking on new staff.

Businesses would also have the option of building more generous employment rights into their contracts, should they wish.

However, the plans have been met with some degree of opposition, with experts accusing Chancellor George Osborne of opening up 'new opportunities' for tax avoidance.

While some business leaders have supported the measure, others have argued that firms could use the scheme to reward highly paid staff with up to £50,000 of tax-exempt shares without them suffering any loss of employment rights, while lower paid staff with a small number of shares may enjoy comparatively few benefits from the scheme.

Some business groups have also warned that the move would not be relevant to all firms, and could result in too much additional red tape.

Meanwhile, employee representatives have reacted angrily to the announcement, with Citizens Advice branding the plans a 'rogues' charter'.

The Government has launched a consultation on the scheme, which is set to come into effect by April 2013.


1 November               
£100 penalty if 2012 paper Tax Return not yet filed. Additional penalties may apply for further delay.

2 November               
Submission date of P46 (Car) for quarter to 5 October.

For more key tax dates and deadlines visit our 2012/13 Tax Calendar.


'Doubling the qualifying time for legal protection against unfair dismissal to two years will make the jobs of three million workers even more insecure than they are already. Together with the introduction of hefty fees to take a case to an employment tribunal, it's nothing short of a charter for rogue employers.'

Gillian Guy of Citizens Advice, commenting on Government plans to introduce new owner-employee contracts.



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