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Over the last few years the London Fashion Forum has worked closely with the Hazlem Fenton team. We have always been impressed with their can-do attitude and the support they provide throughout the whole of the fashion sector. Their continual support at the ever-expanding Profile events has been greatly appreciated.
An Introduction to PAYE
Pay as You Earn (PAYE) can be a minefield for those starting in business or taking employees on for the first time. Mark Moore, Senior Tax manager at Central London Accountants Hazlems Fenton, takes you through what needs to be considered.
Whether an individual is an employee or self-employed in a particular situation is a question of fact depending on the terms under which he or she works. When you engage someone to do work for you, you have to decide whether or not to apply the PAYE rules. It is up to you to get it right or suffer the consequences.
In certain areas, the Inland Revenue has placed emphasis on reclassifying individuals claiming to be self employed. They have issued a leaflet, IR56, Employed or Self-employed? setting out the guidelines of employment status in the form of questions. These cover the following principal factors:
Â· The degree of control and supervision exercised over the individualâ€™s work
Â· Whether services are performed mainly or wholly for one business
Â· Where the duties are performed
Â· Terms of pay, holiday time, pension arrangements, and other benefits
Â· Whether the work has to be performed personally, or whether a substitute may be supplied
Â· Provision of items of equipment
Â· The financial risk and responsibility for loss undertaken by the individual
Before establishing a PAYE system, it is necessary to notify the Inland Revenue office covering your geographical area by completing and returning form CWF3 (Notification to the Inland Revenue for registration).
Upon registration, the Inland Revenue will send you guidelines on operating PAYE, national insurance, statutory sick pay, statutory maternity pay, statutory paternity pay and statutory adoption pay, including a number of forms with which to operate the PAYE and NI systems. (See checklist below).
To help you calculate the amount of tax and NI due, the Inland Revenue will supply you with sets of tax tables. By referring to these, and an employeeâ€™s tax code, you will be able to calculate the amount of salary that is not subject to tax. The difference between this figure and the gross amount paid is the employeeâ€™s taxable pay. The tax can then be calculated by reference to another set of tables. The employerâ€™s and employeeâ€™s NI is calculated by reference to the employeeâ€™s gross pay in conjunction with a third set of tables. Note, however, several â€˜benefitsâ€™ are also subject to NI even where the tax is dealt with on a different basis.
The tax and NI should be paid to the Inland Revenue by 19th of the month following payment. Employers whose average monthly payments of PAYE and NI are less than Â£1,500 in total are allowed to pay quarterly rather than monthly (i.e. by 19th of July, October, January, and April). This should be requested using form P31.
Be sure to read these carefully.
Have you familiarised yourself with the following forms?
Electronic payment of PAYE
Employers who pay electronically have until the 22nd of the month to pay. Where the 22nd falls on a weekend or is a bank holiday, payment must be received by the previous bank working day.
Electronic filing of PAYE returns
Employers can now file P35, P38A and P14 forms over the Internet. Employers will, on a phased basis, be required to file their end of year returns electronically from 2004-05. The implementation date will depend on the number of staff involved, but all employers will have to send their returns electronically from May 2010.
PAYE can be a tortuous procedure for the new businessperson. Hazlems Fenton has a dedicated expert payroll bureau who would be pleased to show you how to operate PAYE properly or provide a service for the maintenance of your PAYE records.
Mark Moore can be contacted on 020 7437 7666 or at firstname.lastname@example.org
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Self Assessment â€“ What is it and How does it affect you ?
We have all seen the advertising campaigns in the press and on TV, but what exactly is Self Assessment and how does it apply to you? Mark Moore, Senior Tax Manager at
This article gives examples as they apply to the current 2004/05 tax year, however the dates referred to in any given year will be the same.
The first rule, and the most important is that it is a fundamental part of the self assessment system that responsibility lies with you, the taxpayer, to file Tax Returns and pay the right amount of tax, at the right time â€“ you must not wait for the Inland Revenue to ask .If you know that you have untaxed or undeclared income it is your responsibility to report this to the Inland Revenue, even if they do not issue with a tax return for completion. The penalties for failing to do so are severe.
Tax returns covering income for the year ending 5 April 2005 will be issued on or after 6 April 2005, and will consist of a main tax form and backing schedules. Your tax office will send out what they think are the relevant schedules. If you need other schedules you will have to ask for them. The completed full return has to be submitted to the Inland Revenue by 31 January 2006 (the â€˜filing dateâ€™).
If you donâ€™t want to work out your own tax bill, you must send the tax return in by 30 September 2005. However, you should note that your return must be completed as far as the total income on which tax has to be paid. Figures must be given for every item, even if only estimates. It is not possible to enter question marks or leave the tax inspector to decide whether an item is taxable or not. The only section that can be left for the tax office to complete is the actual calculation of the tax due on your total income.
If you have taxable income or capital gains for 2004-05 and have not received a tax return, you must advise your tax office by 5 October 2005 at the latest.
There are automatic penalties for late filing of tax returns. Failure to submit the tax return by 31 January incurs a Â£100 penalty. If it has still not been returned six months later, a further Â£100 will be charged. However, the penalties charged cannot exceed the total amount of tax due. In the most serious cases, there are provisions for penalties of up to Â£60 a day.
Amendments, investigations, and record keeping
You have one year from the filing date to make any amendments to the return. The Inland Revenue may correct obvious errors or mistakes within nine months of receipt of the return.
Within a period of one year from the date the tax return was due to be submitted (or when it actually was submitted, if later), the Inland Revenue will have a right to make enquiries to check that the tax return has been correctly completed. No reason for the enquiry need be given.
All records relating to the return should be kept during this one-year period. If trading or rental income is involved, all records should be kept for a further four years. There are penalties for not keeping your records.
If a return is not submitted by the due date, the Inland Revenue can, within five years of the filing date, make an estimate to the best of its information and belief of the amount of tax due. This amount of tax will be payable without appeal, but will automatically be superseded when the return and self assessment are sent in.
Payment of tax
Payments on account of income tax (and Class 4 national insurance contributions) for a particular tax year will be due on 31 January in the tax year and 31 July following the end of the tax year. These payments will be based on one half of the total income tax liability (less any tax deducted at source) for the previous tax year. You have the right to reduce payments on account if you believe the income tax for the current year will be lower than that for the previous year. However, you may be charged interest if the reduction is more than it should be. Payments on account will not be required where each payment works out at less than Â£250.
Surcharges and interest
An automatic surcharge of 5% will be levied on any 2004-05 tax outstanding at 28 February 2006, and a further surcharge of 5% will apply to any tax still outstanding at 31 July 2006. There is a right of appeal against the surcharge on the grounds of reasonable excuse.
In addition, interest will run on tax (and surcharges and penalties) paid late, from the due date of payment to the actual date of payment. The Inland Revenue will pay interest on amounts overpaid, from the date of payment (or the due date if later) to the date of repayment.
Self assessment for employees
For employees, self assessment is not too drastic. The PAYE system means most employees should pay the correct amount of tax at source. An employee with relatively straightforward tax affairs is unlikely to be asked to complete a tax return.
The main cause of under or over payments of PAYE is actual benefits in kind being different from the estimates included in the tax code. If there are underpayments of tax, they may be collected by direct demand or, if modest, carried forward as an adjustment to their tax code for the next tax year, but one. Self assessment allows up to Â£2,000 to be carried forward in this way, provided the Inland Revenue is given all the relevant details by 30 September following the end of the tax year.
So that employees can complete their tax returns properly, information deadlines are imposed on employers:
Â· Forms P60 must be provided to employees by 31 May following the end of the tax year
Â· Copies of forms P11D and P9D must be provided to relevant employees by 6 July following the end of the tax year
Â· Form P45 has a part for the employee to retain
Table of key dates
30 September 2004 - tax return for 2003-04 to be submitted if you donâ€™t want to work out your own tax or if you want a PAYE underpayment of less than Â£2,000 collected via your 2005-06 PAYE code
31 January 2005 - tax return for 2003-04 to be submitted with self assessment
- payment of balance of income tax for 2003-04
- payment of capital gains tax for 2003-04
- first payment on account of 2004-05 income tax (normally half the total 2003-04 liability, adjusted for tax deducted at source)
31 July 2005 - second payment on account of 2004-05 income tax
30 September 2005 - tax return for 2004-05 to be submitted if you donâ€™t want to work out your own tax or if you want a PAYE underpayment of less than Â£2,000 collected via your 2006-07 PAYE code
31 January 2006 - tax return for 2004-05 to be submitted with self assessment
- payment of balance of income tax for 2004-05
- payment of capital gains tax for 2004-05
- first payment on account of 2005-06 income tax (normally half the total 2004-05 liability, adjusted for tax deducted at source)
31 July 2006 - second payment on account of 2005-06 income tax
... and so on.
Hazlems Fenton has a dedicated tax department which specialises in the completion of Self Assessment Tax Returns and the compliance with Self Assessment deadlines and obligations. If you have any concerns or need any advice about your obligations under Self Assessment please call Mark Moore on 020 7437 7666 or email him at email@example.com
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