Access Accounting - Blog

Get your priorities right, Mr Brown

Gordon Brown got something right this week when he announced at the Labour conference that he wants to raise CO2 targets from 60% to 80%.  Significant climate change could decrease GDP by double digit percentages and this is a threat to our economy as well as a potential cost to humanity. 

Is the Climate Change Bill unenforceable without agreed auditing standards?

The amended Climate Change Bill, which is currently going through the House of Commons, will mean quoted companies having to report on carbon emissions in their annual reports. If this is to go on the statute books as expected this summer, it raises the question “why now?”.

Software options to meet new CIS rules

When one poor contractor complained that he hadn’t heard anything about the new CIS rules, I couldn’t help but feel sorry for him. Had his accountant not mentioned this to him? He or she should have been more on the ball if not – or get another accountant. After explaining what the new CIS was all about, I thought it might be helpful....

The countdown begins: new CIS only one month away

The countdown to the forthcoming CIS regulation changes is now well underway, with only a month to go until it is in place and contractors can register for on-line submission.

More than 250,000 contractors will be affected by the new legislation, which applies not only to those in the construction industry but also the wider business community. In fact any business which spends on average, £1m or more on construction will come under the clutches of the scheme. And with subsequent fines of up to £3,000 for inaccurate returns or not producing the monthly Sub-contractor Payment & Deduction Statement, this should be incentive in itself to make sure the data is correct.

Such automatic monthly penalties could turn out to be very costly indeed. The onus has been placed well and truly on the contractor, whom you can’t help but feel sorry for.

At Access Accounting we have received a number of calls about the £3,000 fine – being hit firmly in the pocket does make you sit up and listen. It has to be said that these penalties don’t come into place until October 2007 – there is a little breathing space. However, look how quickly the last 12 months have gone; it was last April when these changes were originally going to be put into place. Time waits for no man as they say…

To verify or not verify – that is the question

I was talking to a contractor the other day who asked a very valid question – ‘I have so many sub-contractors on my books; do I need to verify every one of them?’

That’s a very good point as it is only sub-contractors that have been recently recruited that need to be verified. You don’t need to verify if a sub-contractor has been paid since 6th April 2005 AND they provided you with either a CIS4(T), CIS4(P) or a tax certificate (CIS5 or CIS6). Apart from the CIS4(P) – the registration card – the other forms of evidence need to have an expiry date of at least April 2007. These sub-contractors should appear on the CD that HMRC sent out to you and it's worth checking that the details you hold do match, and that you have the correct tax status held against each sub-contractor's record.

As my friend commented, ‘This is going to be a time consuming process.’ There seems no doubt about that….

Kevin Misselbrook, customer services director

The importance of matching

HMRC will be sending contractors an additional CD of sub-contractors in March – they will also be mailing sub-contractors to confirm the details that are currently held on HMRC’s files.

Hopefully many businesses will be well underway with the matching process, following the first batch of records that HMRC sent out in November. However, this process could be quite time consuming in the first instance.

For the contractor, one of the chief problems in matching the data on their system to that of HMRC’s is likely to be the trading name or even something as simple as a space in a field – double-barrelled names will need a hyphen! Incorrect data could mean an error in the deductions made from a sub-contractor’s payments. Not good for relationships between the contractor and sub-contractor. (in fact there are three items which must match HMRC’s database – the Unique Taxpayer Reference, the sub-contractor name and NINO/CRN).

If there are any discrepancies, the contractor needs to talk to the sub-contractor not HMRC. In fact we’d be very interested to hear your personal experiences of matching the data – any feedback for others who are still going through the process I am sure would be greatly received!

For more information on Access CIS software please visit their website.

CIS deadline looms

Those working in the construction industry may need reminding further that the new construction industry scheme (CIS) will be implemented next month.

Last month, HM Revenue & Customs (HMRC) launched a campaign to remind contractors of the changes in the law which will allow contractors to pay sub-contractors and assist with taxes.

Following concern from recruiters about whether HMRC's systems would be able to handle the changes, a spokesman told Recruiter magazine: "Our IT systems have been designed to cope with the changes arising from new CIS. We can confirm that we are ready to go live on April 6th."

He added that HMRC's systems has been exhaustively tested but would continue to be examined before the scheme comes into place. Changes to the scheme, announced by the chancellor in his 2003 Budget, were initially supposed to come into force in April 2005; however, the industry voiced concern that setting the date so early would not leave enough time for companies to prepare for the scheme.

As a contractor, what are your thoughts on the changes to the CIS rules? Are you ready for April 2007 - what impact will it have on your business? Let us have your comments.

Time is ticking but it’s not too late

We’ve been pushing for businesses that will be affected by the changes to the Construction Industry Scheme (CIS) to update their software since last year and we've continued to push ever since then. There’s also been much publicity in the press recently - Pay Magazine covered the topic in its January and February editions and Accountingweb has been covering the topic for a while with Accountancy Age recently reporting on the lack of readiness for the changes according to a survey undertaken by KMPG.

There are of course, many questions still being asked so I thought it might be worthwhile to recap on what the CIS changes mean for the industry:

• Vouchers will no longer be required – this refers to the monthly CIS23, CIS24 and CIS25

• The subcontractor cards and certificates are also no longer required (CIS4, CIS5, and CIS6)

• You’ll need to keep detailed records of all subcontractors for payments and deductions. There will be no annual returns but instead there will be a monthly return to HM Revenue & Customs (you’ll have the choice of electronic or paper format) including the new monthly Subcontractor Payment & Deduction Statement

• Any subcontractor verification will be done by phone or online

• TTQT - or Tax Treatment Qualification Test as it is known - will determine if a subcontractor may be paid gross or have tax deducted at either the standard or higher tax rate before they’re paid.

For more information on Access CIS or a copy of the BASDA guide visit: www.access-accounts.com/cis

Kevin Misselbrook, customer services director

Salary Sacrifice and Smart Pensions

What is salary sacrifice?

A salary sacrifice happens when an employee gives up the right to receive part of their salary due under their contract of employment, usually in return for their employers agreement to provide them with some form of non-cash benefit, e.g. childcare vouchers. When an employee agrees to a salary sacrifice in return for a non-cash benefit, they give up their right to future cash remuneration. When entering into a salary sacrifice arrangement the employee needs to understand what the sacrifice will mean in practical terms, as the reduction in pay may effect the following:

• Their future right to the original (higher) salary
• Any pension scheme being contributed to
• Entitlement to Working Tax Credit or Child Tax Credit
• Entitlement to State Pension or other benefits such as Statutory Maternity Pay
• Credit rating
• Mortgage applications
• Death in service benefits
• Pay increases, overtime rates, bonuses, etc

In order to safeguard the above, it is advisable that a written agreement is obtained stating that the figure used should be the gross pay (plus any salary sacrifice element) and that payslips should also show this.

If the salary sacrifice does not take the employee's salary below the Lower Earnings Limit (LEL) for National Insurance (NI) then entitlement to benefits will not be affected, although entitlement to State Second Pension (S2P) may well be reduced if the salary sacrifice reduces their annual salary to between the LEL and Upper Earnings Limit (UEL).

When setting up a salary sacrifice scheme, an employer needs to consider the following:

• It will be necessary to change the employee's terms and conditions of employment if they decide to take advantage of the salary sacrifice scheme
• A salary sacrifice must not take an employee's salary below the national minimum wage level
• The effect if an employee takes multiple sacrifices
• The effect of a salary sacrifice on other benefits, e.g. life assurance
• The need to keep HMRC informed of the scheme and the new contractual arrangements

What is a smart pension?

A 'smart pension' is a type of salary sacrifice where an employee's salary is reduced by the amount of their pension contribution, and instead this is paid directly by the employer. The reason for this is that both the employee and employer will benefit from the reduced NI contributions on the lower salary. This can mean that the employee's take-home pay may be increased as compared to the pre-sacrifice situation, and the employer may well add the savings in NI contributions into the pension fund. With the cost of pensions rising, this can be a significant contribution to an employee's pension.

Pip Trowles

Work and Families Act 2006

While the new Work and Families Act 2006 only relates to babies that are due to be born or adopted on or after 1 April 2007, the changes brought about by this act could in fact affect employers much sooner than this as a baby due to be born on or after this date could arrive as early as mid to late November 2006. Payroll software will need to have the legislative rules in place so they can be applied as appropriate, but it also needs to be running the existing legislation for any babies due to be born on 31 March 2007 or earlier.

The changes can be summarised as follows:

• The Maternity Pay Period is extended from 26 weeks to 39 weeks.
• The Maternity Pay Period will be able to start on any day of the week in accordance with the date the woman gives in her notice to her employer of the day she wants her SMP to start. This will allow SMP to align with the start of the woman's maternity leave in all cases.
• A woman will be able to work for an employer paying her SMP for up to 10 days in her maternity pay period and to retain SMP for the week in which any such work is done.
• The weekly rate of SMP can be divided by 7 so that it is easier for the weekly payments of SMP to be aligned with the particular pay practice in the employment (if the employer so chooses).
• The extension of the pay period from 26 to 39 weeks, enabling limited work in the pay period and enabling the weekly rate of payments to be divided by 7 also apply to Statutory Adoption Pay (SAP) where the child is expected to be placed for adoption on or after 1 April 2007.
• Dividing the weekly rate by 7 also applies to Statutory Paternity Pay (SPP) for babies due on or after 1 April 2007.
• All women, irrespective of their length of service will now qualify for Additional Maternity Leave, which will allow them to take up to a maximum of 52 weeks off work. The same does not apply for Statutory Adoption Leave, so employees will still only be entitled to Additional Adoption Leave if they meet the 26 week service test.
• If women want to change the date of their return to work they must now give their employer 56 days notice, instead of 28 days.

So if you've been notified by any employees that they are expecting a baby or are going to adopt on or after 1 April 2007, you must ensure that your payroll software can handle the changes to legislation. What's more, it is likely that you'll need to apply these before next April so the time to act is now.

Pip Trowles