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Business and Tax Round-up - Autumn 2015

8 Oct 2015

New penalties for National Minimum Wage breaches

The maximum penalty for employers who fail to pay the National Minimum Wage has risen significantly. Previously the maximum financial penalty was 100% of the total underpayment, to a maximum cap of £20,000, regardless of the number of workers involved.

However, from 26 May 2015 the maximum financial penalty has risen to £20,000 per underpaid worker, in line with plans previously announced under the Coalition government.

The National Minimum Wage currently applies to all workers of school leaving age, with a limited number of exceptions. The main adult rate is currently £6.50 an hour, rising to £6.70 from 1 October 2015.


Plans to extend free childcare are brought forward

The Government has brought forward its plans to double free childcare for working parents, with the scheme due to begin rolling out to parts of the country in September 2016, a year earlier than originally planned.

Under the new Childcare Bill, eligible families where both parents or a lone parent are in work will benefit from up to 30 hours of free childcare for 3 and 4 year-olds during term-time.

The average funding rates paid to childcare providers are also set to increase subject to a childcare funding review.

The changes are expected to benefit up to 600,000 families, resulting in total childcare cost savings for parents of around £5,000 a year.


New cap on backdated holiday pay claims


Employees bringing claims for backdated holiday pay will now face restrictions on the amount they can claim. The introduction of The Deduction from Wages (Limitation) Regulations 2014 means that from 1 July 2015 backdated holiday pay claims are limited to a maximum of two years.

The changes follow a legal ruling in the case of Bear Scotland v Fulton last year. Then the Employment Appeal Tribunal limited the potential for workers to succeed with claims for historical non-payment of holiday pay, but it asserted that regular non-guaranteed overtime should be included in holiday pay calculations.

Although the British Chambers of Commerce (BCC) had called for a cap on backdated holiday pay claims, the group has warned that there is still ‘significant uncertainty for businesses when it comes to devising holiday pay policies’.

Dr Adam Marshall, Executive Director of Policy and External Affairs at the BCC, said: ‘More broadly, we are concerned by the growing number of rulings . . . that are steadily expanding the definition of holiday pay. These changes create huge risks for businesses, and could deter some from expanding and creating jobs’.


Income tax, NICs and VAT ‘tax lock’


In the run-up to the General Election in May, the Conservative party pledged to introduce a new law guaranteeing that there will be no increases in income tax, national insurance or VAT during the course of the Parliament.

Following their Election victory, the new all-Conservative Government has confirmed that it will legislate to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and employer and employee (Class 1) national insurance contributions (NICs) rates, ensuring that they cannot rise above their current (2015/16) levels.

The so-called ‘tax lock’ will also ensure that the NICs Upper Earnings Limit cannot rise above the higher rate threshold for income tax, and will prevent the relevant statutory provisions being used to remove any items from the zero rate of VAT and reduced rate of VAT during the next five years.


Further crackdown on tax non-compliance


HMRC is set to gain greater powers and millions of pounds in additional funding as part of the Government’s plans to crack down on tax evasion and non-compliance.

Following the introduction of new legislation, HMRC will, in certain circumstances, have the ability to recover tax and tax credit debts of over £1,000 directly from debtors’ bank and building society accounts, including funds held in cash ISAs. It is understood that safeguards will be put in place, including a county court appeal process and a face-to-face visit to every debtor before they are considered for debt recovery.

In addition, the Revenue will be given the power to acquire data from online intermediaries and electronic payment providers to identify those operating in the ‘hidden economy’. A new digital disclosure channel is also set to be created in a bid to make it simpler for taxpayers to disclose unpaid tax liabilities.

The tax authority hopes this fresh clampdown on tax evasion and aggressive tax avoidance will raise an additional £5 billion.


HMRC ‘waives’ fee for late tax returns


Following the exposure of a leaked memo by the media, HMRC has confirmed its stance on applying the £100 penalty for those individuals who fail to submit their self assessment tax returns on time.

Media reports suggested that HMRC would waive the £100 late filing fee as long as a ‘reasonable excuse’ was provided, without an individual’s mitigating circumstances being subject to further investigation.

Examples of a ‘reasonable excuse’ include the recent death of a partner, an unexpected hospital stay, computer or software failure, HMRC service issues, fire or unexpected postal service delays.

HMRC has now confirmed that it will be focusing ‘more and more resources’ on investigating major tax avoidance and evasion, and that its approach to the £100 fine is in line with its ‘proportionate’ approach to penalty appeals.

However, a spokesperson stressed that it will only accept ‘reasonable excuses’ at face value in respect of late 2013/14 self assessment tax returns, and only where those returns have now been received by HMRC and any tax due has been paid.

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