Employers have been warned recently that schemes setting out to avoid payment of wages to employees at the minimum rates set by the National Minimum Wage regulations will be penalised. Currently, employers found lacking in this area will be required to make up the unpaid wages and pay fines which can be up to 50% of the total arrears, capped at £5,000 for each notice of underpayment issued by HMRC.

These penalties are due to be increased. If new regulations being debated in Parliament are approved the penalties payable for non-observance of the NMW rules will be:

• Fines amounting to 100% of the unpaid wages.
• The maximum penalty for each notice of underpayment increased to £20,000

 Further legislation is proposed to ensure that the £20,000 fine is applied to each underpaid worker.

 As of October 2013, the current NMW rates are:

• Apprentices under age 19 or those in the first year of their apprenticeship: £2.68 per hour.
• Under 18: £3.72 per hour.
• Between 18 and 20 years: £5.03 per hour.
• Age 21 and over: £6.31 per hour.

Employers should also keep an eye on the rulings of Employment Tribunals. A recent case, for instance, has determined that certain classes of employees should be paid for travelling time.

With the proposed increases in the penalty regime it is now imperative that employers review their pay rate structures to ensure that they are compliant with NMW requirements. Take professional advice now if you are at all unsure of your obligations. Don’t wait for the grey suits to turn up on your doorstep requesting to audit your pay records.

Since the 1990s fees for playing at not-for-profit sports clubs has been exempt for VAT purposes. However, HMRC has asserted that only club members’ playing fees are exempt for VAT purposes. Any visiting players have paid VAT included in their green fees. Clubs who have charged the same amount to members and visitors have therefore suffered a loss of revenue (the amount of VAT included in visitors’ fees that has been paid to HMRC).

The EU court has now ruled that the VAT exemption should also apply to visiting players.

This opens up the possibility that clubs can recover the VAT they have paid over to HMRC that was included in their charges to visiting players.

No doubt it will be necessary to demonstrate that clubs have borne the cost of the VAT themselves – that their charges were inclusive of VAT for visiting players. For clubs that do qualify refunds can be claimed back to 31 March 2009. This will be a welcome cash flow injection for many clubs who have suffered during the recent recession.

Clubs should act immediately, take professional advice, and lodge an appropriate claim.

Many victims of miss-sold Payment Protection Insurance are unaware that they need to declare any interest they received as part of their settlement on their tax return. HMRC have commented:

"The interest may or may not have had tax already deducted depending on the type of company making the payment of the interest.

"If banks and building societies are paying the interest then there is no obligation on them to deduct tax because the interest is not interest on a deposit and there are specific exemptions for banks and building societies from the need to deduct tax from yearly interest.

"All other companies have an obligation to deduct tax from yearly interest when it is paid. If a company does deduct tax then there is a statutory requirement that it advises the customer when making the payment that tax has been deducted and the gross and net amounts of interest."

So if you have received compensation, particularly during the tax year to 5 April 2013, make sure you advise HMRC asap – the deadline for notification was 31 January 2014.

There has been significant press coverage recently suggesting that companies are hoarding cash. It would seem that this is one of the contributory factors affecting low levels of business investment. Directors are loath to part with their hard won cash reserves.

For private company shareholders and shareholders with a significant stake in Plcs this may have a detrimental effect on their ability to claim inheritance tax Business Property Relief (BP), or capital gains tax Entrepreneurs’ Relief (ER); if they gift (BP) or otherwise dispose of their shareholding (ER).

The problem arises as cash rich companies may disqualify their shareholders from claiming these reliefs as they are considered to be investment rather that trading companies. The Institute of Chartered Accountants recently sought clarification on this point from HMRC. Here’s a record of their exchanges:

The Institute’s representations were:

‘Where a company holds an amount of cash which is in excess of the amount which it “normally holds” and there is no evidence of any given project upon which the funds will be expended, then BP relief will be denied as the excess will be treated as an excepted asset.

Members are aware of the HMRC guidance… and this has proved sufficient in demonstrating the position of HMRC.  It clarifies that cash balances should be viewed in light of the business’s trading cycle and that businesses should keep evidence of discussions surrounding the intended use of cash balances.

However, in the light of the current economic climate and in order to weather the financial adversity faced by many businesses within the UK, it is widely recognised that businesses are retaining increased cash buffers in case of any further downturn in their trade.  This is a widely accepted tactic in surviving a recession to ensure that businesses succeed and reverts to the cliché that “cash is king”.

In this regard, confirmation from HMRC that they are aware of this change in mind-set of business owners and company directors, and look favourably on surplus cash held in this regard, would be extremely useful to our members.’

 And HMRC’s response:

‘We understand that due to the financial circumstances in which businesses find themselves, they may choose to hold more cash in case of a potential downturn in trade.  We can also confirm that in recent times we have seen this on a more frequent basis where businesses hold cash in excess of what they would traditionally require.

However, our guidance remains the same, and unless there is evidence which directs us to the fact that the cash is held for an identifiable future purpose, then it is likely it will be treated as an excepted asset.  Therefore the holding of funds as an “excess buffer” to weather the economic climate is not a sufficient reason for it not to be classed as an excepted asset.’

The Law Society is concerned that if the present changes to LLP taxation are enshrined in the forthcoming Finance Act 2014, decisions will have to be made for tax, rather than commercial reasons.

For example members may be required to introduce capital purely to comply with changes in tax law. There are also fears that the tax changes will make UK based LLPs less competitive than overseas LLP partnership structures.

There is an argument that HMRC are demonising the loss of National Insurance revenues that result from the reclassification of salaried employees as LLP members, and ignoring the real benefits that LLP structures offer the development and prosperity of our financial services and legal sectors. After all it is this sector that is presently “buoying up” our economic growth.

It will be interesting to see if the representations made by the Law Society and other affected groups will impact HMRC’s guidance on LLP tax changes that are due to be published on 17 February 2014.