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Is your business prepared for HMRC's scrutiny as its
spotlight focuses on rural diversification?
HM Revenue & Customs (HMRC) is running a project to create a
level rural playing field. HMRC is concerned that many rural
taxpayers do not understand their tax obligations and so tax
declarations are being made inconsistently across the sector.
Together with representative bodies, HMRC has set out to educate
and encourage voluntary compliance from rural taxpayers, to make
sure that those paying less tax don't benefit at the expense of
their more diligent neighbours.
The prospect of an HMRC enquiry is daunting for many businesses,
but provided the business is in order, there is nothing to fear.
Rural businesses need to be aware that HMRC is focusing on their
affairs. Speaking to a professional will help to identify the tax
implications for individual cases. After that, it's simply a
matter of good housekeeping.
One of the first areas businesses need to look at is the
employment of staff. Business owners need to establish whether the
people working for them are selfemployed or employees.
There are certain criteria that HMRC will use when determining
whether a person is an employee or self-employed, and the
distinction will determine who is liable to collect the tax, and
the level of National Insurance Contributions (NIC). HMRC considers
various tests.
Is the worker obliged to turn up when the business owner wants
him/her to, or when it fits in with the rest of the
individual's business activities?
If the individual has an accident, can he/she simply send
someone else in to do the work?
Is the business owner obliged to provide work for the
individual? If it's raining when the individual was due to
paint fences, does the owner have a responsibility to find other
work or will the individual simply find alternative work from
someone else?
Who bears the risk of the rain? If the individual who was to
paint the fence doesn't get paid because the fence hasn't
been painted, then he/she bears the risk. If the owner still has to
pay him/her, the owner bears all the risk. If the business owner
bears all the risk and has to pay the individual for sheltering
from the rain, then he/she is an employee.
If the individual who bears all the risk of the vagaries of the
weather is paid for painting the fence then they are likely to be
self-employed.
There are various other tests to consider and advice should
always be sought, as the main risk lies with the
'employer'.
A well run business should have the correct procedures in place.
For example, employers need to be sure the correct forms are in
place for their employees from the start of the employment through
to their departure from the business, and for every instance in
between. This includes the employment of students, annual tax and
NIC deductions, year-end Pay As Your Earn and NIC returns, and
details of benefits and expenses.
The benefits an employee receives is another area frequently
reviewed by HMRC. Many businesses could potentially find themselves
in hot water if they do not identify the correct treatment for the
benefits they provide.
One benefit which rural businesses always need to think about is
employee accommodation. The nature of the particular business needs
to be considered carefully. If the employee is obliged to live in
the property in order to do his/ her job properly, and it is
customary in that industry for people to live in a house on site,
for example a farm manager, then generally the accommodation will
be tax free. However, regardless of whether the accommodation is
exempt or not, electricity, heating, TV licences and other expenses
met by the employer will always be liable to tax and national
insurance.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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