eNEWS – July 2014
In this month’s enews we report on VAT and prompt payment discounts, changes to flexible working rights, challenges to the calculation of holiday pay and new PAYE messages for employers. Please do get in touch if you would like more detail on any of the articles.
Businesses which currently offer prompt payment discounts (PPD) to their customers need to be aware that there are some changes ahead to the rules.
Currently under UK law VAT is payable on the net amount after deducting the discount, whether or not the customer takes advantage of the PPD and pays promptly.
For example if you sell some goods for £1,000 plus VAT and offer 5% discount if the customer pays within 10 days then VAT is charged at 20% on £950 being £190, rather than 20% of £1,000 which is £200. Even if the customer takes 30 days to pay and therefore does not qualify for the PPD, the amount due will be £1,190.
This rule regarding PPD is in the process of being changed and from 1 April 2015 VAT will be due on the amount the customer actually pays. So using the above example if the customer fails to take advantage of the PPD he would need to pay the full £1,000 plus VAT of £200.
The business making the supply will have to issue a credit note to account for the PPD where this is taken up. So using the same example if the customer takes up the discount then the credit note would be for £50 plus £10 VAT.
Apparently PPD have been widely used by suppliers of telecommunications and broadcasting services and so the use of PPD to reduce VAT due has already been blocked in those sectors from 1 May 2014. This applies where the customer cannot recover the VAT charged.
If your business currently offers PPD you may need to change your invoicing procedures from 1 April 2015 and the Government are going to consult on the implementation of the change. We will keep you informed of the details of the changes as and when further detailed guidance is made available.
Internet link: VAT TIIN
The CBI are warning that employers are facing the risk of significant additional costs, potentially ‘billions of pounds’, from employment tribunals challenging the normal calculation of holiday pay under the Working Time Regulations (WTR).
In the UK holiday pay is currently calculated on the basis of a ‘week’s pay’ which is based on basic salary and excludes payments such as working allowances, expenses, overtime, commission and bonus payments as these payments relate to specific work done by an employee whilst performing their duties of employment.
A recent European Court of Justice (ECJ) judgment redefined holiday pay to include an allowance for commission, even though commission is paid on sales made and the employee would not have delivered those sales whilst on holiday.
If liabilities on holiday pay are backdated then employers may face huge liabilities for holiday pay arrears.
Katja Hall, CBI Deputy Director-General, said:
‘Backdated claims on holiday pay could lead to bills of millions of pounds for each business, and ultimately threaten their very existence.’
‘Businesses that have done the right thing and fully complied with UK law suddenly face the threat of substantial additional costs. And the companies most at risk are in vital sectors for our economy, such as manufacturing, construction and civil engineering.’
‘Moving the legal goalposts in this way is unacceptable. Although most businesses believe we are better off in a reformed EU, there is a real danger of expansive decisions being made by the European Court of Justice on the UK labour market. As part of an EU reform programme, this has to be addressed and it’s time to put a stop to back-door EU employment law being made.’
‘We need the UK Government to take a strong stand and do all it can to remove this threat. Otherwise we face the very real prospect of successful firms in this country going out of business, with the jobs they provide going too.”
Cases on commission and overtime are currently in progress and we will keep you informed of developments. Meanwhile the CBI is calling for the Government to use its powers under British law to limit the retrospective liability UK employers face.
Internet link: CBI press release
The Low Pay Commission (LPC) has launched a National Minimum Wage (NMW) consultation which runs until 26 September 2014. The LPC would like to hear from individuals and organisations affected by the NMW, including employers of low-paid workers including those involved in sectors such as retail, hospitality, social care, cleaning and hairdressing and focuses on the particular impact of the NMW on young people.
To find out more on the consultation visit the link below. If you would like any advice on the payment of the NMW please do get in touch.
Internet link: NMW consultation
The right to request flexible working has been extended to all employees with at least 26 weeks’ service from 30th June 2014.
Before this change in the law, only employees with children aged 16 or under (17 or under if the child is disabled) or those acting as carers had the right to request flexible working.
Employers are required to consider requests and deal with applications in a ‘reasonable manner’ as the previous statutory procedure for dealing with flexible working requests has been abolished.
Employers do not have to accept an employee’s request as there are a number of legitimate reasons for turning down a flexible working request, including the burden of additional costs to the business and an inability to recruit additional staff.
For information on how to make and deal with requests see the ACAS website guidance
Internet link: News
HMRC will shortly start alerting employers where their records show that they have failed to make their PAYE or Construction Industry Scheme payments in full by their due date.
HMRC review the payments after each monthly (or quarterly) payment deadline has passed. Shortly after that, HMRC will issue a late payment Generic Notification Service (GNS) message to employers and contractors if they believe they have an underpayment of £100 or more for the month or quarter.
The messages will state:
‘HM Revenue & Customs (HMRC) records show you did not make full payment on time. If you have not already done so, please bring your payments up to date and ensure future payments are made on time and in full. Paying on time and in full is important as otherwise you may be charged in-year interest and late payment penalties.’
‘If you had no PAYE payment to make because you didn’t pay any employees during this tax period, you should let HMRC know by sending an Employer Payment Summary (EPS) for this tax period.’
‘To see why HMRC have issued this notice, please check HMRC Tax Dashboard or PAYE Online which provides details of your payments and PAYE charges.’
- submit an EPS as instructed, if appropriate
- ensure that they pay their PAYE in full and on time in future.
If you would like any help with PAYE matters please do get in touch.
Internet link: HMRC news
Zero hours contracts are those where the employer does not guarantee to provide the worker with any work and pays the worker only for work actually carried out. The Government estimates that some 125,000 employees are on such contracts.
Some employers argue that they are an important tool to enable a business to maintain flexibility to deal with fluctuations in demand whereas some employee groups claim that businesses use them to avoid giving workers the status of ‘employee’ and eligibility for the full range of employment rights.
The Business Secretary, Vince Cable, has announced that employers hiring workers on zero hours contracts will no longer be able to compel staff to work exclusively for them. These ‘exclusivity clauses’ will not be permitted in contracts and will therefore give workers the freedom to take employment elsewhere. The ban on exclusivity clauses will be contained in the Small Business, Enterprise and Employment Bill.
The Government considers zero hours contracts have a place in the labour market but that the use of these contracts needs tightening up to protect employees from employers who misuse the contracts.
Internet link: Government news