Umesh Modi of Silver Levene/Modiplus+

The tax is calculated according to the amount of tax-free income available to the employee and this is notified to the employer in a tax code, which is issued to each employee by HMRC according to his or her circumstances. National Insurance contributions are calculated by reference to published tables.

PAYE must be operated if the employee’s salary reaches the national insurance lower earnings limit - £102, per week, £442 per month or £5,304 per year for 2011/12.

Getting started

To operate PAYE you will need to register as an employer – this can be done online or by calling the New Employer Helpline (0845 60 70 143) and once registered you will receive a scheme reference.

Operating a payroll

Whether you use payroll software or keep records manually, the following forms will be relevant to you:

• Forms P9T, P9X and P7X – notices of coding: HMRC will issue each employee with a tax code, at the start of the tax year and during the year if circumstances change. Income tax is calculated in accordance with the tax code.

• Form P11 – employee deductions sheet: each time you pay an employee you  record the pay and deductions here.

Each time you pay your employees you must give them a pay statement – such as a payslip – showing the gross pay, the deductions and the net pay.

What payments does PAYE apply to?

PAYE is applied to all payments received by an employee including:

• Salary
• Overtime, shift pay and tips
• Bonuses and commission
• Expense allowances paid in cash
• Statutory Sick Pay and Statutory Maternity (Paternity or Adoption) Pay
• Payments on termination of employment (unless exempt from tax)
• Certain non-cash items such as vouchers.

Paying HMRC

Amounts deducted each month must be paid over to HMRC by the 19^th of the following month or by the 22^nd if you make electronic payment, although small schemes are able to pay quarterly.

At the end of the tax year

At the end of each tax year, you are required to:

• Submit a form P14 for each employee showing the deductions for each employee in the year
• Submit a form P35 – employer’s annual return: this shows the total deductions in the year and is submitted to HMRC by 19^th May after the end of the tax year. Most employers are now required to complete this online, in which case the online submission of the P14s generates the P35.
• Give all employees a form P60 for their records by 1^st June following the end of the tax year – this must be in paper format

If an employee has received any expense payments or benefits in kind during a tax year, then you must submit a form P11D (or P9D if the employee earns less than £8,500 per annum), showing the value of the expenses and benefits received. The form must be submitted by 6^th July following the end of the tax year. Class 1A national insurance contributions are payable on the value of certain benefits and payment is due on the same date.

Leavers/joiners

When you take on a new employee, who has had a previous job (or who has been on benefits), he or she should provide you with a form P45, which will show the tax code and earnings since the previous 6 April. This enables you to operate the correct code when you pay the employee.

If the employee has no P45, then you must complete a form P46 for the employee to establish the correct code.

When an employee leaves, then you in turn provide a form P45 with the employee’s details which is then given to a new employer.

Forms P45 and P46 are now generally completed and submitted online.

Forms and guidance is available at www.hmrc.gov.uk/paye. 

Krystyna Knight, of Silver Levene provided research for this article.

Disclaimer: This article is written for general guidance only and should not be relied upon by any person without the written consent of Silver Levene. Always take specific advice before committing to any particular action or actions.

Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene (Incorporating Modiplus+). He can be contacted on 020 7383 3200 or umesh.modi@silverlevene.co.uk.

With customer attention becoming ever more fragmented, it’s harder than ever for small businesses to make the best use of the different online channels with the limited resources they have available.

In the last few years the choice of digital direct marketing channels has exploded, with Facebook, Twitter, LinkedIn, SMS, mobile and email marketing all having a role to play, not to many more niche channels that are now available.

Different customers prefer different channels and different messages suit different mediums - but managing such a large range of options demands more time from business owners, leaving many unable to benefit from the full potential that an integrated marketing approach can provide.

Sign-Up.to, who carried out the survey and research, provide an online marketing platform which enables business owners to manage email, mobile, Facebook and Twitter marketing from a single login.

Matt McNeill, CEO of Sign-Up.to said: "We’ve seen the opportunities for businesses to engage with their customers online grow dramatically in the last few years, but this has demanded more time and resources from marketers - something that’s often hard to find in the current economic climate. We wanted to make it easy for small businesses to be able to reap the benefits from using multiple online marketing channels in an integrated way, so we’ve invested heavily in producing what we think is the simplest, most accountable way for them to do that."

You can find more details about the service and sign up for a free 14 day trial of the service by following this link.

For more information contact Benjamin Hammond, Pharmacy Expert Editor

The Government has now issued guidance for employers on the payment of the NMW for interns and for those on work placements or carrying out work experience. Whether or not someone is a worker and is therefore entitled to be paid the NMW will depend on the particular arrangements in place. The guidance, which can be found at www.businesslink.gov.uk/nmw, includes a new worker checklist and examples of case studies to help determine the person’s employment status.

Employers are reminded that new rates for the NMW come into force on 1 October 2011.

The revised rates are as follows:

The adult hourly rate of the NMW will increase from £5.93 to £6.08;

The development rate (which covers workers aged 18-20 years) will increase from £4.92 to £4.98; and

The rate for workers aged 16 and 17 will increase from £3.64 to £3.68.

The apprentice rate, for apprentices under 19 or those aged 19 or over and in the first year of their apprenticeship, will increase from £2.50 to £2.60 per hour.

From 1 October 2011, the accommodation offset will rise from £4.61 per day to £4.73.

For more information contact Benjamin Hammond, Pharmacy Expert Editor

In future, only fatal and major injuries and incidents should be reported by telephone to the Health and Saf ety Executive (HSE). All other work-related injuries and incidents reportable under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995 (RIDDOR) must be notified using one of seven online forms available on the HSE website.

In addition, the HSE’s Infoline telephone service, which currently provides a basic information service to callers, will end on 30 September. After that date, those seeking information and official guidance on health and safety issues will be directed to the HSE website. This contains a large amount of free information on health and safety as well as resources and interactive web tools that can be downloaded free of charge.

Further information on the changes can be found at http://www.hse.gov.uk/press/2011/hse-iccqa.htm.

There is no change to the system for making a complaint about health and safety in the workplace. Information on how to do this can be found at http://www.hse.gov.uk/contact/workplace-complaints.htm.

“Considering the impact that AWR could have on a contractor’s career and livelihood, this lack of knowledge is worrying,” says Dave Chaplin, CEO of ContractorCalculator. “We also found that 32% of contractors intend to carry on as before post-1 October because they believe the regulations won’t apply to them, which for many simply won’t be the case.” According to government guidance, genuine limited company contractors are not intended to be the targets of AWR but umbrella company contractors are considered to be automatically in-scope.

“The lack of engagement by clients and recruiters is also cause for concern, particularly for umbrella company contractors,” continues Chaplin. “93% per cent of umbrella contractors participating in the survey contract via an agency and of these 89% say their agent has not broached the topic of AWR. With clients, the figure rises to 97%: only three in a hundred clients have engaged with their umbrella contractors about AWR.”

But despite over half of them claiming no knowledge of the regulations, many contractors are planning to take action. Chaplin explains: “We asked contractors if they planned to find out more about AWR and 84% said ‘yes’.”

These good intentions notwithstanding, Chaplin is concerned about the lack of agency and client information. In response for the survey’s request for any further thoughts, one contractor’s words were: “My client … seems completely oblivious to the implications of AWR. My agency has still not offered any guidance and told me since our contract is ‘IR35-friendly’, I don’t need to worry.”

“Keeping quiet could be a deliberate tactic by recruiters and clients because contractors unaware of their rights under AWR won’t be making claims for them,” warns Chaplin. “Alternatively, recruiters and clients might be making the right call waiting to see what the courts say about who is in scope once the regulations come into force.”

If you are a locum who finds work through an agency, then the AWR may affect you. If you need to ask a question then send us an e-mail.

The change that was proposed is that from 6 April 2013, child benefit will be clawed back from parents where one partner is a higher rate taxpayer. So using tax rates for 2011/12, a husband who is the breadwinner of a family unit comprising himself, his wife and two children, will have to repay all of the child benefit paid to his wife if his taxable income exceeds £42,475 by just £1.

At present the rates of child benefit paid are £20.30 per week for the eldest child and £13.40 per week for each additional child. In the fictional example above, over a whole tax year, £1,752.40 will have been paid to the mother of the children and if the father is a higher rate taxpayer his tax liability will be increased by the same amount.

So what tax planning is available to counter this seemingly unfair tax? Well, for many couples, there is no answer. If in our example the husband had a salary of £100,000 per annum there is no sensible planning that would enable him to reduce his taxable income below £42,476. But for those whose income is up to say £50,000 per annum there is plenty that can be done, but just remember we are talking total taxable income here, not just salary so account must be taken of investment income. So here are some ideas to think over in preparation for this change.

1.   Be prepared to turn down that pay rise your boss offers you.

2.   Benefit someone less fortunate than you by making a charitable donation under gift aid.

3.   Ask your boss if you can have a weeks unpaid leave.

4.   Benefit yourself by making a contribution to your pension scheme.

5.   Gift your investments to a lower earning spouse or partner so that he / she receives the income that those investments generate.

By and large any planning carried out has to be during the tax year and with the best will in the world, you might get your fine tuning wrong and find out after the end of the tax year your income is say £100 over the top of the basic rate tax band, is there any scope for planning then? Well, yes there is. If you make a gift aid donation before the following 31st January and before filing your tax return you can elect to have that donation treated as though it was paid in the tax year just ended. So a net donation of £80 would be sufficient to reduce taxable income by £100 and avoid an expensive claw back of child benefit.

Suppose you earned £50,000, your wife earned £30,000 and you each contributed £4,000 gross to your individual pension plans. As a family, child benefit would be preserved if your wife suspended her contributions and you doubled yours.

You may find that the level of your income is such that tax planning requires unaffordable levels of pension contributions. If this is the case, why not skip a year’s contribution and double up in the following year? That way you may be able to preserve child benefit every other year. In fact, if you think you may be in that position in two years and are making contributions to a pension plan, why not suspend contributions now so that you can pay more after 6 April 2013?

Planning is fairly straightforward for those who are employed, but less so for those who are self-employed and those who are owner managers of a limited company. Warr & Co have produced detailed guides covering these areas. If you would like a copy, please send an email to info@warr.co.uk.

Text copyright Warr & Co Chartered Accountants, 2011. Disclaimer: The information in this article should be taken in any way to constitute specific advice and no responsibility shall be accepted by the author, by Warr & Co or Pharmacy Expert Limited for any actions taken directly as a consequence of reading it. Always take specific advice before taking any action.

Umesh Modi of Silver Levene / Modiplus+

Step 1 – identifying total income

An individual’s total income tax liability for a tax year is calculated on all the various sources of income in that year, so the first step is to identify the taxable amount of income received from each source – such as:

Employment income

The gross earnings will be shown on form P60, but to this must be added the value of any benefits in kind from form P11D. The PAYE deducted is taken into account at Step 4.

Self-employment or partnership income 

The amount of taxable income, either from self-employment or from an individual’s share of a partnership’s profits, will, in general, be the amount of net profits (after business expenses and capital allowances) for the accounting period that ended during the tax year in question, although slightly different rules apply in the first and last tax year in which a business is carried on.

Pensions

The state pension is paid gross so the taxable amount is the amount received; other pensions are generally paid after deduction of PAYE, and the taxable figure is the gross amount on form P60 and again any PAYE is taken into account at Step 4.

Interest

Most interest is received net of basic rate tax but the taxable amount is the gross (i.e.: the net interest plus the tax deducted) with the tax already paid deducted at Step 4.

Rental income

The taxable amount is the rent received less expenses relating to the renting of the property. Where there is more than one rental property, income and expenses from each are added together.

Dividends

Dividends are received net of a 10% tax credit – the taxable amount is the net dividend plus the tax credit, with the tax credit taken into account at Step 4.

The sum of all the taxable amounts is the individual’s “total income”.

Step 2 – arriving at taxable income

From the amount above can be deducted various items, the most common being the following:

• certain allowable losses

• certain interest payments and pension payments and

• personal allowance – where an individual’s total income exceeds £100,000 the personal allowance is reduced by £1 for every £2 over that threshold until it is completely removed.

Step 3 – taxing the income

For 2011/12 the tax rates are as follows

Income	Tax rate on non-dividend income	Tax rate on dividend income
1 – 35,000	20%	10%
35,001 – 150,000	40%	32.5%
Over 150,000	50%	42.5%

It is necessary therefore to determine which income falls into which rate band and to do this, earned income is treated as the first “slice” of income (so that the deductions at Step 2 are deducted first against this type of income), with non-dividend investment income treated as the next slice and dividend income as the top slice.

Where the individual makes charitable donations or pension contributions net of basic rate tax, so that basic-rate tax relief is obtained when the payment is made, the amount of the basic rate band is extended to give higher-rate tax relief for these payments.

To the extent that each slice of income falls into each band, the above tax rates are then applied accordingly and the tax at each rate is calculated.

Step 4 – taking account of tax already paid, tax credits and tax reducers

From the total tax are deducted the following:

• tax reducers, such as relief under the Enterprise Investment Scheme

• tax credits on dividends

• PAYE deductions from earnings or pensions

• tax deducted at source from savings income

The resulting amount is the tax payable for the year; where the PAYE or tax deducted on savings income exceeds the liability, a refund is due; however tax credits on dividends cannot create a repayment. 

Step 5 – paying the tax due

Subject to any payments on accounts already made for the year in question the tax liability is due for payment by 31 January following the end of the tax year. 

Disclaimer

This article is written for general guidance only and should not be relied upon by any person without the written consent of Silver Levene. Always take specific advice before committing to any particular action or actions.

Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene (incorporating Modiplus+). He can be contacted on 020 7383 3200 or umesh.modi@silverlevene.co.uk

With the conclusion of the review now public it appears that the NHS as a whole has escaped relatively unscathed with above inflation increases in spending over the next four years. However, the 0.1% per annum real terms increase in funding is well below the historic level of 4%. In fact it is estimated that a real terms increase of 3% would have been required just to stand still. There is also debate about whether, once the funding earmarked for social care is excluded, there is actually a real terms increase at all.

However, whilst the government have asked for NHS efficiency savings of £15 billion to £20 billion by 2014, pharmacy could be well placed to enhance its position as a frontline supplier of health solutions.

It now appears that it will be the Health and Well Being Boards within Local Authorities rather than GP Consortia that will be asked to take responsibility for pharmaceutical needs assessments following the abolition of the PCTs. However, whilst discussion with such boards may be easier than many had anticipated would be the case with GP Consortia, health minister, Simon Burns, has made it clear that any additional investment in service developments will need to be supported by a robust business case.

From a pharmacy business sales perspective, this creates an interesting dynamic. As was the case when the new pharmacy contract was introduced in 2005, there was a flurry of transfer activity as many incumbents decided that the changes were a bridge too far, others saw an opportunity to utilise their broader skills to operate beyond the traditional boundaries of the community pharmacist. We anticipate a similar reaction during the rest of this year.

The survey, conducted by the British Bankers Association shows that businesses with up to nine members of staff are most likely to be refused finance.

Furthermore, the figures showed that more than half (55 percent) of businesses with up to nine employees had not applied for a loan in the last twelve months because they expected to be turned down.

Overall, 52 percent of small firms (defined as those with up to 249 employees) said that applying for a loan caused too much hassle, was too costly, or that they were being asked for too much security.

The figures give an important insight into lending to SMEs and indicate that many requests for finance are being agreed. However, it is clear that smaller of firms are the least likely to get support from the banking sector.

John Walker, Chairman of the Federation of Small Businesses, said: "Small firms have been telling us for the past few years that they are fearful of approaching the banks for new finance, or to extend an overdraft, because they know they are likely to be turned down, or be offered a deal on terms that just aren't favourable for them.”

Andy Harwood, Director of Business Development at Pharmacy Partners commented: “We have seen a number of cases where the banks have lost confidence and failed to offer support to perfectly good businesses. This this has led to a number of SMEs looking at alternative, independent lenders and in particular asset based lending.”

Have you had difficulty securing funding from your bank, either finance for new projects or extensions of existing facilities? If so, we would like to hear from you to share your experience to help other community pharmacists.