The Fizz! Blog

PAYE chaos for high earners

Accountacy Age comments here on an aspect of the Pre-Budget Report that I hadn't really considered until now.

The idea behind the PAYE system is fairly simple.  Every employee has a tax-free personal allowance for the tax year.  A code is issued to their employer that shows they are entitled to that allowance.  An employee who is paid monthly will be given credit for one-twelfth of the allowance each month.  That means that the right amount of tax is collected by the Exchequer, and the employee's net pay remains stable throughout the year.

The PAYE code can be adjusted to smooth out other tax adjustments too - say, tax due on a company car, or tax relief due on pension contributions, but the principle remains the same.

However, from 2010/11, the personal allowance will be tapered away for those earning more than £100,000.  The exact personal allowance you get will depend upon your exact income for the year.

But people's earnings aren't always predictable.  They change jobs, get bonuses, get and change company cars.  That means that under this new system you often won't actually know what a person's personal allowance should be until after the year has finished!  So it's impossible for the taxman to issue a PAYE coding notice that's accurate.  PAYE is almost bound to get it wrong, and the difference will have to be sorted out via the self-assessment system.  That means a) more paperwork and b) more unexpected tax bills for taxpayers.

But, as I've said so often before, this is what happens when legislation is rushed through - especially by people with little or no experience of the real business world.

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New toy!

I just bought a Fujitsu ScanSnap 510:

It's absolutely brilliant - every office should have one, seriously.  Basically, it scans documents to PDF.  It can do some other things (like scanning to Excel or Word, both of which it does pretty well based on my experimentation so far) but its main use for me is going to be scanning to PDF, as this is a largely paperless office.

Until now, I've been doing that with an old-fashioned flatbed scanner, but that takes ages, particularly with, say, a set of accounts or a tax return.  The ScanSnap has a sheetfeeder that sucks documents in, and scans at 18 pages per minute.  That's right, 18.  Not only that, but it can scan both sides of a sheet simultaneously.  So if the document is double sided it will scan 36 pages a minute!  Unbelievable.

Get one.  Even though it's about £300 plus VAT, it will pay for itself in no time.  If you're fairly paperless at the moment, it will cut down on the time you spend scanning, and if you're not, it will save you loads of time and space if your records are electronic documents rather paper.

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Employers' tax and NIC free payments to homeworkers

If you have employees who work at home sometimes, you can pay them a certain amount to reimburse them for the extra costs they incur without having to keep records. From 6 April the amount you can pay them tax free has increased.

"From 6 April 2008, HM Revenue & Customs (HMRC) has increased the tax and NIC free guideline rate employers can pay home working employees without keeping records from £2 to £3 per week.      

Employers can reimburse their employees who work regularly from home for the additional household expenses they incur without incurring an extra tax or NICs charge. The additional expenses that the employer may reimburse are those connected with the day to day running of the employee’s home. This might include additional costs of heating and lighting the work area, or additional insurance costs.      

Because it might be difficult for employers to calculate the exact additional costs, HMRC has published a guideline rate that can be paid without the employer having to justify the amount paid or the employee having to keep any records to demonstrate the additional expenditure. The guideline rate is not a maximum amount and greater amounts can be paid where there is evidence to justify them."

If you're running your own business and working from home the likelihood is that you can claim far more than £3 a week from your business - give us a call if that could apply to you.  But for employees occasionally working from home this is a good way to save a little bit of tax.

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Sage and Intuit may be a bit worried right now

Microsoft has launched a new accounting package which looks likely to shake up the UK accounting software market:

http://www.msofficeaccounting.co.uk/product.aspx

It's called Microsoft Office Accounting Professional.  There's two versions of it.

The full blown version, which is £149.95, has similar capabilities to the mainstream Sage and QuickBooks products which retail for somewhat more (maybe £250 to £400 or so) - although no doubt both Sage and Intuit, who publish QuickBooks, will be assuring us that their offerings have significant advantages!

More significantly, the Express version, which is pitched at the level of Sage Instant Accounts or QuickBooks SimpleStart, is free.  That's right, free.  Instant accounts is around £100 and SimpleStart about £50.  In my experience, while that's not much money for bigger businesses, for whom getting the right package is more important than getting the cheapest package, the type of business looking for an entry-level package will be happy to save even £50, and rightly so.  I would think that Microsoft have just wiped out the market for those products, particularly for those businesses buying the software themselves, rather than being pushed in a particular direction by their accountants.

Now, a fair chunk of the sales of the "grown up" versions of Sage and QuickBooks are businesses upgrading from Instant or SimpleStart as their business grows and their needs become more complicated.  So it won't just be the sales of the basic products that are affected, in time it could be the full blown versions too.

But the recommendation of accountants counts for a lot with new businesses, and accountants are reactionaries who will carry on recommening the Sage and QuickBooks that they're comfortable with, right?  Maybe, maybe not.  Microsoft have got a plan.  I've got a copy of the full version of the new MS package - firstly because I need to know if it's good enough to recommend to clients, and secondly because MS are bribing accountants by giving it to us for free - along with a copy of Office 2007 as well.  So, I'll have a play, and will report back in due course.

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