Welcome to the January 2011 Newsletter from Connolly Accountants Ltd

Following a period of consultation, the Government has this month confirmed that the default retirement age (DRA) will be phased out from April 2011. It means that employers will no longer be able to force workers to retire just because they have reached the age of 65. However, some business groups have warned that the changes could result in costly legal claims.

Meanwhile, it has emerged that thousands of people have underpaid income tax, following further complications with the PAYE coding system. According to recent press reports, around 450,000 taxpayers are believed to have underpaid a total of £180 million in income tax during 2007/08.


Government confirms removal of default retirement age

The Government has confirmed that it is proceeding with plans to withdraw the default retirement age later this year, prompting a mixed response from business and employer groups.

Following a period of consultation, the Employment Relations Minister, Edward Davey, told MPs that the Government would be phasing out the DRA between 6 April and 1 October 2011.

During the transitional period, retirements that were already in motion can continue through to completion, provided that:

  • a notification of retirement is issued by the employer prior to 6 April 2011;
  • the date of retirement falls before 1 October 2011; and
  • the requirements of the statutory retirement procedure are met.

Compulsory retirements using the DRA will therefore cease completely on 1 October 2011. However, it will still be possible for individual employers to operate a compulsory retirement age, provided that they can objectively justify it.

While the Government hopes the additional freedom for workers will boost the UK economy, business leaders have expressed concerns over the changes.

The Confederation of British Industry (CBI), which had been lobbying for the plans to be postponed, described the publication of guidance on the removal of the DRA as 'too little too late'.

'The Government's decision to scrap the DRA leaves businesses with a number of difficult practical issues,' warned the CBI's Director-General Designate, John Cridland. 'The impact on employers, especially smaller ones, will be considerable […] Less than three months is not enough time for businesses to put in place new procedures. The outcome will be more unpleasant and costly legal action.'

Its thoughts were echoed by the manufacturing organisation the EEF, which claimed the reforms had been 'rushed through' and would make it harder for companies to create jobs, plan staffing needs and would provoke expensive claims.

However Dianah Worman, public policy adviser at the Chartered Institute of Personnel and Development, welcomed the announcement, arguing that the existence of the DRA has acted as a 'smokescreen' for poor management.

'With the clear protection in the legislation of a right for employers to offer an objective justification of a fixed retirement age for occupations where physical capacity is a particular requirement, employers have nothing to fear from this legislation,' she said.


Thousands of extra income tax underpayments identified

An extra 450,000 people have underpaid income tax to the tune of £180 million following a recalculation of their tax code, it has been revealed.

The errors, which relate to the 2007/08 tax year, are in addition to the six million taxpayers who were found to have paid the wrong amount of income tax in 2008/09 and 2009/10.

However, the Government has confirmed that 250,000 state pensioners will not be required to pay back the money owed for those two tax years.

HM Revenue and Customs (HMRC) will not collect payments from anyone who underpaid income tax for the years preceding 2007/08, although those overcharged will still receive refunds.

Updating MPs on the PAYE saga, Exchequer Secretary to the Treasury, David Gauke, said: 'By the end of last year in 90% of cases where HMRC had received all relevant information, customers had received a refund notice or a calculation of overpayment in respect of these years.

'In the minority of cases where the unexpected bill has been caused by HMRC's failure to act promptly on the information received, HMRC has considered claims to be written off under an existing concession. Further underpayment notices will not be issued for years earlier than 2007/08.'

Meanwhile, the Low Incomes Tax Reform Group (LITRG) has welcomed the concessions announced by the Government. 'It is pleasing that HMRC took on board our suggestion to review this group of pensioners for whom extra-statutory concession A19 would almost certainly have applied to write off the liability. This way the worry and hassle has been avoided,' said John Andrews, chairman of LITRG.

However, he added: 'It is less good news for those who will be caught with a potential liability for 2007/08.'

We can help you plan to minimise the tax burden and maximise your personal wealth - please contact us for advice.


ESSENTIAL TAX DATES AND DEADLINES

For more information on key tax dates and deadlines, visit our 2010/11 Tax Calendar.


QUOTE OF THE MONTH

'The cost of complying with Britain's hugely complex tax system is such that, if simplification and profitability result, most businesses believe a little more tax would be a price worth paying.'

Phil Orford, Chief Executive of the Forum of Private Business (FPB), explains why many small firms would be willing to pay higher taxes.


WEBSITE OF THE MONTH

www.acas.org.uk/retirement

New guidance for employers on the withdrawal of the default retirement age.


ON OUR WEBSITE

Essential information for business owners

For advice on all aspects of owning and running a business, visit our business guides.

The latest tax information

View the 2010/11 tax rates and allowances, plus a host of other tax information here.

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Warning over retail sales as VAT rises to 20%
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