Tax relief at Christmas

Tax Relief at Christmas

As thoughts turn to all things Christmassy, I thought I would write a few words on tax issues relevant to the forth coming festive season. I hope this will give you some ideas while planning treats for your customers and staff!


 Christmas Parties

• The cost of a staff party or other annual function for employees is an allowable tax deduction for businesses. This does not apply to sole traders and business partners of unincorporated organisations.
  
  As long as the function meets the following criteria, there will be no chargeable taxable benefit for the employee:

• It must be open to all employees, or to all at a particular location.
• The cost per head must not exceed £150. If more than one annual function is provided the aggregate cost per head must not exceed £150. Partners and spouses of employees are included in headcount when calculating the cost per head of attendees.
• If the £150 limit is exceeded staff will be taxable in full on total cost per head for them and their partner/spouse also attending.
• Cost is calculated as the total cost of the party or function including any transport or accommodation provided and VAT.
  
  
  

VAT is recoverable on staff entertaining expenditure but this does not extend to staff partners/spouses so input VAT will need to be apportioned.

Client Entertaining

Client entertaining (i.e. hospitality of any kind) is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it.

Business Gifts

Gifts to customers are only allowable as a tax deduction if:

• The total cost of gifts to any one individual per annum does not exceed £50 and
• The gift bears a conspicuous advert for the business and
• The gift is not food, drink, tobacco or exchangeable vouchers.
  
  

However samples of a trader’s product are allowable even if they are food, drink or tobacco. 

Gifts to Staff

In some cases HMRC will consider a benefit exempt on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial as to be not worth pursuing. HMRC have conceded that an employer may provide an employee with a seasonal gift such as a turkey, an ordinary bottle of wine or a box of chocolates and this will be considered an exempt benefit. However, a case of ordinary wine or bottle of fine wine or a hamper is unlikely to be considered trivial.

This concession also applies to seasonal flu jabs which are also considered trivial but your employees may not be quite so appreciative of the “gift”!

Some employers give staff vouchers at Christmas; these are subject to tax and NI on the individual.

Christmas Bonus for staff

This will count as ordinary earnings and be subject to PAYE and NI as if it were additional salary.

 I hope this has given you some ideas and information on festive tax matters.

Mark

Tax on classic company cars

As mentioned in our mileage versus company car blog, if you purchase a car through your Limited Company and it is available for private use, (for example you park it at your home) then you have a taxable benefit. As a recap this is calculated from taking the price of the car if it was brand new, known as the list price, and multiplying it by a percentage based on the CO2 emissions of the car.

However, if you have car that was registered before the 1^st January 1998, then there would be no CO2 data, making it impossible to calculate the taxable benefit. Cars that fall into this category are known as “Classic Cars”. HM Revenue & Customs have an alternative way of calculating the percentage based on the engine size -15% for engines up to 1400cc, 25% for 1401cc to 2000cc and 35% for any engine larger or if it has a rotary engine. Just like with the CO2 percentages, you add 3% if the car is a diesel.

But that’s not all, if the current market value, i.e. how much the car is currently worth, is at least £15,000 and also higher than the list price of the car (which is possible depending on how old the car is) then you would use the cars current value instead of the list price.

Fuel benefit is the same as regular cars, with the figure for 2013/14 being £21,100 which is multiplied by the above percentage.

If you have a company car that falls into the requirements to be a classic car, and you would like help calculating any benefit that may be due, please get in touch.

Mark

Zero-hours contracts

Research from The Chartered Instistute of Personnel and Development (CIPD) suggests that the use of zero-hours contracts is becoming widespread throughout the UK. The research, widely reported in today’s press, states that the CIPD estimates around 1 million workers to be on zero-hours contracts. But what are zero-hours contracts and what are the implications of using them for your business? When is it appropriate to use them and what rights do employees on zero-hours contracts have? Below we tackle these questions and assess the advantages and disadvantages for you and your staff.

Q. There has been a lot of talk on the news about zero-hours contracts. What is a zero-hours contract?

A. A zero hours contract is a contract of employment where the employee is not guaranteed a minimum or maximum number of hours of work. However, there is an expectation that when the employee is offered work by the employer they will accept the work offered.

Q. When can I use a zero-hours contract?

A. Zero-hours contracts are often used where there are peaks and troughs in a business which makes it difficult to provide employees with weekly contracted hours, for example, in the hospitality and leisure industry or the healthcare sector.

Q. What happens if someone I originally employed on a zero-hours contract starts working a certain number of hours each week in the business?

A. If an employee works regular hours each week over a period of time, then there is an argument to say that these hours could become their contracted hours and that they would no longer be a zero hours employee.

Q. What rights does someone employed under a zero-hours contract have?

A. Someone employed on a zero-hours contract is an employee. This means that after two years’ continuous service (if they were employed on or after 6th April 2012) they would have the right to claim ordinary unfair dismissal at an Employment Tribunal. They are also entitled to the National Minimum Wage, paid holidays and, if they qualify, Statutory Sick Pay.

Q. If an employee on a zero-hours contract isn’t working out, can I just stop offering them work?

A. No. As mentioned above, they are employees and as such, depending on their length of service, they may have employment rights.

Q. How do I calculate holiday pay for an employee engaged on a zero- hours contract?

A. Where an employee doesn’t have any regular hours then their holiday pay is calculated based on their average pay over the previous 12 weeks. If they did not earn anything during one week, then you should add in the pay from the week before the 12th week to bring the total up to 12.

Q. Is a zero-hours contract the same as a casual worker agreement?

A. No, a casual worker is engaged to work for an employer either on a one-off basis for a short period of time, or on an ad-hoc, as required, basis. They usually have no regular pattern of days or hours of work. The employer does not guarantee the casual worker any minimum amount of work within any given period of time.

The casual worker is free to accept or decline the offer of work, which means that no mutuality of obligation exists in the working relationship.

Q. What are the advantages and disadvantages of a zero hours contract for you and your employees?

A. For the employer

Advantages:

This type of contract can allow you to manage your business needs more efficiently and with greater flexibility.

These types of contracts can be appropriate when you have unpredictable levels of work, the work is irregular or the need for work is very short term. When you know that you have work to offer it would be good if you could provide the employee with as much notice as possible.

There is a mutuality of obligation in that the employee is obliged to work upon the demand (subject to certain exception like holidays) and the employee is obliged to come to work subject to a minimum notice requirement.

Disadvantages:

The downsides for using this type of contract are that the contract will be a contract of employment as opposed to a contract of services and that the employee will accrue continuity of service (whether or not they are actually working) and thus gain over time.

For the employee

Advantages:

The main benefits for the employee of a zero hours contract is that it may suit their personal circumstances and suit individuals who want occasional work.

It also gives the employee continuity of service and allows them to accrue statutory unfair dismissal and redundancy rights as well as accrue annual leave under the Working Time Regulations.

Disadvantages:

The main disadvantage of this type of contract is that it appears to be very one sided for the employer, as the employee can often be sitting around waiting to be offered work whilst being unpaid and the employee only gets paid for when they work- no regular pay or consistency for them.

If the above affects you and you would like to know more, then please give me a call.

Mark.

Loans to directors (continued)

From looking at the previous blog on this topic, you would know that if you pay back a director’s loan within 9 months, you do not have to pay any additional tax on it.

However, this rule has been used by some companies to recycle balances by repaying a loan within the 9 months, avoiding the s455 tax, and immediately taking out a new loan.

As a result, two new rules have been included in the Finance Bill to prevent these arrangements and these are outlined below.

Two new rules:

The first restriction imposes a 30 day test:

•  If within a 30 day period one or more loan repayments totalling £5,000 or more are made to the company and one or more loans or advances are made to that person (or someone connected to that person), the loan repayments will be ignored by HMRC
  
  
• The loan will therefore be treated as still outstanding and relief will not be given for the s455 tax

The second restriction imposes a less objective test but it is believed that problems may arise if it is not considered early on in the company’s accounting period:

• If there is a balance outstanding from a participator of £15,000 or more prior to a repayment,
  
  
•  At any time after a repayment is made to the company, the company makes a new loan to that person (or someone connected to that person), and
  
  
•  Arrangements had been made to make a new loan or there was an intention for a new loan to be made
  
  
•  The loan repayment will be ignored such that no relief will be given against the s455 tax and payment will be due

The onus is on the company to consider whether the restrictions apply to repayments made after 20 March 2013 and amend its tax return accordingly.

These rules apply from 20 March 2013 and so it is necessary to review any balances outstanding to the company and consider the availability to make repayments so as to not fall foul of the restrictions.

If you need more advice on the above, feel free to call me to help explain.

Mark

Business management tips

It is not enough to complete work for a customer and to invoice them. Sometimes there are problems, such as the customer being slow to pay or even going out of business before you can receive payment. This can cause big problems as you are still incurring expenses while not seeing any income generated for it. In order to assist with this common problem, we have provided a few useful tips below.

·         Ensure that customer terms of payment are crystal clear. Obtain signed terms and contracts which, where possible, contain guarantees of payment.

·         Ensure you fund projects by asking for a payment/deposit up front before work commences.

·         Do not let a customer run up a large debt. Set a credit limit and make sure that the customer understands that work will cease if your invoices are not paid.

·         Borrowing money from banks can be difficult, so be sure to plan for this in advance.

·         If a customer goes bankrupt, (especially with a Limited Company) it will be unlikely that you will see any money for your work, so obtain stage payments and deposits.

·         Try not to rely on a single large customer. A larger number of smaller customers ensures continuity of income and spreads the risk.

·         Look for work with a recurring element to it, for that repeat business.

·         Review competitors prices and the quality of their product or service. Make sure your prices are competitive, and that you provide a better quality product or service.

·         Expect that some customers may cease over the next year, so always be looking for new customers, make use of selective advertising, marketing and existing industry contracts.

·         Cash advances on customer invoices, sometimes called factoring, should only be used as a last resort. There is no guarantee that this will solve your cash flow problems and is really an expensive form of bank borrowing secured by way of a personal guarantee by you. Seek professional advice before going down this route.

·         Where possible, stock should be purchased on a ‘just in time’ basis. The opposite means having your cash tied up in unsold stock, which does not help with cash flow.

If you need any help, or would like further explanation of any of the above, please contact us now.

Mark

Loans to directors

If you are a company director or ‘participator’ and take money out of your company and which is not described as a salary or a dividend, it is classed as a director’s loan.
If your director’s loan account is not paid off in full within nine months after the end of your company’s accounting period:

• You must include details of the loan in your Company Tax Return.
  
  
• Your company must pay Corporation Tax on the loan (s455 CTA 2010) – the current tax rate for directors’ loans is 25% of the loan.

The good news is that you can reclaim the tax when the loan is repaid - often by paying a Dividend to clear the balance outstanding (s458 CTA 2010)

How you do this depends on timing:

• If your claim is made within 24 months of the end of that accounting period you can amend and resubmit an amended Company Tax Return for that previous accounting period.
  
  
• If your claim is made more than 24 months after the end of the previous accounting period you can make a separate claim by writing to HMRC at the same time as you file your Company Tax Return for your most recent accounting period.

The Claim was previously known as a S419 claim (S419 ICTA 1988) but its now covered by S455 and S458 Corporation Tax Act 2010

When writing to HMRC make sure you give them as much information as you can for example:

UTR – Unique Taxpayer Reference

Company Name and Details

Amount being reclaimed

Details of the relevant Corporation Tax Returns on which the Directors Loans are shown

Your Bank Account Details for the Refund

Final comment from Mark

It is always preferable to clear down any outstanding loan accounts as far as possible before the company’s year end.

Collection by PAYE tax code adjustment

If you owe tax and are struggling to pay your tax in a lump sum you may be able to choose to pay through the PAYE system. This means is that you can have your tax paid by way of an adjustment to your PAYE tax code. Assuming, of course, that you have a continuing income from employment.

The process is this. The tax owed is the taken by an adjustment to your PAYE tax code (or coded out) so that you pay it off monthly or weekly depending on how often you are paid with the idea that all of the tax will be paid by the end of the tax year. For example, if you owe tax for 2012/2013 you can choose to have this collected by way of an adjustment to your tax code in 2014/2015. 

Time limits

In the above example, HMRC must also be notified before 31^st December 2013 or they may not make the adjustment.

Limtations

In order to protect you from paying unreasonable tax deductions HMRC will not take tax through your tax code if you don’t have enough PAYE income to enable the collections. They also will not take the tax this way if more than 50% of your PAYE income will be taken to pay it, or if you would end up paying twice as much tax as you normally would each time you get paid. There is also a maximum amount of £3,000 tax that can be paid through a tax code adjustment. If the tax cannot be paid through your tax code, HMRC will write to you with alternative methods of payment.

When tax is taken through your tax code you should receive a PAYE Coding Notice which will display what changes have been made to your tax code and why.

Other points to note

There are occasions where HMRC will choose to collect other underpaid taxes through your tax code,

For example, from April 2014 HMRC may collect outstanding Class 2 National Insurance Contributions in addition to tax if you receive PAYE income. If you do not pay or contact HMRC after receiving a payment request, they will send a coding notice between January and March 2014 showing how they will collect the outstanding National Insurance.

If you require more information on the above, you can follow this link, or get in touch with us to see how we can help.

Mark

Mileage allowances

Travelling expenses

The Inland Revenue (HMRC) have guidelines when it comes to paying motor expenses. The basic concept is that no tax relief is available for ‘ordinary commuting’, i.e. an employee travelling between their home and their permanent workplace. A permanent workplace is a place an employee regularly goes to work unless it is for a limited duration or for some other temporary purpose.

Temporary workplace

An exception to this is where the employee travels to a workplace that is not the usual place of work, or a temporary workplace. HMRC refers to people who have no permanent workplace, by referring to them as ‘site based’ employees and now accepts that such employees have no ordinary commuting journeys between home and their temporary workplace.

Where the employee’s contract of employment requires him to work from home so that home is the normal workplace, then the employee is entitled to relief for all journeys between home and any other places of work.

In order for a workplace to qualify as ‘temporary’, the employee must expect to be working there for 24 months or less. As long as this is the case, the journey from the employee’s home to the site is not ordinary commuting and the employee is entitled to tax relief for the full costs of the journey. After 24 months then it will become a permanent workplace and the employee is entitled to no tax relief on all of their travel expenses.

Where at first, an employee expects to be at a site for 24 months or less, but this subsequently changes and he becomes aware that he will be working there for longer then, at that point, the site becomes a permanent workplace on the day that the employee becomes aware of the change. From that date onwards, he is no longer entitled to tax relief on the travelling expenses, but he is entitled to tax relief from home to site before that date.

Mileage rates

The mileage rates that can be paid are claimed at the rate of 45 pence per mile for cars and vans, for the first 10,000 miles in a year, any additional miles are claimed at a rate of 25 pence per mile. A table of mileage rates can be found below.

Vehicle	First 10,000 miles	Miles above 10,000
Motor cars and vans	45 pence per mile	25 pence per mile
Motorbike	24 pence per mile	24 pence per mile
Bicycle	20 pence per mile	20 pence per mile

 

If you are employed and your employer pays you more than the above rates, then the excess payment is counted as a benefit in kind and will be liable for tax. If you are paid less by an employer, you could get some additional tax relief.

It is important to keep a  detailed log of your journeys and mileage claimed as HMRC may require access to the information.

There are other expenses that can be claimed, such as parking, congestion charges and tolls, but you must have the original receipts to back up your claim. You cannot claim tax relief for parking fines or speeding fines.

If you are working at a temporary workplace, then you can also claim amounts for subsistence and accommodation expenses caused by working at the temporary workplace.

As with the other expenses, always be sure to keep receipts as evidence of your claims, as HMRC may request to see them.

If you feel that any of the above is relevant to you and you would like to claim the relief but not sure how, just give me a call and I will be happy to help.

Mark

Salary sacrifice

Salary sacrifice is offered by some employers as a means for their employees to receive increased pension scheme contributions. This is not an effective way of saving for everyone so if you are offered salary sacrifice by your employer, make sure you benefit before signing up.

How it works

You sacrifice part of your salary. The amount you sacrifice is paid to your pension plan directly by your employer, rather than being paid to you.

As a result of you having a lower salary, both you and your employer pay less National Insurance Contributions (NIC). As part of the salary sacrifice deal, your employer pays all or pat of their NIC saving into your pension plan along with the sacrificed wages.

For example if you earn £30,000 per year and decide to sacrifice £1,000, your new salary is £29,000, with the employer paying £1,000 into your pension plan. You pay less NIC (and in some cases less Income Tax) because your salary is lower. Your employer also pays less NIC and pays a percentage of their savings into your pension plan.

The percentage of NIC saving your employer pays is defined by them as part of their salary sacrifice offer, it could be anything between 0% and 100%.

The advantages

The main advantages are:

1. You pay less NIC (and in some cases less Income Tax) because your salary is lower; and
   
   
2. You may receive a boost to your retirement savings because your employer may add a percentage of their NIC savings to your pension contribution.

 The disadvantages

Salary sacrifice results in you having a lower salary. This could affect the following.

1. Life cover – your employer may provide you with life cover, which is usually calculated as a multiple of your salary. As your salary is lower under salary sacrifice, so may be your life cover. Some employers will continue to provide life cover at the pre-salary sacrifice rate.
   
   
2. Refund of contributions – some occupational pension schemes offer a refund of employee contributions on leaving with less than two years service. The contributions made with a salary sacrifice arrangement are not employee contributions and therefore would not be refunded.
   
   
3. Mortgage borrowing – mortgage lenders usually calculate the maximum borrowing level as a multiple of salary. As your salary is lower under salary sacrifice, your borrowing may be affected.
   
   
4. Statutory maternity pay (SMP) – SMP is available if you earn above the Lower Earnings Limit (LEL, £5,564 in 2012/13) prior to going on maternity leave. If salary sacrifice takes you below LEL then you may lose your entitlement to SMP.
   
   
5. State Second Pension (S2P) – this additional part of the state pension is calculated with reference to your earnings. Any reduction in your earnings between the Low Earnings Threshold (£14,700 in 2012/13) and the Upper Accrual Point (£40,040 in 2012/13) may affect this entitlement. In addition, if your salary falls below LEL then your entitlement to S2P may be lost.

If you require further guidance on the above, then feel free to give me a call, or check out the HM Revenue & Customs website for more information.

http://www.hmrc.gov.uk/payerti/payroll/special-pay/salary-sacrifice.htm

Mark

Real time information

Real time information (RTI), the biggest shake up to payroll procedures since PAYE was introduced in the 1940’s, will become a reality for employers from April 2013.

Look out for a letter from HMRC inviting your PAYE scheme to join RTI, an invitation you cannot refuse! Let us know as soon as you have received your invitation so we can help you make the necessary transition.

The principle behind RTI is simple, HMRC want to know which employees are being paid, together with details of the deductions being made ‘on or before’ the payment is made to the employee.

Real time information key procedures

Here we primarily concentrate on the key submissions but do contact us regarding any questions concerning RTI.

Key submissions	What the submission contains and ‘top tips’
Employer alignment submission (EAS) – preparing for RTI	Although this submission is only compulsory for large employers or those with a complex payroll system. It is advisable for all employers. It provides HMRC with details of all employees employed in the current tax year.
Full payment submission (FPS)  – operating RTI	Used to report details of employees being paid for a particular pay period.
Employer payment submission (EPS) - operating RTI	Used to report employer details each month such as payments to HMRC (or where no payments are due) and also CIS suffered.

Changes to employees leaving and new employees

Under RTI information, when an employee leaves a company, the information is filed automatically along with the payment details for the pay period during which they left, as opposed to separately filing a P45. There will still be a P45 to issued to the employee.

For a new employee, information for them is automatically filed during the pay period in which they started work for an employer. This means that there will no longer be P46’s issued to employees, unless the employer is exempt from filing online.

If we are currently handling your payroll then you don’t have to worry about doing anything for RTI, our software provider has already confirmed that they can handle the change and are fully compliant with RTI.

If we do not currently handle your payroll and you would like further details of the service we provide, please give us a call and we can also quote a price to suit your needs.

Mark

Universal tax credit

Universal credit – an introduction 

Universal Credit is a new simpler, single monthly payment for people looking for work or on a low income. It will replace some of the benefits and tax credits you might be getting now. 

What is Universal credit?

Universal Credit is a new simpler, single monthly payment for people in or out of work, which merges together some of the benefits and tax credits that you might be getting now.
Universal Credit will replace:

• Income-based Jobseeker's Allowance
• Income-related Employment and Support Allowance
• Income Support
• Child Tax Credit
• Working Tax Credit
• Housing Benefit 

If you're on a low income, you will probably still get Universal Credit when you first start a new job or increase your part-time hours.

Your Universal Credit won't suddenly be taken away, but steadily withdrawn as your earnings increase. This means that you will be better off for every additional hour you work.

All Universal Credit claimants will have a claimant commitment which clearly sets out your responsibilities and the consequences if you fail to meet them.  

What’s different about Universal credit?

Universal Credit will be paid in a different way to current benefits:

• it will be paid monthly into an account you choose
• if you and your partner are both eligible, you will get one monthly payment for the household
• if you get help with your rent, this will be included in your monthly payment – you’ll then pay your landlord yourself 

Universal Credit will generally be managed online. You can make your claim online, then check on your payments and updates through your online account. 

When does Universal credit start?

Universal Credit will be introduced in stages between October 2013 and 2017, although it will start for some people in selected areas from April 2013.

April 2013 - Universal Credit begins in selected areas of Oldham, Tameside, Warrington and Wigan.

October 2013 - The national introduction of Universal Credit begins as groups of newly unemployed will be able to make their claim. Claims for existing benefits and credits will be gradually phased out.

From spring 2014 - Universal Credit will expand to accept new claims from people who are in work as claims to tax credits are closed down. Current benefit claimants will be moved onto Universal Credit in a phased approach.

2017 - Universal Credit roll-out complete. 

Changes to other benefits in 2013

There will be some important changes to a number of other benefits in 2013.

• Disability Living Allowance will be replaced by Personal Independence Payment from 2013.
• Council Tax Benefit will be abolished in April 2013 and replaced by a system of localised support.
• Pension Credit will be amended from October 2014 to include help with eligible rent and dependent children.
• Social Fund is also being reformed to introduce new local assistance.
• A cap on the total amount of benefits that can be claimed will be introduced in April 2013.

If you are interested in how the Universal tax credit work and would like to know more, be sure to get in touch.

Mark

Repaying your student loan

Student loans are a great way to finance learning when you’re low on cash, but the money has to be paid back at some point, and if you don’t know how this works you could be in for a surprise if it gets collected without your knowledge.

How repayments are made

Repayments of your student loan are taken from your pay in the same way as PAYE and National Insurance contributions when your income before taxes exceeds a certain threshold. This threshold is one of the following

£303 per week if you are paid weekly

£1,316 per month if you are paid monthly, or

£15,795 per year.

How much is taken?

The rate for student loan deductions is 9% of anything earned over the above thresholds.

For example, if you earn £1,750 in a month, you subtract £1,316 giving an amount of £434, then you take 9% of £434 to give you £39 as the amount that will be deducted from your income per month.

Other repayment examples

Income before tax (£)	Monthly Salary (£)	Monthly repayment (£)
Up to 15,795	1,316	0
16,000	1,333	1
21,000	1,750	39
24,000	2,000	61
27,000	2,250	84
30,000	2,500	106

What you can expect when your income changes throughout the year

Because the repayments are taken in the same fashion as PAYE, if your income rises or falls throughout the year, the amount of student loan you pay back will alter to reflect this. This means if your income drops sharply, you wont have to worry about an unaffordable payment on your student loan.

Making payments even if below annual threshold

If you are under the annual threshold but have a temporary increase in income, such as taking on an extra shift at work or a bonus, you could have some of your student loan repaid if you exceed the weekly or monthly threshold for that week or month.

If some money was taken for your loan in this fashion, you can apply for a refund providing you are still below the annual threshold at the end of the tax year.

Student loans and your tax return

If you are a sole trader, your student loan must be declared on your income tax return, failing to do this could result in HM Revenue and Customs issuing a penalty for an inaccurate tax return if you cannot provide a reasonable excuse.

So if you have a student loan, make sure to let us know and provide us with a copy of an up to date statement with your accounts so that we can ensure that your tax return will be accurate.

I hope this has managed to shed some light on this seldom mentioned subject, if you do have any queries regarding this, please do not hesitate to give me a call.

Mark.