By Katie Business Advice • Business News • Most Popular 0 Comments

Tax Relief For Staff Parties & Annual Functions

Planning a staff party is a great way to reward employees, boost morale, and encourage team bonding. But did you know that certain staff events, including Christmas parties and summer gatherings, can qualify for tax relief?

In this guide, we’ll break down the rules for tax-free staff events, so your business can make the most of these exemptions while staying compliant with HMRC.

Tax relief for staff parties – the rules

HMRC provides an exemption for annual staff functions, allowing businesses to claim tax relief and avoid benefit-in-kind charges, provided specific conditions are met:

  • The event must be annual (such as a Christmas party or a summer barbecue)
  • It must be open to all employees (or all employees at a particular location)
  • The event is not just to be for directors unless all your staff are directors
  • The cost must not exceed £150 per head, including VAT, for the tax year
  • The £150 allowance covers all associated costs, including food, drinks, venue hire, transport, and accommodation
  • If multiple events are held, the exemption applies only if the combined cost remains within the £150 limit

If these conditions are not met, the full cost of the event may be considered a taxable benefit for employees, which means additional tax liabilities.

Christmas parties and other year-round events

Christmas parties are a popular way for businesses to celebrate the end of the year, and they typically qualify for tax relief under the above rules. However, businesses can also take advantage of the exemption for other events, such as:

  • Summer barbecues
  • Team-building retreats
  • Annual award ceremonies

The key is that the total cost must not exceed the annual event allowance of £150 per head. Provided the threshold is not exceeded, there can be any number of parties. For instance, 3 parties at a cost of £50 each, at various times of the year.

That means, if you’ve already held a Christmas party then you can still host another event and both can be exempt from tax, provided the combined cost per head for the year does not exceed £150. If the combined cost exceeds this limit, the employer can choose which event to apply the exemption to for optimal tax benefits.

Example Scenario

  1. Your business hosts a Christmas Party. The cost per head is £100.
  2. Your business then hosts a summer barbecue. The cost per head is £70.

In this case, you can nominate the Christmas party for the exemption, making the £70 Summer Barbecue taxable. However, as the employer, you can manage the tax and National Insurance on behalf of the employees through a PAYE settlement agreement, avoiding direct tax implications for the employees.

How to calculate the cost per head

To calculate the cost of the benefit:

  1. Add together the cost of the party or function (room hire, food, entertainment, prizes, etc), the costs of transporting staff and their guests, and the cost of any accommodation provided.
  2. Divide the total by the number of persons (staff and any other guests) attending the function.
  3. The final sum is your cost per head. To qualify, the cost must come to less than or equal to £150 per head.

If you have a large function it may be impossible to count up exact numbers of those who physically attend (particularly if people come and go at different times). If it is impossible to work out actual attendees then you will have to estimate numbers according to what was budgeted or booked. Bookings are normally made on a ‘per head basis’.

What if the allowance is exceeded?

If the cost of an event exceeds £150 per head, the entire amount becomes a taxable benefit and must be reported on a P11D form. So, for example, if the cost per head works out at £152, then £152 is taxable as a Benefit In Kind and goes on your employees’ P11d, not £2.

Tax treatment for employer

The cost of the staff Christmas party (or any staff annual function) is tax-deductible in the employer’s accounts. Show this expense separately in the accounts as it is a staff benefit and therefore a cost of ‘staff welfare’ (or similar).

There is no monetary limit on the amount that an employer can spend on an annual function. A party costing more than £150 per head will be an allowable deduction in the employer’s accounts, as the employees would pay tax on a benefit at this level so it is just another form of earnings.

The full cost will be disallowed for tax if it is found that the entertainment of staff is, in fact, incidental to that of entertaining customers.

Parties covered by the £150 exemption do not have to be reported on form P11Ds. If you do exceed the limit and have created a taxable Benefit In Kind, you might consider settling it using a PAYE settlement agreement (you then pay your employees’ tax and NICs)

Can you reclaim VAT costs from staff parties?

If you’re wondering whether you can claim back the cost of input VAT from your staff parties, then you’ll be pleased to hear that you can. However, there are conditions to be aware of:

  • Input VAT is fully reclaimable on the cost of the function as it is “staff welfare” and not regarded by HMRC as entertaining, unless you are an owner-manager and having a one-man party, or if the function is mainly for directors (and so excluding other
    staff). In these circumstances, HMRC will block claims for input tax.
  • If you are also entertaining UK clients and staff, you have to disallow a proportion of input VAT (based on the number of clients vs staff).
  • If the event is to entertain UK customers and your staff are there to look after the customers, the whole event is regarded as “entertaining”. As such, you are blocked from any reclaim of input tax.
  • If the event also serves to entertain overseas customers then it may be possible to reclaim input VAT.

If you need advice, speak to one of our VAT specialists.

What about virtual parties?

HMRC has updated their guidance to include virtual annual functions within this exemption, which includes a virtual Christmas party. Virtual parties cannot have all employees in a single location so would ordinarily fail to qualify. HMRC’s revised guidance allows these events to qualify, provided that all of the other criteria are met.

A virtual party is defined as:

  • An annual function provided virtually using IT.

An example of this:

  • A company holds its annual function virtually using IT.
  • All employees are invited.
  • A hamper of food and drink is provided for each employee to enjoy during the party.
  • The total cost is £100 per head.

The cost is less than the £150 per head maximum and so the function is tax-exempt.

Need more information?

If you need any more support on how to record your staff parties and annual functions properly, please do not hesitate to contact our dedicated team of chartered accountants.

We have a wealth of experience in a broad range of sectors, from construction to the charity sector. Our team work hard to ensure they deliver smart and effective tax advice, helping businesses to grow and succeed. Please do not hesitate to contact us today for a free consultation or call 0161 962 1855.

By Katie Business News 0 Comments

Qualify for capital gains tax relief

Qualify for capital gains tax relief; as mentioned above furnished holiday lettings businesses are eligible for capital allowances on equipment in the property. Where the business incurs finance costs such as mortgage interest the restriction that applies to other residential property businesses does not apply to furnished holiday lettings.

It should also be noted that qualifying furnished holiday lettings businesses are eligible for a number of important reliefs from capital gains tax. “Rollover” relief would apply where the proceeds of sale of a property are reinvested in another qualifying asset and it is also possible to claim holdover relief on the gift of the whole or part of property business. Note also that entrepreneurs’ relief would be available on the disposal of the furnished holiday lettings business.

As mentioned in a previous newsletter the Office of Tax Simplification have recommended that furnished holiday lettings businesses should qualify for inheritance tax (IHT) business property relief which, if legislated, should mean no IHT payable when the business is passed on during lifetime or on death.

Need more information?

We offer a wide range of services which are unique to your business and work with many property clients. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

By Katie Business News 0 Comments

Directors loan account transactions

KEEP DETAILS OF YOUR DIRECTOR’S  LOAN ACCOUNT, AND KEEP IT IN CREDIT

In a recent Tax Tribunal case the judge agreed with HMRC that a detailed breakdown of directors loan account transactions is required, including dates.

The significance is that where the loan account is overdrawn (debit balance) there may be a possible P11d benefit on the director and also a tax charge on the company. A taxable benefit in kind would arise where the loan exceeds £10,000 and the interest paid is less than the HMRC official rate, currently 2.5%.

In addition, if the director is also a shareholder of a close company, there is a 32.5% tax charge payable by the company making the loan where the loan is still outstanding 9 months after the end of the accounting period.

Thus, you can see why HMRC may require a detailed analysis of transactions between the director and the company.

Note that where the loan is repaid to the company and a similar amount withdrawn within a 30 day period the tax legislation matches the repayment with the new “loan” and consequently the original loan would still be outstanding.

Need more information?

We offer a wide range of services which are unique to your business. Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

By Katie Business News 0 Comments

Tax on your dividends – January payments

DON’T FORGET THERE MAY BE TAX TO PAY ON YOUR DIVIDENDS IN JANUARY

The rules for taxing dividends changed radically from 6 April 2016 with the removal of the 10% notional tax credit and the introduction of new rates of tax on dividends. For many taxpayers that means more tax to pay on dividends on 31 January each year.

If you are a higher rate taxpayer and received £22,000 of dividends in 2018/19 only £2,000 of those dividends are tax free now leaving £20,000 of those dividends to be taxed at 32.5% meaning £6,500 due on 31 January 2020, and possibly payments on account of your 2020/21 liability.

If you can let us have all of your tax documents as soon as possible we can let you know how much tax you need to pay next January so that you can set aside sufficient funds. We may also be able to suggest some tax planning ideas to reduce your tax liabilities.

Need more information?

Our team enjoy nothing more than helping you and your business with all tax related issues and if you are a new business, we want to ensure you get off on the right foot! We offer a wide range of services which are unique to businesses who are just getting going! As start-up accountants we have a wealth of experience in all sectors between our team, from restaurants, fashion brands and construction companies. The team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

By Katie Business Advice 0 Comments

Time for an electric company car?

Are you thinking of getting a company car? The government has announced that there will be a zero P11d benefit for the drivers of electric cars from 2020/21. This is instead of the 2% scale charge that was originally included in Finance Act 2017 to apply for 2020/21. The legislation for the change will be included in Finance Bill 2020 and it is proposed that the benefit will be 1% of list price in 2021/2 and then 2% in 2022/3.

The zero taxable benefit will also apply to hybrid cars emitting no more than 50 grams of CO2 per kilometre with a range using its electric motor of at least 130 miles, but only for cars first registered on or after 6 April 2020. For those registered before 6 April 2020 the scale charge will be 2%.

Rather confusingly there will be two different sets of scale charges from 2020/21, one set relating to those registered before 6 April 2020 and a new lower set of rates for those registered on or after 6 April 2020.

However businesses are advised to wait until 6 April 2020 as the P11d scale charge for electric cars is currently 16% of original list price for 2019/20.

ADVISORY FUEL RATE FOR COMPANY CARS

These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 September 2019. Where there has been a change the previous rate is shown in brackets.

Engine Size Petrol Diesel LPG
1400cc or less 12p 8p
1600cc or less 10p
1401cc to 2000cc 14p (15p) 10p

(9p)
1601 to 2000cc 11p (12p)
Over 2000cc 21p

(22p)

 14p 14p

You can continue to use the previous rates for up to 1 month from the date the new rates apply.  For hybrid cars use the equivalent petrol or diesel rate. However, for wholly electric cars there is a new 4p advisory rate from 1 September 2019.

Need more information?

We love nothing more than learning about new start-ups and helping you get off on the right foot! We offer a wide range of services which are unique to businesses who are just getting going! As start-up accountants we have a wealth of experience in all sectors between our team. From restaurants, fashion brands, fitness centres and many creatives start their business correctly and ensure they are staying tax compliant. The team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

By Katie Insights 0 Comments

Radio presenter wins IR35 personal service company case

In a recent case involving a radio presenter working for TalkSport, it was decided that the presenter would not have been an employee if directly engaged. A key factor was that the the level of control over the presenter fell far below the sufficient degree required to demonstrate a contract of service.

The accountancy bodies have been lobbying the government to take the decision of the judges in this and the recent case involving Lorraine Kelly into consideration when they update the CEST software used to determine employment status.

DISGUISED REMUNERATION LOAN CHARGE REVIEW

The Chancellor, Sajid Javid has commissioned a review of the Loan Charge to consider whether the policy is an appropriate way of dealing with disguised remuneration loan schemes used by individuals who entered directly into these schemes to avoid paying tax.

The disguised remuneration Loan Charge was introduced to tackle contrived schemes where a person’s income was paid as a loan which did not have to be repaid instead of receiving salary, thereby avoiding tax and national insurance. Such schemes have now been successfully challenged by HMRC in the courts.

Disguised remuneration loan schemes were used by tens of thousands of people, and concerns have been raised about the use of the Loan Charge as a way of drawing a line under these schemes and collecting tax from the beneficiaries. The government is clear these schemes do not work and that their use is unfair to the 99.8% of taxpayers who have not used them.

Need more information?

Our team of Chartered accountants offer a wide range of services which are unique to businesses who are just getting going! The team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

By Katie Business Advice • Startups 0 Comments

How to raise your prices without losing customers

How can you raise prices without losing customers? The cost of running a business goes up every year, but when was the last time you increased your prices?

Many business owners and managers worry that if they were to increase prices, they would lose customers.

However, a customer will often be willing to pay a higher price if they feel they are getting value for their money.

A good way to increase your prices can be to bundle products or services together and offer the combined bundle at a price that offers value to the customer. For example, a phone contract might have a higher price but it may include a bundle such as unlimited calls and 20GB of data per month. The key is providing value to the customer.

Find a way to differentiate your offering. Perhaps you could offer new online services to your customers such as an online portal or an app. Maybe you could create faster, more efficient processes so that your customers get a faster, more efficient product or service from your firm, compared to the competition. If you offer something that is seen to be the best in its class, that offers a benefit to your customers, you may be able to increase your prices.

You can test a higher pricing strategy on new customers. Your existing customers might be resistant to a price increase but new clients will be unfamiliar with your pricing so they may accept the higher price if they feel that you offer more value to them than your competitors.

If you do increase prices for your existing customers, you need to communicate well and explain clearly why you had to make the decision to increase your prices. Do your market research to make sure that your pricing isn’t completely out of line with competitors. If your business is not significantly different to the nearest competition, you may run the risk of losing clients.

Large sudden jumps in your prices will not go down well. Instead, introduce gradual increases such as 5% or 10% per year, depending on the type of business that you run. Everyone knows that the cost of doing business goes up each year. If you communicate with your customers, they may be more receptive to small increases.

Need more information?

We love nothing more than learning about new start-ups and helping you get off on the right foot! We offer a wide range of services which are unique to businesses who are just getting going! As start-up accountants we have a wealth of experience in all sectors between our team. From restaurants, fashion brands, fitness centres and many creatives start their business correctly and ensure they are staying tax compliant. The team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

By Katie Business Advice • Wealth Planning 0 Comments

University Tax Planning Guide For Parents

It is that time of year again when parents are sending their children off to university. There’s a lot to consider and parents may of course wish to support their children financially, where possible.

Parents who run their own companies may consider making grown up children shareholders in order to take advantage of the £2,000 dividend allowance and their children’s lower rate tax bands. The dividend allowance reduced to £2,000 from £5,000 from April 2018.

Many university students like to preserve a bedroom at home. From 6 April 2016 rent-a-room relief is £7,500 per annum.

For example:

Peter is 18 and starting university in September. He will have to pay tuition fees of £9,000 per year, his rent at halls of residence is £8,000 per year and he is budgeting for food and other bills of £100 per week.

If his parents decide to fully support his rent and other bills (leaving him with a student loan to cover his tuition fees), their son could cost them £13,200 per year.

Peter’s parents own their own company.

  • They re-arrange their share capital.
  • They gift Peter shares in the company, up to the value of their CGT annual exemption, they could alternatively claim hold-over relief.
  • The parents also make an agreement to charge Peter rent for her room at home of £7,500 per year.
  • The board of director’s declares annual dividends to Peter of £20,700 in order to cover his university costs and home rent.

The arrangement means that Peter will pay tax at 7.5% on her dividends in excess of his £2,000 dividend allowance (or £5,000 allowance prior to April 2018) and any available personal allowance.

This arrangement potentially saves a higher tax-rate-paying shareholding parent £8,170 in tax per annum (based on 2019/20 figures). Their rental income from their son is effectively tax-free drawings from their company. The alternative is not to rent a room to Peter and to sub-let his room in term time.

Children under 18

This arrangement will not work with minor children as the settlement anti-avoidance provisions apply where parents gift shares to minor children.

Need more information?

We offer a wide range of services which are unique to any business. We have a wealth of experience in all sectors between our team, from restaurants, fashion brands, fitness centres and many creatives start their business correctly and ensure they are staying tax compliant. The team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some advice from a trusted accountant don’t hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively, you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

By Katie Business Advice • Startups 0 Comments

Tax relief on creating an office at home

Many company owners work from home, this note looks at how you may obtain tax relief on the cost of converting the spare room or building a deluxe summerhouse to serve as an office in the garden.

• A director can reclaim any expenses incurred when working from home from their company.
• Alternatively, you can charge the company rent if you are required to work from home, or where the business is based at home provided that there is a licence agreement in place.

Claiming back the costs of converting part of a home into an office throws up several different tax concerns for a director.

If the director incurs the cost themselves, they need to consider:

• Capital Gains Tax (CGT) treatment of capital costs
• VAT
• Stamp Duty Land Tax
• Capital allowances on fixtures and plant and machinery
• Treatment of repairs and renewals

If his company incurs the cost (or reimburses his costs) they need to consider:

• PAYE and NICs including the benefits code
• VAT
• Capital allowances
• Treatment of repairs and renewals

Overview and FAQ

Modification and conversion work

These types of costs will generally be treated as capital expenditure, whoever incurs them.

Building an office or workshop

These costs will be treated as capital expenditure, whoever incurs them.

Repairs and renewals

Modification or conversion may include some expenditure which can be treated as repairs and renewals such as redecorating, replacement of old floors or windows, or floor coverings.

Tax consequences if the director incurs the costs

Capital costs and Capital Gains Tax (CGT)

• A private residence is exempt from CGT if it qualifies as a main Private Residence (Private Residence Relief – PRR applies); however the exemption is restricted where part of a home is used for business.• When part of a home is converted that part of the house should still qualify for PRR for the 18 months after conversion.
• The same will apply if part of the garden or grounds is moved into business use.
• If the grounds exceed .5 hectare it is likely that PRR may be restricted in any case.
• If PRR relief is restricted any gain on the disposal of a business asset (as apportioned) should qualify for CGT Entrepreneurs’ Relief if this is in connection with a sale of the business or retirement, however this will not be available if the property has been let to the director’s company.
• In general, a director will be at a CGT disadvantage in claiming the capital costs of creating a home office unless property prices are falling in that case a capital loss could be created when the property is sold.

VAT

• In most cases directors are not VAT registered in their individual capacity.
• If the director has constructed an outbuilding to rent out to their company, he could consider registering for VAT and opting to tax the building.
• Opting to tax would allow him as an individual to reclaim VAT.

Stamp Duty Land Tax (SDLT)

• SDLT is paid by the buyer.
• SDLT will be charged at residential rates when the director sells his private residence providing that the home is suitable for use as a dwelling.
• “Suitable for use”, is something that must be judged at the time of the transaction, so past use or intended use are not considered.
• Where a house is used as a B & B or guest house HMRC recommends that each case should be taken on its merits: if all the bedrooms have separate facilities and are available for letting all the year round it will be treated as non-residential.
• If part of the property is not suitable for residential use the mixed-use SDLT provisions will apply. These broadly apportion the consideration on a just and reasonable basis.
• HMRC considers that “outhouses” will be treated as residential property unless they have a specific non-residential purpose.

Capital allowances

• A director will be able to claim capital allowances on the cost of any fixtures or plant and machinery which he purchases to convert or create a home office; however, there is a restriction when a residential property is used for letting, and the director is also unlikely to be able to reclaim the VAT. There are also PAYE and NICs concerns in respect of fixtures (see below). To this end it might be sensible for the company to incur the cost of purchasing any moveable plant and machinery instead.
• The position with fixtures is not straightforward because it is thought unlikely that HMRC will allow the company to claim back VAT on the cost of something that is fixed to the director’s personal property. It may also be difficult to prove that there is no private use of a fixture which means that this could trigger a PAYE and NICs charge for use of the asset as well.
• When the property is sold and capital allowances have been claimed on fixtures an election covering fixtures may be a consideration.

Repairs and renewals

• A director will be able to claim the cost of repairs and renewals as a deduction against any rental income received if he has a licence in place with his company and the expenditure is incurred:
o Wholly and necessarily for the purposes of letting, or a proportion of the cost is attributable to business use.
• Any reasonable basis can be used to apportion business use, commonly this is done on the basis of:
o The number of rooms in the house
o Floor space, or area
o Time in use

Alternatively, the director can recharge the cost of repairs and renewals to the company as part of a home working expense claim. However, you should not reclaim any expense that has been incurred for mixed business and private use without weighing up the PAYE consequences.
If the company incurs the cost (or reimburses the director’s costs)
• PAYE and NICS and benefits
• VAT
• Capital allowances on fixtures and plant and machinery
• Treatment of repairs and renewals

PAYE and NIC aspects

It is strongly advised to ensure that there is paperwork to explain who is doing what and who is paying for what during a building process.

Company pays director’s personal bills

• If the company pays any bills which are the director’s personal liability the cost is immediately subject Class 1 NICs as earnings. However, for income tax purposes this is a benefit in kind to be included on box B of form P11D, unless the director “makes good” the cost (see below).
• This type of expense can simply be payrolled.
• Or if the director has a credit balance on his loan account, the cost can be offset against the loan. It is advised to agree this before the expense is incurred.
• When income tax applies, this is a one-off tax charge; tax is charged in the year in which the company incurs the cost. For example, where the company pays for the director’s light and heat at home.

Company asset made available to an employee

• If the company constructs, manufactures or purchases an asset which is then made available to a director for private use there will be an ongoing annual taxable benefit in kind for each year in which the asset is made available.
• The benefit will be calculated under s205 ITEPA 2003, at 20% of the higher of:
o The cost, unless the asset is land/buildings, in which case the annual rental value is used, and
o Actual annual costs incurred by the employer.
For example, if the company rents a satellite dish which it attaches to the director’s home and he and his family benefit from it. The benefit will be the higher of 20% of cost or the annual rental cost paid by the employer.

Company construction of assets on a director’s land

If the company creates an asset which is fixed to the director’s private land, such as building for personal use the taxable value of the benefit will be its cost less any amounts by the director.
• This is a one-off tax charge per s204 ITEPA 2003, made in the year in which the benefit is provided.
• If the building is then also used privately there is no additional charge but there will be an ongoing benefit in respect of expenses if the company is providing services such as light and heat in addition to the use of the building.
Note that where the employer is a builder, the costs of construction will be the higher of salaries of the workers used or the costs of contractors engaged to fulfil the workers’ normal duties while they worked on this project.

Transfer of asset to director

Where assets are depreciating assets, this would include temporary structures, such as caravans or static caravans, perhaps wooden cabins which have a short life: s206 provides that an asset which has been used or depreciated and then transferred to an employee will be taxed at the higher amount of:
• the market value of the asset at the date of transfer or
• the market value of the asset when first made available for the private use of a director less the aggregate of the amount of the cost of the benefit during the period when it was provided as a benefit (calculated according to s205) less
• any sum paid by the individual receiving the asset to the person transferring it.

VAT and capital costs

HMRC will disallow any claim to input tax if the expenditure is incurred for the private benefit of a director.
• A company can reclaim the VAT on the purchase of business assets, so it can still reclaim the cost of VAT on any plant and machinery used by the director in the home office.
• It may be possible for the company to reclaim part of the input tax on any conversion costs incurred when converting an outbuilding or completing internal modifications to create an office or workshop, provided that there is a licence in place and any private benefit received by the director is minor.

Capital allowances

• A company will be able to claim capital allowances on the cost of plant and machinery purchased to convert or create a home office.
• It may be possible to claim capital allowances on the cost of fixtures however, fixtures are immoveable, and so the ownership of the fixtures passes to the director. It will then be difficult to try and argue that the cost was incurred for the purposes of the company’s trade. The director may, as an employee claim capital allowances on plant which he provides for the company.

Repairs

• A company can claim the cost of repairs and renewals and associated VAT in respect of any building that it occupies.
• A claim may be disallowed if the expense also benefits the director as it will not be wholly and necessarily incurred for the purposes of the business.

Need more information?

We love nothing more than learning about new start-ups and helping you get off on the right foot! We offer a wide range of services which are unique to businesses who are just getting going! As start-up accountants we have a wealth of experience in all sectors between our team. From restaurants, fashion brands, fitness centres and many creatives start their business correctly and ensure they are staying tax compliant. The team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

wedding venue
By Katie Business Advice 0 Comments

Tax Implications of Divorce

wedding venue

Whilst divorce can be very unpleasant, it is important to seek specialist advice to ensure you understand your tax position, have no hidden surprises and do not miss the opportunity to save tax. It can also be difficult with HMRC. We have outlined some implications to consider when going through with a divorce.

Capital Gains Tax (“CGT”) & Divorce

Transfers of assets between spouses are normally made on a ‘no gain-no loss’ basis for CGT purposes, which means no CGT is due. However, if spouses have permanently separated, the no gain-no loss treatment for CGT only applies until the end of the tax year of separation. After the tax year of separation, transfers between spouses, either as gifts from one to the other, or by court order, may result in a CGT liability for the transferring spouse as (subject to any reliefs or exemptions) the transfers are deemed to take place at market value.

The legalities and personal issues of finalising a divorce can result in this process taking a significant amount of time.

Transfer of the family home after a divorce

Sometimes following separation, one spouse will leave the matrimonial home and agree to transfer their share to the other spouse who remains. Principal private residence (“PPR”) relief provides an important exemption from CGT here.

Where the asset being sold or transferred is or was an individual’s primary residence, PPR relieves from CGT a proportionate period that the property was occupied as such. In addition to this, the final 18 months of ownership are always covered by the exemption even if the individual has moved out, although this will fall to 9 months from 6 April 2020.

If spouses have only one primary residence between them, it is common for the leaving spouse to elect another property as their primary residence for PPR purposes once they leave. However, problems can occur due to the availability of PPR on any subsequent transfer of the marital home.

If a spouse transfers their share in the property to their ex-partner within the tax year of separation, it will be on a ‘no gain, no loss basis’ as described above. This means that the spouse making the transfer will avoid CGT at that time and will be free to claim for PPR on another property.

If the transfer takes place after the tax year of separation, the spouse who has moved out may still claim full PPR relief if the transfer takes place within 18 months (or 9 months if after April 2020) of moving out even if they have bought a new house. If it is any longer than this, there could be a liability to CGT for the transferor.

Rental property & divorce

If a rental property has at some stage been the primary residence of the owner(s), then an element of CGT relief will be available proportionate to the amount of time the property was used as such. If this is not the case, then the entire gain would be subject to CGT.

Business assets & divorce

In the tax year following the separation, business assets would be subject to CGT if transferred between spouses. Such assets may be eligible for a CGT relief known as ‘holdover relief’. This will only take place assuming the receiving spouse agrees with the transferring spouse that they will receive the assets at the original cost to the transferor.

Inheritance Tax (“IHT”) & Divorce

Transfers between spouses who are both UK domiciled, and both non-UK domiciled, are exempt from IHT until the date of the finalised divorce. If a transfer is made after this date it may come within an exception for transfers made under a court order. It is important to remember that if the transfer is not covered by the exception, it may be considered a ‘potentially exempt transfer’.

Pensions & Divorce

Due to the automatic enrolment of many employees into workplace pensions, accrued pension benefits may be a major asset considered within the divorce negotiations. If either or both of the parties to the marriage or partnership have accrued pension rights, then these are viewed by the court as part of the former spouse’s assets for disposition on divorce.

Need more information?

A&C Chartered Accountants work with leading advisers in this field when this does occur for our clients. The dedicated tax accountants ensure they create smart and effective tax-efficient solutions for you and your business.

If you need further guidance please do not hesitate to contact Paul, our experienced chartered Accountant who has helped clients with divorce implications.

You can contact Paul on 0161 962 1855 or email him at paul@ac-accounts.co.uk for more information on how we can help.

vw kombi van
By Katie Business Advice • Business News 0 Comments

When is a van not a van?

vw kombi van

HMRC are being urged to provide clarity and consistency on the tax treatment of commercial vehicles such as VW Kombi Vans marketed as goods vehicles. The need for clarity follows the ruling in an important tax tribunal case involving “vans” provided to employees of Coca Cola.

The court has upheld the HMRC view that certain vehicles are not goods vehicles but motor cars for benefit in kind purposes. Consequently, the income tax and national insurance payable by employee and employer is significantly higher than if the vehicles had been classified as goods vehicles.

Certain vans are exempt from income tax

There is no benefit in kind where the van is only used for business journeys or the private use of the vehicle is insignificant. Examples would include making a slight detour to pick up a newspaper on the way to work or taking an old mattress or other rubbish to the tip once or twice a year.

Income tax definition of “goods vehicle”

The income tax legislation defines a “goods vehicle” as “a vehicle of a construction primarily suited for the conveyance of goods or burden of any description…”

Although the VW Kombi vans failed this test the Tribunal held that Vauxhall Vivaro vans provided by Coca Cola did fall within the definition of goods vehicles!

It is understood that this case is due to be heard at the Court of Appeal which will provide legal precedent over the tax treatment. Until then it gives employers a dilemma as to how to report such vehicles on employees’ form P11d and also whether the position in earlier years should be rectified. The tribunal had to seek evidence from automotive industry experts so how are employers expected to interpret the rules!

What is also particularly confusing, and thus difficult for businesses to deal with, is that the benefit in kind rules are not the same as the rules for capital allowances and VAT.

Capital allowances definition of “motor car”

The definition of a “motor car” for plant and machinery allowances purposes is a mechanically propelled vehicle except a vehicle:

  1. constructed in such a way that it is primarily suited for transporting goods of any sort, or
  2. of a type which is not commonly used as a private vehicle and is not suitable for use as a private vehicle.

VAT definition of “motor car”

For VAT purposes the definition of a motor car has been amended several times over the years. The current definition states: “Motor car” means any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

  1. a) is constructed or adapted solely or mainly for the carriage of passengers; or
  2. b) has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows;

There are several exceptions to this rule notably vehicles constructed to carry a payload of one tonne or more. A common example would be a “double cab” pick-up such as a Mitsubishi L200 or Toyota Hilux.

Need more information?

A&C Chartered Accountants offer a wide range of services which are unique to your business needs. As chartered accountants we have a wealth of experience in all sectors and business vehicles. The team work hard to ensure they create smart and effective tax-efficient solutions for your business to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively, you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

Self-employed florist
By Katie Business News • Startups 0 Comments

Limited Company Or Self-Employed: Which Is Right For My Business?

As you start on your own there are many things to consider. One of the important questions to really think through is whether you will operate as a self-employed sole trader or set your business up as a limited company.

Below we will highlight some of the differences between each. If you need any more guidance your accountant can guide you further.

Self-employed

Setting up as self-employed is the quickest option as it requires minimal effort as opposed to setting up as a limited company. You can do this all online and all you need to do is register for Self-Assessment (speak to our self-assessment specialists for help). Therefore, it is the most popular option amongst new business owners in the UK. Day-to-day it is important to get into the habit of keeping accurate records of your invoices, receipts and expenses.

The advantage of being self-employed is that you can take as much money as you want from the business. However, the downfall of this is when you are self-employed you as an individual are a business. This means if the business has any debts or for any reason fails, you are personally liable.

If you are self-employed, you have until the 5 October of the following tax year to tell HMRC that you are trading. This means that if you began trading in June 2018, you have until 5 October 2019 to tell HMRC, should you want to. You will complete your self-assessment tax return and tell HMRC what profit you have made during that tax year and then you pay tax on this profit. You will need to submit a self-assessment tax return by the 31 January after the end of the tax year.

Limited company

If you decide to trade through a Limited Company, you will need to create the Limited Company before you are able to do anything. Setting up as a Limited Company is not as straightforward as registering as self-employed. Your Limited Company will need to submit its own company tax return and accounts to HMRC as well as a shorter set of accounts to Companies House within nine months of its year-end. As a Director, if your own income will give rise to a tax liability, you will need to complete a self-assessment tax return as well.

When you trade through a Limited Company, you should not mix personal expenditure with that of the company. This is because the Limited Company is a separate legal entity to yourself. As your Limited Company will have to complete its own company tax return, it should come as no surprise that it will also have its own tax liability. The Limited Company will pay corporation tax, and this will be due nine months after its financial year-end. An advantage of setting up this way, however, is that you could pay considerably less tax than you would if you were self-employed.

A Limited Company doesn’t have a personal allowance, however, so it will begin to pay tax from the moment it makes £1 in profit. But then there is your personal income that you will extract from the Limited Company in the form of a salary and dividends.

A limited company is classed as a separate legal entity to its shareholders and directors. This is the biggest difference between the two ways to set up your business and is an important note to consider. Unless any fraudulent activity takes place, you as a director will not be held personally accountable for any financial difficulties the company finds itself in. Many businesses favour this as it helps to reduce the financial risk to those individuals involved with the company.

Need more information?

We have helped many businesses with setting up as self-employed or a limited company. We offer a wide range of services which are unique to your business and advice on the best way to set up.

As chartered accountants, we have a wealth of experience in all sectors. From restaurants, fashion brands, fitness centres and many creatives start their business correctly and ensure they are staying tax compliant.

Our team work hard to ensure they create smart and effective tax-efficient solutions for your company to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant don’t hesitate to contact us.

For more information please contact us on 0161 962 1855. Alternatively, you can email us using the form below and we will contact you as soon as possible.

business spreadsheets explaining VAT
By Katie Making Tax Digital • Startups 0 Comments

The UK VAT rate explained

Firstly, what is VAT?

VAT, or Value Added Tax, is levied on the sale of goods and services in the UK. It is a type of ‘consumption tax’ because it is charged on items that people buy. It is also known as an ‘indirect tax’ because it is collected by businesses on behalf of the Government. However, it is important to remember that it is not charged on products of services. Duty-free goods are exempt, and this explains why it can be known as a destination-based tax, meaning the tax rate is normally based on the location of the consumer and the sales price. In the UK, the tax plays a huge role in generating the third largest revenue for the government behind Income Tax and National Insurance.

Does your business need to register for VAT?

Business owners need to be fully aware of the value-added tax (VAT) and all other things related to it no matter what. The value-added registration threshold in the UK starts from £85,000. Therefore, when your turnover is more than this amount you need to make sure you are VAT registered. You can also register your business on a voluntary basis. It is important to remember as a business owner, that this figure is more than likely to change every so often. Businesses need to consider the great benefits that come with registering even if your VAT return is way below the threshold.

Responsibilities for VAT-registered businesses

  • You must charge VAT on your goods or services.
  • Likewise you may reclaim any VAT they’ve paid on business-related goods or services.
  • You must report to HM Revenue and Customs (HMRC) the amount you have charged and paid.

It is important to note that if you have charged more than you have paid; you must pay the difference to HMRC. Alternatively, if you have paid more than you have charged, you are eligible to reclaim the difference back from HMRC.

The UK VAT rates for 2019  

  • The Standard Rate is 20% and it applies to most goods and services that are taxable in the UK
  • The Reduced  Rate is 5% and this applies to some goods and services such as children’s car seats and home energy.
  • The Zero Rate currently stands at 0%. Zero-rated goods and services include children’s clothes and most food items. Despite their being no charges on zero  rates, the sale of goods and services under this category should always be recorded by businesses.

Deadlines for VAT 

It is vital that you do not miss the deadline. Your accountant will ensure this does not happen. For submission, the deadline is due on the first calendar month including the seven days duration following your VAT end period. Every business is different, and your period end can be monthly, quarterly, twice a year or annually.

Making Tax Digital for VAT 

From April 2019, all VAT-registered businesses with a taxable turnover above the threshold (£85,000) are now required to keep digital VAT business records. Every business with a turnover exceeding the current threshold will have to now ensure that their records are kept digitally. Businesses with a taxable turnover below the threshold are welcome to sign up on a voluntary basis for MTD.

Our team at A&C have helped many existing and new clients prepare for MTD. Ann, our dedicated client manager uses the latest Making Tax Digital compatible software to ensure you are effectively prepared for MTD.

We offer a wide range of VAT services, including in-house training, tax returns and compliance, and investigation support.

startup business diagram
By Katie Business News • Startups 0 Comments

How can an accountant help a start-up business?

startup business diagram

When you first think of an accountant you think of them being very different to you and your business. Well that is not entirely true. Many accountants have either been a start-up themselves or have a wealth of experience helping business start-up. Accountants no longer just sit behind a desk all day; they are genuinely interested in what you do and are just as passionate about helping you succeed.

Getting you off on the right foot from the start is crucial. Hiring an accountant to make sure you are tax compliant and have a healthy cash flow will allow you to be able to put more energy into what you do best.

Financial forecast and control

As a business starting up you are about to embark on an incredible journey of doing something you love. However, to keep the business alive you need to ensure you have a healthy cash flow. A financial forecast produced by your accountant will help safeguard your finances and plan a prosperous future.

It is vital to be as realistic as possible and this is where your accountant comes in. You do not want to underestimate or overestimate the revenue your business will generate. Your accountant will work with you to create an accurate financial forecast to set your business up the right way. As a start-up it is useful to use cloud based accounting software like Xero, who can be as adaptive as you are. Having everything online so you keep all your invoices and expense claims up to date is crucial from the start. Xero also allows you to see your bank account in real time.

Make sure you are tax compliant

Accountants are always one step ahead of changing tax legislation’s and start-up businesses can often benefit from these. Thinking about tax is not what you want to be doing when starting up. Let your accountant take care of all your tax needs to ensure you are tax-compliant. An accountant will minimise any penalties that could arise. You will never need to be concerned about submitting a tax return before the deadline!

Construct a business plan together

If you do not already have a business plan or need further guidance your accountant can help you. For investment, a strategic though out business plan is crucial.

Your favourite agony aunt

Starting up can be lonely, but it does not have to be. Alongside networking events an accountant is a great person to talk to. It is fantastic when a client can ring up and to just simply get things off their chest. Consider your accountant as your agony aunt!

Need more information?

We love nothing more than learning about new start-ups and helping you get off on the right foot! We offer a wide range of services which are unique to businesses who are just getting going! As start-up accountants we have a wealth of experience in all sectors between our team. From restaurants, fashion brands, fitness centres and many creatives start their business correctly and ensure they are staying tax compliant. The team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

Construction industry
By Katie Business News 0 Comments

Construction and building companies: get ready for the VAT domestic reverse charge

What does the VAT reverse charge mean for building & construction companies?

From 1st October 2019, VAT-registered firms who are reporting under the Construction Industry Scheme (CIS) will see a major change to the way VAT is collected. The customer recieving the service will now have to pay the VAT due to HMRC instead of paying the supplier.

What you need to do to be ready for 1st October :

  • make sure your accounting systems and software are updated to deal with the reverse charge
  • check whether the reverse charge affects either your sales, purchases or both
  • consider whether the change will have an impact on your cashflow

Are you a contractor?

Contractors need to review all contracts with sub-contractors, to decide if the reverse charge will apply to the services you receive under your contracts. You’ll need to notify your suppliers if it will.

Are you a sub-contractor?

If you’re a sub-contractor you’ll also need to contact your customers to get confirmation from them if the reverse charge will apply, including confirming if the customer is an end user or intermediary supplier.

How will the domestic reverse charge will affect you?

HMRC have made it clear that for the first 6 months it will apply a light touch when dealing with any errors that may occur. Therefore, penalties will only be considered if it can be seen that you are take advantage of the new measure deliberately by not accounting for it correctly.

Services affected by the domestic reverse charge

The reverse charge does not apply if the service is zero rated for VAT or if the customer is not registered for VAT in the UK.

It also does not apply to some services. Services that it does apply to are:

  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures.
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours.
  • painting or decorating the inside or the external surfaces of any building or structure.
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure.
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration.

To see a full list of services that are included and excluded from the domestic reverse charge, please visit the gov.uk website here. You will also find more in-depth information on the website. If you need to speak to your accountant please do not hesitate to get in touch with us.

Need more information?

Our fantastic team at A&C Chartered Accountants are here to help. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Contact us below

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By Katie Business News 0 Comments

Cash Planning and Forecasting

Cash is King! The lifeblood of any business is its ability to collect cash and pay bills as well as pay its employees, particularly its owners. Far too often small businesses are profitable, but they do not have enough operating capital to meet their current needs. Consequently, they may be forced to sell out to a stronger competitor, sell a portion of the company to investors at an undesirable price or close the doors and put the company out of business. None of these alternatives are typically what the owners intended when starting the business.

The ability to forecast cash resources and uses is an art and is by no means a well-defined science. None of us have a crystal ball and any cash forecast which is prepared by the management of a company or their accountant can be no more than a guess as to when the customers pay and when your business will pay its obligations. Hopefully, the more effort that is put into cash forecasting the better will be the educated guess and the more accurate the resultant picture of the future operations of your business.

Starting the Analysis

One of the most significant factors to be considered in your cash flow forecast is the volume of sales that will be generated in the next several months and for the rest of the period for which you intend to forecast. Your sales forecast must be as fine-tuned as possible. It may be unrealistic to assume that there is a million pound market for your product in your area and you will be able to capture a specified percentage of it. A sales forecast needs to be based on specific facts. These might include your sales history, or the history of similar businesses you have owned or operated, or the competition. In your area, what has been the experience of similar operations?

Some of the questions that should be addressed would include what other factors could I control such as adding new product lines, deleting unprofitable operations, adding a new salesperson, or terminating one that is not producing to quota? In preparing a forecast, you must also take into consideration items such as the seasonality of your business, the relative state of the economy and the period over which you will forecast.

Obviously, your ability to forecast sales for the next month is better than it is for three to five years from now. The amount of detail that must be included in the cash forecast is really a matter of preference. It can be based on per unit sales extended out by the sales price of each type of unit or an average sales volume per day, week or month of your type of business in its current environment.

Cash Collections

Once you have determined a reasonable level of sales and you are comfortable with the forecast you have made, you must address questions such as: what percentage of my sales are received in cash, and what portion are credit sales for which I will have to carry amounts in debtors? For those that are debtors based, how soon is the cash collected? Do I have to wait for customers to pay me or do third parties such as Visa or MasterCard or a debt factor take the customer’s account and convert it to cash for me with an appropriate discount?

If you are relying on customer payments for collection of debtor balances you must determine what portion of the debts will be collected in thirty days, sixty days, ninety days and thereafter, and what portion, if any, may never be collected. To assume that 100% of your sales will ultimately be converted to cash is probably unrealistic especially considering the current economic environment and the tight cash situations that may face some of your customers.

Other sources of cash may be available in addition to sales. Do you expect to bring in a partner or other investors, or can you borrow money from a bank? When will you receive the cash and how much will you get? Part of your cash flow analysis may be to determine how much investment money or borrowings will be required to operate your business.

Once you are comfortable with the cash receipt side of your business, and the timing of the collections of funds from your sales and other sources, it is necessary to consider the expenses and other cash needs of your business operation.

By Katie Business News 0 Comments

IHT relief for businesses and farms

There is currently a very generous 100% relief from inheritance tax for passing on businesses and farm land during lifetime and on death. The rationale for Business Property Relief (BPR) and Agricultural Property Relief (APR) is to enable businesses to be passed on without the need to sell off assets to pay the IHT due on the transfer.

Currently if a business is wholly or mainly for the purpose of investment, then it will not be eligible for BPR. This is not always straightforward to determine. Many estates include both trading and non-trading business assets, and establishing whether this test is met can be difficult to establish. The ‘wholly or mainly’ test is generally considered to be a greater than 50% test and the OTS are suggesting that the test should be aligned with the much stricter 80:20 test that applies for CGT gift of business asset holdover and entrepreneurs’ relief. If introduced many more business transfers would be liable to IHT.

On the positive side the OTS have recommended that IHT business property relief should be extended to include Furnished Holiday Lettings aligning the tax treatment with that of Income Tax and CGT where they are treated as “trading” providing that certain conditions are met.

By Katie Business News 0 Comments

Using a PSA to pay some of your employee’s tax

PAYE settlement agreements (PSAs) are arrangements under which an employer can settle the income tax and National Insurance liabilities on benefits in kind and expenses payments provided to employees and officeholders.

Setting up a PSA avoids passing on an unexpected, and potentially demotivating, tax charge to employees. Where a PSA has been agreed with HMRC, this will obviate the need for any reporting on the individual’s P11D.

The items that can be included in the PSA must meet one of three criteria: minor, irregular or impracticable to apply PAYE or apportion between the employees receiving the benefit.

Although reporting will eventually go online, applications for a PSA are currently made in writing to HMRC. The Revenue will then issue a P626 contract, which states that the employer will pay the tax and National Insurance liability on agreed benefits.

BUT NOT TRAVEL COSTS FOR NON-EXECUTIVE DIRECTORS IN PUBLIC SECTOR

Until recently, HMRC allowed taxable travel expenses to be included in public sector PSAs in respect of normal commuting costs for Non-Executive Directors (NED). The Department of Business (BEIS) wrote to the bodies it oversees on 30 May 2019 instructing them that any payments for commuting made to non-executives and other office holders, will now have to be paid through payroll, with tax and National Insurance deducted at source.

Note also that fees for NED roles in the public and private sectors are always required to be subject to tax and NI through the payroll, as this is income for the holding of an office so it cannot be invoiced and paid gross to the NED.

By Katie Insights 0 Comments

Reporting the issue of shares or options to staff

Gifts and awards of shares in companies, often known as employment related securities (ERS) are commonly used by employers to reward, retain or provide incentives to employees. They can be tax advantaged or non-tax advantaged.

You must notify HMRC of all new ERS schemes including one-off awards or gifts of shares by 6 July following the end of the tax year in question or you may have to pay a penalty.

Once you have registered the share scheme you need to submit an ERS return (or nil return) even if there have been no transactions in the year otherwise the company may be liable to a penalty.

Please contact us if you need assistance dealing with these reporting obligations.

By Katie Business News 0 Comments

High income child benefit charge and state pension


Last month we looked at tax planning to minimise or eliminate the high income child benefit to keep both husband and wife (or civil partners) looking after a child below the £50,000 threshold.


Where the income of one of the individuals exceeds £60,000 such that the whole of the child benefit is taxed they may be tempted not to claim child benefit at all. This may however limit the amount of State pension and other benefits at a later date. Under current rules Individuals must make National Insurance contributions for 35 years to receive a full State Pension. Individuals may claim Child Benefit and choose not to receive the payments, which means they do not have to pay the charge but still receive the associated National Insurance Credits for that year and protect their State Pension entitlement.


Note that grandparents who have ceased working and are looking after their grandchildren may also claim NIC credits for that year which would count towards their 35 year contribution history. Remember that you can check your National Insurance record online on the DWP website to see:
• what you’ve paid, up to the start of the current tax year (6 April 2019)
• any National Insurance credits you’ve received
• if gaps in contributions or credits mean some years do not count towards your State Pension (they are not ‘qualifying years’)
• if you can pay voluntary contributions to fill any gaps and how much this will cost

You can check your State Pension online at any time for a forecast of how much you could get. The service will also confirm when you will reach State Pension age, under the law as it stands. Note that Government proposes to increase the State Pension age to 68 from 2037.

By Katie Insights 0 Comments

Tax planning to minimise the high income child benefit charge

Tax planning to minimise the high-income child benefit charge

The substantial increase in the higher rate threshold to £50,000 is good news for many taxpayers. However, that same figure is the point at which child benefit starts being clawed back and there has been no increase in that threshold since the High Income Child Benefit Charge was introduced in 2013/14.

The charge applies if you have adjusted net income over £50,000 and either:
• you or your partner get Child Benefit
• someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep

It does not matter if the child living with you is not your own child. Adjusted net income is your total taxable income before any personal allowances and less things like Gift Aid and pension contributions.

The charge is 1% for every £100 that adjusted net income exceeds £50,000 multiplied by the child benefit claimed in respect of the children. Child benefit continues to be paid at the rate of £20.70 a week for the eldest child and £13.70 for each additional child.

Example

A couple with 2 children would receive £1,789 a year in child benefit. If the husband, a sole trader, made a profit of £55,000 (also his adjusted net income) after paying his wife a salary of £12,000 he would have to pay the high income child benefit charge of £894 (for 2018/19) in addition to his normal income tax and NIC bill.

If he brought his wife into partnership and they shared profits equally their income would be £32,500 each and there would be no high income child benefit charge. Similarly, if the business was a limited company they would be able to equalize their income so that the charge would not be payable.

Need more help?

Get in touch with our tax advisors for a free consultation.

By Katie Insights 0 Comments

Extracting profit from the family company

Extracting profit from the family company

The start of the new tax year means that shareholder/ directors may want to review the salary and dividend mix for 2019/20. The £3,000 employment allowance continues to be available to set against the employers national insurance contribution (NIC) liability which means that where the company has not used this allowance it may be set against the employers NIC on directors’ salaries.

Thus, where the only employees are husband and wife there would generally be no PAYE or employers NIC on a salary up to the £12,500 personal allowance.

There would however still be employees NIC at 12% on the excess over £8,632 (£166 per week) which would be £464 on a £12,500 salary, leaving £12,036 net.

Taxation of Dividend Payments in 2019/20

Traditional advice would then be to extract any additional profits from the company in the form of dividends. Where dividends fall within the basic rate band (now £37,500) the rate continues to be 7.5% after the £2,000 dividend allowance has been used. Thus where husband and wife are 50:50 shareholders they would each pay £2,663 tax on dividends of £37,500 assuming they have no income other than a £12,500 salary, leaving £34,837 net of tax.So a combination of £12,500 salary and £37,500 in dividends would result in £46,873 (93.7%) net of income tax and NICs.

Ensure dividend payments are legal

The Companies Act requires that companies may only pay dividends out of distributable profits. This means that in the absence of brought forward reserves the company would need to provide for 19% corporation tax in order to pay the dividends and thus there would need to be profits of £92,593 in order to pay dividends of £75,000 (after providing corporation tax of £17,593).

Overall the combination of salary and dividends suggested above would result in net of tax take home cash of £93,746 for the couple out of profits before salaries and corporation tax of £117,593 (20.3% overall tax). This still compares very favorably with the amount of tax and NIC payable if the couple were trading as a partnership.

By Katie Insights 0 Comments

VAT: reverse charge for building and construction services

VAT: reverse charge for building and construction services

Who is likely to be affected

Businesses involved in buying and selling construction services. It does not apply to zero-rated supplies of construction services.

General description of the measure

The measure will introduce a VAT reverse charge on certain building and construction services. The final version of the legislation will be published at Budget 2018, and will come into effect on 1 October 2019.

The measure will, for certain supplies of construction services (‘specified services’), mean that the customer will be liable to account to HMRC for the VAT in respect of those purchases rather than the supplier (the ‘reverse charge’). The reverse charge will apply through the supply chain where payments are required to be reported through the Construction Industry Scheme (CIS) up to the point where the customer receiving the supply is no longer a business that makes supplies of specified services – these businesses are referred to as ‘end users’.

The reverse charge will exclude businesses that supply specified services to connected parties within a corporate group structure or with a common interest in land. In these circumstances, the supplies in question will then revert to normal VAT accounting rules.

The reverse charge will include goods, where those goods are supplied with the specified services.

Policy objective

This is an anti-fraud measure which removes the opportunity for fraudsters to charge VAT and then go missing, before paying it over to the Exchequer.

Background to the measure

VAT fraud in construction sector labour supply chains presents a significant risk to the Exchequer. Organised criminal gangs fraudulently take over or create shell companies to steal VAT whilst operating alongside actual construction services. This is commonly referred to as ‘missing trader’ fraud.
The government announced a consultation at Spring Budget 2017 to address this and published a summary of responses in December 2017. At Autumn Budget 2017, government announced that it would be taking forward the measure. A technical consultation on the draft legislation and its impacts took place in June and July 2018.

Detailed proposal

Operative date

The statutory instrument will be published in November 2018. The reverse charge will apply to supplies of specified services on or after 1 October 2019.

Current law

Section 1(2) of the VAT Act 1994 makes the supplier liable for any VAT on supplies of goods or services.

Under section 4 of the VAT Act 1994, VAT is charged on the supply of goods and services where they are made in the UK by a taxable person in the course or furtherance of their business. The rate of VAT charged on the supply of construction and building services can be 20%, 5% or 0% depending on the type of building the construction services are being carried out on. The legislation in the VAT Act 1994 that describes the rate of VAT for construction and building is groups 6 and 7 to schedule 7A and group 6 to schedule 8.
Section 55A of the VAT Act 1994 provides that the recipient of a supply must account for the VAT due on supplies of a kind specified in a statutory instrument.

Proposed revisions

A statutory instrument will introduce a VAT reverse charge on certain building and construction services.

The introduction of a reverse charge does not change the liability of the supply of the specified services. What does change is the way in which the VAT on those supplies is accounted for. Rather than the supplier charging and accounting for the VAT, the recipient of those supplies accounts for the VAT.
The statutory instrument will come into effect on 1 October 2019 and will apply to supplies of specified services from that date. This includes the goods supplied with those services.

The types of construction services covered by the reverse charge are defined in the statutory instrument. These are based on the definition of ‘construction operations’ used in CIS under section 74 of the Finance Act 2004 but will only apply to supplies where payments are required to be reported for CIS purposes under regulation 4 of the Income Tax (Construction Industry Scheme) Regulations 2005.

The statutory instrument excludes certain types of supplies of services. This is also based on CIS definitions under section 74 of the Finance Act 2004.

The statutory instrument also excludes supplies of specified services to end users. These are customers that have to report their payments for specified supplies through CIS but do not make supplies of specified services themselves.
Also excluded are supplies of specified services where the supplier and customer are connected in a particular way, and for supplies between landlords and tenants. The meaning of connected is defined in the statutory instrument and only applies where the customer is an end user and the supplier is part of that customer’s corporate group. These exclusions are defined in the statutory instrument as excepted supplies. Unlike for CIS, there will be no deemed contractor provisions whereby purchases become subject to reverse charge because the purchaser buys a certain amount of such purchases in a given period.

Where a VAT-registered business receives a supply of specified services (which are not excepted supplies) from another VAT-registered business on or after 1 October 2019, it accounts for that VAT amount through its VAT return instead of paying the VAT amount to its supplier. It will be able to reclaim that VAT amount as input tax, subject to the normal rules. The supplier will need to issue a VAT invoice that indicates the supplies are subject to the reverse charge.

For more information please visit the gov.uk website here

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