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.

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.

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.

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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 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 AC Accounts Business News • Insights 0 Comments

Working in the “gig” economy

The House of Commons Work and Pensions Committee has recently published a report calling on the Government to close the loopholes that allow “bogus” self-employment practices, which burden the welfare state but reduce the tax contributions needed to sustain it.

This follows the “Matthew Taylor” inquiry which took evidence during February and March 2017 from witnesses including representatives of companies such as Uber, Amazon, Hermes and Deliveroo. Most of the people working for such organisations were not on the payroll and have limited workers rights and are paid for each delivery or “gig”. The Committee recommended a default assumption of “worker” status, rather than “self-employed”, and said that the incoming Government should set out a roadmap for equalising the NICs paid by employees and the self-employed.

Mr Taylor was also asked to produce a report on the status of such workers and suggested that a new category of “dependent contractor” should be established, but the report did not conclude on how such a worker should be taxed.

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PAYING 20% INSTEAD OF 28% ON THE SALE OF PROPERTY

The latest Finance Act has retained the 28% CGT rate for sales of residential property, whereas the general rate was reduced to 20% for higher rate taxpayers.

It has been suggested that it is possible to reduce the rate from 28% to 20% by deferring the gain temporarily into qualifying EIS company shares.

The tax planning opportunity arises because reinvesting the property gain in Enterprise Investment Scheme (EIS) company shares defers the gain until the shares are sold when the gain comes back into charge at the general rate of CGT, currently 20% for a higher rate taxpayer.

There is no minimum holding period for EIS deferral relief, however where the investor is seeking income tax relief and CGT exemption on the sale of the shares they need to be an unconnected investor and retain the EIS shares for at least 3 years.

The reinvestment in EIS shares must take place during the period of 12 months before to 36 months after the date of disposal of the property.

Shares in EIS qualifying companies are risky investments and specialist investment advice should be taken. There is also a chance that HMRC may block this tax planning strategy in the future.

 

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DON’T LOSE YOUR PERSONAL ALLOWANCE

For every £2 that your adjusted net income exceeds £100,000, the £10,600 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.

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End of Year PAYE Return

Prior to the introduction of RTI, employers were required to complete an end-of-year checklist and declaration on form P35 and submit to HM Revenue and Customs. Under RTI this was replaced by the final full payment RTI submission which included a similar checklist and declaration.

HM Revenue and Customs have recently announced that from 6 March 2015, the requirement for employers to complete the end-of-year checklist when making their final full payment submission under the real time information regime will be removed, for the current tax year 2014/15 and subsequent years.

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NIC On Sales Commission

Unlike income tax under PAYE, Class 1 National Insurance Contributions (NICs) are not normally calculated on an employee’s cumulative earnings but on the earnings for that week or month in isolation. Employees pay Class 1 contributions at the rate of 12% on earnings between £663 a month and £3,488 a month. Above the upper earnings limit, a rate of 2% applies.

There have always been special rules for directors where an annual earnings period applies, but these do not generally apply to employees. HMRC are understood to be increasing the application of an annual earnings period for other employees in cases where they suspect Class 1 NIC is being avoided.

Take for example a car salesperson with a regular salary of £24,000 a year. Their normal gross pay would be £2,000 a month, but they receive a commission twice a year based on car sales. If they receive £5,000 commission in October due to car sales in the period to September, £3,512 of that commission would only attract 2% Class I NICs (£70.24), as the £3,488 limit applies on a non-cumulative basis. Applying an annual basis would have resulted in a further £351.20 being deducted (£421.44 less £70.24). Note that employers NIC would be unaffected.

Do you need help with National Insurance Contributions and PAYE codes?

Our team provides payroll advice for companies across all sectors, from charities to construction firms.

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

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Xero – Breath of fresh air in accounting

Small business accounting with Xero

Xero is online accounting software created especially to suit the needs of small businesses. It’s easy to use and will save you incredible amounts of time.

Some Benifits of Xero

Cash-flow in real time just login
Automatic Bank feeds that mean you don’t have to spend time entering all those bank transactions.
Access the system anywhere in the world.
Invoice on the go and also be able to see whats outstanding at a click of a button.

You want Xero? We’ve got Xero!

All clients of A&C Chartered Accountants get the Xero software complimentary so you don’t have to worry about the cost and we even provide monthly training webinars at no cost, if you do want some 1 to 1 training then its only £200 for half a day and unlimited telephone support for 12 months.

https://www.xero.com/uk/?type=partner&pid=WCCPXN

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CGT Entrepreneurs Relief Applies Up TO 3 Years Following Cessation

Capital gains tax entrepreneurs’ relief provides for a 10% rate on the disposal of a business, including a sole trade or shares in a trading company. The relief extends to the disposals within 36 months of cessation of trading, provided the business qualified for entrepreneurs’ relief for the 12 months up to the cessation date.

A recent case before the Tax Tribunal reminds us of the importance of timing in tax planning. A Mr Rice owned a car dealership in Peterborough which ceased trading in May 2005, but the premises from which the business traded were not sold until April 2008 – just within the 36 month period so the relief was available!

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15% Stamp Duty Land Tax For Certain Purchases

Finance Act 2012 introduced a 15 per cent rate of SDLT on the acquisition by certain non-natural persons (broadly companies) of dwellings costing more than £2 million. Finance Bill 2014 reduced this threshold to £500,000. The previous £2 million threshold will continue to apply, subject to exceptions, where contracts were entered into before 20 March 2014.

Acquisitions by trustees or for the purposes of letting, trading or redevelopment, trades involving making a dwelling available to the public, providing dwellings for occupation by certain employees or use as a farmhouse are excluded from the higher rate charge.

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Payment Of Self Employed Class 2 National Insurance

Class 2 NIC for the tax year 2014/15 is charged at the rate of £2.75 per week. It is possible for those with earnings below the small earnings limit of £5,885 (for 2014/15), to apply for the small earnings exception using form CF10.

Some taxpayers are both employed and also self-employed and so will have a PAYE code. From April 2014, HMRC can collect outstanding Class 2 NIC by adjusting the PAYE tax code.  If a Class 2 National Insurance contributions debt is being collected through a tax code, HMRC will have written to the taxpayer earlier in the year requesting payment. If you do not want your Class 2 National Insurance contributions debt to be included in your tax code, then you will need to pay the amount due in full.

Date

What’s Due
01 June Corporation tax for year to 31/8/13
19 June PAYE & NIC deductions, and CIS

return and tax, for month to 5/6/14

(due 22 June if you pay electronically)

Do you need help with National Insurance Contributions and PAYE codes?

Our team provides payroll advice for companies across all sectors, from charities to construction firms.

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

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Car Pool Policy

There are plenty of myths about the tax rules on company cars and the Pool Car Policy, but you should believe them at your peril as getting it wrong could result in a costly investigation by HM Revenue & Customs. Here, A&C Chartered Accountants can let you know the facts about the Pool Car Policy.

So what is a Pool Car and what is the restriction.

Pool Cars must meet the following conditions:

HMRC:http://www.hmrc.gov.uk/payerti/exb/a-z/c/cars.htm

  • Used by more than one employee
  • Not ordinarily used by one employee to the exclusion of others
  • Not normally kept at or near employees’ homes
  • Used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)
  • Provided all these conditions are met, you have:
  • No reporting requirements
  • No tax or NICs to pay

What to report, what to pay

Provided all these conditions are met, you have:

  • No reporting requirements
  • No tax or NICs to pay

Banning all private use is essential for you ‘pool car’ to be considered by the Tax man. If one of these conditions is not met let’s say that your the car/van is regularly kept at one of the employees homes, the car will be considered an not a pool car, and as a result private use of the car creates a tax liability. But tis tax liability will no only effect this particular employee but all the employees who use the car.

For Any more information regarding the issues raised in this article please do not hesitate to contact a member of the a&c Team. Call 0161 962 1855 or email chloe@ac-accounts.co.uk

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Tax Free Mobile Phones For Businesses

We all remember the notorious flat rate charge of £200 that was introduced back in 1990 for the private use of mobile phones provided by employers. Don’t we?. The aim of the charge was to discourage employers from providing them, however with the increasing dsemand and emphadisi on communication, this actually made no difference. In 1999 HMRC decided to swcrap the Tax and ever since mobile phones have been one of the most popular tac free benefits employers could provide for their employees.

It is a shame that we are still hearing that many new business owners and entrepreneurs fail to realise the benefits of having a business mobile phone for work purposes. The majority of people think that using their own personal mobile for business calls will be sufficient for them to get the company to foot the bill. In truth, the law governing this area means that such people may well find themselves subject to national insurance and income tax contribution demands as the phone bill is seen as a payment of expenses and thus a “taxable benefit“. A company mobile on the other hand is deemed to be a tax-free benefit.

This is covered by Section 319 of the Income Tax (Earning and Pensions) Act 2003 and the Finance Act 2006.

a&c Chartered Accountants have provided a breakdown of how you can make sure you reap the benefits of this useful business/tax tip.

How do mobile phones qualify for exemption?

TO ensure this benefit is completely tax free the following conditions have been put in place bu the HMRC:

  • The contract for the phone must be in the name of employer and not the employees
  • The phone must be provided by the employer so that the handset belongs to them
  • The employee can only benefit from this exemption for one mobile phone

Employer

You must ensure that the name on the mobile phone cotract is not one of an employer. The name on the account must strictly be of the employing companies name. This way you shall avoid any tax imlications in the future as the phone wioll only allow itemised business calls to be paid by the company. This is also relevant in regards to how you pay your monthly bill. All direct debits or payment arrangement must be made by the company only. If the contract or payment methods are regiostered by anyone else other than the compny you are technically only able to claim the proportion of the costs that relate to your business. If this is the case you will be expected by HMRC to russle through the your recorded phone records and add up the pennies yourself.

Rememebr that HMRC must be noted if the contract is in your name and you are claiming full cost through the company, because you are creating a taxable benefit. Hmrc will then issue you a PD11 form for you to complete.

Changing The Name On The Contract

Most providers are more then happy to change your contract into the nam of the company. If you do come across any problems you should aim to terminate your contract as soon as possible and then once your contract has ended you can then open a new contract in the companys name. One issue most new businesses incur is the fact they have not yet established a credit rating and in result of this if you are a new business with no credit history then you will be charged premium for the contract change. The added cost should then be evaluated and compared against the tax cost and if needed the contract will be transfered into the company once established.

Smartphone’s

In recent time HMRC has now recognised that smartphones meet the demands of the conditions, to be usec as a mobile phone.

Family Members

If your company kindly provides a mobile phone for your spouse/son/daughter or other relative then this phone must of only been issues to them by the director or employeed of your company in order to benefit from the exemption. It is vital that you are able to demonstrate that your family member carries out some sort of labour for the company and was not just given the phone because they are related.

More than one phone
The third condition does not mean that you are only allowed one phone. It just means that you are only allowed one mobile phone for personal use on a tax-free basis. If you have a second mobile and it is only used for business purposes (eg. kept in the office) this would not be taxable.

For any further information on the issues raised in this article please don’t hesitate to contact a member of the a&c Team. Call 0161 962 1855 or email chloe@ac-accounts.co.uk

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Capital Gains Tax To Be Paid By Non-Residents On UK Residential Property

As previously announced, it has been proposed that from 6 April 2015 CGT will be charged on non-residents who make disposals of UK residential properties. HMRC have issued a consultation document to consider how the charge can be implemented and the tax collected.

Part of the proposal may also affect UK residents who own more than one residential property. Currently, where a taxpayer has more than one residence, it is possible to elect which of those properties is to be treated as their principal residence so that private residence relief (PRR) will apply to the gain on the elected property. To prevent non-UK residents from electing their UK residence as their PRR, it is proposed that the current election system is removed and replaced with the requirement that the taxpayer demonstrates the main residence they have occupied during the year.  If implemented, this proposal could have a serious impact on a number of individuals, such as MPs and others who keep a flat in London which is occupied during the working week and another residence in the country for the weekend and where the rest of the family live during  the week.