Author Archives: Neil Brittain

Employee or subcontractor?

The recent change to IR35 legislation over work being carried out for the public sector has been among a number of items in the news bringing attention to whether someone is a member of staff or a contractor. Recently, a Tribunal decided that Uber drivers were staff and another tribunal decided that Deliveroo delivery drivers were self-employed.

As time goes on, it’s becoming increasingly difficult even for the most diligent company directors to know truly what the difference between an employee and a subcontractor is. However, that looks like a decision you’ll have to make very soon yourself about your contractors, under threat of penalties.

The problem – loss of tax

On Friday afternoon, a member of staff signs off on his last shift. On Monday morning, that same person comes in, works the same hours, does the same job, but he is now a contractor.

For the contractor, his new limited company shell means no deductions for income tax and National Insurance. The cheaper option of salary versus dividend is now the way they’re paid. For the company, no 13.8% National Insurance Employers’ Contributions, pensions contributions, and employment law.

Everyone wins. Except HMRC who are potentially £10,000s down.

The solution – exacting definitions of employment

The rules over who is an employee and who is a subcontractor have been tightened up greatly in the last 20 years.

There are now three status tests by which HMRC decides whether someone is an employee or contractor:

  • control – the level of interference from the company over how a job should be done. The self-employed usually receive much lower levels of input than the employed
  • personal service – is the worker providing just the services of himself or can he substitute someone to do the work instead?
  • basis of payment – often cited by HMRC as the key factor, does the job have a fixed price (or set hourly rate) and must the contractor absorb any costs in providing that service himself?

The new problem – not enough inspectors to do the job

In 2003/2004, there were just over 1,000 investigations into whether someone who claimed themselves to be a contractor was an employee or not.

By 2013/2014, that number had slipped to 192. No more recent figures have been published however, given the increasing cutbacks in HMRC’s staff numbers in the intervening period, there is no strong reason to suspect that the number of investigations have been climbing.

The new solution – just classify everyone as employees anyway

From April 2017, a change in the law meant that contractors were no longer in charge of declaring themselves as contractors. In the public sector, it was now the people who were contracting you who decided whether you were an employee or not. The contractor has no say in the matter anymore.

There are multiple news organisations reporting online that this new public sector rule will be applied to all private sector contracts from April 2018, although others believe that April 2020 is a more likely date of introduction.

Since the introduction of the public sector rule, Mel Stride, the financial secretary to the Treasury, speaking to the Financial Times, said that there were an additional 90,000 contractors more than expected taxed as employees in the public sector since April 2017.

The future

There seems to be a concerted government drive now to make the taxes that the self-employed pay closer to the taxes paid by those on a salary.

To make sure you’re paying the lowest possible legal rate of tax, keep your records up to date on Xero and keep in touch with your accountant here at Kelsall Steele.

Treating your staff at Christmas

Another year is nearly at an end and many business owners’ thoughts will be on treating their staff at Christmas for the twelve months that have just passed.

In this article, Kelsall Steele looks at what you can spend on your staff this festive season without leaving yourself open for a bill from HMRC

Christmas party allowance

Your business can spend a tax-free amount of up to £150 per member of staff on your Christmas party or other similar events during the year. If the Christmas party is the only one you hold, it’s safe to assume that your £150 per head limit still applies.

Within your £150 per person, you can include food, drinks, accommodation, and transport home.

Be careful though because if you spend a single penny over the £150 limit, the whole amount you spend on the party will be subject to income tax and both forms of National Insurance.

If yours is a family company, this allowance is often used to provide everybody with an enjoyable tax- and NI-free family meal. If you don’t use up the £150 per head limit in one go with your family, you can add an additional event as long as the spending does not go above the threshold.

Trivial benefits exemption

You can provide a tax-free gift to staff at Christmas too (or at any other time of the year). This is called the trival benefits exemption.

The value of your gift can not exceed £50. Please note that any gifts provided will not be exempt if:

  • it is cash or a cash voucher
  • it is provided in recognition of an achievement performed by your employee as part of their duties
  • your staff member is due the benefit as a contractual obligation.

Many companies, in an attempt to foster closer relationships and greater loyalty with their staff, will use the trivial benefits exemption either on a staff member’s birthday or present the workforce with individual gifts prior to the Christmas party.

Long service awards

If you have any long-serving members of staff with more than 20 years’ continuous employment with you near Christmas (or at any other time of the year), you can gift up to £1,000 to them as a reward.

Your £1,000 gift can not be cash, cash vouchers, credit tokens, shares, or securities. It has to be a gift in the traditional sense of the word like a watch, a handbag, or a television set.

If you spend more than £1,000, only the amount over £1,000 is taxable.

Your employees accrue a £50 per year of service allowance for every 12 months they work for you (again, continuously). This can only be turned into a gift upon 20 years’ service.

If you intend to celebrate 21 long years of service, or some other measurement of time, please be aware that the money spent on the 20th anniversary awards is taken into account when calculating the amount available that is tax free for the later rewards.

Special treats for directors

During the year, you can take small amounts of profit from your business under the “trivial benefits” benefit-in-kind. Up to £300 a year is available with no more than £50 being spent on an individual treat. The amount you do spend is deductible for corporation tax purposes and the gift can not be in the form of cash or cash vouchers.

Treating your staff – know the rules

If you’d like to speak with the experienced Kelsall Steele team about rules on treating your staff at Christmas and at other times of the year, please call us on 01872 271 655 or email enquiries@kelsallsteele.co.uk

Work From Home

Over recent years, it has become increasingly popular for employers to allow their employees to work from home, and in doing so, pay an amount to cover any additional household costs incurred. What are the tax implications of such expenses for the employee?

Broadly, no tax liability will arise where an employer make a payment to an employee for reasonable additional household expenses, which the employee incurs in carrying out duties of the employment at home under ‘homeworking arrangements’.

‘Homeworking arrangements’ are arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home. There is no requirement for any part of the employee’s home to be used exclusively for the purposes of the employment – in fact, if any part of the home is used exclusively for work, problems could arise on the future sale of the house as part of the capital gains tax exemption on private residences may be lost.

HMRC have stated that they will accept that work from home arrangements exist where:

– there are arrangements between the employer and the employee; and
– the employee will regularly work from home under those arrangements.

The HMRC guidance also advises that:

‘the arrangements need not be in writing but usually will be. They do not need to apply to all employees. The exemption does not apply where an employee works at home informally and not by arrangement with the employer. For example, it will not apply where an employee simply takes work home in the evenings. It applies where an employee works at home by arrangement with the employer instead of working on the employer’s premises.’

HMRC accept that the ‘regularly’ condition is met if working at home is frequent or follows a pattern. The fact that the days spent at home vary from week to week is not a bar to claiming the exemption.

‘Household expenses’ are defined as expenses connected with the day-to-day running of the employee’s home. The exemption applies to additional household expenses, and HMRC have given the following guidance:

‘Typically this will include the additional costs of heating and lighting the work area or the metered cost of increased water use. There might also be increased charges for Internet access, home contents insurance or business telephone calls. Where working at home leads to a liability for business rates the additional cost incurred can also be included.

The additional household costs must be reasonable and must be incurred in carrying out the duties. This excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates. It also excludes expenses that put the employee into a position to work at home, for example building alterations or the cost of furniture or office equipment.’

Amount of exemption

To minimise the need for record-keeping, employers can pay up to £4 per week (£208 per year) without supporting evidence of the costs the employee has incurred. If an employer pays more than that amount, the exemption will still be available but the employer must provide supporting evidence that the payment is wholly in respect of additional household expenses incurred by the employee in carrying out his duties at home.

If an employer wishes to pay more than the guideline rate per week tax-free, then it is recommended that the employer should agree in advance with HMRC a scale rate. Failing that, records will need to be kept of the actual additional costs incurred by each employee.

Dividend Allowance Changes

Podcast: Listen Now

The new dividend tax regime was introduced by former Chancellor of the Exchequer George Osborne. This has only been in place since April 2016, but it is already to be amended in April 2018, following announcements in the Spring 2017 Budget.

Before April 2016, a basic rate taxpayer paid no tax on their dividend income. Only higher rate or additional rate taxpayers paid tax on their dividend income at an effective rate of 25% or 30.6% respectively.

Since April 2016 the first £5,000 of dividends has not attracted any tax liability and dividend income above £5,00 has been taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

In the recent Budget the new Chancellor announced that the tax-free dividend allowance of £5,000 will be reduced by £3,000  to just £2,000 for dividends paid on or after April 2018

So what will this mean to you?

Since April 2016, if you have no other income, you can earn up to £16,000 in dividends (£5,000 dividend allowance + £11,000 personal allowance) and pay no tax. Above this you have to pay divided tax.

But from April 2018, you will only be able to earn up to £13.500 in dividends (£2,000 dividend allowance + £11,500 personal allowance) and pay no tax, subject to the Autumn Budget.

This will mean shareholders will be worse off by £225 a year if they are basic rate taxpayers, £975 a year if they pay higher rate tax or £1,143 a year if they are liable at the additional rate. FOr a couple who share the running of their company, this is doubled to £450, £1,950 or £2,286 depending on the tax rate.

What should you be planning?

Provided your company has sufficient distributable profits, directors should consider accelerating dividend payments before 6 April 2018 to benefit from the current dividend tax-free allowance of £5,000 before it reduces.

If you would like more information on this subject, please get in touch on 01872 271655 or email neil.brittain@kelsallsteele.co.uk

PAYE: Benefits in kind

PAYE: Benefits in kind (“Payrolling Benefits”)

In his Budget, the Chancellor of the Exchequer, announced changes to the way of Benefits in Kind and expenses can be reported to HMRC.

Payrolling Benefits” means putting a value through payroll to collect tax on employer-provided benefits and expenses.

On 6 April 2016, there will be a statutory basis for the voluntary payrolling of certain benefits. Employers will no longer need to submit P11Ds after the end of the tax year for the Benefits-in-Kind they choose to payroll. You can instead payroll all benefits except living accommodation, beneficial loans and credit vouchers and tokens.

P11D (b) remains

Unfortunately, the P11D (b) process will be unchanged. The Class 1A NIC will still need to be reported and paid after the end of the tax year by 19 July, (or 22 July if paying electronically). Employers will have to report the values of payrolled and non-payrolled benefits.

If P11Ds are not produced by your payroll software, you will need to be able to extract the relevant data to prepare the P11D (b).

Registering with HMRC

Employers that wish to adopt payrolling will need to register with HMRC to let them know which employees and which Benefits will be payrolled. The deadline is 5 April 2016, after which no registrations for 2016/17 will be allowed.

To use the service you’ll need your Government Gateway ID and have enrolled for PAYE online. Agents cannot directly access the service on behalf of clients.

Once registered, HMRC will assume that an employer wishes to continue to operate payrolling in future years unless they are told otherwise.

Talking to your staff

Your employees are likely to have questions about the change. Their tax codes may still be collecting tax from previous years and this additional collection may seem confusing. Payrolling will mean earlier collection of tax for new benefits and this may affect cash flow for some employees. You will need to ensure that employees are aware of what will happen and when.

You will also need to maintain careful records to ensure that your P11D reporting is accurate at the year end.

Getting ready

First, consider and decide whether you want to participate;

  • check that your software provider can enable statutory payrolling from April 2016;
  • decide which benefits to payroll and register with HMRC;
  • develop an employee communications system;
  • check your system for record-keeping requirements – P11Ds may still be needed for some employees or for benefits that the you chooses not to payroll.
  • You should then consider how you communicate the annual value of benefits to your staff so that they can reconcile any deductions made

What happens then?

You collect the tax due on benefits and expenses by adding a notional value to your employee’s taxable pay in your payroll, rather than reporting them separately on a P11D.

Before making the first main payment to an employee in a tax year you need to calculate the cash equivalent of the benefit as you would have done when preparing P11Ds. Then work out the number of payments to be made to the employee in the tax year and divide the cash equivalent of the benefit by the total number of payments to be made. The resulting amount is the taxable value of benefit which should be added to the employee’s wage in the payroll each pay period as a notional value. You then deduct or repay tax as usual by reference to the employee’s tax code.

Is it for me?

Given the amount of work involved in setting up a system and registering for this scheme and then estimating the notional payment that will be taxable in the next year you may think you would be better off waiting until the new system proves itself fit for purpose. The scheme is voluntary and the existing scheme will continue.

However, if it is an attractive idea, time is getting short and you will need to register and make any necessary adjustments to your payroll program very soon.

Christmas Tax Tips

‘tis the Season

It’s that time of year again! Time to get in the loft to find the Christmas tree… Time to dust off the decorations… Time to replace the lights that were working perfectly well when they got put away on last 12th Night! The sprouts have been simmering since August and now it’s also time for the office party or the annual bonus.

We all know that this is the season of the repeats – we’ll all be nodding off in front of a rerun of Morecombe & Wise in a few weeks. Some repeats are more welcome or useful than others. It may well be worth repeating the points that need to be remembered in the festive season if the Taxman isn’t going to spoil the feeling of goodwill to all men!

Christmas Parties

The cost of a staff party or other annual function for employees is an allowable tax deduction for businesses. Although sole traders and partners of unincorporated businesses cannot claim for their own entertainment. As long as the ‘bit of a do’ meets a few conditions, there will be no chargeable taxable benefit for the employee:

  • It must be open to all employees, or to all at a particular location.
  • The cost per head must not exceed £150 (including VAT). If you have more than one function in a tax year the cost per head in total must not exceed £150. Partners and spouses of employees are included in headcount when calculating the cost per head – but it is the number of people attending that is important rather than the number invited so this should be borne in mind if you’re block booking.
  • If the £150 limit is exceeded staff will be taxable in full on total cost per head for them and their partner/spouse also attending. Alternatively the business can enter into what is known as a PAYE Settlement Agreement to cover the employee’s tax for them. This would be payable by 19 October following the tax year – but this could be an expensive option as the extra tax and National Insurance Contributions you would pay could nearly double the cost of the party.

It is essential to remember that the cost per person is calculated as the total cost of the party or function so taxis home and any overnight accommodation have to be included in the calculation.

VAT

It’s important to note that on the amount of £150 per head VAT is recoverable on staff entertaining expenditure, but the definition of employees for VAT purposes does not include partners of existing staff, or former employees. Therefore if your party includes guests, you will need to apportion the costs appropriately for VAT.

Client Entertaining

Client entertaining (hospitality of any kind) is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it. So if you invite customers to the Christmas ‘do’ you will need to consider how to apportion the costs between the staff and clients.

Business Gifts

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

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

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

Christmas Bonus for staff

This will always count as ordinary earnings and must be subject to PAYE and NI as if it were additional salary. The same treatment extends to vouchers that can be spent in either one or a number of different shops of the employee’s choice. The employee has to pay tax on the full value of the voucher.

Gifts to Staff

With gifts other than cash or vouchers, in some cases the Taxman will decide that no tax liability arises on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial as to be not worth pursuing.

Unfortunately, HMRC will not tell us what monetary limit it considers as ‘trivial’. HMRC have conceded that an employer may provide an employee with a seasonal gift such as a turkey, an ordinary bottle of wine or a box of chocolates and this will be considered an exempt benefit. However, a case of ordinary wine or bottle of fine wine or a hamper is unlikely to be considered trivial.

This concession also applies to seasonal flu jabs which are also considered trivial – although whether your employees will be quite so impressed by the “gift” is not clear!

On a cheerful note – they still don’t charge VAT on your Turkey.

The Compliments of the Season to you all.

For further information or guidance on any of these points you can contact Tax Manager Neil Brittain on 01872 271655 or email at neil.brittain@kelsallsteele.co.uk

 

Employment Expenses

Don’t pay too much tax!

If you have to go out of your normal workplace as part of your job you may incur expenses or you may get expenses reimbursed to you by your employer during the tax year. If you do, you may be able to claim tax relief if you have to use your own money for travel or things that you must buy for your job. If you were reimbursed these expenses should not carry any additional tax liabilities – but you may need to claim the tax relief.

Where your employer regularly pays or reimburses expenses that are – as the tax rules call them – “wholly, exclusively and necessarily” to do with your employment, they may have arranged an agreement with HMRC that no reporting is required – meaning there is nothing further for you to do. But if your employer does not have such an agreement they have to complete a form P11D for HMRC, summarising the expense payments paid to you. You will then need to submit a claim to cancel out the tax that will otherwise be charged on them.

Form P11D

Your employer has to give you a copy of any P11D submitted to HMRC about you for the tax year. The deadline for your employer to send this is 6 July each year (although if you left an employment during the year you may have to specifically request a copy as your ex-employer is under no obligation to send it out to you otherwise).

Which expenses are allowable?

Qualifying employment expenses can include the cost of professional fees or subscriptions, business travel and subsistence, tools and specialist clothing.

How to claim tax relief

If you do not have to complete a Self-Assessment tax return, and your allowable expenses are less than £2,500 a claim can be made on form P87. There is a new version of this on the GOV.UK website which you complete online before printing it out, signing it and sending it in to HMRC.

You could ask for your tax relief by writing a letter to HMRC if your expenses do not exceed £1,000. If you do this, it is a good idea to head the letter S336 CLAIM. Your letter should say why you think you are entitled to tax relief for the year in question, and contain a signed declaration saying that the details you have given are correct and complete to the best of your knowledge.

In either case, the P87 or S336 Claim letter should have a copy of the P11D attached and should be sent to:

Pay As You Earn and Self-Assessment
HM Revenue & Customs
BX9 1AS

It’s also a good idea  that you keep a copy of what you send in for your records and that you use recorded delivery or similar so that there can be no dispute whether HMRC received something.

Where the expenses you incurred are less than £1,000, a claim by telephone may be accepted by HMRC as long as a claim has been made and accepted for an earlier year. The number to call can be found on the GOV.UK website.

Other things you need to know

You can claim tax relief on P11D expenses up to four years after the end of the tax year they relate to. So until 5 April 2016, you are still in time to talk to HMRC about the 2011/12 tax year if necessary.

The 2015/16 tax year (that is, the tax year we are in) is the last year that employees should have to apply for tax relief where their employer pays or reimburses employment expenses and then reports them to HMRC. This is because the Government is introducing a new system – essentially allowing an automatic exemption for employment expenses paid or reimbursed by employers – which should make things a lot simpler and easier all round.

Entrepreneurs’ Relief and Furnished Holiday Lettings

HMRC back down!

Entrepreneurs’ Relief is a valuable Capital Gains Tax (‘CGT’) provision intended to reduce the burden of taxation payable on capital gains made by individuals on certain business assets disposed of in certain circumstances. If you can benefit from entrepreneurs’ relief you can reduce your rate of CGT from the top rate of 28% (or the flat rate of 18%) to just 10%.

Entrepreneurs’ relief applies mainly to gains made by individuals on the disposal of certain qualifying business assets where it can be shown that the assets in question have been sold as part of disposing of all or part of a business.

Our clients operate a Furnished Holiday Lettings business which consisted of a number of properties in different locations. Back in 2010 they decided that one of those properties did not quite fit with the rest of the business. It was located some way from the rest of their properties and offered a different holiday to the rest of the business. They decided to sell it.

The sale of the property included passing on advance deposits received from people who had booked the property for the coming season. It included all the fixtures and fittings in the cottage together with all the furniture. Our clients wrote to their former customers advising them that the property was being sold and that the new owners would continue to offer it for Furnished Holiday Lettings in the future.

The capital gain was duly calculated and entered on our clients Tax Returns for the year ended 5th April 2011. The self-assessment tax was calculated on the basis that our clients had disposed of part of their business and were, therefore, entitled to claim Entrepreneurs’ Relief.

Some months after the Tax Returns were filed HMRC wrote requesting further details of the sale. Once these were provided HMRC suggested that Entrepreneurs’ Relief was not due as our clients had sold only an asset used in a business and not ‘part of the business’ itself. We demonstrated that our client’s business turnover had reduced and that their profits were reduced as a result and that the new owners were operating the property as a going concern – so clearly part of the business had been sold. HMRC disagreed and refused the claim for Entrepreneurs’ Relief.

We appealed against the decision and requested it be reviewed. HMRC steadfastly refused to change its position and suggested that the only solution would be to take the matter to a hearing before the First Tier Tax Tribunal. We suggested that we might meet with HMRC under the Alternative Dispute Resolution system to discuss our different views of our client’s entitlement. HMRC refused this course of action and listed the matter for a hearing.

There followed months of correspondence between us. Vast quantities of paperwork were produced as we and HMRC prepared our respective cases for the hearing. HMRC maintained their view that ‘part of the business’ had not been sold. Our clients maintained their determination to see the argument through.

After two and a half years of stalemate in April 2015 HMRC backed down.  Suggesting that a change to viewpoint had led them to revise their opinion, the claim for Entrepreneurs’ Relief was allowed and it was accepted that our clients Tax Returns were correct all along.

The moral of this story – any valuable tax relief is worth fighting for and make sure you get the experts on your side.

Please contact us if you have a CGT enquiry.

Marriage Allowance

Marriage Allowance

For all of those romantics out there who thought the only reason to get married or enter into a civil partnership was for tax reasons, you are in luck.  Registration has now opened for the new Marriage Allowance; a government scheme which will allow some couples to share part of their annual income tax allowance, helping them to save up to £212 a year.

How does the new allowance work?

Couples made up of one non-taxpayer and one basic-rate taxpayer will be able to share some of the non-taxpayer’s unused annual income tax allowance.

In normal circumstances each year, individuals can earn up to a set amount each year without facing an income tax bill. The individual personal allowance for 2014/15 is £10,000, but will rise to £10,600 from April 2015.

Anyone who earns less than that amount (taking into account income from all sources) does not pay any income tax. Under the new scheme, they will be able to transfer up to £1,060 of their unused allowance to their spouse or civil partner as long as he or she is a basic-rate taxpayer. From April 2015, that will mean they qualify if they earn between £10,601 and £42,385 a year.

Can anyone qualify?

Anyone who was born on or after 6 April 1935 and is married (or in a civil partnership) can qualify, as long as they meet the rules on earnings. If one member of the marriage or civil partnership was born before 6 April 1935, they can claim the Married Couple’s Allowance instead.

How much will it save us?

The transfer of unused allowances could save up to £212 a year in the first year.

From April 2015, anything you earn between £10,601 and £42,385 a year will be taxed at 20%. If your spouse or partner earns £7,500 a year, they effectively have £2,500 of their allowance that they are not using. Of this, they can transfer the full £1,060. This increases your tax-free allowance to £11,660, and the 20% saving on that extra bit is equal to £212.

If your partner’s earnings are much closer to £10,600, they can still share the leftover bit of their allowance. Say they earn £10,000; they can give you the remaining £600. In this case you will save £120 a year.

When will we get our tax refund?

The reduction in your tax liability will be reflected every month in your pay packet. The partner who is receiving the allowance will have their tax code altered to reflect their larger personal allowance. If you are employed, you will have less of your earnings taken off you each month before you are paid.

Although you can register now, you don’t need to do so to get the benefit for the full year.

How do I register?

You can register your interest in Marriage Allowance on the HM Revenue & Customs website, HMRC will then get in touch to tell you when you can make a formal claim.

Unfortunately, couples who cohabit rather than are married or in a civil partnership miss out on the allowance, regardless of how much they earn or how long they have been together.

VAT MOSS (Mini One Stop Shop)

VAT MOSS

Changes to the VAT law affecting the supply of digital/electronic services (to non-business customers) came into effect on 1 January 2015. As a result of these changes, VAT is now applicable on the supplied services at the rate applicable in the consumers home country.

UK businesses who fall within the scope of these rule changes are required to register for VAT, regardless of whether their turnover is above or below the £81,000 threshold. Once registered, the business can enrol via the HMRC Online portal for the VAT MOSS service, enabling them to account for and pay over the VAT collected on cross-border sales.

Despite initial fears, those businesses whose turnovers fall under the £81,00 threshold will not have to charge VAT to consumers based in the UK. On registration for the service, they should select the ‘Supplies of Digital Services (below UK VAT threshold)’ option. They will however still need to complete and file VAT return alongside the the MOSS return each quarter.

Will the changes affect me?

The new rules will apply to UK businesses who meet the following conditions:

  • supply digital services to consumers in another EU member state.
  • those services supplied are to private consumers
  • there is a charge for the supply of the service

What is the definition of a ‘digital service’?

The broad term ‘digital services’ can be further broken down into three categories, those being broadcasting, telecommunications and e-services. Although not exhaustive, the following examples give an idea of what is covered in each category.

Broadcasting: The supply of audio or audio-visual content to the general public, for simultaneous listening or viewing; live streaming of a broadcast at the same time as radio or television transmission.

Telecommunications: Fixed and mobile telephone services including videophone, VoIP (voice over Internet Protocol); Call management services such as call waiting / voicemail, caller ID; Paging services; Internet access

E-Services: The supply of test, photos, screensavers, ebooks (PDF) or other digitised documents; Supply of music, film or games, gambling or programmes on demand; Online magazines; Web supply or hosting; Advertising space on a website; software or software updates.

Can I reclaim the VAT on business expenses?

Yes, you can – but only on those expenses which are wholly or partially attributable to the sale of your digital services to cross-border consumers. Any reclaim for VAT on these expenses should be entered on your VAT 100 UK VAT submission. This is separate to your EU sales which will be recorded on the VAT MOSS form.

When are the VAT MOSS returns due for submission?

The VAT MOSS returns are calendar quarter only. If you are already registered for VAT in the UK then this may differ from your current VAT return quarters. If you will be registering for VAT and MOSS at the same time and fall under the threshold, HMRC will ensure your VAT and MOSS quarters are aligned. The quarters and submission/payment deadlines are as follows:

  • 20 April for quarter ended 31 March
  • 20 July for quarter ended 30 June
  • 20 October for quarter ended 30 September
  • 20 January for quarter ended 31 December

Where can I get further information?

You can find more information on the VAT MOSS from the gov.uk articleRegister for and use the VAT Mini One Stop Shop‘ and also from the HMRC website.

We are here to help, if you would like further clarification on the changes, if you’re uncertain whether you’re affected, or if you just want some general advice on the subject please don’t hesitate to contact us on enquiries@kelsallsteele.co.uk or call us on 01872 271655

Autumn Statement 2014

The Chancellor delivered his Autumn Statement on 3 December 2014. Here is our guide to some of the key points announced in the Autumn Statement 2014.

Personal Allowance and Tax Bands

The personal allowance for 2015/16 was originally scheduled to increase to £10,500 but it was  announced that this will now be £10,600, so the tax free amount will now be £883 per month. If re-elected the Chancellor stated that this would be increased to £12,500 by 2020. The point at which higher rate tax (40%) becomes payable will be £42,385 for 2015/16, meaning that the basic rate band will be £31,785. The Chancellor “promised” that this threshold would increase to £50,000 by 2020. The 45% rate will continue to apply to taxable income over £150,000. Remember that the personal allowance is reduced where the taxpayer’s adjusted net income exceeds £100,000. The reduction is £1 of allowance for every £2 of excess income, resulting in a marginal tax rate of 60%. For 2015/16 this restriction is even wider than before with the increase in personal allowance to £10,600:

Taxable income Marginal rate
£100,000 to £121,200 60%
£121,201 to £149,999 40%
£150,000 + 45%

Transfer of Personal Allowance

As previously announced, 2015/16 sees the introduction of a transferable personal allowance for married couples and civil partners. As the amount that may be transferred is 10% of the basic personal allowance, this will now be £1,060. The recipient must not be liable to tax above the basic rate and is eligible to a tax reduction of 20% of the transferred amount, in other words £212.

ISA Limit Changes in 2015/16

The annual limit for savings in an ISA increases by £240 to £15,240 for 2015/16, but remember that the 50% restriction on cash was removed with effect from 1 July 2014.  For Junior ISAs the limit will increase by £80 to £4,080, the same as the Child Trust Fund subscription limit. There was an important announcement about the treatment of ISA savings on death in the Autumn Statement. It is proposed that the ISA savings will not lose their tax free status on death but, if transferred to the spouse, can be added to their tax free ISA savings.

Corporation Tax Rates

 

Profits     31/3/15(FY2014) 31/3/16(FY2015)
First £300,000 20% 20%
Between £300,000 and £1.5m  21.25%  20%
Over £1.5m 21% 20%

As previously announced there will be a single 20% rate of corporation tax regardless of the level of the company’s profits from 1 April 2015 onwards. Although a 20% rate will generally apply to corporate profits from 1 April 2015, a new “diverted profits tax” charge at 25% will apply to profits that are artificially shifted from the UK to an entity in a low tax country. This is part of a number of measures to counter tax avoidance by multi-national companies. It will be interesting to see if the new measures will bring in additional tax revenue from such companies.

Annual CGT Exemption

This is set to be £11,100 in 2015/16, so is worth a useful £3,108 for higher rate taxpayers for whom the 28% rate applies.

CGT on Non-Residents Disposal of UK Residential Property

Following consultation during Summer 2014, the Government is proceeding with the introduction of a capital gains tax charge from 6 April 2015 on non-residents disposing of UK residential properties. Such individuals will not be able to treat the property as their Principal Private Residence, and thus are potentially exempt, unless there are substantial periods of residence in the property. The proposal is that the individual must spend 90 nights there each year to qualify for the relief, however we await further details.

Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) has often been referred to as a “slab” tax as there are significant increases in the tax payable at the £250,000 and £500,000 price points causing a cliff edge effect and  distortions in the property market. This was particularly relevant around £250,000 as at that purchase price the rate went up from 1% to 3%, which meant £2,500 if the purchase price was £250,000 but an extra £1 meant a further £5,000 SDLT was payable. Where residential property is purchased from 4 December 2014 onwards, the rates will be as follows.

Purchase price SDLT rate  Cumulative
Up to £125,000 NIL NIL
£125,001 – £250,000 2% £2,500
£250,001 – £925,000 5% £36,250
£925,001 – £1,500,000 10% £93,750
£1,500,001 and over 12%

The Government considers that this will create a much fairer system and those buying residential property up to £937,500 will pay less SDLT, about 98% of all purchasers. For example, where the purchase price is £275,000 (the average price of a family home) the SDLT reduces from £8,250 to £3,750.  This is 2% on £125,000 to £250,000 = £2,500 plus 5% on £250,000 to £275,000 = £1,250. The new rules apply to transactions on or after 4 December 2014 but if you’ve already exchanged on a property you’ll have a choice about whether to use the old or new rules.

National Insurance Rates

There will be no increase in the rates of national insurance contributions (NICs) for employers, employees nor the Class 4 rate for the self-employed  for 2015/16, although the thresholds will be increased. Employee contributions will be payable at 12% on earnings between £155 per week and £815 per week and 13.8% employers contributions will start at £156 per week instead of £153 for 2014/15. The £2,000 employment allowance will continue to be deductible from employers’ NIC for 2015/16. The Class 2 NIC weekly contribution for the self-employed increases to £2.80 from 2015/16. As previously announced, from April 2015 employers NIC for those under the age of 21 will be abolished. This exemption will not apply to those earning more than the Upper Earnings Limit (UEL), Employers NIC will be charged as normal beyond this limit. In addition, to encourage apprenticeships there will be no employers NIC payable in respect of wages paid to apprentices under the age of 25 from 6 April 2015.

R&D Tax Credits

In order to further encourage innovation in the UK, the Government has announced an increase in R&D tax relief for the SME sector from 225% to 230% from 1 April 2015. In addition, the credit for larger non-SMEs will be increased from 10% to 11%. An advance assurance scheme for small businesses making their first claim to R&D tax credits will be introduced along with new guidance.

No Tax Relief on Write Off of Goodwill on Incorporation

One of the anti-avoidance measures announced in the Chancellor’s Autumn Statement was a proposal to block the corporation tax deduction for goodwill and other intangibles transferred to a limited company on incorporation. This was potentially available where intangibles were created or acquired by the individual or a partnership after 1 April 2002 and then transferred to a company that they controlled. Furthermore, it will no longer be possible to claim CGT entrepreneurs’ relief against the gains arising on the sale of such assets to the company. Both of these measures will be included in the 2015 Finance Bill and, if enacted, will apply to transactions on or after 3 December 2014.

Relief from Business Rates

Many small businesses will welcome the news that the doubling of Small Business Rate Relief will be extended to April 2016. This means that around 385,000 of the smallest businesses will continue to receive 100% relief from business rates until April 2016, with around a further 190,000 benefiting from tapering relief. High street retailers will be grateful for the increase in the business rates discount for shops, pubs, cafes and restaurants with a rateable value of £50,000 or below, from £1,000 to £1,500 in 2015/16, benefiting an estimated 300,000 properties and helping such small business compete with internet retailers.

Car Fuel Benefit Charge

Employees and directors with company cars and who also have some or all of their private fuel paid for by their employers are subject to the fuel benefit charge – on an all or nothing basis. The benefit charge is determined by multiplying a notional list price by the appropriate percentage for the car, based on its CO2 emissions. The car fuel notional list price will increase from £21,700 to £22,100 with effect from 6 April 2015, notwithstanding the actual fall in fuel prices in the current tax year, so this is another attempt to stop employers providing any private use fuel. For a company car emitting between 121g to 125g CO2 per km the scale charge would be 20% of £22,100 and this would result in taxable fuel benefit of £4,420 and £1,768 income tax for a 40% taxpayer. At 11p per mile the employee would need to drive 16,073 private miles to make having private fuel paid for worthwhile.

Private Use of Company Vans

Where employees are provided with a company van the taxable benefit increases from £3,090 to £3,150 for 2015/16 and there will be an additional taxable benefit of £594 where private fuel is provided by their employer. Note that this charge does not apply to all company van drivers, only those who use the van for private journeys.

Reduction in Company Car Fuel Rates

Not part of the Autumn Statement, but you need to know that some of the rates are reduced from 1 December 2014  (previous rates in brackets where there was a change):

Engine size Petrol Diesel LPG
1,400 cc or less 13p (14p) 9p
1,600 cc or less 11p
1,401cc to 2,000cc 16p 11p
1,601cc to 2,000cc 13p
over 2,000cc 23p (24p) 16p (17p) 16p

The Gov.uk website contains full details of the Autumn Statement 2014 and it’s key announcements. Alternatively feel free to contact Neil Brittain on 01872 271655 or email at neil.britain@kelsallsteele.co.uk should you require any further information or clarification on any of the points detailed in this article.

Benefits in Kind

A simple guide to Benefits in Kind

This is a basic guide and should not be used as a definitive guide, since individual circumstances may differ, in which case specific advice should be obtained, where necessary.

As an employee, you pay tax and National Insurance Contributions on your wages but you must also pay tax on company benefits you receive like cars, accommodation and loans.

The amount of tax you pay depends on the value of the benefits that you get. Your employer will normally take the tax owed from your wages.

You will always pay tax on benefits from your job if:

  • you’re a company director
  • you earn £8,500 a year or more (including the value of the benefits)

Some company benefits can be tax-free, e.g. childcare and canteen meals.

Company cars

You pay tax on the value of the car and fuel to you. It should be remembered that the ‘value’ of a car is the manufacturer’s list price and not necessarily the amount your employer paid for it! Your company car’s value also depends on things like the type of fuel it uses and its CO2 emissions. Its value is reduced if you have the car part-time or you pay something towards its cost. If your employer pays for fuel you use personally and not for your job, you’ll pay tax on this separately.

Loans

You’ll pay tax on low-interest or interest-free loans from your employer if they’re worth more than £10,000. You pay tax on the difference between the interest rate you pay to your employer and the official rate of interest set by the Bank of England. You may pay tax if your employer lends money to one of your relatives.

Living accommodation

If you (or one of your relatives) is living in accommodation provided by your employer you may pay tax. How the tax is worked out depends on whether the accommodation cost more than £75,000.

You may not pay tax if you get the accommodation so you can do your job, or do your job better (e.g. agricultural workers living on farms). The costs connected with living accommodation might also give rise to a tax charge. For example if your employers make payments on your behalf for any of the following:

  • rent
  • council tax or water charges.
  • mortgage interest
  • repairs and insurance
  • heat and light
  • telephone expenses

Medical insurance

You usually pay tax on the cost of the insurance premiums if your employer pays for your medical insurance.

You can get some tax-free health benefits from your employer, e.g.:

  • medical insurance when you’re working abroad
  • annual check-ups

Tax-free company benefits

You can get some company benefits tax-free, including:

  • meals in a staff canteen
  • hot drinks and water at work
  • a mobile phone
  • workplace parking

National Insurance on company benefits

You don’t usually have to pay National Insurance on benefits you get from your job if they’re not paid in cash. Your employer will pay National Insurance contributions on them instead.

But if the benefits you get are cash or treated like cash your employer will take extra National Insurance from your wages.

For example, if your employer gives you a voucher with a cash value or a gift that you could sell instead of keep, you will pay National Insurance on the value of the gift if you sold it.

This is a complex area of taxation – if in doubt seek specialist advice.

Tax Investigations

Tax Investigations

It’s always a relief to get your Tax Return finalised and submitted to HM Revenue and Customs. We’ve met the deadlines, paid the tax and avoided any chance of being charged with any penalties. Now everyone can relax for a few months before the whole merry-go-round starts again. But can we?

HMRC is coming under ever increasing ministerial pressure to increase tax compliance within each tax year.

This means that when the HMRC have a Tax Return they run automated computer checks that will identify inconsistencies with previous tax returns and other data the Revenue holds.

Warning Signs

The automated checks can raise ‘warning signs’ that might suggest the possibility of tax avoidance or evasion. These warning signs are reviewed by a tax inspector who may decide to launch a tax investigation.

Warning signs can include:

• Over generous expenses claims
• Reduced gross profit margins
• Bigger than usual changes in declared income from one year to the next
• Wages paid to the spouse of the owner that the Revenue might consider inappropriately high
• Sharply increased debtors
• Increased repair expenses

Any – or all – of these items could have a simple explanation and be honest and legitimate declarations. They may have come about because of a change of circumstance to the trading activities or personal circumstances. For example, the failure of a product would lead to a sharply reduced gross profit rate.

Avoiding a tax investigation

It is important to include full and detailed explanations on the Tax Return of any anomalies that may potentially be a warning sign to HMRC. There may be the need to discuss the Tax Return with HMRC at some point, so it is important that you and your Accountant have a clear understanding of the accounts and business activity during the financial year.

If you do not, an investigation may be triggered. It may only start with a simple ‘aspect’ enquiry but that can then lead to a full, lengthy, time-consuming and expensive investigation.

Talk to us about insurance against the costs of such an enquiry and about how best to avoid an investigation in the first place. You can contact the office on 01872 271655

Employment Allowance

What is Employment Allowance?

You can claim the Employment Allowance if you are a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on your employees’ or directors’ earnings.

Can any employer claim?

No. You cannot claim the Employment Allowance, for example if you:

  • employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
  • already claim the allowance through a connected company or charity
  • are a public authority, this includes; local, district, town and parish councils
  • carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example:
    • NHS services
    • General Practitioner services
    • the managing of housing stock owned by or for a local council
    • providing a meals on wheels service for a local council
    • refuse collection for a local council
    • prison services
    • collecting debt for a government department

How much is this allowance worth?

The Employment Allowance is available from 6 April 2014. If you are eligible you can reduce your employer Class 1 NICs by up to £2,000 each tax year.

How does it work?

You can use your own 2014 to 2015 payroll software, or HM Revenue and Customs’ (HMRC’s) Basic PAYE Tools for 2014 to 2015 to claim the Employment Allowance.

When you make your claim, you must reduce your employer Class 1 NICs payment by an amount of Employment Allowance equal to your employer Class 1 NICs due, but not more than £2,000 per year.

For example, if your employer Class 1 NICs are £1,200 each month, in April your Employment Allowance used will be £1,200 and in May £800, as the maximum is capped at £2,000. (You will have to pay your Class 1 NICs in full for the remainder of the year.)

If you would like further information on the Employment Allowance, need help claiming or are unsure if you qualify, please don’t hesitate to give us a call on 01872 271655, alternatively you can contact Neil Brittain on neil.brittain@kelsallsteele.co.uk.

Business Travel Expenses

Business travel or not?

Claims for tax relief in respect of travel expenses have long been a source of conflict between taxpayers and HM Revenue & Customs. The question has always been whether or not certain expenses for business mileage were or were not incurred “wholly and exclusively” in connection with a person’s trade. Now a decision reached by the Upper Tier Tribunal in a January appeal hearing will have a wide impact on self-employed individuals – calling into question whether travel is ‘to get to a place of business’ or travel ‘in the course of a business’.

Tribunal Case

Last year a consultant geriatrician lost a first tier tribunal against HMRC’s assessment that his business mileage claims to and from his home office and a private hospital were not wholly and exclusively allowable expenditure. The tribunal accepted that the consultant had a dedicated home office, but did not accept that this office was necessarily the starting point for calculating private practice business mileage.

At the Upper Tier Tribunal it was argued that he should be able to claim travel expenses (in this case journeys by car) for journeys between NHS and private hospitals, and between his home and private hospitals as they were incurred “wholly and exclusively” for the purposes of his private practice.

The Tribunal agreed that the consultants’ home office was necessary to perform his work, but because there was a pattern of “regular and predictable attendance” at other locations – the private hospitals, for instance – they were places of business. The tribunal dismissed the consultants appeal, saying that the first tier tribunal’s decision was “correct in all its essentials” when it decided that there must have been a ‘mixed object’ to the travelling between the home business base and the private hospitals. As a result, the mileage should be disallowed. It was judged not to be “wholly and exclusively” incurred in the pursuit of the private practice because part of the object of the journeys was ‘inescapably’ to maintain a home in a separate location to the private hospitals.

The ruling

In short, it ruled that while the home office can be recognised as a place of business and a use of home claim allowed, the travel from that place of business in the home will not necessarily be allowable, unless it is in connection with an ‘itinerant’ business journey.

It also said:

  • Travel expenses for journeys between places of business for purely business purposes are treated as deductible.
  • Travel expenses for journeys between home (even where the home is used as place of business) and places of business are treated as non-deductible (other than in very exceptional circumstances)
  • Travel expenses for journeys between a location which is not a place of business and a location which is a place of business are not deductible

Keeping records

The fact that this case involved a medical consultant is not important. It will affect all self-employed consultants and sub-contractors. HMRC will want to enforce this judgement and it is essential that consultants keep detailed mileage logs to create something that will really stand up in their accounts. Something that when HMRC inevitably challenge a claim it can be shown the purpose of the journey was tested and found to be “wholly and exclusively” in connection with the business.

For further information or guidance on any of these points you can contact Tax Manager Neil Brittain on 01872 271655 or email at neil.brittain@kelsallsteele.co.uk

Autumn Statement – The Key Points

Our guide to some of the key points announced in the 2013 Autumn Statement.

Income tax and National Insurance contributions

Transferable tax allowances for married couples
From 2015-16 spouses and civil partners will be able to transfer £1,000 of their income tax personal allowance to their spouse or civil partner. Couples where neither partner is a higher or additional rate tax payer will be eligible to transfer. The transferable amount will be increased in proportion to the personal allowance.

Employer National Insurance contributions for the under 21s – The government will abolish employer NICs for those under the age of 21 from April 2015, with the exception of those earning more than the Upper Earnings Limit, which is £42,285 a year (£813 per week) in 2015-16. Employer NICs will be liable as normal beyond this limit. This will be legislated for in the NICs Bill currently before Parliament.

Tax exemption for employer-funded occupational health treatments – As announced at Budget 2013 the government will introduce a tax exemption for amounts up to £500 paid by employers for medical treatment for employees. In response to consultation the government will extend the exemption to medical treatments recommended by employer arranged occupational health services in addition to those recommended by the new Health and Work Service.

Income tax relief for qualifying loan interest – From April 2014, the income tax relief for interest paid on loans to invest in close companies and employee-controlled companies will be extended to investments in such companies resident throughout the European Economic Area (EEA).

Social investment tax relief – The government will introduce a new tax relief for equity and certain debt investments in social enterprises with effect from April 2014. Organisations which are charities, community interest companies or community benefit societies will be eligible. Following consultation, investment in social impact bonds issued by companies limited by shares will also be eligible. The government will publish a roadmap for social investment in January 2014.

Venture Capital Trusts (VCTs): changes to scheme – Following a consultation over the summer, investments that are conditionally linked in any way to a VCT share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT, will not qualify for new tax relief. This change will take effect from April 2014. The government will also consult further on potential changes to VCT rules to address the use of converted share premium accounts to return capital to investors where that return does not reflect profits on the VCT’s investments. To continue to facilitate use of VCTs by different types of retail investors, the government will change the VCT rules so that investors can subscribe for VCT shares via nominees

Taxation of pensions and savings

Tax relief on loans to purchase life annuities – Following a consultation launched at Budget 2013, the government has decided not to legislate to withdraw relief for interest on loans taken out to purchase life annuities by people aged 65 or over before 1999.

Announcement of new ISA annual subscription limits – The government will uprate the ISA, Junior ISA and Child Trust Fund annual subscription limits in line with CPI. The 2014-15 ISA limit will be increased to £11,880 (half of which can be saved in a cash ISA). The Junior ISA and Child Trust Fund limits will both be increased to £3,840.

Class 3A voluntary National Insurance – In October 2015 the government will introduce a new class of voluntary NICs to allow pensioners who reach State Pension age before 6 April 2016 an opportunity to top up their Additional Pension records.

Capital gains tax

Capital gains tax (CGT): private residence relief – The government will reduce the final period exemption from 36 months to 18 months from April 2014.

CGT: non-residents – The government will introduce CGT on future gains made by non-residents disposing of UK residential property, from April 2015. A consultation on how best to introduce the new CGT charge will be published in early 2014.

Employee ownership

Employee ownership – Following a consultation launched at Budget 2013, the government will introduce 3 new tax reliefs to encourage and promote indirect employee ownership:

  • from April 2014, disposals of shares that result in a controlling interest in a company being held by an employee ownership trust will be relieved from CGT
  • transfers of shares and other assets to employee ownership trusts will also be exempt from inheritance tax (IHT) providing certain conditions are met
  • from October 2014, bonus payments made to employees of indirectly employee-owned companies which are controlled by an employee ownership trust will be exempt from income tax up to a cap of £3,600 per annum

Share Incentive Plans and Save As You Earn limits – The Share Incentive Plan annual limits will increase to £3,600 per year for free shares and to £1,800 per year for partnership shares. The maximum monthly amount that an employee can contribute to Save As You Earn savings arrangements will increase from £250 to £500. These changes will take effect from April 2014.

Inheritance tax and trusts

Simplification of trusts – Following consultation announced at Budget 2013, the government will legislate to simplify filing and payment dates for IHT relevant property trust charges. It will also introduce legislation to treat income arising in such trusts which remains undistributed for more than 5 years as part of the trust capital when calculating the 10-year anniversary charge. The government will consult on proposals to split the IHT nil rate band available to trusts with a view to delivering this change alongside simplification of the trust calculations in 2015.

Vulnerable Beneficiary trusts – The government will extend with immediate effect from 5 December 2013 the CGT ‘uplift’ provisions that apply on the death of a vulnerable beneficiary and extend from 2014-15 the range of trusts that qualify for special income tax, CGT and IHT treatment. The government will consult further on ways to reform the tax treatment of trusts established to safeguard property for the benefit of vulnerable people.

Inheritance Tax (IHT) online – During 2015-16, HMRC will provide an online service for IHT, reducing administrative burdens for customers and agents.

The Gov.uk website contains full details of the Autumn Statement and it’s key announcements. Alternatively feel free to contact Neil Brittain on 01872 271655 or email at neil.britain@kelsallsteele.co.uk should you require any further information or clarification on any of the points detailed in this article.

Christmas tax tips: Parties, bonuses and gifts

Christmas Tax Tips

Christmas is coming and it’s always nice to be a little generous to all those who have helped your business along over the past year. But the Taxman isn’t necessarily overflowing with Christmas cheer – so it’s worth being aware of some tax issues that could dampen enjoyment of the coming festive season.

Christmas Parties

The cost of a staff party or other annual function for employees is an allowable tax deduction for businesses. Although sole traders and partners of unincorporated businesses cannot claim for their own entertainment. As long as the ‘bit of a do’ meets a few conditions, there will be no chargeable taxable benefit for the employee:

  • It must be open to all employees, or to all at a particular location.
  • The cost per head must not exceed £150 (including VAT). If you have more than one function in a tax year the cost per head in total must not exceed £150. Partners and spouses of employees are included in headcount when calculating the cost per head – but it is the number of people attending that is important rather than the number invited so this should be borne in mind if you’re block booking.
  • If the £150 limit is exceeded staff will be taxable in full on total cost per head for them and their partner/spouse also attending. Alternatively the business can enter into what is known as a PAYE Settlement Agreement to cover the employee’s tax for them. This would be payable by 19 October following the tax year – but this could be an expensive option as the extra tax and National Insurance Contributions you would pay could nearly double the cost of the party.

It is essential to remember that the cost per person is calculated as the total cost of the party or function so taxis home and any overnight accommodation have to be included in the calculation.

VAT

It’s important to note that on the amount of £150 per head VAT is recoverable on staff entertaining expenditure, but the definition of employees for VAT purposes does not include partners of existing staff, or former employees. Therefore if your party includes guests, you will need to apportion the costs appropriately for VAT.

Client Entertaining

Client entertaining (hospitality of any kind) is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it. So if you invite customers to the Christmas ‘do’ you will need to consider how to apportion the costs between the staff and clients.

Business Gifts

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

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

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

Christmas Bonus for staff

This will always count as ordinary earnings and must be subject to PAYE and NI as if it were additional salary. The same treatment extends to vouchers that can be spent in either one or a number of different shops of the employee’s choice. The employee has to pay tax on the full value of the voucher.

Gifts to Staff

With gifts other than cash or vouchers, in some cases the Taxman will decide that no tax liability arises on the grounds that the cash equivalent of the benefit taxable on the employee is so trivial as to be not worth pursuing. Unfortunately, HMRC will not tell us what monetary limit it considers as ‘trivial’. HMRC have conceded that an employer may provide an employee with a seasonal gift such as a turkey, an ordinary bottle of wine or a box of chocolates and this will be considered an exempt benefit. However, a case of ordinary wine or bottle of fine wine or a hamper is unlikely to be considered trivial.

This concession also applies to seasonal flu jabs which are also considered trivial – although whether your employees will be quite so impressed by the “gift” is not clear!

On a cheerful note at least your turkey comes VAT free!!

For further information or guidance on any of these points you can contact Tax Manager Neil Brittain on 01872 271655 or email at neil.brittain@kelsallsteele.co.uk

Capital Allowances: Commercial Property or Holiday Home owners

Capital allowances

Capital allowances are a valuable form of tax relief available where a person incurs capital expenditure, usually through buying, refurbishing or building a commercial property. All commercial buildings qualify, basically because the claim is in respect of fixtures in the building and not on the building itself. That means there may be a claim on fixtures in offices, factories, care homes, hotels and guest houses, caravan parks and furnished holiday let properties. The property does not have to be in the UK.

Tax allowances are available on fixtures defined in the tax rules as ‘plant and machinery’ that is so installed or otherwise fixed in or to a building (or other description of land) as to become in law part of that building or other land. This includes any boiler or water filled radiator installed as part of a space or water heating system, kitchens, sanitary systems, fire alarms, air conditioning, lifts etc. So there can be no claim on expenditure incurred on the provision of a building itself and certain excluded structures but a claim may be available on items right down to some really small items such as door handles, hinges and locks and toilet roll holders. These all add up, especially in a hotel or care home and you are not looking at the cost of the item itself but its fitted cost.

Changes to the capital allowance rules

Changes to the capital allowance rules from April 2014 could prevent purchasers of buildings containing plant and machinery from obtaining capital allowances.

Since April 2012, where an owner has claimed allowances, a value for the fixtures when the building is sold must be formally established by the seller and purchaser making an election within two years from the date of completion setting out the value attributed to the fixtures, or, if they cannot agree, applying to the Tax Tribunal for this value to be determined.

From April 2014, a seller will have had to ‘pool’ its expenditure on plant and machinery in a chargeable period when it owned the building in order for the allowances to be passed on to the purchaser. ‘Pooling’ means identifying and adding the expenditure to the seller’s pool of expenditure qualifying for capital allowances although the seller does not have to actually claim allowances. This new pooling requirement will be in addition to the existing fixed value or election requirement and must also be satisfied if a purchaser of ‘second-hand’ fixtures is to obtain allowances. This change in legislation reflects the Government’s stated aim that a tax election agreement, where relevant, shall become the norm in property transactions.

How this could affect you

Purchasers of buildings will have to be particularly careful if the seller has never claimed capital allowances. It has been suggested that if the seller has not claimed allowances but was entitled to, the purchaser will need to ensure that the seller agrees in the sale documentation to ‘pool’ its expenditure. The new legislation states that the purchasers qualifying expenditure is NIL if the previous owner has not pooled the expenditure and if the fixed value or disposal value requirement is not satisfied. This means if these new requirements are not met the buyer of a building containing ‘fixtures’ cannot claim capital allowances. Nor can any future owner of those fixtures.  The right to claim capital allowances will have been lost forever.

Could the loss of this valuable relief affect the potential selling price of a commercial property? Is it time to establish the value of those fixtures before the day comes when you are forced to confront the new rules?

For more guidance on the upcoming changes, or if you think could be affected and would like to talk things through then please don’t hesitate to get in touch with us. You can contact Tax Manager Neil Brittain on 01872 271655 or via email at neil.brittain@kelsallsteele.co.uk

Company Car Benefit Charge

Once a favourite ‘perk’ the company car has been the focus of stricter and stricter tax rules over the past few years – and they stand to get even tighter in the future.

If you have a car provided by your employer it will probably be due for replacement in the foreseeable future so it is important to know what tax consequences you face when you choose
your new car.

 Changes in ‘appropriate percentages’ to come     

Table showing tax banding for company car benefit charges

Table showing tax banding for company car benefit charges

The company car benefit charge for a full year is For example: An employee (or director) is provided with a car. The List Price of the car is £25,000. The approved figure of CO2 emissions is 173g/km.obtained by multiplying the price of the car for tax purposes (in most cases, its list price plus accessories, less capital contributions) by the ‘appropriate percentage’

You round down 173 to 170 and look up ‘appropriate percentage’ which turns out to be 26% for this year. The taxable benefit figure is £25,000 x 26% = £6,500.

But as part of the drive to meet environmental targets, the Government is adjusting the ‘appropriate percentages’ over the next couple of years and increasing the taxable benefit. So that next year however the percentage rises to 27% and the taxable benefit becomes £6,750.

As this is likely to happen again in the future it may be worth checking out the emissions figure when choosing that new car.

More information on the ‘appropriate percentages’ and upcoming changes can be found on HMRC’s website. Alternatively you can contact Neil Brittain on 01872 271655 or neil.brittain@kelsallsteele.co.uk

*For diesel cars add 3% to the appropriate percentage up to maximum of 35%