Archive for December, 2013

Nothing better to do

Monday, December 30th, 2013

 HMRC have revealed that 1,566 UK tax payers filed their 2013 self-assessment tax returns on Christmas day. Are we to take this as evidence that the “bah humbug” mentality is alive and well in the UK?

In order to file their returns these reluctant revellers will have needed to switch on their computer, as the only way to file a return after October each year is to use HMRC’s online gateway.

Even if you had already completed your filing obligations for 2013, prior to Christmas, you may have been tempted to spend your Amazon and iTunes gift vouchers over the Christmas break. Again, logging into your accounts online is a prerequisite.

And what about presents you may have received that were, shall we say, unwanted, surplus to requirements? Be interesting to know how many new items were added for sale on eBay Christmas day.

There is a message here that businesses should pick up on: how could you benefit from this 24/7, online activity. Whether you sell services or widgets there is probably a product or information download that you could sell from your website?

Who knows, next Christmas your business may be achieving sales as you tuck into the festive turkey

HMRC criticised for soft peddling

Tuesday, December 24th, 2013

In a recent report prepared by the Public Accounts Committee HMRC was accused of pursuing smaller businesses with more vigour than larger concerns. HMRC was also criticised for under estimating the amount of uncollected tax, over estimating amounts due from the holders of Swiss bank accounts, and collecting tax credit debt.

A summary of the Committee’s comments is set out below:

“In pursuing unpaid tax, HM Revenue & Customs (HMRC) has not clearly demonstrated that it is on the side of the majority of taxpayers who pay their taxes in full. It does not use the full range of sanctions at its disposal to pursue vigorously all unpaid tax, and its measure of the tax gap does not capture all the avoided tax that it should be collecting. HMRC massively over-estimated how much it would collect from UK holders of Swiss bank accounts, and in 2013-14 has so far collected only £440 million of the £3.12 billion predicted in the 2012 Autumn Statement. HMRC is not doing enough to collect tax credits debt or to tackle tax credit error and fraud.

When determining the tax regime for businesses, HMRC needs to strike the right balance between support and enforcement. It has not considered adequately the impact that measures designed to make the UK a more attractive place for large businesses to operate would have on the way companies structure their business, and how this would affect tax receipts from them. While HMRC has made good progress towards implementing Real Time Information (RTI), it must continue to support small and medium-sized enterprises (SMEs) with the transition to the new system.”

The comments regarding smaller businesses are particularly ironic: that our tax system discriminates against this sector whilst letting larger concerns off the hook.

Tax free celebration for Christmas

Thursday, December 19th, 2013

Most business people are aware that if they keep the “per head” expenditure below £150 for the annual bash, and if they follow the other HMRC guidelines, then there should be no risk that HMRC will seek to treat the payments as a taxable benefit.

However, if the cost creeps over £150, to say £200 per head, the total amount will be taxable not the excess of £50. This is because the £150 is not an allowance. And watch out for VAT. The £150 cost ceiling is VAT inclusive.

The following examples are taken from HMRC’s website and highlight some of the issues that need to be born in mind:

Example 1

A company holds an annual Christmas party for all its staff. The average cost per employee is £50. This is exempt.

In addition the directors hold an annual party at Christmas for its directors at which the cost per head is £75. This function is not open to staff other than directors. Consequently it is not covered by the exemption because it is not available to staff generally. The full benefit is chargeable on directors attending.

Example 2

A company holds two annual dinner dances open to all its employees in the tax year. The total cost of the first, including transport and accommodation provided for certain guests, was £10,000 including VAT. The total number of persons attending was 100 and the cost per head was therefore £100.

The second dinner dance cost £8,000 including VAT, and 100 people attended this. The average cost was therefore £80.

The total cost per head for both functions was £180 so they cannot both qualify for exemption. Since the cost per head of each party on its own was not more than £150, either event can qualify for exemption on its own but it is more beneficial overall for the first to be exempted. So the benefits arising from that function will not be charged and those arising from the second function will be charged.

For employees who attended:

  • both events, they will be chargeable only on the benefit of £80 for the second event
  • only the first event, there will be no chargeable benefit because that event is exempt
  • only the second event, they will be chargeable on the benefit of £80.

If the average cost per head of each of the functions exceeded £150 the full amount of the benefit of both functions would be chargeable. The £150 is not an allowance to be set against an amount that exceeds that figure.

If you are concerned that your annual party may be running close to the tax limit please contact us and we will run through the figures with you.

Merry Christmas…

Equitable Life additional payout

Tuesday, December 17th, 2013

On the 10 December 2013 HM Treasury announced that the long awaited additional payment, to pre-1992 Equitable Life annuitants, will be made this week. The details below are the formal confirmation from H M Treasury’s website:

The government has confirmed that it will make ex-gratia payments by next week to those Equitable Life With-Profits policy holders who are excluded from the wider scheme because their annuity began before 1st September 1992.

First announced by the Chancellor at the 2013 Budget, the government finalised legislation in November and has worked closely with the Prudential Assurance Society to allow the payments to be made before the end of the year, well in advance of the original timetable of April 2014.

Speaking in the House of Commons today, Financial Secretary to the Treasury, Sajid Javid confirmed that over 9000 people will receive lump sum payments of £5000. A further 450 in receipt of Pension Credit will receive an additional £5,000.

Financial Secretary to the Treasury, Sajid Javid, said:

“In many cases the pre-1992 policy holders, the vast majority of who are very elderly, are facing financial hardship having received less than they expected from their Equitable Life policy.

Having announced that we would make ex-gratia payments to this deserving group in the Budget, we have pulled out all the stops to make this happen. I am delighted that we are going to be able to make them next week, before Christmas.”

Approaching the end of another tax cycle.

Thursday, December 12th, 2013

Although the UK tax year runs from 6 April to the following 5 April, there is another which ends 31 January each year – it’s the online filing deadline for self assessment purposes.

The 31 January 2014 is also the date on which any outstanding self assessment tax unpaid for the tax year 2012-13 falls due for payment, together with any payment on account due for 2013-14.

The lead up to the filing deadline is a busy period for tax practitioners, who work hard to complete and file outstanding returns. If by chance you, the reader, have not yet submitted your paperwork to your advisor, now would be a good time to get things together.

There are automatic penalties if you fail to file on time, even if you manage to pay any outstanding tax before the 31 January.

The following penalties applies to self assessment returns that are filed late:

  • From day one: taxpayers will be charged a £100 penalty even if they have no tax to pay or have paid any tax due on time.
  • From 3 months late: taxpayers will be charged an automatic daily penalty of £10 per day up to a £900 maximum.
  • From 6 months late: taxpayers will be charged additional penalties which are the greater of 5% of tax due or £300.
  • Over 12 months late: there are additional penalties based on greater of 5% of tax due or £300. In serious cases this penalty may be increased up to 100% of tax due.

The Bank of England directs funding to small businesses

Wednesday, December 11th, 2013

From January 2014 the Bank of England and H M Treasury will redirect the Funding for Lending Scheme away from mortgage lending, and instead provide funding for hard pressed small businesses.

There has been significant press commentary about the likely “over-heating” of the UK property market. Basic economics would seem to dictate that if you increase demand, and do nothing (or very little) to increase supply, then prices will increase.

This has caused repeated “property bubbles” in the past. The Bank’s governor, speaking last week said:

“In the past year the Funding for Lending scheme has contributed to the recovery by helping to improve credit conditions significantly, especially for households.

“The changes to the scheme will refocus it where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”

Hopefully, this change will calm down the demand pressures in the housing market, and provide much needed working capital for small businesses.

Tax Diary December 2013/January 2014

Tuesday, December 10th, 2013

 1 December 2013 – Due date for Corporation Tax due for the year ended 28 February 2013.

 19 December 2013 – PAYE and NIC deductions due for month ended 5 December 2013. (If you pay your tax electronically the due date is 22 December 2013.)

 19 December 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2013.

 19 December 2013 – CIS tax deducted for the month ended 5 December 2013 is payable by today.

 30 December 2013 – Deadline for filing 2012-13 Self Assessment online to include a claim for under payments (under £3,000) be collected via tax code in 2014-15.

 1 January 2014 – Due date for Corporation Tax due for the year ended 31 March 2013.

 19 January 2014 – PAYE and NIC deductions due for month ended 5 January 2014. (If you pay your tax electronically the due date is 22 January 2014.)

 19 January 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2014.

 19 January 2014 – CIS tax deducted for the month ended 5 January 2014 is payable by today.

 31 January 2014 – Last day to file 2013 Self Assessment tax returns online.

 31 January 2014 – Balance of Self Assessment tax owing for 2012-13 due to be settled today. Also first payment on account for 2013-14 due today.

Unused PAYE schemes

Tuesday, December 10th, 2013

 From October 2013, PAYE schemes will automatically be closed where

  • No real time PAYE submissions have been made
  • No payments have been made to HMRC
  • The employer is not an annual payer
  • There is no evidence that the employer wants to claim Construction Industry Scheme deductions
  • The employer has not received an advance from HMRC
  • There have been no periods of Construction Industry liability
  • There is no evidence that the employer has any employees
  • There is no evidence that Class 1A NIC is due.

HMRC’s Director General for Personal Tax, Ruth Owen, said

“Closing schemes that are no longer needed is really important for businesses and for HMRC as it means that HMRC won’t waste employers’ or taxpayers’ time and money by needlessly pursuing returns or debts when in fact none are due.

Since April, employers or agents (acting on behalf of their clients) who have set up PAYE schemes that are no longer needed can easily close the scheme by reporting this on their final submission. This new process helps further as it means we can identify and remove unnecessary schemes earlier.”

Tax-free Xmas party

Tuesday, December 10th, 2013

This month gives us an excuse to let our hair down and enjoy a well earned celebration with our work colleagues and partners. This article is a reminder of the tax concessions that apply to the costs of providing the Christmas bash.

The cost of an annual staff party or similar function is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of unincorporated organisations.

 Also, as long as the criteria below are followed there will be no taxable benefit charged to employees:

  1. The event must be open to all employees at a particular location.
  2. An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 p.a. (inc VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
  3. All costs must be taken into account, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
  4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.

 If these limits are breached employers can pick up the tax cost by using a PAYE settlement agreement.

 A final note on ‘Trivial’ gifts for employees.

 Employers may find the following Revenue concession useful – we have copied the note directly from the HMRC handbook:

 "An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned."

 One final cautionary note regarding VAT and staff gifts, VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys, however, are zero rated for VAT purposes!

The 60% Income Tax band

Tuesday, December 10th, 2013

According to HMRC the highest rate of Income Tax is 45%. This will apply to anyone with income over £150,000. Income below this amount is taxed at 40%, or a combination of 20% and 40%.

However, if your income marginally exceeds £100,000, for every £2 your income exceeds this amount you will lose £1 of your personal tax allowance. For a person under 65 years the personal allowance for 2013-14 is £9,440. Consequently, if your income rises to £118,880 you will lose your personal allowance.

 The tax payable on this marginal amount of £18,880 is £18,880 x 40% plus £9440 x 40% – in total £11,328, or 60% (11,328/18,880 x100) of your income earned between £100,000 and £118,880.

 If you estimate that your income will marginally exceed £100,000 in this tax year you may be advised to consider your options. There are two strategies you could employ:

  1. Reduce your income, or
  2. Increase your tax allowable deductions

 Reduce your income:

  • You could discuss a salary sacrifice arrangement with your employer: exchange salary for unpaid leave or a combination of tax free benefits.
  • Defer bonuses and/or dividends payable towards the end of the tax year until after 5 April 2014. Depending on the numbers, this may defer the problem to the next tax year, or produce a permanent tax saving – don’t forget, gift aid payments can be carried back a year in many cases.
  • Take a close look at the taxable benefits you receive. For instance if your employer pays the fuel costs to cover private use of a company car consider reimbursing the private fuel cost.

 Increase your tax allowable deductions:

  • Increase charitable donations.
  • Increase pension payments.
  • If you are self-employed consider investment in plant or equipment and take advantage of the £250,000 Annual Investment Allowance.

It’s worth giving the matter serious thought as you will potentially save 60% of any cost in reduced Income Tax payments. The above suggestions are not the only strategies you could employ. If you would like to organise a meeting to discuss your planning options in more detail please call.