Archive for December, 2018

Time for a tax-free seasonal bash?

Thursday, December 20th, 2018

Time to let your hair down? Enjoy a festive moment or two with your business colleagues and staff? If you are careful with your budgeting, you can enjoy the event without increasing your tax or National Insurance payments. Here’s what you need to consider:

What's exempt?

You might not have to report anything to HMRC or pay tax and National Insurance. To be exempt, the party or similar social function must all of the following criteria:

  • The cost must be £150 or less per head.
  • The event must be an annual event, such as a Christmas party or summer barbecue.
  • The event must be open to all your employees.

If your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also have separate parties for different departments, as long as all of your employees can attend one of them.

As long as the combined cost of the events is no more than £150 per head, they are still exempt.

You do have to report how much social functions and parties are worth to each employee if they are a part of a formal salary sacrifice arrangement.

A few additional considerations

  • The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.
  • The figure of £150 is not an allowance. For functions that are outside the scope of the exemption directors and employees are chargeable on the full cost per head, not just the excess over £150, in respect of: themselves and any members of their family and household who attend as guests.
  • If the employer provides two or more annual parties or functions, no charge arises in respect of the party, or parties, where the cost(s) per head do not exceed £150 in aggregate. Where there is more than one annual function potentially within the exemption, HMRC do not expect employers to keep a cumulative record, employee by employee, of functions attended. But for each function the cost per head should be calculated. The cost per head of subsequent functions should be added. If the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt, the others taxable.

If you need help organising your annual celebration in the most tax effective way, please call.

 

Merry Christmas

Tuesday, December 18th, 2018

From a business perspective there is not much to be merry about this year especially if you need some clarity regarding our impending exit from the EU.

Never-the-less, business owners would be wise to consider the tax-free gifts that can be made to ease the financial needs for extra funds over the festive season.

In particular, make the most of the trivial benefits allowance. Here’s what is available and how you can benefit:

You don’t have to pay tax on a benefit for your employee (including working directors – but see note below) if all of the following apply:

  • it cost you £50 or less to provide
  • it isn’t cash or a cash voucher
  • it isn’t a reward for their work or performance
  • it isn’t in the terms of their contract

This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HMRC know.

Be careful as:

  • you may have to pay tax on any benefits that don’t meet all these criteria, and
  • if you provide these benefits as part of a formal salary sacrifice arrangements, they won’t be exempt.

Special rules for directors of ‘close’ companies

As you might expect, HMRC are not keen for owner/directors of small companies to benefit unduly from these tax-free benefits. Accordingly, you can’t receive trivial benefits worth more than £300 in a tax year if you are the director of a ‘close’ company.

A close company is a limited company that’s run by 5 or fewer shareholders.

Brexit may be in limbo, but Making Tax Digital is not

Monday, December 17th, 2018

As we have highlighted in many posts to this blog, from 1 April 2019, ALL VAT registered businesses with turnover above the £85,000 VAT registration threshold will have to submit their VAT returns from within software that can link with HMRC’s networks. In techno- speak, your data will need to be transferred using a designated API (HMRC’s application programming interface).

The fact that you have always prepared your VAT returns electronically, for example, by using a spreadsheet to record transactions and create the data for your VAT returns, will not be enough. Your spreadsheet will not have the functionality to link with HMRC’s API. In these circumstances you will need to acquire bridging software that will draw data from your spreadsheet and forward it the HMRC in the required format.

HMRC have now clarified that only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital (MTD). You will therefore need to keep an eye on your taxable turnover, especially if you think it is close to the VAT registration threshold.

Additionally, you may be excused from applying the MTD filing obligations if:

  • your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers);
  • it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason; or
  • you are subject to an insolvency procedure.

For the rest of us that are required to observe the MTD regulations, we should be using accounts software that will be MTD compliant come 1 April 2019. If you have consulted us on this issue you can be confident that any software that we have recommended will pass muster.

If you are still unsure which way to jump, please call so that we can help. As far as we can tell HMRC are on track to convert to this new filing process and the clock is ticking.

Scottish Budget 12th December 2018

Wednesday, December 12th, 2018

DEREK MACKAY PRESENTS HIS “BUDGET FOR GROWTH”
12th December 2018

Against the backdrop of Brexit and a vote of no confidence in Westminster, Derek Mackay wisely chose to present a fairly low key Budget today. We will not comment on the political and spending aspects of his speech (a solid speech) but it was interesting to contrast the manner and style with Chancellor Hammond’s recent Autumn Budget. Mr Hammond appeared to choose to ignore the huge National Debt and presented up a Budget which presumes continued growth and a Brexit risk free future. On the other hand, Mr Mackay made much of his desire to maintain public services and to bring fairness to taxation. The author of this note has often observed that one man’s view of fairness in taxation is another man’s view of punitive taxation and state theft. However, it is hard to get away from the fact that Scottish society appears to expect higher spending on health and education etc. And, perhaps, there being very few truly high earners in Scotland, his retention of the 53% tax/NI marginal rate for middle class Scots was inevitable.

You see the English now (from April 19) don’t pay 40% (higher rate) tax until they earn £50,000. However, the 12% employee national insurance limit is pegged to that. So in England the combined tax/ni rate just below £50,000 is 32% (20% tax, 12% NI).

The Scottish higher rate tax threshold was kept down last year and will be kept down again. This means on a slice of income from £43,430 to £50,000 Scots appear to be facing 41% taxation and 12% national insurance (53%). Even with the tinkering the SNP used for lower earners, the effect is that Scots earning £50,000 will be well over £100 per month worse off than their English counterparts. Credit for the honesty in politics because Derek Mackay referred to MSPs being around £30 a week worse off than the equivalent English earner and he presents the view this is value for money for our additional public services (e.g. University education without tuition fee).

In other areas of taxation the main changes appears to be LBTT where the Additional Dwelling Supplement (“ADS”) paid by landlords and those not merely replacing their own home will be increased from 3% to 4%. This presents the potential top rate of LBTT of 16% from January 25th, if implemented. Eye-watering stuff but the “ADS” has been a good money generating measure and with England introducing a 1% supplement for non-resident purchasers this ensures a level playing field for them.

Commercial LBTT is also being tinkered with. From 25th January the rates will be 0% on £150,000, 1% to £250,000 and 5% above that. The current rates are 0% on £150,000, 3% up to £350,000 and 4.5% thereafter. Again we see the reduction in taxation at the lower end and increases further up.

In amongst this the author is sure that he heard Derek Mackay say the proposal from the Barclay report that out of town office car parking be subjected to some form of tax is being left to one side for now. That’s welcome, if true (and let’s hope it is permanent).

All in all, a strong delivery from Derek Mackay. Sometimes with these things it takes a few days for the terrible reality of a seemingly trivial item of small print on taxation policy to be identified. In this case, we hope not.

A final note, let’s hope one of the other parties backs this Budget. There’s enough uncertainty about just now and whilst the Greens may ask for commitments to bring in punitive local taxation on wealth and the Liberals demand Independence is taken off the agenda, it is rather obvious that taxpayers and businesses just want an agreed Budget and that this one seems, at face value, fairly uncontroversial. Let’s hope it isn’t a political football. If Holyrood is to rise above the mess of Westminster, this is a good moment for the MSPs to demonstrate their maturity.

Written by Donald Parbrook, Director, Tax Services
12th December 2018 at 1800 hours.

A possible, unwelcome increase in service charges

Tuesday, December 11th, 2018

From 1 November 2018, owners of properties on estates or sites that are obliged to pay service charges to a management company – for example, for the maintenance of common areas, gardens, or the employment of a site warden or caretaker – may be in for an unwelcome surprise.

It would seem that HMRC have applied a concession in the past that allowed the management companies to treat service charges collected on behalf of a landlord as part of an exempt supply for VAT purposes – in other words, when the management company charged a resident, no VAT was added to the fee.

From 1 November 2018, if the right circumstances apply, the management company will need to treat the supply of services as a standard rated supply for VAT purposes. As the current rate of VAT is 20%, residents affected may see an equivalent increase in their charges.

However, if the management company for your property is obliged to charge you VAT, it will also be able to claim back VAT on expenses related to your service charge: this is VAT that in the past was a cost to the management company. It is estimated that a more likely service charge increase due to this change in VAT rules will be between 10% to 15%.

Smaller management companies should not be affected by these changes.

As always, unpicking the various “grey” areas of the VAT regulations will likely prove to be a headache for residents and the management companies affected. If you are reading this short article and have concerns, please call for more information.

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