Archive for October, 2021

Time to let your hair down.

Thursday, October 21st, 2021

We are all due a little rest and recuperation. The last eighteen months have been challenging and stressful. If, big if, COVID infection is contained this winter, perhaps we could start to consider celebrating with and family and friends during the Christmas break.

And why not fund a “business” related event that will have the support of the taxman?

If you are careful with your budgeting, you can enjoy a staff party 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 meet all 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 your staff based at one location still counts as exempt. You can also have separate parties for different departments if all your employees can attend one of them.

If 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 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.

What is cabotage?

Tuesday, October 19th, 2021

Although it sounds like a culinary dish – a cabbage compote (?) – cabotage is defined as the transport of goods or passengers between two places in the same country by a transport operator from another country.

Its present relevance is a rule that restricts hauliers from the EU who can only make two cabotage trips within seven days.

In an announcement by the Department of Transport issued 14th October, there is a proposal to extend cabotage to foreign transport operators that would allow them to make unlimited journeys for two weeks before returning home.

Could it be yet another attempt to ease the present supply issues?

The announcement goes on to say:

“Thousands more HGV deliveries could be made each month in the UK under government plans to help bolster the country’s supply chains by temporarily extending so-called ‘cabotage’ rights.

Subject to a one-week consultation, the temporary measures would come into force towards the end of this year for up to six months, helping secure supply chains in the medium term alongside the wider package of measures government has put in place to address the shortage of drivers more broadly.

The relaxation would apply to all types of goods but is likely to be particularly beneficial to food supply chains and goods that come via ports, by ensuring lorries from abroad coming into the UK are used more efficiently, helping to tackle the temporary global supply chain pressures brought on by the pandemic and the global economy rebounding.

It comes as the government continues to address the current global shortage of HGV drivers which is affecting countries around the world and builds on the raft of measures that have already been announced to support the sector, including boosting testing capacity, and streamlining the licence process.”

This is good news for UK businesses that are supplied from the EU. Fingers crossed that it is introduced in time for Christmas…

Reduction in support for hospitality sector

Thursday, October 14th, 2021

The temporary reduced rate of VAT (5%), introduced to assist qualifying hospitality trades disrupted by COVID lockdown measures, was increased to 12.5% from 1 October 2021. Based on present information, from 31 March 2022, this 12.5% rate will revert to the 20% standard rate.

This reduction in VAT applied to the sales of hospitality trades will have allowed VAT registered traders to retain more of their turnover subject to VAT if no change was made to their selling prices.

If no change in selling prices

For example, for every £10,000 of income received and subject to VAT at 20%, hospitality traders would retain £8,333.

During the period up to 30 September 2021, when the rate of VAT on hospitality trades was reduced to 5%, for every £10,000 of income received hospitality traders would retain £9,524.

Since 1 October 2021, for every £10,000 of income received including VAT at the 12.5% rate that now applies, for every £10,000 of income received hospitality traders will retain £8,889.

And from 31 March 2022, its back to square one. Turnover will revert to a 20% VAT charge.

If traders have passed on VAT reductions to customers

If traders have decided that it was more beneficial to pass on VAT savings to their customers the reduction in VAT would have allowed them to drop their prices as follows – all figures based on a selling price of £100 before VAT was added:

  • Selling price at 20% VAT – £120
  • Selling price at 5% VAT – £105
  • Selling price at 12.5% VAT – £112.50

And, of course, traders can pass on some of the VAT reductions to customers and retain the difference.

What is clear, is that this support for the hospitality industry is being phased out. Much now will depend on how effective government is in keeping the downside disruption of COVID to a minimum. Otherwise, the Chancellor may have to dig-deep to find other ways to support this significant industry sector.

Practical considerations

As turnover from 1 October is subject to a 12.5% rate of VAT, affected traders will need to add a 12.5% rate to their accounting software and use this new rate for the period 1 October 2021 to 31 March 2022. The 12.5% is a new rate of VAT and accordingly will not be included as a choice in most accounts software.

If you are unsure how to do this please call, we can help

Autumn Newsletter

Wednesday, October 13th, 2021

Dear All,

Our Autumn newsletter is available here and contains some interesting updates, including the forthcoming increase in dividend taxes.

Autumn 2021 Newsletter

The Chancellor will deliver the Budget on 27th October and with pressure on the public purse it will be interesting to see if he goes further than the pre-announced changes.  Could Inheritance tax or capital gains tax be overhauled?

Please contact your usual office contact, or Donald Parbrook otherwise, if you have any questions.

Kind Regards

The Directors,  Milne Craig

Tax year end – all change?

Wednesday, October 13th, 2021

At present, self-employed traders (sole traders and partnerships) are taxed for each tax year on profits for the accounting period ending in that tax year.

Therefore, if a trader’s accounting year end is 31 December, their assessment for 2021-22 will be based on adjusted profits for the year ending 31 December 2021. Which means that actual profits earned from January to March 2022 will not be assessed until the following tax year, 2022-23.

While profits are rising, the existing system means that tax collection on a proportion of profits is delayed by one year. And consequently, if profits are falling, tax payable may be higher than if profits had been assessed on an actual basis.

Based on current information being released by HMRC, it would seem that they now want all self-employed persons to be taxed on actual profits earned in a tax year. If this change is followed through it would prepare traders for the shake-up of income tax assessment to a quarterly, digital upload from April 2024. It would mean that all self-employed year ends would change to 31 March.

Aside from the effects on HMRC’s switch to a Making Tax Digital reporting for income tax purposes, any move to change from assessments being based on accounts’ years ending in a tax year (say the year to 31 December) to results actually made in a tax year (trading years ending 31 March) would involve a process of transition that could have unexpected changes to tax bills in the year the transition is undertaken. Bills for affected taxpayers could increase or decrease.

As HMRC have announced that their MTD for income tax change will start April 2024, we can expect more on a possible change to an actual basis quite soon.

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