According to HMRC you don’t have to pay tax or NIC on a benefit provided to an employee if:
- it costs you £50 or less to provide (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person)
- 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
Unfortunately, this generous offering does not apply to directors or other office holders or their family. Where the employer is a private company and the benefit is provided to an individual, who is a director or other office holder of the company (or a member of their family or household), the exemption is capped at a total cost of £300 in the tax year.
Even so, by keeping to the rules this does provide a useful tax-free benefit. For directors who pay income tax at higher rates, the £300 annual benefit is equivalent to a taxable income of £500.
It is worth noting the following points:
- One of the conditions that needs to be satisfied is that the cost of providing the benefit does not exceed £50. If the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.
- In determining the cost of the benefit for the purposes of the exemption, as for benefits in kind more generally, use the VAT inclusive amount.
- The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to 1 or more employees can be treated as trivial.
- Usually it will be obvious what the cost of providing the benefit is. However, on occasions an employer will provide a benefit to a group of employees and it is impracticable to establish what the precise cost is per person. In such cases, when determining whether the monetary limit has been exceeded you should take the average cost per person of providing the benefit.
- In determining whether the average cost method should be applied, you should apply common sense, bearing in mind the circumstances, in deciding whether it is appropriate.
The following example published by HMRC may be pertinent as we approach the festive season:
Employer D provides each of its employees with a bottle of wine costing £25 at Christmas. However, as an alternative, it provides employees who do not drink alcohol with a £25 gift voucher for a national supermarket chain which they can exchange for an alternative non-alcoholic Christmas gift. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.
Food for thought?
There is a whole raft of legislation that seeks to penalise directors and shareholders if they borrow money from their company. These regulations include possible benefit in kind charges for the director/shareholder, and additional corporation tax payments of 32.5% for the company.
In effect, the tax system discourages directors from using their company as a private bank account.
But what happens if the reverse situation occurs and a director/shareholder lends money to their company?
If a company requires long-term funding, this “loan” may be secured by the issue of shares in which case the shareholder may be entitled to a dividend. They would also share in the spoils if the company was subsequently sold or wound-up. Essentially, once capital is locked in to a formal shareholding arrangement, it is difficult for the shareholder to recover their investment without undertaking a complicated, and expensive, legal process.
An alternative approach, is to simply lend money to the company. This is best done by agreeing terms and setting up a formal loan agreement between the company and the person lending the funds. It should set out any terms for repayment, security offered by the company, and most important, any interest that will be paid by the company for the use of the funds.
The last point is significant. Many directors of smaller companies simply deposit funds in their company and take it back when it is no longer required, but they may be missing out on a possible tax-free – albeit small – income stream.
For example, depending on other sources of income, the person lending the money could be entitled to the £1,000 or £500 personal savings allowance. A loan of just £16,000, with an agreed interest rate of say 6%, would generate an annual income for the lender of just under £1,000. If the lender was a basic rate tax payer they would be entitled to the £1,000 tax-free allowance, and the company could deduct the interest payment from their taxable profits.
As always, the devil is in the detail. Please contact us for advice if you are considering a loan to your company or formalising any past loans made.
Smaller business owners, those with annual turnover below the current VAT registration threshold (£85,000 for 2017-18), will be relieved to know that the impending digitisation of tax by HMRC will not be a requirement when the process starts for business tax from April 2019.
You can register on a voluntary basis, but many smaller businesses may be advised to wait until the perceived benefits of the Making Tax Digital process are clearly demonstrated.
Many one-person businesses keep manual records and some use a spreadsheet to record business transactions. Others may have downloaded accounts software to their PC. In these cases, it would be necessary to take your records with you if you want your advisor to prepare your annual accounts or help you with a bookkeeping problem – where do I record this?
What is bookkeeping in the cloud? And how can it help?
Cloud based accounts software resides on a server that you access via your internet browser. Usually, you pay a small monthly fee for the use of this type of software, and there are significant advantages. They include:
- The software providers take care of security and backup issues.
- Your accountant can login and keep an eye on your financials, with your permission. This can vastly improve the speed with which accounts can be prepared and help provided with issues such as cash flow management, profit improvement and solvency.
- You can access your accounts wherever you can access the internet, this might be your home PC, an iPad or even your phone.
- There are lots of add-on tools that you can use, for example, the ability to scan receipts with your phone and push the information to your accounts.
Using this type of software is not for everyone, but if you are serious about growing your business having this ability to record and analyse information quickly will be of great benefit.
We can help. If you would like to see a demonstration of the software we recommend, please call for an appointment.
Since September 2009, HM Land Registry has prevented 254 fraudulent applications being registered. The most common fraud is when someone pretends to be you and mortgages or even sells your property without your knowledge.
A simple and cost-effective way to counter this activity is to register with the award-winning Property Alert service. This is managed by HM Land Registry. You can:
- monitor a property already registered with HM Land Registry
- monitor the property of a relative, you don’t have to own a property to set up an alert
- you can choose up to 10 properties to monitor.
You can do this online at https://propertyalert.landregistry.gov.uk/
What you need to know about the service:
- The property you want to monitor must be situated in England or Wales and registered with HM Land Registry.
- You must create a Property Alert account to use the service
- You will receive a HM Land Registry email (please check spam inbox) to enable you to verify your email details
- You must then sign in to your account to add a property
- Email alerts are sent when official searches and applications are received against a monitored property
- If you receive an alert about activity that seems suspicious you should take swift action. The alert email will signpost you to who to contact.
- You don't have to own a property to set up an alert
- The same property can be monitored by different people.
- Property, especially flats/apartments, can be registered with two titles. Blocks of flats are often owned by companies (Freehold), and the person owning the individual flat (Leasehold). When registering for this service please choose Leasehold title for individual flats/apartments.
You can also use the service if you are not online. Call the Property Alert team on 0300 006 0478.
Once you have registered your properties, HM Land Registry will send you an email alert each time there is significant activity on the property you are monitoring, such as if a new mortgage is taken out against it.
The alert will tell you the type of activity (such as an application to change the register or a notification that an application may be due), who the applicant is and the date and time it has been received.
Not all alert emails will mean fraudulent activity. If you don’t think the alert email is about any suspicious activity, you don’t need to do anything.
Signing up to Property Alert won’t automatically stop fraud from happening. You will need to decide if the activity on the property is potentially fraudulent and act quickly if so. The alert email will tell you who to contact.
Children (under 18s) can earn up to £11,500 in the current tax year and pay no income tax. This is the maximum that can be earned during 2017-18 and will include earnings from all sources subject to income tax. The most common are:
- Income from employment
- Income from self-employment
- Bank interest and dividends received – although see comments below.
If you are aged 16 and over you may have to pay National Insurance if earnings with a single employer exceed £157 per week.
Parents are advised that if they gift shares in family companies to their under 18s children and then pay dividends on the gifted shares – with the aim of taking advantage of the annual tax-free dividends allowance and the possible lower rates of tax payable by the children – this strategy is unlikely to work as HMRC would seek to treat the dividends as if they had been received by their parent(s).
Once a child reaches the age of 18, then gifting shares in a family company to divert dividends from parents to the child would be possible. A word of caution however, this area of taxation is littered with anti-avoidance regulation so before transferring or issuing new shares, professional advice should be taken.
Parents also need to be clear that if they employ their under 18s in their business, then they need to pay a commercial rate for the job involved. Paying more than market rates would likely attract the attention of HMRC.
Children under 18 years are entitled to claim the annual capital gains tax exemption of £11,300 for 2017-18, but only on the chargeable disposals of assets in which they have a legal title.
The under 18s can save in a tax-free fund by investing in a Junior ISA. The savings limit in these schemes for 2017-18 is £4,128. Parents can open an account but the money invested belongs to the child.
Children can take charge of the investment from age 16 but cannot withdraw funds until they reach 18 years.
1 October 2017 – Due date for Corporation Tax due for the year ended 31 December 2016.
19 October 2017 – PAYE and NIC deductions due for month ended 5 October 2017. (If you pay your tax electronically the due date is 22 October 2017.)
19 October 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2017.
19 October 2017 – CIS tax deducted for the month ended 5 October 2017 is payable by today.
31 October 2017 – Latest date you can file a paper version of your 2017 self-assessment tax return.
1 November 2017 – Due date for Corporation Tax due for the year ended 31 January 2017.
19 November 2017 – PAYE and NIC deductions due for month ended 5 November 2017. (If you pay your tax electronically the due date is 22 November 2017.)
19 November 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2017.
19 November 2017 – CIS tax deducted for the month ended 5 November 2017 is payable by today.
If you find it difficult to manage quarterly payments to HMRC to settle your VAT, why not consider the VAT Annual Accounting Scheme (AAS).
With the AAS you:
- make nine payments on account towards your annual VAT bill – based on your last returns (or estimated if you’re new to VAT), and
- submit one VAT Return a year.
When you submit your VAT Return you either:
- make a final payment – the difference between your advance payments and actual VAT bill, or
- apply for a refund – if you’ve overpaid your VAT bill.
The scheme wouldn’t suit your business if you regularly reclaim VAT because you’ll only be able to get one refund a year (when you submit the VAT Return). Also, you can only join the scheme if your estimated VAT taxable turnover is £1.35 million or less.
However, smoothing the cash flow impact of VAT payments can be helpful as is submitting one VAT return a year instead of four returns.
The annual return, and any balancing payment, need to be submitted within two months of the annual year end date for VAT purposes.
You can’t use the scheme if:
- you left the scheme in the last 12 months
- your business is part of a VAT registered division or group of companies
- you are not up to date with your VAT Returns or payments
- you are insolvent
You must leave the scheme if:
- you’re no longer eligible to be in it
- your VAT taxable turnover is (or is likely to be) more than £1.6 million at the end of the annual accounting year
Self-employed persons and other individuals who submit a self-assessment (SA) tax return should bear in mind that there are only three months until the electronic filing and payment deadline for 2016-17, 31 January 2018.
If you have not filed the 2016-17 SA return yet, or at the very least crunched the numbers to work out if you owe any arrears of tax for 2016-17, you may want to attend to this as soon as possible. Otherwise, you will be shortening the period when you have time to consider gathering funds together to meet any tax payment on 31 January 2018.
On the same date, 31 January 2018, you will also need to make a payment on account for the following tax year, 2017-18. In the first instance, this will be based on fifty percent of your liability for 2016-17 with a similar payment July 2018. And so again, knowing what the earlier year’s liability is will provide the information you need to save for this additional tax payment.
As we have outlined in previous newsletters, if your income is reducing during the current year (2017-18) you can elect for payments on account to be reduced.
This is all part of the basic self-assessment planning we undertake for clients. If you have previously managed your own tax filing, and would like to out-source this annual chore, we would be delighted to help.
There are many reliefs for IHT purposes. They include:
- Business Property Relief – 100% relief for business assets including an interest in a business, a controlling interest comprising unquoted shares including AIM listed shares, and unlisted shares in a private company.
- Agricultural Property Relief – 100% relief (occasionally 50%)
- A controlling interest in a listed company – 50% relief.
- Certain personal assets used in a business – 50% relief.
Additionally, there are other, smaller reliefs that can be claimed:
- An annual exemption of £3,000. An unused allowance can be carried forward for one year.
- Small gifts exemption of £250 per person.
- Gifts on a marriage or civil partnership: £5,000 from a parent, £2,500 from a grandparent, £1,000 others
There is also an exemption for annual gifts made from income. Basically, a gift will not count as a gift for IHT purposes, if you can demonstrate that the donor’s annual income is at a level to make the gifts without affecting their ability to cover their usual monthly costs.
Gifts to an individual within the nil rate band, and with no strings attached, may still be made without any charge to IHT if the donor lives for 7 years after making the gift.
Changes to the taxation of trusts and non-domiciled persons have complicated IHT planning in recent years. If you haven’t considered your options recently we recommend a review. All you need to do is compile a list of your assets, let us have sight of your Will(s) and we can consider changes you might make to reduce your exposure to this tax.
Readers may be forgiven for finding the recent rash of announcements by HMRC, regarding possible changes to tax legislation, rather confusing.
On 8th September, we were informed that the remaining sections of the March 2017 finance bill, that were deferred due to the May election, were back in circulation and being dealt with by the appropriate committees and debates. Eventually, they will find their way onto the statute books unless amended by the parliamentary processes.
Changes reintroduced include:
- Ability to reimburse employers for certain benefits and avoid a tax charge.
- A reduction in the money purchase pension allowance, once crystallised, from £10,000 to £4,000.
- A reduction in the tax-free dividend allowance, from £5,000 to £2,000; effective from 6 April 2018.
In all there are seventy-two clauses and eighteen schedules.
It was then announced the government will publish its next Budget on Wednesday 22 November 2017. The November Budget will include further legislation to introduce digitisation of business tax.
It will be interesting to see how the political realities – a much slimmer majority in parliament – affect the progress of these changes in the coming weeks.