A reminder to business readers that the NMW rates increased from 1 October 2014; the new rates are:

• 21 and over £6.50 per hour
• 18 to 20 £5.13 per hour
• Under 18 £3.79
• Apprentice rate £2.73

Don’t forget that HMRC oversees compliance with the NMW regulations. The types of workers who are not entitled to the minimum wage are:

• self-employed people running their own business
• company directors
• volunteers or voluntary workers
• workers on a government employment programme, e.g. the Work Programme
• family members of the employer living in the employer’s home
• non-family members living in the employer’s home who share in the work and leisure activities, are treated as one of the family and aren’t charged for meals or accommodation (e.g. au pairs)
• workers younger than school leaving age (usually 16)
• higher and further education students on a work placement up to 1 year
• workers on government pre-apprenticeships schemes
• people on the following European Union programmes: Leonardo da Vinci, Youth in Action, Erasmus, Comenius
• people working on a Jobcentre Plus Work trial for 6 weeks
• members of the armed forces
• share fishermen
• prisoners
• people living and working in a religious community

If you let a room or rooms in your main home you will not pay any tax on rents received as long as the gross receipts do not exceed £4,250 in a tax year.

This relief extends to owner occupiers and tenants who receive rent from letting furnished accommodation in their home.

If your gross receipts are more than £4,250 you can choose between paying tax on:

• Your actual profit – gross rents minus actual expenses and in certain cases capital allowances, or
• Your gross receipts (and any balancing charges) minus £4,250; with no deduction for actual expenses or capital allowances.

Rent-a-room relief applies to a tax year and the limit of £4,250 is reduced to £2,125 if during the basis period someone else also received income from letting accommodation in the same property.

The Government has announced changes that should standardise, and in most cases reduce, the charges made to administer funds on behalf of contributors.

Draft regulations published in October confirm that charges to invest and manage the default funds of all qualifying schemes will be capped at 0.75% annually.

Small differences in charges can have a major impact on a pension pot by the time a person retires. An average earner due to accumulate a pension pot of around £30,000 could benefit to the tune of £1,600 by saving in a scheme charging 0.75% compared to one which charges 1.5% – and for many the boost could run into tens of thousands of pounds.

The draft regulations also ban unfair charges and hidden costs that could, without action, severely reduce people’s pension savings over decades.

The Government will bring forward further rules and regulations to ensure that from April 2015 members of workplace personal pensions will not be charged consultancy fees for advice to their employer, and from April 2016 savers in all types of scheme will no longer be charged commission or consultancy fees. Nor will they have to pay charges for pension savings which increase when they change jobs.

Pensions Minister Steve Webb said:

“Consumers have had a raw deal from the market for too long. A pension is one of the biggest investments you can make in your lifetime, yet many people have seen the savings they have put by all their working life whittled away by high or needless charges they may not even be aware of.

We are taking strong action to restore confidence in pensions by capping charges, banning hidden costs and putting new standards in place to ensure everyone saving in workplace pensions get the best possible value for money.

With millions of people now saving through automatic enrolment, we want to give them confidence that their hard-earned money is working for them and not disappearing in opaque charging structures and ending up lining the pockets of the pensions industry.”

The level and scope of the charge cap will be reviewed in 2017.

The new governance standards will apply across all money purchase workplace pension schemes and will ensure that people running schemes understand the key components of scheme quality and have members’ interests as their priority.

Under the changes, trustees of pension schemes will be required to design default funds in members’ interests, keep them under regular review and ensure that core financial transactions are processed promptly and accurately.

They will have to assess the value of costs and charges borne by those saving in a pension, and they must have a chair of trustees who will be responsible for signing off an annual statement on how the quality standards have been met.

The 0.75% cap will cover all charges excluding transaction costs.

If you are involved in planning the staff Christmas party for your firm don’t forget to consider the Income Tax and VAT consequences. Here’s a short reminder of the points you should add to your check list.

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 overall 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 paid 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 still zero rated for VAT purposes!

HM Revenue and Customs has sent notices to tax avoidance scheme users to pay over £250 million of disputed tax under the Accelerated Payments regime introduced in this year’s Finance Act.

The Financial Secretary to the Treasury, David Gauke, told MPs scrutinising the National Insurance Contributions Bill that over 600 Accelerated Payment notices had been sent since late August.

Despite recipients having 90 days to pay the tax demanded in the notices, avoidance scheme users have already begun to contact HMRC to arrange to make payments, covering over £25 million of disputed tax.

Many more users are also choosing to contact HMRC about settling their tax affairs rather than wait to receive an Accelerated Payment notice.

Financial Secretary to the Treasury David Gauke said:

Accelerated Payments are changing the economics of avoidance by removing the cash-flow advantage that avoidance scheme users have had until now. It is only fair that those who use avoidance schemes should have to pay their tax upfront, like the vast majority of other taxpayers who don’t try to shirk their responsibilities.

Jennie Granger, Director General of Enforcement and Compliance, HMRC, said:

HMRC is making good progress in tackling marketed avoidance as today’s figures illustrate. If anyone is concerned about being able to pay the notice they should contact us as soon as possible to discuss their options.

By January 2015, HMRC will be issuing 2,500 Accelerated Payment notices per month and it is on track to deliver notices to 43,000  tax avoidance scheme users, covering £7.1 billion of disputed tax, by the end of March 2016.

There can be savings, particularly for employers, if a worker can be paid as a self-employed person. This is particularly so in the construction industry where most workers are engaged by contractors as self-employed subcontractors.

What many contractors fail to realise is that they are required to reach a judgement on a worker’s tax status based on a rigid framework determined by HMRC. It is not sufficient to base this judgement on what produces the best tax and National Insurance outcome.

Getting this status issue wrong will likely result in an uncomfortable examination of engagement contracts by HMRC and expensive catch up payments if it is determined that certain self-employed sub-contractors are actually employees.

How then should a contractor make this judgement: employed or self-employed? We have listed below HMRC’s published criteria:

 Common indicators of employment

• The contractor has the right to control what the worker has to do – where, when and how it is done – even if the contractor rarely uses that control.
• The worker supplies only his or her own small tools.
• The worker does not risk his or her own money and there is no possibility that he or she will suffer a financial loss.
• The worker has no business organisation, for example, a yard, stock, materials, or workers. (These examples are not exhaustive.)
• The worker is paid by the hour, day, week or month.

Common indicators of self-employment

• Within an overall deadline, the worker has the right to decide how and when the work will be done.
• The worker supplies the materials, plant or heavy equipment needed for the job.
• The worker bids for a job and will bear the additional cost if the job ends up costing more than the worker's original estimate.
• The worker has a right to hire other people who answer to him or her and are paid by him or her to do the job.
• The worker is paid an agreed amount for the job regardless of how long it takes.

To make a decision on an individual case, you will need to consider all the details, and your overall judgement should not rely solely on the above notes. Determining status can be a complex process and one that should be undertaken rigorously.

Paid annual leave is a legal right that an employer must provide. Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.

Self-employed workers aren’t entitled to annual leave.

Most workers who work a 5-day week must receive 28 days’ paid annual leave per year. This is calculated by multiplying a normal week (5 days) by the annual entitlement of 5.6 weeks.

Part-time workers

Part-time workers are also entitled to a minimum of 5.6 weeks of paid holiday each year, although this may amount to fewer actual days of paid holiday than a full-time worker would get.

For example a worker works 3 days a week. Their leave is calculated by multiplying 3 by 5.6, which comes to 16.8 days of annual paid leave.

Statutory paid holiday entitlement is limited to 28 days. Staff working 6 days a week are only entitled to 28 days’ paid holiday and not 33.6 days (5.6 multiplied by 6).

Bank holidays

Interestingly, employers do not have to give bank holidays or public holidays as paid leave. An employer can choose to include bank holidays as part of a worker’s statutory annual leave.

Apart from the retail trade and internet traders most of us send an invoice when we provide our goods or services to customers and then wait for the period of credit to expire before we get paid.

During this waiting time we still have our own bills and wages to pay so the working capital we have to accumulate to finance monies owed by customers can be considerable.

And then, of course, there is VAT…

If we sell or provide standard rated supplies and are registered for VAT we have to add 20% VAT to our invoices.  The VAT added, in normal circumstances, has to be paid over to HMRC (less any VAT input tax we have been invoiced by suppliers) on a quarterly basis.

Accordingly, it is possible that we have to pay over VAT to HMRC before we receive the equivalent payment from our customers.

Acknowledging this injustice, especially for smaller concerns, HMRC allow registered traders to use their Cash Accounting Scheme (CAS). Simply put, if you qualify to use CAS you only have to pay VAT added to your invoices when your customers pay you. On the flip side, any VAT charged to you by suppliers can only be reclaimed from HMRC when you pay your supplier.

The scheme is only available if your expected taxable supplies in the next year will be £1,350,000 or less. Taxable supplies are defined as the value excluding VAT of standard, lower and zero-rated supplies you make.

There is no formal election required to use CAS but it is well worth crunching the numbers to ensure that you get a positive cash flow impact from doing so!

If you have been trading for some time before you register your business for VAT don’t forget to consider your option to reclaim VAT on goods and services purchased prior to your registration date.

For example, if you are required to register for VAT from 1 January 2014, you only need to pay VAT on taxable supplies you make from that date. However, if you had bought goods or services prior to 1 January you may be able to reclaim the VAT you paid on them. You can generally reclaim VAT on goods you bought up to four years before you registered for VAT, and services you bought up to six months before you registered.

You can reclaim VAT on goods you bought or imported no more than four years before you were registered for VAT if all the following are true:

• the goods were bought by you as the entity that is now registered for VAT (for example, the individual, business or organisation)
• the goods are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply
• the goods are still held by you or they have been used to make other goods you still hold

You can't reclaim VAT on any of these goods:

• goods that you've completely used up before you registered for VAT (such as petrol, electricity or gas)
• goods that you have already sold or supplied before being registered, or have used to make goods you have sold or supplied before being registered
• goods that relate to supplies you make that are exempt from VAT

The word 'goods' includes goods that are intended for resale, and also goods that you keep as assets, such as computer systems, shop fittings, office equipment and furniture, tills, vans and other equipment. It also covers anything else you've bought that isn't a service, so it includes consumables such as stationery.

You can reclaim VAT on services you bought during the six months before you registered for VAT if both the following are true:

• the services were bought by you as the entity (for example, the individual, business or organisation) that is now registered for VAT
• the services are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply

You cannot reclaim VAT on any of these services:

• services that relate to goods you disposed of before you were registered for VAT – for example, repairs to a machine you sold before you were registered
• services that relate to goods or services you supply that are exempt from VAT

Examples of services you might have paid for when starting your business are legal and accountancy fees, services relating to setting up your computer and other equipment, and fees and services relating to your premises.

Don’t forget that if you make a claim to recover past VAT paid, the input tax recovered will effectively reduce the cost of goods and services that you have claimed tax relief on in past years. This will effectively increase your taxable profits in the year you make your claim. Even taking this tax adjustment into account it is still worth making a claim.

The government has announced a clamp-down on the decade-long use of ‘hybrid mismatches’, a technique commonly used by multinational companies to significantly reduce their tax bills.

It is the latest in a series of steps the government has taken to tackle aggressive tax planning and is expected to bring tens of millions of pounds per year of additional revenue into the Exchequer once implemented.

Hybrid mismatch arrangements exploit differences between countries’ tax rules to avoid paying tax in either country, or to obtain more tax relief against profits than they are entitled.

The UK has worked with G20 and OECD member countries as part of the BEPS project to agree a solution that prevents companies from taking advantage of this and proposals were endorsed by G20 Finance Ministers at their meeting in Cairns last month.

More information on the steps the government would like to take will be published when a consultation on the implementation of rules to prevent hybrid mismatches is included as part of the Autumn Statement on 3 December.