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The suspension is over. Business Record Checks are back.

Posted on by mark

HM Revenue & Customs (HMRC) has relaunched its Business Records Check (BRC) initiative today.

 
The purpose remains the same. HMRC intends to check the adequacy of business records being maintained by Small and Medium sized Enterprises (SMEs), but the process has changed.

 

HMRC now intends to:
• Write to those SMEs selected for a BRC.
• Telephone the selected SMEs to talk through their business record keeping. The call is expected to last 10 – 15 minutes.

 
Based on the responses received, HMRC will then:
• Assess whether a face to face BRC visit is required.
• If the business records are deemed to be adequate, the HMRC officer making the call will tell the SME and then confirm the decision in writing.
• If the business records are deemed to require improvement, an HMRC officer from the Business Education and Support Team will make contact with the SME.
• If the business records are deemed to be inadequate and a visit required, the HMRC officer will ask one of their colleagues on the booking team to call to make the arrangements.
This appears to be very similar to the traffic light system used by HMRC prior to the suspension. Adequate records were given the green light, records in need of improvement were given the amber light and inadequate records awarded a red light.

 

Posted in Capital Allowances and AIA, Company Cars, Corporation tax, Google Adwords, HMRC, Income Tax, National Insurance, National Minimum Wage, PAYE, Payroll, Uncategorized, VAT, Wages

Tax deduction for overdraft interest

Posted on by mark

A tribunal case had to decide whether overdraft interest paid by two directors to fund their business could be claimed against their tax bills.

 

It is not unusual for a director to incur expenses on behalf of their company and for it to make a reimbursement.

 

Mr & Mrs G took out a £1million personal overdraft to fund the start-up of their company and used it to develop their caravan and holiday home business, they paid interest on the overdraft and in turn their company paid them interest to balance the books.

 

HMRC noticed that the company was not deducting tax from the interest payments it made to Mr & Mrs G and assessed the company to collect the amount it should have charged.

 

Where a company pays interest to an individual it must deduct basic rate tax from the payment and pay this over to HMRC each quarter via CT61.

 

HMRC checked Mr & Mrs G personal tax returns and noticed they didn’t show the interest that the company had paid them. They argued the interest received was balanced by the payments they paid to the bank. In financial terms this was correct but the trouble was that the interest they received was taxable; the interest they paid was not tax deductible.

 

Legislation specifically excludes a tax deduction from general income for overdraft or credit card interest; this is only tax allowable against profits made by anyone who is self-employed or in partnership. Director’s earnings are employment income and so no deduction is due.

 

This meant the tribunal agreed with HMRC. This meant:

  • Mr & Mrs G would be taxed on all the interest the company paid them
  • They would receive no tax deduction for the interest they paid to the bank, despite it being for a business purpose
  • The company could claim a corporation tax deduction for the interest it paid to Mr & Mrs G

 

Mr & Mrs G could have avoided a tax bill if:

  • They had taken a personal loan instead of an overdraft, as the interest on the loan to provide capital for your company is tax deductible
  • They had guaranteed an overdraft/loan for the company even if they paid the interest until the company had enough money to reimburse them.
Posted in Corporation tax, HMRC, Income Tax, Uncategorized

Taxman’s U-turn on Smartphones

Posted on by mark

Where a company provides an employee/director with a mobile phone it has been a tax and NI exemption in the benefit in kind rules. The HMRC have said that smartphones do not qualify for the exemption.

 

The exemption rule states that a phone has to be “designed or adapted for the primary purpose of transmitting and receiving spoken messages”.

 

Because smartphones do more than this they considered that the exemption did not apply.

 

The HMRC have changed their minds and accepted they were incorrect in their treatment from the start. This means that the exemption does not just apply from now on, but can be applied retrospectively.

 

Good news for 2 reasons:-

 

1. when the company mobiles are due for renewal you can choose the latest smartphone and no benefit in kind tax and NI charge will arise.

2. Where you or your employees have paid tax and your company Class 1A NIC on smartphones in the past this can now be reclaimed, BUT the contracts must have been in the company name and there are time limits.

 

Tax refunds can be reclaimed for tax years 2007/08 onwards.

 

NOTE the deadline for registering a tax refund claim for 2008/09 is April 5 next year, BUT NI rules are different the HMRC suggests companies can only go back to 2008/09 to reclaim NI paid on smartphones but they could be incorrect again.

The regulations for Class 1A NI are different to those for tax. You could reclaim overpaid NI for up to six previous years i.e. back to 2006/07.

We can provide draft forms to make both tax and NI refund claims.

 

NOTE another tax exemption for equipment, including mobiles, which are provided by companies to employees/directors, this applies where the equipment is intended solely for business but in practice there’s some minor personal use. If appropriate, use this exemption for your smartphone. The main mobile exemption is then available to provide a tax and NI free phone.  We would expect this situation to be rare as most mobiles would probably be classified as smartphones.

 

Posted in Corporation tax, HMRC, Income Tax, National Insurance, PAYE, Payroll, Wages

Working from Home?

Posted on by mark

HMRC increasing the standard weekly scale rate to £4.

 

A checklist of the more important points to consider follows.

 

General employment expenses

 

The rule for general employment claims, where expenses are incurred but not reimbursed, is set out in s336 of the Income Tax (Earnings and Pensions) Act 2003 [2].

 

Allowed if:

 
• The employee is obliged to pay and
• The amount is incurred ‘wholly, exclusively and necessarily in the performance of the duties of employment.’ It is not enough for the expense to be just relevant to the employment, or incurred in connection with the work – it must wholly and totally relevant.
See Revenue and Customs Commissions v Decadt 2008 [3] (thanks to Simon’s Tax Cases) for further explanation and Tax Bulletin Issue 79 [4].

 

Claim depends on:

 

• whether working from home is compulsory (the home being designated a ‘main workplace’ because the workplace cannot be elsewhere) or voluntary by choice; and
• the employer’s policy for claim, if there is one.
HMRC permission is required using specific tests to determine whether the set up of the workplace is compulsory. It is well known that s336 claims are nigh on impossible according to people who have tried.
HMRC’s tests are detailed under EIM32760 – Other expenses: home: working from home [5]. Usually the claim falls at the first hurdle – requiring the duties of employment to be ‘substantive’ and unable to be undertaken elsewhere (ie compulsory).
If allowed – what can be claimed:
• Metered utility costs (NOT standing charges)
• Business rates if charged (NOT council tax)
• Additional insurance
• Telephone calls (NOT line rental)
• Internet access (providing not already in place)
• Cleaning
• Possibly travel costs to main company premises.
No deduction for rent or mortgage although if additional borrowing incurred to finance creation of workspace interest will be allowed so long as HMRC’s original tests are passed.

 
How to make a claim:

 
• Complete section in personal tax Return; or
• The employer could reimburse all or most of the expenses under s 316 ITEPA 2003 (depends on company policy). If only part then the employee claims under s336 on Return for the non reimbursed amount; or
• Claim standard scale rate of £4 per week on tax return – no need to keep detailed costs figures.

 

Voluntary arrangements (eg Olympics)

 

If there is no obligation to work from home, s336 cannot apply and the claim needs to be under s316A ITEPA 2003 instead. This section covers additional household expenses incurred but only if reimbursed by employer under a ‘home working arrangement’, as advised in HMRC’s EIM01472 – Employment income: household expenses: payments to reimburse additional costs [6]. The agreement need not be in writing but is preferable to be so. Negotiation of amount is with employer not HMRC although ‘unreasonable’ claims can be challenged by HMRC. Payment is tax and NI free.

 

What can be claimed:

 

• Easier to obtain relief – employee can claim for anything needed for work although NOT for workplace building/construction nor fixed costs such as council tax. Supply of furniture, computers etc are allowed and do not attract benefit in kind charge.
• Claim is the same as listed under ‘Compulsory’ s336 claim although travel costs from home base to main company premises are not allowed.

 

How to make an s316 claim:

 

• Submit claims to employer based on actual costs – keep receipts. A P11D form may need to be completed [7] unless there is a dispensation in place; or
• Claim a company estimated scale rate based on a sample of employees expenses – no need to keep receipts – claim on return; or
• Claim standard scale rate of £4 per week – no need to keep receipts – claim on SA return.

 

Directors’ licence agreement

 

In addition to the availability of claims under s 316 ITEPA 2003 (s336 is not relevant) the director and company can enter into a licence agreement. This is a formal agreement between the company and the director in which the company pays rent for the non-exclusive use of an office in the director’s home. Providing the property is used by the company for its business, the rent paid is an expense of the company.

 
Any Answers queries

 

• The rental income is declared on the director’s personal tax return with a proportion of the household expenses offset. It is advisable to use a proper rental agreement [8] that confirms the situation as …”in receipt of rent so can claim as a deduction any expenditure that is wholly and exclusively incurred in providing the facility to the company. If there is a legitimate property profit then that is taxed as normal but outside PAYE and NIC systems. This is a much better scenario than trying to get an employee status expense deduction. Previous experience is that HMRC does not dispute this set up if expenses are reasonable.”
• Remember: Rent a room relief is not relevant where a room is rented to a business.
• Business rates [9] and CGT on a home office: Look on the VOA (Valuation Office) website on this subject.

 

In a nutshell, you should be exempt provided that

a) the room is not exclusively used for business; and
b) the room was not built or specially adapted for the business… This also goes for CGT. Make sure the room has some domestic use’
• Check that the use of home for business purposes is not contrary to any mortgage agreement – another reason for non exclusive business use.

 

Posted in Capital Allowances and AIA, Corporation tax, HMRC, Income Tax, National Insurance, PAYE, Uncategorized, VAT

Penalties for missing the Self-Assessment tax return filing deadline

Posted on by mark

 

Penalties for missing the Self-Assessment tax return filing deadline

 

Length of delay Penalty you will have to pay
1 day late A penalty of £100. This applies even if you have no tax to pay or have paid the tax you owe.
3 months late £10 for each following day – up to a 90 day maximum of £900. This is as well as the fixed penalty above.
6 months late £300 or 5% of the tax due, whichever is the higher. This is as well as the penalties above.
12 months late £300 or 5% of the tax due, whichever is the higher.
In serious cases you may be asked to pay up to 100% of the tax due instead.
These are as well as the penalties above.

 

 

Example

Mrs A’s tax return is due on 31 January 2013 but HMRC doesn’t receive it until 5 August 2013.

It is over six months late so she will have to pay all of the following

  1. £100 fixed penalty
  2. £900 penalty – this is £10 each day from 1 May to 29 July, when the maximum 90 day penalty is reached.
  3. £300 or 5 per cent of the tax due – whichever is the higher
Posted in HMRC, Income Tax, Uncategorized

HMRC launches NI number service

Posted on by mark

Can’t find your national insurance number? You can now ask the HMRC for written confirmation via an online form CA5403. See link for guidance on how to complete the form http://hmrc.gov.uk/forms/ca5403.htm. You can also use the service to notify a change of name or address. National insurance cards are no longer issued.

Posted in HMRC, National Insurance, National Minimum Wage, PAYE, Payroll, Uncategorized, Wages

What does your Accountant do for you?

Posted on by mark

Below is a small list of things that I feel accountants should be doing or trying to do for their clients.

 

Sole Traders & Partnerships – Review and discuss the possibility of incorporation every year to see if it is something the client may be interested in. Explain the potential tax savings and liabilities that arise out of incorporation, Limited liability and protection of trading through a limited company, the increase in costs for complying with Companies Act.

 

Limited companies – Annually Review the most tax efficient way to extract profits from out of the company (if that is what the owners require).  Bonus v Dividend, Dividend and Salary v Just Salary, Dividend, Salary & Pension Contributions v Just Salary etc.

 

Company Car and Fuel Benefits – Discuss with client any planned changes as these could adversely affect the clients and their employees Benefit in Kinds, there personal tax position and the Companies liability to Class 1A National Insurance.

 

All trading organisations – ensure they are aware of upcoming changes in the Annual Investment allowance, First Year Allowance etc. so that they can make full use of the capital allowances.

 

Personal Clients – Are they making full use of their Capital Gains Tax Annual Exemption, ISA annual limit etc.

 

Employees using their own vehicle for work – inform their employers of changes in the Tax Free Mileage Allowances.

 

Company Car users – inform them of changes in the advisory fuel rates for company cars.

 

All Personal Clients – Where their taxable incomes have decreased, investigate whether they have become eligible for tax credits.

 

Is your accountant doing this for you? If not why not give us a call.

Posted in Capital Allowances and AIA, Company Cars, Corporation tax, HMRC, Income Tax, National Insurance, National Minimum Wage, Payroll, Uncategorized

Do you drive a Company Car?

Posted on by mark

Are you aware that the company car benefit is set to rise over the next few years? Which means you will pay more tax!

 

Take a look at the two examples below, based on what many would say is a traditional familiar car i.e. Mondeo 1.6 diesel and petrol (for comparison) CO2 emissions of 114g/km & 156g/km respectively. Say the Manufacturers list prices are £20,195 for the diesel and £18,095 for the petrol.

 

Company Car Benefit – is based on a certain percentage of the manufacturer’s list price of the car. The percentage is based on the emissions of the car. To view the percentages per CO2 emissions click on the following link http://www.parkers.co.uk/company-cars/news-and-advice/tax-advice/Company-car-tax-explained/

 

NB –Add an extra 3% for diesel cars 

 

Mondeo Diesel 1.6

 

2012/2013 tax year – Mondeo Diesel CO2 114g/km – Percentage for 114g/km is 13%, but because the car is a diesel we have to add another 3%. This gives us a total percentage of 16%!

 

Car benefit is therefore 16% of £20,195 = £3,231.

 

2013/2014 tax year – percentage increases by 1% (as per the table) which gives us a total percentage of 17%.

 

Car benefit will be 17% of £20,195 = £3,433. An increase of £202, which equates to £40.40 tax if you are a basic rate tax payer and £80.80 if you are a 40% tax payer.

 

2014/2015 tax year – percentage increases by 1% (as per the table) which gives us a total percentage of 18%.

 

Car benefit will be 18% of £20,195 = £3,635. An increase of £202, which equates to £40.40 tax if you are a basic rate tax payer and £80.80 if you are a 40% tax payer.

 

2015/2016 tax year – percentage increases by 2% (as per the table) which gives us a total percentage of 20%.

 

Car benefit will be 20% of £20,195 = £4,039. An increase of £404, which equates to £80.80 tax if you are a basic rate tax payer and £161.60 if you are a 40% tax payer.

 

Mondeo Petrol 1.6

 

2012/2013 tax year – Mondeo Petrol CO2 156g/km – Percentage is 22%

 

Car benefit is therefore 22% of £18,095 = £3,981.

 

2013/2014 tax year – percentage increases by 1% (as per the table) which gives us a total percentage of 23%.

 

Car benefit will be 23% of £18,095 = £4,162. An increase of £181, which equates to £36.20 tax if you are a basic rate tax payer and £72.40 if you are a 40% tax payer.

 

2014/2015 tax year – percentage increases by 1% (as per the table) which gives us a total percentage of 24%.

 

Car benefit will be 24% of £18,095 = £4,343. An increase of £181, which equates to £36.20 tax if you are a basic rate tax payer and £72.40 if you are a 40% tax payer.

 

2015/2016 tax year – percentage increases by 2% (as per the table) which gives us a total percentage of 26%.

 

Car benefit will be 26% of £18,095 = £4,705. An increase of £362, which equates to £72.40 tax if you are a basic rate tax payer and £144.80 if you are a 40% tax payer.

 

If you also have fuel provided by your employer for both business and private use then your taxable benefit will increase as will your tax liability.

 

The fuel benefit is calculated by multiplying the percentages used above by the fuel benefit multiplier which currently is £20,200; this figure could increase each tax year.

 

Diesel Mondeo – 2012/2013 fuel benefit £20,200 x 16% = £3,232

2013/2014                  £20,200 x 17% = £3,434

 

Petrol Mondeo – 2012/2013 fuel benefit £20,200 x 22% = £4,444

2013/2014                  £20,200 x 23% = £4,646

 

You pay tax on the benefit.

 

If your company has just renewed its vehicle fleet, you may want to try and change your vehicle.

 

If your company is about to renew its vehicle fleet, have they considered the impact on its employees and the company. Its Class 1A National Insurance Contributions will increase as the benefit in kind increases. Class 1A NIC rate is currently 13.8% of the benefit.

 

Any queries please contact me.

 

Posted in Company Cars, Corporation tax, HMRC, Income Tax, National Insurance, PAYE, Payroll, Uncategorized, Wages

National Minimum Wages Increases from 1st October 2012

Posted on by mark

Rates from 1 October 2012

  • £6.19 – the main rate for workers aged 21 and over
  • £4.98 – the 18-20 rate
  • £3.68 – the 16-17 rate for workers above school leaving age but under 18
  • £2.65 – the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship
Posted in Corporation tax, HMRC, Income Tax, National Insurance, National Minimum Wage, PAYE, Payroll, Uncategorized, Wages

Wages/Payroll

Posted on by mark

Did you know that from 6th April 2012, the amount of money you are allowed to earn (in the tax 2012/2013) before you pay any tax has increased to £8,105 per annum from £7,475 per annum.

 

For your standard employee this means that their tax code will increase from 747L to 810L.

 

With regards to paying Class 1 National Insurance you are allowed to earn up to £146 per week before you pay Class 1 National Insurance.

 

Earnings between £146 and £817 will be subject to Class 1 National Insurance at the rate of 12%.  Should your weekly earnings exceed the £817, you will pay a further 2% Class 1 National Insurance on all the earnings above £817.

 

All employers who run PAYE schemes have to submit end of year returns for the tax year, to HMRC. The forms comprise P35, P14 and if appropriate P38A, P11D’s and P11D (b). The deadline for forms P35, P14 and P38A is 19th May following the end of the tax year (19/5/2013 for 2012/2013 tax year).

 

The submission deadline for P11D and P11D (b) is the 6th July following the tax year, that is submission to HMRC and copies to be given to the appropriate employees.

 

In addition to the above forms the employer has to give all employees that have worked for them during a tax year a P60, which they have to do by 31st May following the tax year i.e. 31/5/2012 for the tax year 2011/2012

 

The tax year runs from 6th April to the following 5th April, therefore the 2012/2013 tax year runs from 6th April 2012 to the 5th April 2013.

 

Most workers in the UK over school leaving age are legally entitled to be paid at least the NMW and all employers have to pay it to you if you are entitled to it.

 

There are various rates of NMW and your entitlement depends on your age and whether you are an apprentice.

 

These rates change every 1st October, the current rates are:-

 

  • £6.08 – the main rate for workers aged 21 and over
  • £4.98 – the 18-20 rate
  • £3.68 – the 16-17 rate for workers above school leaving age but under 18
  • £2.60 – the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship

 

If you are of compulsory school age you are not entitled to the NMW. Some of your other employment rights are also different.

Past NMW rates can be viewed on the Low Pay Commission website.

 

From 1st October 2012 these rates will increase to:-

 

  • £6.19 – the main rate for workers aged 21 and over
  • £4.98 – the 18-20 rate
  • £3.68 – the 16-17 rate for workers above school leaving age but under 18
  • £2.65 – the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship

 

Posted in HMRC, Income Tax, National Insurance, National Minimum Wage, PAYE, Payroll, Wages