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Employee Benefits: Car Benefit

Feb11

I am employed by a charity that provides me with a Skoda Yeti car as my work involves transporting disabled people. I pay for all the petrol, but the charity reimburses me for work-related journeys at 15p per mile. This rate has not changed since June 2011, although the price of petrol has increased. Can I claim back any more of my petrol costs for work journeys from the Tax Office?
Unfortunately not. The advisory fuel rate for cars with petrol engines of up to 1400cc is 15p per mile and it hasn’t changed since 1 June 2011. The rates for LPG cars and diesels have moved slightly over that period but not much. You could ask your employer to pay more per mile, but you will then be taxed on the excess above 15p per mile, unless you can show your car is particularly fuel-hungry, which is unlikely for a Skoda.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Finance for small businesses: seed enterprise investment scheme

Feb6

The scheme

A specialist tool aimed at a small group of investors and entrepreneurs that will assist them in developing a few businesses that might never gain funding.  It is only available to individual investors in very small companies; it is not available to investors in partnerships or LLPs. The scheme is not there to replace the Enterprise Investment Scheme (EIS), but to run alongside that and the Venture capital Trust (VCT) regime.

 

The time limit

The scheme is not permanent, but relates to shares issued from 6 April 2012 until 5 April 2017; this term may be extended by Treasury Order. The claim must be made no later than 5 years after the normal self assessment filing date.

 

The investment limit

The investment limit for a qualifying individual in a fiscal year is £100,000. They cannot claim tax relief until the company has spent at least 70% of the money invested.

 

The investor

The individual must not be an employee of the company from the date of incorporation of the company until at least 3 years following the issue of the shares.  A director is not an employee for this purpose. They must not have a ‘substantial interest’ (more than 30% of the ordinary share capital or votes) and anti-avoidance provisions exist where there are pre-arranged exits or loan arrangements.

 

The investment

The investment must be in cash and must be invested in shares which are fully paid when issued.  They cannot carry a preferential right to dividends, to assets on a winding up, or to redemption.  They must be held by the investor for three years after issue; there will be a claw back of relief if the shares are not held for the requisite period.

 


The tax relief

The relief is income tax relief of 50% (30% for an existing EIS scheme ) and any gain will be exempt, provided the investor (or spouse or civil partner) held the shares for three years following the issue.  A spouse or civil partner receiving the shares from the original investor will be charged to tax on any claw back on a disposal.  Any gain will be completely exempt; the existing EIS scheme only offers a deferred gain, but there is no limit to the amount of gain deferred.

 

To obtain the relief:

  • The company must be a new company, incorporated within the two years prior to the issue of the shares.
  • The shares must be issued in order to raise money for a new trade and the cash raised must be spent within the two years following issue.
  • The total of SEIS investments must not exceed £150,000; the limit for VCTs will increase from £2m to £5m.
  • The company must exist for the purpose of carrying on one or two new qualifying trades.
  • It must have a permanent establishment in the UK and its shares must be unquoted.
  • The company cannot be part of a group and must not be a member of a partnership or similar entity.
  • The total value of the company’s gross assets must not exceed £200,000 at the time of issue.  If there is a related company the relevant proportion of the assets must be included in this total.
  • The total full-time equivalent employees must not exceed 25 at the time of issue; employees include directors for this purpose.  The limit for an ordinary EIS scheme will increase from 49 to 249.
  • There must be no EIS or VCT investment in the company before the SEIS shares are issued.

 

Companies considering using the Seed Investment Scheme (SEIS) have the option to obtain Advance Assurance or formal clearance from HMRC Small Company Enterprise Centre (SCEC).

 

Before giving the assurance HMRC will consider if the company will be a qualifying company carrying out a qualifying business activity, if the shares will be eligible shares and if the money raised will be used in a manner which satisfies the rules of the scheme.

 

If the company wishes to rely on an assurance, the onus would be on the company to provide all relevant information drawing attention to any particular issues which could mean that the company may not meet the requirement of the scheme when the shares are issued.

 

Full guidance on the Advance Assurance application can be found on the HMRC website.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

VAT on Incorporation

Jan28

If the previous business was VAT registered it can pass its VAT number on to the new company under the transfer of going concern rules (TOGC). However, this is not always advisable as the VAT number will carry with it all the ‘history’ of the old business, including defaults for late payment and error records. If the owners of the new company are not exactly the same people as those who owned the old business, the new owners may not want to take on the VAT ‘sins’ of the old business.

In this case the new company will have to apply for a new VAT number. This is the same procedure as a new VAT registration, and penalties will apply if it is not done on time.

If you want the new company to adopt the VAT number of the unincorporated business you must inform the Tax Office of the change in structure of the business within 30 days. If this deadline is not met the Taxman will impose a ‘failure to notify’ penalty which could be up to 100% of the VAT due, even where all the VAT due has been paid on time.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

RTI Gathers Pace

Jan21

We warned you previously about the new real time information (RTI) process. Now the Taxman is writing to all employers who are not already part of an RTI pilot, to tell them how to prepare for RTI.

To recap: RTI is a new way of submitting payroll data to the Tax Office. Instead of sending PAYE information to HMRC once after the end of the tax year, employers must submit their payroll data online on every occasion their employees are paid.

If you run a computerised payroll, your payroll software should be updated to cope with RTI. However, do check with your software provider, as some payroll packages are not going to be revised for RTI. In which case you need to find new payroll software, or use the free software provided by HMRC (for up to 9 employees), or ask us help you process your payroll each month.

All small and medium sized employers will be expected to start using RTI to submit payroll data from April 2013, unless they have agreed a different start date with the Tax Office. Once you receive an ‘invitation’ from the Taxman to use RTI, you must join the RTI system from the date directed.

You will need to collect some new data items under RTI which are not currently required for PAYE, such as:

– Hours worked per week for each employee based on one of four bands;
– Details of those earning less than the lower earnings limit (£107 per week);
– Which employees are paid irregularly, perhaps only once per year; and
– Passport numbers for employees who do not have NI numbers.

In addition you will need to have the correct NI number (where this exists), date of birth, gender, full name and address for each employee.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

A guide to Venture Capital Trusts (VCTs)

Jan16

A SIMPLE GUIDE TO VENTURE CAPITAL TRUSTS

The Venture Capital Trust Scheme was introduced in 1995. In some ways, this could be viewed as an extension to the Enterprise Investment Scheme (EIS). VCT investments are effectively a collective investment trust which invests in a number of EIS-type companies, effectively spreading the risk. The scheme is aimed at investors who wish to invest in new and expanding companies and obtain the associated tax breaks, without putting all of their eggs in one basket.

 

The tax reliefs for investing in a VCT scheme are not as generous as the reliefs available under the EIS scheme but they still remain attractive:

 

  1. 1.    Income Tax Relief

The investor may invest up to £200,000 in a tax year and obtain a tax reducer of 30% of the amount of investment. Dividends received are not subject to income tax.

  1. 2.    Capital Gains Tax Exemption

If the investor has received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of, any capital gain on the disposal of the EIS shares will be exempt from capital gains tax. There is no minimum period of retention for which the shares must be held.

Let us look at some of these reliefs more closely by way of an example:

 

Mr Greenwood has taxable income, after allowances, for 2012/13 of £200,000. He makes a VCT investment on 1 November 2012 of £100,000

 

Mr Greenwood has been told that he could significantly reduce his tax liabilities if he makes an investment under a VCT scheme and is considering an investment of £100,000.

 

Let us compare his tax position firstly on the assumption that he makes no EIS investment with the position if he makes the £100,000 EIS investment:

 

Without EIS investment:   With £100,000 EIS Investment:
2012/13 Income Tax Position:   2012/13 Income Tax Position:
Taxable income 200,000 Taxable income 200,000
Income tax thereon: Income tax thereon:
34,370 x 20% = 6,449 34,370 x 20% = 6,449
115,630 x 40% = 46,252 115,630 x 40% = 46,252
50,000 x 50% = 25,000 50,000 x 50% = 25,000
78,252 78,252
Less:
Tax reducer (EIS investment):
£100,000 x 30% = -30,000
Income tax liability £78,252 Income tax liability £48,252
Tax saving: £30,000

 

In the above scenario, Mr Greenwood has achieved a tax saving equal to 30% of the cost of the investment or, to put it another way, he has made a £100,000 investment at a cost of £70,000.

 

On the eventual disposal of the shares, any gain will be free of capital gains tax. The quid pro quo is that there any capital losses are not allowable.

 

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Tax Man on Hunt Again

Jan14

The Taxman has run a number of campaigns designed to encourage certain classes of taxpayer to declare their untaxed income. In the past we have seen campaigns aimed at medics, plumbers, tutors, electricians and e-traders.

A new campaign started on 26 September 2012, this time targeting direct sellers. These are people who sell products on a commission basis in customers’ homes. These sellers often earn very little from their efforts, but they still need to declare those small amounts of income to the Tax Office. The campaign will primarily focus on helping the door-to-door sellers understand their obligations to register for tax and to file tax returns.

Following swiftly on will be a campaign targeting builders and tradesmen who provide home maintenance, repair or home improvement services.

These tradesmen may not be registered with HMRC under the construction industry scheme (CIS) if they only work for householders. If you are such a builder or trades-person, now would be a good time to talk to us about any tax related worries you have.

The Taxman has also formed some new taskforce teams to door-step particular businesses in defined areas. The latest list of potential ‘tax cheats’ now includes: grocers & retail traders, restaurants, motor-traders, hairdressers & beauticians, and London-based lawyers!

 

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

 

National Insurance and state pensions

Jan9

All earners pay National Insurance contributions (NICs) on their earnings. Employers pay employer contributions for each employee and collect and forward their employees’ contributions.

 

Paying contributions entitles an individual to a state pension. But most people will need to make additional private provisions. This briefing explains:

 

  • Who pays what.
  • An employer’s responsibilities.
  • How to reduce the NICs you pay.
  • How NICs affect an individual’s entitlements.

 

1. Employer contributions

 

There are four classes of National Insurance contributions (NICs). Employers are only concerned with Class 1, 1A and sometimes 1B. Class 2, 3 and 4 apply to the self-employed and the unemployed (see box “Self-employed and unemployed”).

 

1.1        Employers pay Class 1 NICs for most of their employees, including:

 

  • company directors
  • casual and part-time workers
  • short-term contract workers (including those who would normally be classed as self-employed)

 

1.2        There are exceptions. Employers do not have to pay Class 1 NICs for employees:

 

  • Who are under 16.
  • Who earn £146 or less a week.
  • Start-up employers outside London and the south-east do not have to pay £5,000 in NICs for the first ten members of staff hired in the first year of business. All businesses set up after 22 June 2010 benefit.

 

1.3        Employers whose employees are not contracted-out of the State Second Pension pay:

 

  • 13.8% on all weekly pay of £144 or more. There is no upper limit on the amount of Class 1 NICs an employer can pay.

 

1.4        Employers whose employees belong to a ‘contracted-out’ final salary occupational pension scheme (ie one where the pension is linked to the employee’s pay at or near retirement) pay:

 

  • 9.3% on earnings from £144 (the primary threshold) to £817 (the upper earnings limit), and 13.8% on earnings above this.

 

Employer contributions are slightly higher for contracted-out money purchase schemes (eg where the pension is linked to the amount paid into the fund).

 

1.5        Employers pay Class 1A NICs at 13.8% on most benefits provided to employees.

 

  • NICs on company cars and fuel for private use are paid on the same ‘cash equivalent’ as the figure used to calculate the employee’s tax liability.
  • As with tax, benefits given to lower-paid employees (earning less than £8,105 a year, including benefits and expenses in certain circumstances, excluding directors) are exempt from Class 1A NICs.

 

Where benefits are provided by way of a lump sum settlement, after the year end, employers pay Class 1B NICs on the amount of the settlement at a rate equivalent to Class 1A NICs (13.8%).

 

1.6        Provision of some benefits by employers is exempt from Class 1A NICs (see 5.3).

 

2. Employee contributions

 

2.1        Employees pay:

  • No contribution if weekly pay is below £146 a week.
  • 12% on earnings between £146 and £817 a week in the 2012/13 tax year plus 2% on all earnings over £817 a week. The 12% rate is reduced to 10.8% if the employee is a member of a company pension scheme contracted-out of the State Second Pension.

 

2.2        There are special rules for some employees.

 

  • Married women and widows who opted for ‘reduced liability’ before 12 May 1977 pay 5.85% NICs on earnings between £146 and £817 a week, plus 2% on all earnings above £817 a week.
  • Employees with more than one job pay NICs for each job that earns more than £146 a week.
  • Those over the state pension age do not pay NICs once they provide their employer with a Certificate of Age Exception. The employer still pays NICs at the full rate.

 

3. Making payments

 

3.1        You must calculate NICs as a percentage of gross pay (before Pay As You Earn and pension contributions).

 

  • Gross pay includes wages/salaries, bonus payments, fees, overtime, petrol allowances (unless charged to a company account), profit-related pay and employees’ personal expenses such as telephone bills where paid by the employer for the employee.
  • You do not normally make contributions on redundancy payments, payments in lieu of notice, termination payments, pensions, meal vouchers, most childcare, expenses or tips not paid by the employer.
  • Contributions are still paid if pay continues during sickness or any other absence.

 

3.2        The earnings period is the period since the last pay day, typically a week or a month.

 

  • For most directors the earnings period is annual, irrespective of when they are paid.

 

This captures all of a director’s earnings.

 

3.3        You deduct NICs on pay day, at the same time as Pay As You Earn (PAYE).

 

3.4        You pay NICs to HM Revenue & Customs (HMRC) Accounts Office each month. This can be done quarterly if your average monthly PAYE, NIC and student loan payments are below £1,500.

 

  • NIC payments must reach the Accounts Office by the 19th of the next month.

 

This is separate from your PAYE Tax Office.

 

  • Include form P30B with your payment.

 

3.5        End of year payments are due by the following deadlines:

 

  • 19 April for outstanding Class 1 NICs.
  • 19 July for any outstanding Class 1A NICs on cars and fuel and other chargeable benefits. A special payslip will be sent to employers in April to accompany payments of Class 1A NICs. Interest is charged on late payments.

 

4. Filing records with HMRC

 

4.1       You must keep records of gross pay, PAYE and NICs deducted, statutory maternity pay (see 6.4), paternity pay, adoption pay and if you wish, statutory sick pay (see 6.3).

 

  • Keep these details on a Deductions Working Sheet, form P11, or computerised records.
  • Prepare a P11 for each employee at the start of the tax year or when they start working for you.

 

Fill out the relevant columns each pay day.

 

  • You must also record payments on form P32 or in the payslip booklet P30BC.

 

4.2       File the following online (see margin note) or with your PAYE Tax Office:

 

  • Form P14 (or substitutes), detailing each employee’s total pay and deductions, by 19 May. You fill this in by adding up the total boxes on each P11 for the year.
  • Form P35 by 19 May.

 

This includes a summary of all your P14s.

 

  • Form P11D(b) declaring and adjusting Class 1A NICs, by 6 July.

 

Penalties are charged on forms received after the deadlines.

 

4.3       You have the following obligations when taking on new employees:

 

  • Ask them for their P45 (given to them by their previous employer) and National Insurance (NI) number.
  • If an employee (including a part-time or casual employee) does not have a P45, and is going to work for you for more than one week, fill in a P46 (or collect the relevant information) and send it to the PAYE Tax Office. If the employee earns less than £139 a week, and has ticked statement B on the form, the P46 should be kept by you.
  • If the employee is going to work for you for less than a week, they can contact their local Social Security Office and ask for an NI number card.
  • If the employee has never had an NI number, they must personally apply for one at their local Social Security office. You must keep a record of their full name, date of birth, sex and address.
  • If you are in doubt whether somebody is employed or self-employed, either speak to a professional adviser or ask your PAYE Tax Office or Contributions Office (see 7). You should deduct NICs from their pay until a decision is made.

 

4.4       Give all employees still working for you at the end of the tax year the following documents by the following deadlines:

 

  • Form P60 showing how much PAYE and NICs were paid, by 31 May.
  • Form P11D or P9D, showing the employees’ benefits and expenses in the tax year, by 6 July.

 

You must keep all P11 forms and pay records for at least three years after the end of the tax year to which they relate.

 

5. Reducing contributions

 

There are a number of ways to reduce the contributions you are obliged to pay.

 

5.1        Offer employees a contracted-out company pension scheme. This reduces contributions for everybody.

 

5.2        Structure your pay so that staff earn just below the NI threshold (but ensure you are paying the national minimum wage).

 

5.3        Some taxable ‘benefits in kind’ are not subject to employer (or employee) NICs.

 

  • Provision of most employer childcare facilities, counselling, subsidised meals and light refreshments are not liable to NICs provided they are made available to all employees on the same terms.

 

Nor are long-service awards of goods (of up to £50 per year of service to employees who have served for at least 20 years) or employer-financed annual parties (costing £150 per head per year). However, payment of cash or cash vouchers is subject to NICs.

 

6. Entitlements

 

Paying NICs entitles individuals to certain benefits. As the NI fund is currently in deficit, you are unlikely to receive back what you pay in.

 

6.1        You are currently entitled to a full basic state pension of £107.45 a week if you have paid NICs for about 90% of your working life.

 

  • The state pension is reduced if you have made fewer contributions.
  • Employees can apply to the Pension Service for a forecast of their pension.

 

You can apply online at https://secure.thepensionservice.gov.uk/statepensionforecast/ or complete a BR19 form.

 

  • The pension age will be equalised for both men and women from 2020.

 

  • There is no default retirement age (DRA) and employers will no longer be able to retire employees by default.

 

6.2        You are entitled to the State Second Pension if you have paid standard-rate Class 1 NICs between the upper and lower earning limits in any tax year since April 1978.

 

  • The pension will depend on the amount of contributions made.
  • The maximum is 20% of earnings between the upper and lower earnings limit.

 

6.3        You are entitled to statutory sick pay (SSP) if you earn £107 or more per week. SSP is currently £85.85 a week.

 

  • Employers can opt out of the scheme as long as they agree to pay (at present) £85.85 a week or more to employees.
  • Many employers maintain full pay.

 

SSP is subject to NICs if paid at a rate in excess of £146.

 

6.4        You are entitled to statutory maternity pay (SMP) or statutory paternity pay (SAP) if you meet certain conditions.

 

  • You need to have been continuously employed for 26 weeks and to have paid Class 1 contributions on earnings of at least £107 a week for the eight weeks up to the 15th week before the baby is due.
  • You receive 90% of your average weekly earnings for the first six weeks.
  • You receive £128.73 a week (or 90% of your average earnings if lower) for the remaining 33 weeks of the ordinary maternity leave period.

 

Many employers pay their employees more than this statutory minimum.

 

  • Employers can recover 92% of the SMP paid to their employees.
  • Employers who do not pay more than £40,000 of Class 1 NICs in the tax year get Small Employer’s Relief.

 

This recovers 100% of SMP and an additional 4.5% as compensation for the NICs paid.

 

Fathers with up to 26 weeks’ continuous service have the right to take up to 26 weeks additional paternity leave and pay (APL&P). The current two-week period of leave is re-named ‘ordinary paternity leave’. The eligibility criteria are the same. The mother (or primary adopter) must have returned to their work before the additional leave can be taken. This means it cannot be taken within 20 weeks of the birth or placement. You also need to notify your employer eight weeks in advance that you wish to start taking APL.

 

7. Where to get help

 

7.1        You will probably find it easier to operate your payroll and manage the deduction of PAYE and NICs by:

 

  • Using the services of a specialist payroll agent or bureau. Payroll agents will obtain any necessary PAYE forms and tables.
  • Using specialist software. This enables you to use your own forms.
  • Making end-of-year returns electronically via the HMRC website at www.hmrc.gov.uk.

 

Electronic payments and online filing are compulsory for large businesses.

 

It is now compulsory for all businesses to file end-of-year returns online.

 

The operation of the PAYE and NICs systems remains your legal responsibility.

 

7.2        HMRC and the Contributions Office can help employers.

 

  • The employer’s helpline (08457 143 143) deals with NIC and PAYE enquiries.

 

Self-employed and unemployed

 

The self-employed pay Class 2 and Class 4 NICs.

 

A       Class 2 NICs cost a standard £2.65 a week, payable to the Contributions Office.

 

  • Those earning less than £5,315 a year can apply to be exempt from making Class 2 contributions. Use a CF10 form.

 

B       Class 4 NICs are payable on annual profits.

 

  • 9% on profits between £7,225 and £42,475 plus an additional 2% on any profits above this.

 

HMRC collects this at the same time as income tax.

The unemployed pay no NICs. Instead they receive ‘Class 3’ National Insurance Credits.

 

Note

The basic state pension is £107.45 per week for single people. Employees will need to make additional provisions by contributing to a company or personal pension.

 

Note

HMRC are moving to compulsory online filing for PAYE and other taxes. If you employ more than 50 employees, you are now required to file forms P14, P35, P45 and P46 online. Businesses with fewer than 50 employees will be required to file their P45 and P46 forms online from 2011.

 

Note

HMRC are moving to compulsory online filing for VAT from April 2012. All VAT payments will also have to be made electronically.

 

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Office At Home?

Jan7

Q. I run my own company from an office in a spare bedroom at home, and my wife runs a separate company from a downstairs office in the same house. Can we both claim £3 per week expenses for use of home from our companies? Would the situation be different if we both worked full time for the same company?

A. Yes, you can both claim the use of home expense allowance, which is now £4 per week as from 6 April 2012. It makes no difference whether you both work for the same company or for different companies.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Goodwill on Incorporation

Jan4

Trading as a company is generally more tax efficient for profitable businesses; the tax rates are lower and many tax reliefs are only available to companies. Certain professions which were previously prevented from operating as a company, such as solicitors, can now incorporate.

If your business is loss making it may be better to remain as a sole-trader or partnership until those losses are fully relieved.

When incorporating a business, great care should be taken over the value of assets which are transferred to the new company, including the business goodwill. It is generally fairly easy to value fixed assets such as buildings or equipment, but goodwill of the business will depend on a number of factors and may not exist at all for some businesses. Examples of factors to consider include:

– Reputation of the business;
– Ability to generate future sales or fees;
– Customer & staff loyalty; and
– Location of the business.

A common approach is to estimate the capitalised value of the future profits of the unincorporated business and adjust for non-recurring items of income or expenditure. Adjustments will also be required for differences between the structure of the old partnership and the new company. The directors will be paid a salary, whereas the former partners took a profit share. Interest on borrowings will be paid by the company instead of by the partners.

Once a goodwill figure is established it can be included as part of the price to be paid under a sale agreement that transfers the business to the company. It is a good idea to include a price adjuster clause in this sale document, so if the Taxman challenges the value of the goodwill any outstanding amount of sale proceeds due to the former owners can be adjusted.

Where the former owners become directors of the new company, it is common practice to leave part of the sale proceeds owing to those individuals as loan accounts within the company. These loan balances can then be drawn down gradually from the company with no tax to pay. However, the former owners may have to pay capital gains tax on the transfer of the business to the company.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Self – Billing

Dec31

Self-billing’ is where the customer in the supplier/customer relationship raises the invoices to themselves for work done or goods provided by the supplier, instead of the supplier raising those invoices. Self-billing helps large organisations that need to pay out lots of small amounts to hundreds of suppliers. It allows their purchase invoices to be standardised which saves costs when processing, and payments to be made automatically at the time the invoice is raised.

However, there are significant disadvantages for the supplier who agrees to self-billing. The supplier losses control of when invoices are raised and may have no control over the amount billed and the amount of VAT shown on the invoice.

Although the VATman’s guidance on their website says that the recipient of the supply (i.e. the customer who raises the self-billed invoice) is responsible for ensuring the invoice carries the correct VAT amount, it is actually the supplier who remains responsible for the amount of VAT charged.

If you are signed-up to self-billing as a supplier don’t assume that the VAT shown on the invoices you receive from your customers is correct. You will remain responsible for any errors.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.