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RTI Relaxation Extended

Oct7

The temporary relaxation of the RTI reporting requirements for small employers has been extended to 5 April 2014. It was due to apply only until 5 October 2013.

Under RTI you are supposed to send a full payment submission (FPS) report to HMRC every time you pay employees, on or before the date of payment. This could mean sending a FPS every week, or even every day if you pay some casuals daily.

The relaxation applies to employers with fewer than 50 employees who pay staff weekly, or more frequently, but who run their payroll once a month. These employers can submit their full payment submission (FPS) at the time of the payroll run. However, the FPS must reach HMRC by the end of the tax month (5th).

The Taxman’s own figures show that one in six payments under RTI has been reported using the current relaxation. In spite of this strong evidence that the reporting relaxation is needed, HMRC has insisted that all employers will be required to make RTI reports on or before each payment day from 6 April 2014.

If you have still not sent any reports under RTI, you will shortly receive a letter from HMRC and possibly an estimated tax demand.

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

Research and Development Claims

Sep30

Did you know there is a tax relief for companies which invent stuff? The process of inventing and solving the associated problems is called research and development (R&D). Companies can more than double the tax deduction given for the costs of R&D.

The new ‘stuff’ could be a product, a material or a process which has been changed or improved. For example if you find a way of speeding up a production line, or changing the process to cope with a new type of material, the work to achieve that aim is R&D which should qualify for the tax relief.

Many innovative ideas don’t actually work. That doesn’t matter. The costs expended when working on your new idea are tax allowable as R&D, if you can show you were pushing the boundaries of knowledge or capability in the fields of science or technology.

Working on some types of computer programming can count as R&D, particularly where you are making previously unrelated computer systems work together. The key is that no-one else has done what you are trying to, or if they have achieved it, they have kept their discovery to themselves.

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

Expenses and Benefits Reporting

Sep27

In theory all expenses paid to employees also need to be reported on the forms P11D. To avoid being taxed on those expense payments as income, the employee (or you on their behalf) has to make a claim for the amount paid to be treated as a valid tax deduction using a form P28 or P810, or by letter. This paper-chase can be avoided by applying for a dispensation from HMRC. We can help you with that.

Even if a dispensation is in place, any benefits provided such as; cars, fuel or health cover must be reported on the form P11D. Also class 1A NI must be paid by the employer at the rate of 13.8% on the value of the benefits provided, and reported on form P11D(b).

All of these forms can now be submitted online using an online service on the HMRC website. If you previously used the HMRC software: PAYE Basic Tools to submit forms P11D you now need to use this new online method, as PAYE Basic Tools does not include the P11D forms for 2012/13 or later years.

If you want to submit paper forms P11D and P9D you need to send them to:

HMRC (NIC&EO) Room BP2101
Lindisfarne House
Benton Park View
Longbenton
Newcastle upon Tyne
NE98 1ZZ

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

Cash Basis for Small Businesses

Jul8

The cash basis was also mentioned in the 2013 Budget announcements, but now we have some more details.

In an attempt to simplify accounting and tax reporting for the smallest businesses, from 6 April 2013 small businesses can choose to calculate profits/losses on the basis of the cash received and expenses paid out. This is known as the cash basis, and it ignores debts owed by the business and amounts owing to the business, until those amounts are paid. The normal accounting method is known as the accruals basis.

The cash basis will only be available to businesses which operate as sole-traders or partnerships, and whose turnover is under the VAT registration threshold (£79,000 from 1 April 2013). Some other businesses will be barred from using the cash basis and these include:

All companies and LLPs;
Farmers using the herd basis;
Any business using profit averaging over several tax years;
Businesses in a mineral extraction trade; and
Lloyd’s underwriters.

Once a business is using the cash basis it can carry on doing so until its annual turnover is twice the VAT registration threshold (£158,000 from April 2013).

Although apparently simple, the cash basis will have some disadvantages:

The deduction for loan interest paid will be limited to £500 per year; and
Losses can only be carried forward to set against future profits, whereas under the accruals basis losses can be carried back in the first four years of the trade and set off against the trader’s other income.

In addition any unincorporated business, whether or not they are using the cash basis, will be able to use flat rate expenses to replace the calculation of actual costs incurred in these categories of expenses from 6 April 2013:

Motoring costs (mileage at 45p per mile);
Use of home for business purposes (based on number of hours used per month); and
Private use of part of commercial premises, such as a public house (based on number of occupants who are business owners or their immediate family)

As these flat rates are completely optional, and will vary in effect in each business, we need to discuss whether these flat rates will be suitable for your business.

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

SEIS Investment Extension

Jul1

The Budget also included an announcement of the extension of capital gains tax (CGT) relief, where the gain is reinvested in new shares issued under the Seed Enterprise Investment Scheme (SEIS). This scheme started on 6 April 2012 and is due to run to 5 April 2017, but the CGT relief was due to apply only for investments made in 2012/13.

The legislation makes it clear that the CGT relief is to be extended for one year, for investments made in 2013/14. Also the CGT relief for investments made in 2013/14 will be given at 50%, while investments made in 2012/13 are given CGT relief at 100% of the gain reinvested.

In addition, income tax relief at a rate of 50% of the amount invested is available for SEIS shares subject to a maximum investment of £100,000 per year (in all SEIS companies) and the shares are subject to a Capital Gains Tax exemption where the SEIS shares are sold after 3 years or more of ownership.

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

Loans to Participators Trap

Jun24

The 2013 Budget announcements included a brief outline of how the law will be changed to tax loans taken out of owner-managed companies by the shareholders/directors (known as participators). We have now seen the draft legislation so we can give you further details of how the tax law will apply for loans or repayments made on and after 20 March 2013.

Where a participator borrows from his company and repays the loan within nine months of the end of the accounting year in which the loan was taken, there is no tax charge for the company.

However, where the loan is outstanding for longer, the company must pay 25% of the loan balance as corporation tax to HMRC. This corporation tax charge is then repaid when the loan is fully repaid.

Four changes may affect when or if this corporation tax is payable:

1. Thirty day rule
Where a loan of £5,000 or more is repaid to the company, but within 30 days amounts totalling £5,000 or more are borrowed by the same borrower or one of his associates, the first loan is treated as not having been repaid and is treated as continuing for the purposes of calculating the corporation tax charge.

2. Intention or arrangements in place
Where the loan is £15,000 or more, the thirty day rule is ignored if at the time of the repayment of the first loan, the borrower intends to borrow again from the company or has arrangements in place to do so. If those later loans are made they are treated as a continuation of the first loan.

3. Using a third party
Loans channelled from the company through LLPs or partnerships in which the participator is a member are treated as if the loan was made directly to the participator. This also applies if the loan is advanced to a trust of which a participator in the company is a beneficiary, or potential beneficiary.

4. Conferring a benefit
This is intended for the situation where an arrangement, perhaps a partnership structure between the company and a participator is used to transfer value from the company to the participator. It is unclear how this will work in practice, but any partnerships involving a company and one of more individuals will have to be reviewed.

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

RTI Relaxation

Jun17

The real time information (RTI) system for submitting PAYE information to HMRC must be used by small employers for all pay days on and after 6 April 2013. However, at the last minute the Government has agreed to a temporary relaxation of one of the RTI reporting requirements for employers with fewer than 50 employees.

If you fall into that category, and you pay some employees more frequently than once a month, you can send your RTI report known as full payment submission (FPS), to HMRC when you run your monthly payroll. You would normally have to send in a FPS every time you pay an employee.

However, there are conditions:

The payroll run must be made before the end of the tax month, i.e. by 5 May for employees paid in April; and
The relaxation also only applies for RTI reports submitted up until 5 October 2013.

Remember, this is not a postponement of RTI, it is a small and temporary change to one reporting rule. You still need to use new or updated payroll software to report payroll data under RTI for all pay dates on or after 6 April 2013.

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

March Question and Answer Section

Jun10

Q. The Taxman has sent me a new PAYE code for 2013/14, which includes about £1000 of savings income taxed at 40%. I don’t know how he got that figure as I don’t have any savings, and I only draw dividends from my company up to the limit of the 20% tax band.

A. The Taxman has looked at the income reported on your tax return for 2011/12, of say £7,475 wages plus £35,000 gross dividends (total £42,475), and assumed you will continue to receive the same amounts of wages and dividends in 2013/14. However, in 2013/14 your tax free personal allowance will be £9,440 and the limit of the 20% tax band will be £32,010 (total £41,450). If you draw the same amounts from your company in 2013/14 as you did in 2011/12, you will be taxed on £1,025 at the higher rate (40% for salary, 32.5% for dividends). To avoid the higher tax rate you will need to restrict the amount you draw from your company in 2013/14, and tell the Taxman to amend your PAYE code on the basis of you estimated salary and dividends for the year.

Q. I run a small B&B which has three let bedrooms, my family uses the other two bedrooms of the property. How should I calculate how much of the property’s running costs relate to the B&B business?

A. The answer is to include all of the property’s running costs (power, rates and repairs) in your B&B accounts and take out, or ‘disallow’, an amount that relates to your family’s use of the property. This is called a private use adjustment. In many towns the private use adjustment for B&Bs has been agreed locally with the Inspector of Taxes as a monthly or annual rate. However, from 1 April 2013 national rates of private use adjustment have been set by the Taxman as follows:

  • 1 family member living in the premises: £350
  • 2 family members living in the premises: £500
  • 3 or more family members living in the premises: £650

Q. My family business is very traditional; the factory-floor workers are paid weekly, the management are paid monthly and the senior directors are paid quarterly. How will I report all these different pay dates under real time information (RTI)?

A. This is a problem, as the RTI system was designed on the basis that all employees on the same payroll are paid at the same time. Under RTI you must submit a report for the entire payroll called a Full Payment Summary (FPS), every time the employees are paid. Running the FPS with only say the weekly employees receiving pay will cause errors unless adjustments are done for those employees who are not being paid on that particular pay date. A solution may be to segment your payroll into weekly, monthly and quarterly runs, but you need to talk to your payroll software provider to check if that is possible, before you start to implement RTI.

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

Self-Employed Travel Expenses

Jun3

If you are self-employed you may have a number of customers you go to regularly to work at their premises. This could apply to mobile hairdressers, cleaners, gardeners, and even medical professionals who work at private clinics. The miles you drive to reach each of your customers from your business base are used to calculate the amount of travel expenses you claim in your business accounts.

This is all good, but the Taxman has recently argued in a tax case that where the business is based at the person’s home, that home-office can’t be treated as the starting point for travel when the work is performed almost entirely at customers’ properties. The Taxman has particularly challenged travel expenses claimed by doctors who work at private clinics and do not see patients at their home-office. The Taxman has tried to ignore the necessary preparation and report writing work the doctor has to perform at his home-office.

The Taxman has agreed that travel between customers is allowable, so the mobile hairdresser or cleaner who travels to several customers each day should be able to claim the majority of their travel expenses. However, travel from the home-office to say one private clinic and back home again is in question.

This doesn’t mean you should stop claiming the cost of travelling to customers, but to head-off any challenge in the future, you should record every business related journey; where it started, number of miles and the reason for the journey – who were you seeing. Using an estimate of your total business mileage for the year is no longer an acceptable method of calculating your travel expenses. You should also record what part of your business you conduct at your home-office, such as preparing estimates or writing reports.

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

Room Hire and VAT

May27

The letting of land is exempt from VAT unless it falls into one of the many exemptions from the exemption for VAT. One of those exemptions to the exemption is where accommodation is provided in hotels, inns, boarding houses and similar establishments, including rooms provided for the purpose of catering, i.e. an eating and drinking occasion.

If you hire a room in a hotel for a group function including a meal, and the hotel supplies the catering, the whole fee is subject to standard rate VAT. If the catering is supplied by an outside caterer, the Taxman used to take the view that the room hire would be exempt from VAT, whilst the catering cost would carry standard rate VAT (if the caterer was VAT registered). However, the Taxman changed his mind on this point in October 2011, and updated the VAT Notice 709/3: Hotels and holiday accommodation.

Unfortunately he didn’t tell anyone he had released a new version of that leaflet so few businesses were aware of the change in practice, and confusion reigned. Now the Taxman has issued some more guidance as HMRC Brief number 02/13.

That guidance says where a room in a hotel is supplied for the purposes of catering, whether or not the catering is supplied by the same establishment, the room hire is subject to VAT at the standard rate. If you run a hotel, pub or similar place that hires out rooms, and have got this wrong in the past, the Taxman has said he will not pursue you for the VAT which should have been charged. However, you need to get the VAT treatment right from now on.

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