Archive for the ‘Uncategorised’ Category

The real tax cost of benefits in kind

Thursday, June 13th, 2019

There is a sting in the tail for companies that provide their directors or employees with taxable benefits as part of their remuneration package.

Obviously, the directors or employees that receive the benefits will pay additional income tax if the benefits provided are chargeable to tax: for example, the use of a company car.

The cost of the benefits is generally a deduction for the employer, and this would reduce the employer’s corporation tax bill, but it also triggers an additional, employers’ Class 1A National Insurance liability.

The amount payable is 13.8% of total taxable benefits provided.

Although this extra National Insurance payment is itself a deductible item for corporation tax purposes, this is still a net loss of cashflow for the company and needs to be considered when planning remuneration packages for directors and employees.

As we have posted previously on this site, one way that a company can trim this additional NIC charge is to negotiate a repayment of a taxable benefit from affected employees.

Why consider this?

Why would an employee consider repaying all or part of the cash equivalent of their benefit in kind? Doesn’t this diminish the value of their perks?

Certainly, this is not a strategy that you would use for all benefits provided, but there are some where there are real win-win outcomes for the employer and the employee.

A prime example is fuel provided to employees or directors for the private use of their company car. You would need to crunch the numbers, but it may well pay the employee to pay back the cash cost of private petrol provided – thus avoiding the car fuel benefit charge and reducing their income tax payments by more than the refund of fuel costs – and at a stroke, reducing the employer’s Class 1A NIC charges.

6 July 2019 deadline for 2018-19

The deadline for employees to make refunds of these types of cost to employers is before 6 April 2019 for the tax year 2018-19.

If you are unsure if this would work for your company, please call, we can help you calculate if there would be an overall benefit from adopting this idea.

E-bike cycle to work scheme announced

Tuesday, June 11th, 2019

Readers who have been tempted to cycle to work but are challenged by fitness issues or really can’t afford the bike they would like, might be interested in the recent announcement that has extended the existing Cycle to work scheme to include the use of so-called e-bikes.

These are bikes with electric motors that assist with taking on those challenging gradients.

Here’s what the Department for Transport have said:

A refreshed Cycle to Work scheme could help many more commuters turn to greener journeys using e-bikes.

  • push to increase use of e-bikes to help tackle congestion, speed up commutes and cut travel costs coincides with the launch of Bike Week
  • refreshed government guidance will make it easier for employers to provide cycles and equipment including e-bikes worth over £1,000
  • employers encouraged to get their workforces cycling through loan and pooled cycle schemes, as part of government plans to encourage more active travel

Commuters will have more opportunities to boost their health, benefit the environment and speed up their journey to work, thanks to updated Cycle to Work guidance.

Cycling Minister Michael Ellis has announced a refreshed scheme today (9 June 2019), which could help many more commuters turn to greener journeys using e-bikes, 70,000 of which were sold in the UK last year.

E-bikes have an integrated motor that helps a cyclist pedal, allowing them to reach speeds of up to 15.5 mph in the UK. They are seen as a game changer for their potential to make it easier for older or less fit people to make cycling a part of their commute.

The refreshed guidance will make it easier for employers to provide bicycles and equipment including e-bikes worth over £1,000, by making it clear that FCA authorised third party providers are able to run the scheme on their behalf.

If you are interested, we suggest that you seek out a local bike dealer who can organise the formalities for you.

Did you know income rates can be as high as 60 percent?

Thursday, June 6th, 2019

Most of us know that income tax is charged at three main rates: 20%, 40% and 45%.

Unfortunately, there are certain levels of income that trigger a loss of benefits or allowances as well as a charge to income tax. Because of this, the percentage rate of tax charged can be higher than the underlying rate of income tax. For example:

Joe’s taxable earnings have always been under £100,000, however, for 2018-19 Joe estimates that his income will be £123,700. Bad news…

As soon as income for tax purposes exceeds £100,000 Joe loses part of his tax personal allowance (£11,850 for 2018-19). In fact, for every £2 that his income exceeds £100,000 he will lose £1 of this allowance. This means that as soon as income is equal to or higher than £123,700 the personal tax allowance is no longer available. Taking this into account, Joe’s tax bill on the top £23,700 of his income is 40% (£9,480) plus, 40% of the lost allowance – a further £4,600. In total, Joe retains just £9,200 of his £23,000 income (£23,000 – £9,200 – £4,740). His percentage tax charge is therefore 60% on this marginal band of income between £100,000 and £123,700.

Similar, marginal rates apply if:

  • your income moves above the threshold where working tax or child tax credits cease to be available,
  • a higher paid parent’s income tops £50,000 for the first time, at which point child benefits would be under threat, or
  • those with incomes in excess of £150,000, paying income tax at 45%, will find the tax relief they can claim for pension contributions will be reduced.

To avoid or lessen the impact of these marginal rate charges you will need to discuss the possibility of reducing your income below the trigger points. There are various strategies that can be employed to achieve this, including the sacrifice of salary for non-tax benefits such as increased employer pension contributions or longer holidays.

Time to rethink your remuneration strategy?

If you are concerned that you may be drifting towards these higher marginal rates of income tax, now is the perfect time to reconsider the way you structure your remuneration package. Please call if you would like our help to do this.

Do you own a holiday let property?

Wednesday, June 5th, 2019

There are a number of tax incentives that you can take advantage of if you own and let a Furnished Holiday Lets property (FHL). They include:

  • you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders),
  • you are entitled to claim capital allowance deductions for items such as furniture, equipment and fixtures, and
  • any profits earned from holiday lets count as earnings for pension purposes.

You will need to account for your holiday lets properties separately from any other rental properties and you will need to comply with the various FHL rules. They include:

There are also strict rules on occupancy. To secure the FHL tax benefits you will need to let your FHL for a certain, minimum number of days each year. The occupancy rules, set on a tax year basis, are:

  • Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.
  • You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.

Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.

Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either: falls ill or has an accident and cannot leave on time or has to extend their holiday due to a delayed flight.

If you do not let your property for at least 105 days, you have two options (known as elections) that can help you reach the occupancy threshold.

As you can see, there are a few hoops to climb through to achieve FHL status, but the tax rewards for doing so are significant.

Holiday entitlements

Wednesday, June 5th, 2019

As we are approaching the annual holiday season it would seem to be a suitable time to set out employees’ rights to receive holiday pay.

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.

Most workers who work a 5-day week must receive at least 28 days paid annual leave per year. This is the equivalent of 5.6 weeks of holiday.

Part-time workers are entitled to less paid holiday than full-time workers. They are entitled to at least 5.6 weeks of paid holiday but this amounts to fewer than 28 days because they work fewer hours per week.

Statutory paid holiday entitlement is limited to 28 days, and so staff working 6 days a week are still only entitled to 28 days’ paid holiday.

Bank holidays or public holidays do not have to be given as paid leave. An employer can choose to include bank holidays as part of a worker’s statutory annual leave. An employer can also choose to offer more leave than the legal minimum. They don’t have to apply all the rules that apply to statutory leave to the extra leave. For example, a worker might need to be employed for a certain amount of time before they become entitled to the additional entitlement.

Paid annual leave is a legal right that an employer must provide. If a worker thinks their right to leave and pay are not being met there are a number of ways to resolve the dispute.

Tax free perk before annual leave

Wednesday, June 5th, 2019

It is possible to make small tax-free payments to employees, including directors, and this might be an appropriate time to make a small tax-free bonus in advance of the annual holidays.

Employers and employees don’t have to pay tax on such a benefit if all of the following apply:

  • it cost you £50 or less to provide,
  • 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.

HMRC describes these payments as a ‘trivial benefit’.

You can’t receive trivial benefits worth more than £300 in a tax year if you are the director of a ‘close’ company. A close company is a limited company that’s run by 5 or fewer shareholders.

Planning note

The only exception to the above is if the trivial benefits are made available as part of a formal salary sacrifice arrangement.

Employing students in the summer break

Wednesday, June 5th, 2019

If you employ students to manage your staff needs over the summer break period, you will need to add them to your payroll and apply PAYE and NIC rules.

Students should be advised that they will pay tax and NIC if:

  • they earn more than £1,042 a month on average, and
  • pay NIC if they earn more than £166 a week.

Students can also apply for a possible tax refund if they work for part of a tax year.

Students who normally live and study in the UK but work abroad during the holidays will need to pay:

  • UK tax on anything they earn above their Personal Allowance, currently £12,500, and
  • National Insurance if they work for a UK employer.

If you work for a foreign employer you don’t need to pay National Insurance in the UK, but you might have to pay contributions in the country you’re working in.

Tax Diary June/July 2019

Wednesday, June 5th, 2019

1 June 2019 – Due date for Corporation Tax due for the year ended 31 August 2018.

19 June 2019 – PAYE and NIC deductions due for month ended 5 June 2019. (If you pay your tax electronically the due date is 22 June 2019)

19 June 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2019.

19 June 2019 – CIS tax deducted for the month ended 5 June 2019 is payable by today.

1 July 2019 – Due date for Corporation Tax due for the year ended 30 September 2018.

6 July 2019 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2019 – Pay Class 1A NICs (by the 22 July 2019 if paid electronically).

19 July 2019 – PAYE and NIC deductions due for month ended 5 July 2019. (If you pay your tax electronically the due date is 22 July 2019)

19 July 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2019.

19 July 2019 – CIS tax deducted for the month ended 5 July 2019 is payable by today.

Mileage rates and tax relief

Tuesday, June 4th, 2019

If your employer asks you to use your own car or van to undertake a journey on their behalf, you may be entitled to a payment from your employer to cover your petrol and wear and tear costs.

Let’s say that your employer pays you 35p per mile. You may feel that this is an adequate sum to cover your costs, and indeed this may be so, however, HMRC would have a different opinion.

HMRC would allow you to receive up to 45p per mile tax-free for the first 10,000 business miles you drove in your own car on behalf of your employer, and thereafter at 25p per mile. The clock resets to zero at the beginning of each tax year (6 April).

Additionally, if you take a passenger (a co-worker) on a business trip, you can claim 5p per mile.

What happens if you are paid at different mileage rates?

If you are paid at rates per mile greater than HMRC’s 45p (25p) rates, then any excess over these rates will be taxed as a benefit.

If you are paid less than HMRC’s approved rates, you can claim the difference as an expense on your tax return. For example, if your employer pays you 35p per mile and you claimed for 8000 business miles in 2018-19, you will have received £2,800 (8,000 x 35p) in expenses. HMRC would allow you 8,000 miles at 45p, £3,600, and would allow you claim the difference £800 (£3,600-£2,800) on your tax return for 2018-19. If you don’t submit a tax return you should call HMRC with the details to register your claim.

What if I use my motorcycle or bicycle?

The same principles apply but the rates of mileage are different. They are currently:

 

Motorcycles

24p

Bicycles

20p

 

In both cases the above rates apply whatever your annual mileage.

Brexit – don\’t take your eye off this ball

Wednesday, May 29th, 2019

There is no doubt that many of us are heartily tired of the drawn-out Brexit debate, and yet we should not ignore this topic completely.

Opinion seems to be hardening for the so-called “hard” Brexit: where we leave at the end of October 2019 with no agreement. Ignoring the political arguments, this would have an impact if you are in business as none of us will be isolated from the changes to our trading terms with the EU after this date.

Businesses that trade directly with EU customers and or suppliers will hopefully have contingency planning in hand based on a thorough risk assessment. This article does not have space to consider the planning options in detail but affected importers and exporters should get their ducks in a row as a matter of some urgency.

And even if you do not trade directly with the EU, your UK suppliers or UK customers may do so, and this may have a direct impact on your business if supply chains are disrupted or prices are increased to account for tariff changes.

It is instructive that the only detailed advice offered by government is to outline what we should do if a “no-deal” scenario occurs. In the conclusion to a publication published December 2018, the Department for Exiting the European Union said:

Our communication with businesses and the wider public about a no deal scenario will increase as we approach our exit from the EU.

As a responsible government we have spent more than two years carrying out extensive preparations for all scenarios, including no deal.

We recommend businesses now also ensure they are prepared and enact their own no deal plans.

The full report “UK government’s preparations for a “no deal” scenario” can be viewed online at https://www.gov.uk/government/publications/uk-governments-preparations-for-a-no-deal-scenario/uk-governments-preparations-for-a-no-deal-scenario#conclusion.

If you need help to revisit this issue and refresh your contingency planning, please call asap. The clock is very definitely ticking.

Latest Blog
13
Jun

The real tax cost of benefits in kind

There is a sting in the tail for companies that provide their directors or employees ...

Read More
11
Jun

E-bike cycle to work scheme announced

Readers who have been tempted to cycle to work but are challenged by fitness issues o...

Read More
06
Jun

Did you know income rates can be as high as 60 percent?

Most of us know that income tax is charged at three main rates: 20%, 40% and 45%. Unf...

Read More
05
Jun

Tax Diary June/July 2019

1 June 2019 – Due date for Corporation Tax due for the year ended 31 August 201...

Read More

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