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The cost of Christmas generosity


To be generous or not? That is the question employers often ask themselves around the festive season. The CIPP policy team has run a number of polls to see how employers utilise the opportunity Christmas presents – and consider the impact the tax system has on that generosity.

Festive polls

In asking if the cost of income tax and NICs are considered when deciding what is included in Christmas reward schemes, it was revealed that only 15% of respondents considered these costs in their decision making, with a further 5% recognising, only after the event, that they should have been. For the majority (42%) tax planning did not play a part in Christmas celebration planning.
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Moving away from the tax burden for a moment we went on to ask the reason for such festive generosity and 75% do so, simply to say, ‘thank you’. For a small number (12%) tradition remains a strong motivation for doing so.

Barely a year goes by where we don’t receive a salutary message from a legal specialist warning about the risk to the employer caused by ‘excess’ at the Christmas party but nevertheless these warnings are not enough to prevent nearly half of employers providing and covering the full cost of the staff Christmas party.

Returning to the administration burden of the tax system, we asked: “How will your employer process the value of your seasonal gift?” Tax savvy employers lead the way with 29% of respondents ensuring that their generosity fell within the trivial benefit rules.

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Trivial benefits

Prior to April 2016, there was no statutory limit below which benefits would not be taxable – a subject that has been the cause of many a debate between the employer, their adviser and HMRC for some time. The news that HMRC had accepted the recommendation from the Office of Tax Simplification (OTS), in a bid to increase administrative simplicity, was indeed welcome.

For a gift, or token, to be considered a trivial benefit, however, it must meet certain criteria:

  • It must cost £50 or less to provide
  • It must not be cash or a voucher that can be exchanged for cash
  • It must not be a reward for the work or performance of an employee
  • It must not be given as a result of contractual entitlement.

Gifts (which aren’t only given at Christmas), are limited only by the imagination of the HR team but increasingly are becoming more imaginative than a mere turkey or bottle of wine. The final cost to a large employer may be significant, but as long as the criteria are met for each employee the principle will apply regardless of the final cost to the employer. And let’s not forget that accurate records to evidence that the criteria has been met must be maintained.
Annual parties and events

As we discovered from the poll results, employers continue to arrange and cover the cost of the Christmas party and yet, as we know from the calls that we receive to the CIPP advisory service, this remains an area that continues to catch out the unwary.

As with any other subject, there is criteria that must be met to ensure that this event doesn’t result in an unexpected tax cost.

As with the Trivial Benefit exemption, the criteria is not just for Christmas, it applies to any social function that fulfils the following requirements:

  • It must cost no more £150 per head
  • It must be held on an annual basis, and
  • It must be available to all employees – however, this doesn’t mean that all employees have to attend.

For an employer with multiple locations, an annual event that is open to all staff based at each location would still count within the exemption. Furthermore, an employer could also provide separate parties for different departments. So long as all employees could attend one of the events, this would fulfil the relevant requirement.

If more than one annual function is held and the total cost per head exceeds £150, only the functions that total £150 or less will be included within the exemption.

Let’s look at an example that expands on this.

Two events are held annually, one at Christmas and one in the summer, and all employees are invited to attend both events. The Christmas party costs £90 per head and the summer fayre costs £75 per head.

Together this totals £165 and so both events cannot benefit from the exemption, only one.

One annual event could take advantage of the exemption leaving the cost of the other to be reported using the P11D process or through payrolling (where voluntary payrolling has been adopted).

Record keeping remains vital to ensure that accurate numbers of attendees to the annual event are maintained (to monitor the cost per head) and in the event that a cost is reportable for the employees that attended.

And finally….

Much has been written about PAYE Settlement Agreements (PSAs) over this last year, not least because of the simplification measures made as a result of the work of the OTS, together with the impact of devolution on the tax system (specifically as it relates to calculating the cost of PAYE tax met by the employer within a PSA), so I won’t repeat that detail again.

However, we know from our quick poll results that it remains a popular method utilised by the generous employer to meet the tax burden of the employee, that may arise as a result of their festive generosity.

And this brings us neatly on to the results of our final festive poll question, which asked employees: “What personality type is your employer at Christmas?” We gave a number of answer options that ranged from a ‘bah humbug’ to a generous ‘ho, ho, ho’, and it would appear that as 2018 begins to draw to a close, many employees ‘perceive’ their employers to be both.

With a slight majority, 33% cited their employer as being akin to Scrooge, which provides a reminder to the employer that we may not be seen by others as we see ourselves.

However, this was followed closely by 31% referring to their employer as Father Christmas. The Grinch was next in the pecking order at 18% followed by The Snowman employer coming in at 8%.

Merry Christmas to one and all, and may 2019 be less taxing than its predecessor.

Article taken from AccountingWeb, written by Samantha Mann, Senior Policy & Research Officer, CIPP

Original Article can be found at https://www.accountingweb.co.uk/business/finance-strategy/the-cost-of-christmas-generosity

Budget Tax Trap – Selling Homes


Beginning in 2020 changes to the capital gains tax rules have lowered the sell window for those trying to sell their homes, before they are considered liable.

This years budget has detailed a change to the capital gains tax rules regarding property. One such change is ‘accidental landlords’ that are selling a property that was previously their private residence (their home) will only recieve half of the current relief. This could impact those that struggle to sell or possibly those forced to move at short notice due to work or family.

Currently, when induviduals move out of their home but don’t sell immediately, whether due to sentimentality or expectation to return, they have a 18 month window in which they can sell said property exempt from capital gains tax. This is due to the understanding that selling a home can be difficult both in practice and emotionally. As of April 2020 this window will be reduced to 9 months before they may be considered liable for this to come under capital gains tax.

Lords Request MTD Delay

A lords committee have called for a minimum 1 year delay to the Making Tax Digital (MTD) initiative, claiming that HMRC have neglected their responsibility to small businesses, and that the costs will exceed those outlined in the impact assessment.

MTD is currently scheduled for a mandatory roll out in April 2019, but the House of Lords Economic Affairs Committee have deemed that as far too short a notice given the lack of support provided. The committee instead suggested it should be introduced as a “staged transition” for April 2022.

The main reasons provided by the Lords, included low awareness from affected businesses and difficulty in the software market. They also brought into question the justification behind the programme and the assumptions made by it.

For the full report published by the committee follow this link: House of Lords Report.

HMRC Recalculations: Recovery Effort

Rebecca Cave has explained how HMRC will begin to repair the 2016/17 income tax calculations for around 30,000 taxpayers. On the 13th of November, software developers received an email from HMRC’s Software Developers support team giving more detail.

This Email Contained the Following information:

– The “recovery exercise” will begin on 19 November 2018.
A total of 22 different exclusions that affected the calculations have been identified.
– Affected taxpayers should receive a new SA302 by the end of November.
– Copies will not be sent to agents.
– Penalties will not be applied and interest on underpayments will not be charged provided the additional tax is paid within 28 days of the date of the notice (in many cases the taxpayer will have been overcharged and so entitled to a repayment).
– Appeals against the amended SA302 (if appropriate) must be made within 30 days of the date of the notice.

The exclusion cases to be repaired in this recovery exercise have been listed as:

1) Non-UK resident – exclusions 57, 67 and 73:

57 – Relating to the 7.5% notional tax paid on UK Dividend income.
67 – Relating to the tax due on trust income.
73 – Relating to the loss claimed.

2) Beneficial ordering – exclusions 68, 69, 70, 72, 76, 78, 79, 82, 83 and 85:

Relating to how the personal allowance and/or reliefs are allocated to ensure the allocation is most beneficial to the customer.

3) Dividend tax credit, trust and Lloyds – exclusions 62 and 75:

Relating to the tax calculation to give the relief due on apportioned income.

4) Marriage allowance transfer (MAT) – exclusions 66 and 66A.

5) Capital gains not calculating – exclusions 64 and 77.

6) Chargeable event gains – exclusions 74 and 81:

Relating to the top-slicing relief that is due.

7) Pension lump sum – exclusion 87:

Relating to the tax due on your state pension lump sum.

The exclusions that will generate the greatest number of recovery cases are those listed above under beneficial ordering.

Chargeable events

Watch out for chargeable event gains. Exclusion 81 was agreed following my representations to HMRC (and my article last year in Taxation Magazine). But only very recently have HMRC (again at my behest) agreed to remove exclusion 80 and confirm that the HMRC calculation was after all correct.

You may need to check whether your tax return software incorrectly calculated tax because of exclusion 80 and as a result, the client overpaid for 2016/17.

How to Manage Your Money

Recently came across this very interesting video on youtube by Tom Ferry, which breaks down a very interesting and accurate in our opinion of how to manage your money.

HMRC prepares for possible No-Deal Brexit

HMRC recently published an updated version of their Partnership Pack on GOV.UK. This pack is designed to help businesses for the possibility of a ‘no-deal’ EU exit. This builds on the previous version of the pack, published in October, and includes additional information about trade at the border from departments across government.

The pack is for organisations, intermediaries and infrastructure providers to use for their own contingency planning and to share with those they represent, their clients and members. It is designed so that you can take information from it and tailor it to suit your own channels and your audiences’ needs.

The pack focuses on how VAT, Customs and Excise could be affected and includes information split by topic and audience,and also includes flowcharts.

Future editions of this pack will include additional information around policies that will impact trade at the border and we will update you when these are published.

Implications of a no-deal Brexit

David Miller looks at the practical implications of Brexit on international trade for small businesses.

The government’s recent release detailing its plans for businesses trading with the European Union in the “unlikely” event of a no-deal Brexit brings with it further uncertainty for those small businesses that are part of an international supply chain. Despite the fact that the report attempts to provide assurances that negotiations are progressing well, businesses of all sizes continue to question what the future holds for their trading operations once Brexit is finalised on 29 March 2019.
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While the government report certainly makes for interesting reading, the real takeaway is that any business involved in international trade — and particularly with EU countries — should consider the impact that Brexit is set to have on their operations, and start to make plans accordingly.
Detailed guidance

The government’s guidance papers say that in the event of a no-deal Brexit, businesses will have to lodge customs declarations and potentially pay customs duty on goods imported from EU countries. The guidance also says that companies “may wish to consider taking professional advice”, but there are a number of key omissions from the guidance that allow small businesses to carry out some risk mitigation.
Missing AEO

One factor the government has failed to mention is that the concept of Authorised Economic Operator (AEO) status is a way that importers and exporters can ensure they are in the best position ahead of Brexit. AEO status can help speed up customs processes, standing firms in good stead, whatever the outcome of the Brexit negotiations. Even if the UK does negotiate a deal, AEO accreditation may be advantageous in addressing existing Brexit concerns.

Why the government failed to mention AEO in the guidance papers remains a mystery. One can only imagine that it comes down to a lack of resources to process a huge number of applications that could follow such widespread advice. Businesses should seriously consider this option in order to be in the best possible position next year.
AEO explained

AEO is an integral part of the Union Customs Code legislation, which will be replicated in UK law as a result of Brexit. It is an internationally recognised quality kite mark indicating that a business’s role in the international supply chain is secure, and that customs controls and procedures are efficient and compliant.

In simple terms, AEO status means that items can pass through customs as quickly as possible, avoiding delays in the supply chain being a key risk mitigation factor for companies.

AEO status also means:

● It is quicker and easier to obtain customs simplifications

● The business is subjected to fewer physical and document checks at borders

● If the truck is selected at controls, it will be given priority as an AEO consignment

● The business can request that a control is held at a different place

Some key benefits of AEO status include:

● More efficient transferring through borders

● Less risk and more effective checks on the reliability of third parties

● Potentially lower insurance premiums in the future

● More efficient import/export systems

If a Brexit conclusion is not reached, businesses importing goods from the EU will be required to follow customs procedures in the same way that they currently do when importing or exporting from and to countries outside the EU. This means that for goods entering the UK from the EU, an import declaration will be required, customs checks might be carried out and any customs duties must be paid.

The government release states that before importing goods from the EU, a business will need to:

● Register for a UK Economic Operator Registration and Identification Number

● Ensure their contracts, and international terms and conditions of service reflect that they are now an importer

● Consider how they will support declarations, including whether to engage a customs broker, freight forwarder or logistics provider. Engaging a customs broker or acquiring the appropriate software and authorisations from HMRC will come at a cost

● Decide the correct classification and value of their goods and enter this on the customs declaration
Limited warehousing capacity

Customs warehousing has been presented as a means of safeguarding operations in the event of a no-deal Brexit. However, if everyone rushes to carry out this approach, demand will likely skyrocket and could lead to delays.

At present, I understand that there are more than 800 customs warehouses authorised within the UK, and even before considering Brexit, 750 of these will need to be re-authorised by the end of April 2019. This means that there could easily be a huge rush on the authorities to action these requests in time, particularly if demand for such warehouses rises at the time of Brexit.

Conclusions

All things considered, it is essential for businesses working across all industries to consider the impact of their imports and exports in the event of a no-deal Brexit. Also, with suggestions from some cabinet ministers, including Liam Fox, that a no deal was the “most likely outcome” for Britain, it is highly likely that firms will need some safeguards in place, whatever the eventuality

 

This artcile was written by David Miller of The Customs People for AccountingWeb.co.uk for the original of this article please follow this link : Implications of a no-deal Brexit

Entrepreneurs Relief – Not so simple

There have been some changes released to entreprenuers releif with the 2018 budget. Here a few of the important points to look out for.

Meeting Conditions

To qualify you must now meet the 5 following conditions, whereas before it was only 3. They must all also be met within a 12-month period ending with the date of disposal, or the date the company ceased trading or ceased being a member of a trading group, where the shares are sold within three years of that cessation. The conditions are:

– Be an employee or officer of the company.

– Hold at least 5% of the “ordinary share capital”.

– Hold at least 5% of the voting rights associated with that ordinary share capital.

– Be entitled to at least 5% of the company’s distributable profits.

– Have a right to at least 5% of the net assets of the company available to equity holders on a winding up.

The two former conditions listed were added to ensure that induviduals who are benefitting from this relief, do in fact have a material stake in the company.

For more information about entrepeneur’s relief follow this link: Entrepreneur’ Relief.

Xerocon 2018’s biggest Announcement

Xero have announced their move into income tax, corporation tax and accounts production at their convention this year. This news came straight from Xero’s UK MD Gary Turner as he revealed in his presentation this expansion of their services.

Also demonstrated at Xerocon, instafiles automated tax filing and financial reporting for small UK entities by connecting directly to HMRC and Companies House. They also revealed that work has already been done to integrate the products allowing the accountant partners use of these products. To top it all of they also revealed that this would be available free to Xero’s accounting partners as part of the existing HQ package.

Chief product officer Anna Curzon as part of this announcement, said: “We will solve compliance in the UK,” and “We’re going to give you powerful tools that allow you to do your compliance work from right within Xero.”

As users of Xero’s systems here at Cloud Bookkeeper, we are excited on the upcoming features and how we can best use them for the benefit of us and our clients.

For more information on the features and tools available by Xero follow this link: Features and Tools.

MTD for small VAT clients: Get on track and get ready for April

Neil Warren attended the MTD for VAT AccountingWEB conference on 1 November, and shares some important practical tips he picked-up there.

So far with MTD, we have largely focused on the general principles that will apply from 1 April 2019 – the who, what, how, and when. This event gave accountants a chance to look at some of the practical issues that will apply, with specific solutions highlighted by the speakers.

Key messages

Tax titan Rebecca Benneyworth emphasised that we should never forget the key difference between VAT and income tax, namely that VAT is a transactional tax. We need to be aware of the VAT issues of every transaction we process and this issue will be even more important with the introduction of MTD.

Benneyworth highlighted that there are many quirks within VAT that HMRC didn’t recognise as a potential challenge with MTD at first: capital goods scheme, partial exemption, margin schemes and TOMS. VAT is not the easy tax for MTD that HMRC might have anticipated.

Matt Flanagan, a cloud business systems specialist and managing director of Bluehub, surprised me with the revelation that the average age of UK business owners is currently 51 but this would fall to mid-30s in eight years’ time. This is an important statistic for the future development of accountancy practices, knowing that most new clients will have been fully brought up in the digital age of modern technology.

Four stage process

Flanagan’s session highlighted a four-stage process for dealing with MTD:

  1. Identify clients who are within the scope of MTD – ie businesses trading over the VAT registration threshold.
  2. Review the current accounting systems of each client – are they MTD compliant?
  3. Define client requirements after April 2019 – this might involve the adoption of new accounting packages.
  4. Offer an MTD solution to each client – acknowledging the skills and mindset of each client.

Points based system

Flanagan suggested we give each client two marks out of five – one for the quality of the client (1 being low and 5 being high), recognising the client’s mindset and therefore likely reaction to the challenges of MTD. The second mark recognises the quality of the client’s accounting system. For example, is he relying on an old system from the 1990s that could collapse at any moment?

If all of your clients score 25 (5 x 5), then MTD should be a piece of cake. But a mark of 1 to 5 indicates more challenging times.

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Dealing with clients

The client liaison theme was extended by Phil Sayers, founder of Proten Sales Development, who considers that “clients need to work with processes adopted by practices”, which would often need some time spent with the client ie an MTD conversion effort. He considers that a standard letter notifying clients about the introduction of MTD might not be effective, so a simple note in red along the lines of: “I need to speak to you in the next two weeks about something urgent – will you please call me” might generate better results. I like that idea.

Digital links

Benneyworth gave an example of a farmer using Farmplan software to raise its sales invoices. A journal might be raised to enter the monthly or quarterly totals from Farmplan into Sage. This would be fine for the first year of MTD during the soft-landing period. But from 1 April 2020, this software link from Farmplan to Sage would need to be done digitally using import tools, so there must be no re-keying of data, cut and pasting, or manual journals.

Software presentations

There were presentations from Receipt Bank, FreeAgent and BTCSoftware, all of which made me realise how far we have come in the last 10 years. An example was quoted of a sole trader bookkeeper who had the capacity to act for 120 clients rather than 30 after he adopted Receipt Bank.

Final tips

Benneyworth gave three final tips in her session:

  • Encourage clients to join the HMRC pilot scheme, assuming they are one of the 500,000 businesses now eligible to do so.
  • Suppress VAT codes in accounting software that are not needed eg a business would not need a reverse charge VAT code if it does not buy services from abroad.
  • Examples of letters that can be sent to clients can be found on the ICAEW MTD hub, along with other useful information.

Conclusion

With the introduction of MTD less than five months away, we now need to be interested in some of the finer details. As the conference chairman John Stokdyk rightly commented: “It is time to get on track and get ready for April.”

This article was taken from Accountingweb.co.uk, For the original article follow this link: Accountingweb