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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.

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

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.

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.

Phillip Hammonds under pressure to raise money for the NHS

The Treasury is finalising plans to overhaul tax rules which allow self-employed people to avoid paying national insurance contributions.

The move will be targeted at people who set themselves up as private companies to take on work.

announcements that may be in this month’s Budget.

The Treasury believes a third of people claiming self-employed status as a “personal service company” are actually full employees and should pay more tax.

It says without reform, high levels of non-compliance with tax rules could cost HM Revenue and Customs, which collects taxes, £1.2bn a year by 2023.

It is now looking at demanding that firms which use personal service company contractors take legal responsibility for ensuring “off-payroll” contractors stick to the tax rules known as IR35.

A similar move in the public sector on “synthetic” self-employed has raised £410m extra in taxes since 2016, HMRC estimates suggest.

Full employees pay higher levels of national insurance compared with the self-employed.

Philip Hammond is under pressure to raise taxes at the Budget following the Prime Minister’s pledge of £20bn worth of extra spending on the NHS by 2023.

Personal income tax allowances could be frozen, despite a Tory pledge at the 2017 election that they would rise to £12,500 for lower rate taxpayers and £50,000 for higher rate taxpayers by 2020.

Freezing them could raise up to £2bn a year.

Reform of the IR35 rules would not raise as much, but might be less politically controversial.


Digital Tax? could this be the future ?

Britain’s high streets will be dominated by charity shops and betting shops unless business rates are overhauled, a senior Tory councillor has warned.

With just under two weeks to go until the Budget, Philip Hammond was urged to create a ‘level playing field’ for regular shops as they face an onslaught from online giants.

The leader of Westminster City Council called for a 1 per cent turnover tax on tech giants such as Amazon to alleviate the pain.

Hammond told the Tory party conference last month he might introduce a digital services tax on web giants such as Amazon, Facebook and Google.

The Mail has called for a reform of business rates as part of our Save Our High Streets campaign amid a crisis gripping the sector.

Around 50,000 retail jobs have already been lost this year, and about 61,000 stores have shut in the past five years.

Major retailers such as Poundworld, Toys R Us and Maplin have gone bust while House of Fraser was saved from collapse by Sports Direct.

Councillor Nickie Aiken, leader of Westminster City Council, said: ‘I absolutely support the Mail’s campaign. Westminster City Council has already called for a 1 per cent turnover tax on tech titans.

‘I would ask the Treasury: do we want to continue the decline so that the only things left on the High Street are charity shops and betting shops?’

Business rates are based on the estimated rental value of a retailer’s property. Andrew Goodacre, chief executive of the British Independent Retailers Association, said: ‘It becomes a real challenge to afford, because it doesn’t matter how well or how badly you’re doing, the cost is not going down.’

Edward Woodall, head of policy at the Association of Convenience Stores, said the tax discourages investment.

If a shopkeeper refurbishes their store, or installs new equipment, it makes the property more valuable, so rates go up. He said: ‘The system doesn’t really incentivise investment.’

‘Unfair’ HMRC interest rate change?

The ACCA accountancy body has said that the recent interest change is “simply unfair” because of the growing divide between interest rate for repayments to taxpayer and late payment fees.

Simply put the interest charged for those that pay their tax late has increased by 0.25% to 3.25%, supposedly inline with the rise in the Bank rate, whereas the repayment interest has remained at 0.5% and is frozen at this rate, this has been true since 2009.

ACCA have said that they believe there should be a level playing field but HMRC have replied saying the repayment rate has never fallen below its current rate of 0.5% despite the Bank rate.

The reasoning behind this is that HMRC is attempting to prevent overpayment of tax as a way of recieving a higher interest rate than possible on some savings accounts. Therefore based on the current formula used to determine this amount the Bank rate would have to rise higher than 1.5% for this to change.

This is currently a controversial decision as Chas Roy-Chowdhury, head of taxation at ACCA, has said there should be a ‘level playing field’ and that HMRC changes should simliarly apply to both how much they charge and to how much they pay.

Making Tax Digital, Costs not Savings

It has been estimated that the new MTD inititaive will cost firms £37 million a year and will have no cost saving effect, reveals HMRC.

MTD is the digital redesign of the tax system, which means that most VAT-Registered companies will need to keep digital records of VAT and submit their returns digitally also. This programme was proposed by former Chancellor George Osborne and was suggested to ‘modernise’ tax returns. But it has been revealed that it may end up costing more than it saves.

The original proposal was estimated to save businesses £100 million a year from 2021. But HMRC’s latest estimation is that there will be no savings but instead will cost firms £37 million per annum, they predict that transition will cost less, but the ongoing costs will outweigh the ongoing savings, these new estimations come from the changes made to the programme last year which include a slower rollout.

One major change is that now only business with a turnover of £85,000 have to file digitally, and those business lower than that are excempt.

Though a spokesperson from HMRC have said that the costs incurred by businesses are likely to qualify for full tax relief, which is not reflected in these estimates. This is yet to be definitively announced and therefore we cannot be sure if this will come into effect.

Honours ‘Blacklist’ for Celebrity Tax Avoidance

HMRC policy of advising against honours for tax-avoiding celebrities, has been backed by Sir Vince Cable.

What this means is that celebrities who use legal but possibly controversial schemes of tax avoidance are being ‘blacklisted’ from receiving honours in order to protect the reputation of those holding these honours and the honours themselves. A FOI (Freedom of Information) request revealed that those proposed for this list are graded on a traffic light system to gauge the induviduals suitability.

Green for Low Risk, Amber for Medium Risk and Red for High Risk.

This initiative has been backed by Liberal Democrat leader Sir Vince Cable, saying “The Principle is right, I think the public is fed up with abusive tax avoidance by induviduals and companies,” and “It seems perfectly reasonable to me that the Inland Revenue should be taking a tough line on tax avoidance.”

Sir Cable, who is a former business secretary, added that some celebrities may be confused as to why they are being investigated and analysed for this list, because many could be unaware of their involvement in tax avoidance due to their finances being handled by accountants.

This list will be given to the Cabinet Office honours committee and the prime minister and decisions with be made from there.

Last year, retired football player, David Beckham had an email leak that seemed to depict his frustration at not receiving a knighthood in 2013, it has also been noted that he was on a list of celebrities who invested in a tax avoidance schemes, which was successfully challenged by HMRC.

At this time it is not known whether this had an impact on him not receiving said knighthood.

For more information on how the Honour system works, click the following link. Guide to the Honours.

Allowable Expenses

The following spreadsheet  is to provide some guidance as to the type of expenses that you can offset against your property income or capital costs.

To view this spreadsheet please follow this link (Spreadsheet).

Please note that this spreadsheet is to be used for guidance and educational purposes only. The information within the spreadsheet does not constitute as advice by Cloud Bookkeeper and will not be held responsible for any decisions based on this spreadsheet.

Cloud Bookkeeper Case Study – IAB

We were recently approached by the IAB to do a case study on Cloud Bookkeeper, we were very pleased that the IAB had recognised Cloud Bookkeeper as an outstanding example for IAB students to read about the story of how the business came about and its roadmap to establishment.