Category Archives: Tax

Trivial benefits in kind exemption may not be so trivial

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It’s Christmas and the annual minefield of gifts and Christmas parties for employers to navigate. If you are giving your employees gifts to create goodwill, the last thing you want to do is destroy that goodwill with an unexpected tax bill.

However, help is at hand from the new trivial benefits rules.

Previously, the rules were subjective. HMRC allowed exemptions for reasonable gifts but there were no clear thresholds, making it difficult to have certainty about tax treatment.

Under the new rules, benefits and gifts can be tax-free providing that:

–       They cost no more than £50 per benefit and
–       They are not cash or a cash voucher (gift vouchers e.g. for a shop, are allowed).

There is no limit on the number of trivial benefits that can fall into the new rules for employees, providing that they do not form part of the employee’s remuneration for their job or part of a salary sacrifice arrangement.

Special rules apply for directors to limit the overall total for a tax year to £300 of tax-free trivial benefits.

The new rules are good news for generous employers who can now have clarity about what is and is not tax-free, not just at Christmas, but throughout the year. Also, employers who were previously providing vouchers and paying the tax under a PAYE settlement agreement may no longer need to that.

And don’t forget the £150 per person tax exemption for events such as Christmas parties. But do be aware that the limit can only apply to one event, not spread across multiple ones and it includes the extras such as employer funded travel.

The VAT inclusive cost needs to be used when considering if the tax-free limit is reached for both trivial benefits and the annual events exemption.

For more information in trivial benefits, please contact our tax team by emailing tax@pmm.co.uk or by calling 01254 679131.

Inheritance Tax And The New Residence Nil Rate Band

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Much of my time is spent advising clients on inheritance tax, both the current liability on their estates, and what can be done to address it. It’s an emotive subject, with many clients feeling aggrieved that the wealth they have created over their lifetime is being taxed again on death.

In response to this, the former Chancellor, George Osborne introduced additional measures to potentially reduce the tax take for the treasury, and allow people to pass on more of their money to their families on death.

On death, if you leave assets to anyone other than your spouse, inheritance tax is paid at a rate of 40% on any assets you hold above the nil rate band; this currently stands at £325,000 each (£650,000 for couples).

It has long been the objective of the Conservative Party, to increase the point at which inheritance tax becomes payable by couples to above £1 million. The simplest way to address this would have been to increase the nil rate band to £500,000 each. However, for political and financial reasons this was not the solution George Osborne devised.

An additional nil rate band was created of up to £175,000 each, relating to the family home.  This will be phased in over 4 years from 6 April 2017, starting at £100,000 each and increasing by £25,000 per year over 3 years. This is in addition to the existing nil rate band. Thus, if you as a couple have a home worth £350,000, you may eventually be able to pass on a joint estate of £1 million without being subject to inheritance tax.

This all sounds good news but it should be noted that not everyone will qualify.  Here are a few key points:

  • If your estate is worth more than £2m your entitlement to the residence nil rate band starts to disappear;
  • The rules stipulate that homes must be passed on to direct descendants, by which it means children and grandchildren;
  • I’ve had to inform clients who are leaving all their assets to nephews and nieces that they won’t get this additional relief;
  • Step-children and adopted children are counted in the definition as children so that is welcome;
  • If leaving the property into a trust, it must be one that creates a fixed entitlement to the property to a direct descendant, it can’t be wholly discretionary;
  • If one spouse doesn’t use their residence nil rate band, it can be passed on to the other spouse to use on the second death in the same way as the ‘normal’ nil rate band;
  • It can only be claimed against one property so two properties totalling £350,000 may require you to claim this relief against the higher value property only; and
  • There are also a myriad of rules relating to downsizing, which will probably require further revision by the Government to ensure they work in the way intended.

Inheritance tax is an area where many people will require advice. If you wish to receive advice on the Residence Nil Rate Band or any other inheritance tax matter, please get in touch.

Written by Richard Hesketh
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Richard Hesketh 
Client Manager
Email: richard.hesketh@pmm.co.uk
Direct: 01254 604340

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Jane Parry 
Managing Partner & Head of Tax
Email: jane.parry@pmm.co.uk 
Direct: 01254 604329

 
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PM+M Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority.

The Apprenticeship Levy

shutterstock_305418650The new apprenticeship levy will have its challenges but have you considered the benefits of this new legislation when it comes into effect in April 2017?

The Government have already made their mark by abolishing the employers’ National Insurance Contribution (NIC) for apprentices under the age of 25 back in April 2016. This new levy is part of their commitment to increase the quality and quantity of apprenticeships available in England  in order to reach their goal of 3 million by 2020.

The Levy will be payable on payroll bills of over £3 million per year at 0.5%. This will affect many businesses, who perhaps haven’t even considered apprenticeships for some time.

All employers will receive an allowance of £15,000 to be offset against the payment of the levy.  This levy “pot” is then to be used on apprenticeship training and assessments from an approved provider only.

The Government will top up levy contributions by 10%.

The payments for apprentices studying English and Maths will be paid direct to the providers and not taken from the levy payments.

This is essentially another tax. However, businesses can benefit from this by utilising the levy to upskill existing team members. There is a huge employment demand upon us with nearly 21,000 people due to retire in the next few years.

Don’t waste this opportunity – look into your options now and prepare.

If you’re not sure whether the levy will affect you and want advice on this or other payroll matters, please contact Julie Mason at julie.mason@pmm.co.uk or call 01254 679131.

 

Tax-free childcare scheduled to launch in 2017

shutterstock_334181882It’s good news for parents! Under the new Government scheme, they will be able to set up an online account with HMRC to pay childcare with a registered provider, tax-free.

The Government will top up the account by 20% up to a total of £10,000. The maximum payment will be capped at £2,000 per child up to the age of 12 and £4,000 for children with disabilities up to the age of 17.

To be eligible for the scheme, each parent needs to be in employment and earning a minimum of £115 per week each and a maximum of £100,000.00 individually.

There’s no minimum monthly payment requirement and the parents can make withdrawals if they wish. Payments can be made from their tax-free childcare accounts to their chosen provider’s bank account via BACS. All regulated and approved childcare providers will receive an invitation to register for the online service.

Any childcare providers who are not regulated and wish to benefit from the scheme will have to register with a regulator with their unique 10-digit tax reference number and this can often take up to 12 weeks.

For more information on the tax-free childcare scheme, please contact Julie Mason at julie.mason@pmm.co.uk or call 01254 679131.

HMRC Asset Seizures Up 145% In A Year

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The percentage of businesses in the UK having their assets seized is significantly increasing in this tax year. In order to settle outstanding debts, HMRC have been clamping down on businesses who fail to pay their tax bills.

Funding Options announced that HMRC seized assets to recover £42.6m of outstanding debt in the last year, an increase of 145% from the previous year where debts to the Revenue totalled £15.3m.

Under a power called ‘taking control of goods’ HMRC can seize assets in order to settle debts from businesses that have been unable to pay their overdue tax bills. The assets seized are then sold at auction in order to recover the money owed to HMRC.

It’s more important than ever to ensure your tax affairs are in order. If you need any help or advice in organising your tax affairs, please get in touch with our tax team by emailing tax@pmm.co.uk or by calling 01254 679131.

Consultation On Limiting Benefits Within Salary Sacrifice Arrangements

shutterstock_313380641With the huge uptake of salary sacrifice arrangements meaning an unexpectedly higher loss of revenue, the government is now considering restricting the benefits that can be included in salary sacrifice arrangements.

The consultation, which remains open until 19th October 2016, is considering how the tax and national insurance benefits currently enjoyed by both employees and employers will potentially be removed. The proposal is to restrict the tax savings on the benefits which are considered to be more of a perk and less than a necessity.

They have however confirmed that any restrictions will not affect pension saving, childcare, workplace nurseries and health-related benefits such as cycle to work schemes.

Where the provision of a benefit is currently tax-free, a value equivalent to the salary sacrifice would be included on a P11d or taxed through the payroll. This would negate the potential tax saving for both and the employer would be liable for national insurance. Examples of benefits that would be affected include health screening, car parking, mobile phones and non-core life assurance.

An example of how the scheme currently works for tax-free benefits is detailed below.

Kate is an employee paying income tax at the marginal rate of 40%. She is considering taking out a new personal mobile phone contract worth £1,000 per annum. Her employer suggests that the company instead enters into the mobile contract in return for Kate giving up £1,000 of her gross salary. Kate agrees as the net cost to her is just £580, being the reduction in her take home pay after taking into account income tax and NICs (£1,000 less 40% income tax and 2% NICs at marginal rates). She has therefore saved £420, as the provision of the mobile phone by her employer is a tax-free benefit. Also, the company has saved employers’ national insurance of £138 (13.8% x £1,000) due to the salary reduction.

Benefits that are not tax-free but tax advantageous due to a reduced benefit in kind would attract a value equivalent to the salary sacrifice, not the benefit in kind and taxed through a P11d or payroll as above. Typical of this type of sacrifice would be car schemes.

No firm time line has been set for the Government to consider the recommendations following the consultation but it is thought they may be introduced as early as April 2017.

For more information on salary sacrifice arrangments, please get in touch with our tax team at tax@pmm.co.uk or by calling 01254 679131.

 

HMRC Announces New Sanctions For Taxpayers That ‘Fail To Correct’ Offshore Irregularities

shutterstock_223883626The Government is set to crack down further on people who have not paid UK tax on their income and gains from offshore bank accounts and investments. A new Worldwide Disclosure Facility comes into effect on 5 September, offering people the opportunity to make disclosures and get their UK tax affairs in order before draconian new penalties come into effect in September 2018.

Exact details of the new penalties are not yet decided, but initial proposals suggest they could extend to as much as 3 times the actual lost tax in some cases.

Anyone with any concerns about offshore assets or income which have not been disclosed should take advice now to protect their position. For any advice or further guidance on any tax issues, please contact a member of the tax team by emailing tax@pmm.co.uk or by calling 01254 679131.

Research & Development – An Update (And A Reminder Not To Miss Out)

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Knowing what projects you can or cannot get Research & Development (R&D) funding for is a minefield, with a plethora of different grants and funding support available. For example, recently, the Government announced that £365m of funding will be made available for new UK aerospace projects.

In addition to this, for many companies across a wide range of industries there is, of course, the opportunity to access R&D tax credits. These tax credits are extremely valuable and are often under claimed by qualifying businesses.

Under the SME scheme for small and medium-sized businesses, companies can receive a 230% tax deduction for their qualifying R&D expenditure. If this results in a trading loss for the year, then a cash payment can be claimed.

To qualify for the scheme, you must be classed as an SME under the rules of the scheme and carry out qualifying R&D activities.

Broadly, an SME is a company with no more than 500 full-time equivalent employees and either or both turnover less than €100m or balance sheet assets less than €86m.

There is a separate scheme for large companies which applies to the same types of activity but provides less generous tax reliefs.

What qualifies as an R&D activity?

The main areas are:

– Experimental work aimed at the discovery of new knowledge or advancement of existing knowledge

– Testing in search of product or process alternatives

– Design, construction and testing of pre-production prototypes and models

– Design of products, services, processes or systems involving new technology or substantially improving those already produced or installed.

It is important to think laterally about what your company is doing and whether it can fall into any of the above. We have succeeded with a number of claims where the initial response of the directors was that they didn’t think the company was really doing any R&D. It’s important not to overlook the fact that it can apply to new or improved systems and processes within the company as well as new products.

Once it has been established that a company is carrying out R&D and qualifies for the SME scheme, it is necessary to identify the qualifying expenditure on which a claim can be made. Qualifying expenditure can be defined as direct staff costs of people involved in the R&D activity, software and consumable items and externally provided workers.

Claims can be made to HMRC through the company’s corporation tax return and information should be provided containing details of the expenditure and of the qualifying activities. If you are unsure as to whether your company carries out qualifying activities, then small companies with turnover under £2 million can contact HMRC’s advance assurance scheme to discuss the project and get the green light to proceed ahead of making a claim.

For further information on the SME scheme, applying for advance assurance, the large company scheme or R&D allowances on capital expenditure please contact Jonathan Cunningham or Claire Astley at jonathan.cunningham@pmm.co.uk or Claire.astley@pmm.co.uk or call 01254 679131.

 

The Tax Implications Of Brexit

shutterstock_122108053Setting aside the initial shock of the Brexit vote and the ensuing political instability, which shows no sign of settling down any time soon, one key area for businesses and individuals as we progress towards our exit from the EU is understanding what the tax implications will be.

There has been talk of an emergency Budget as a change in leadership could entail a new Chancellor, who will have their own idea of what needs to be done in the wake of Brexit, but this is unlikely to happen until the Autumn. George Osborne has already highlighted corporation tax cuts down to 15% as a possible carrot to incentivise international firms to do business in the UK. The Autumn Statement this year may be an even more important event than usual.

One immediate impact may lie with the long-awaited ‘Making Tax Digital’ discussions, which have experienced practical difficulties and may well be put on hold until a new Cabinet is appointed. The current Finance Bill is already running behind schedule and in the current political climate it could mean that the Finance Act, due to be passed in October, may be delayed.

In the longer term, the changes could be wide ranging. At present, UK companies benefit from the ability to pay and receive dividends, royalties and interest tax efficiently between companies in different EU countries. It remains to be seen whether participation in this will be possible post Brexit. This plus the possible imposition of trade tariffs may have significant consequences for the UK’s attractiveness as a base for inward investment as a footstep into European markets.

The tax which could change most significantly is VAT. VAT is an EU wide tax governed by EU law. Post Brexit, the UK will have the flexibility to amend and develop its own VAT law, without the current EU constraints, which could be positive. On the downside, the current cross EU reporting and refund mechanisms may no longer be accessible, potentially creating more of a compliance burden for UK companies trading in Europe.

At present it is too early to start to plan with any certainty. It’s going to be a case of watch this space as events unfold over the next few months.

If you would like advice or are concerned about any aspects of your affairs, don’t hesitate to get in touch with our expert tax team on 01254 679131.

Tax Planning The Do’s And Don’ts – What Can You Do To Minimise Your Tax Legitimately?

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Whilst tax is necessary to  keep the country running, everyone wants to make sure that they don’t pay too much.

The question is what is sensible tax planning to make sure that we are paying only the right amount and where does that end and unacceptable tax avoidance begin?

You may be wondering where to start and it can be difficult to identify what is a legitimate way of reducing the amount you pay without incurring the wrath of the tax authorities.

Our simple tax planning guide takes you through various areas of tax planning advice for both you and your business in a clear and easy to understand way.

As every situation is different, this guide is exactly that – a guide.  It should give you a good idea of what is possible and appropriate for you.  Then, if having read it you decide you want to do some planning, please speak to us so we can make sure it will work for you in the best way.

Our team will be delighted to help. They can be reached on 01254 679131 or at tax@pmm.co.uk.

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