HMRC move the goal post with partner expenses

HMRC have made a significant change to their guidance manuals recently regarding partner and members of LLPs expenses.

It had been a long standing principle, with HMRC approval, that business expenses incurred by partners (separate from the partnership itself) are tax deductible in arriving at the partners taxable profit share. For example,  partners incurring home office expenses; this would typically not be borne by the partnership but the partner incurring the cost would be capable of claiming a tax deduction. The deduction was claimed via the partnership tax return, it did not matter that the expense had not gone through the partnership accounts.

This meant that as long as the expense was “wholly and exclusively”  incurred for the purposes of the partnership business, a tax deduction was available regardless of whether it was the partner or the partnership that had incurred the expense. This was a practical way of dealing with partner expenses.

The Office of Tax Simplification, in the past, had suggested to improve the ability for partners to claim business expenses which they had incurred personally, that they should be able to make the claim on their own personal tax  return and not the partnership return. This would have been a welcome change for partners but has not been introduced.

HMRC have now updated their guidance note at  BIM82080  and have made the job of claiming partner expenses more difficult. The new guidance states   “To be allowable as a deduction for tax purposes, the expense has to be an expense incurred (typically, paid) by the partnership. If the partnership does not bring the expense into the accounts, then it is not an allowable deduction.”

If this new guidance goes unchallenged, it will require partnerships and LLPs to bring into account partner expenses into their accounts. This will require deducting the partners expenses in the partnership accounts and making an equal and opposite adjustment to the partner’s profit share to achieve the same net tax position as in previous years. Whilst the main impact of these changes is administrative, this will  clearly have a time and  cost impact for businesses. For example, a change in profit share to accommodate the tax relief for partner expenses, could require an update to the partnership agreement!

If you are likely to be impacted by these changes, please contact Jonathan Cunningham (Jonathan.cunningham@pmm.co.uk) or Helen Clayton (Helen.Clayton@pmm.co.uk).

Jill Morris, director of PM+M’s Run My Business division, cuts through the confusion of Making Tax Digital for VAT.

What is Making Tax Digital?

Making Tax Digital (‘MTD’) is an attempt to do exactly what its name suggests. Businesses will have to keep electronic records of their accounts (using HMRC MTD approved software) and file their tax information digitally.HMRC claims it wants to make tax administration more effective, more efficient and simpler.  In practice, it means that business and taxpayers will need to start using accounting software to digitally submit the returns instead of completing their VAT returns by typing numbers into the existing online HMRC portal.

When does MTD for VAT come into force?

Officially on 1st April. There is a stagger depending on the business quarter end date. This is when affected businesses will no longer be able to keep manual records. After that date, digital records must be maintained in software or spreadsheets which can connect to HMRC via an Application Programming Interface (API).

Who will be affected?

All VAT-registered businesses and organisations with a taxable turnover above the VAT threshold of £85,000 per annum.

Are there any exemptions?

In the main, no. HMRC’s online VAT return will remain available only to businesses and organisations that are not within the scope of MTD for VAT. So, just those which complete a VAT return but have taxable turnover below £85,000.00 per year. However, the only exception to this is a small minority of VAT-registered businesses and organisations with more complex requirements. These include trusts, ‘not for profit’ organisations that are not set up as a company, VAT groups, VAT divisions, traders who are based overseas, annual accounting scheme users and any organisation that makes payments on account. Those which fall into any of these categories have a six month deferral until October 2019.

What do businesses need to do to be ready for MTD for VAT?

Firstly, take time to understand the facts and what MTD actually means for you. It’s a huge change and one that can’t be avoided. On a more practical level, speak to your accountant or carefully research the types of compatible software products that use HMRC’s API platform. There are a lot on the market – some better than others.  It will also take time to learn how to use so don’t leave it until the last minute.

What are the implications of not being compliant?

If your business is affected by MTD for VAT and you don’t use compatible software then you simply won’t be able to submit your returns and pay what is owed. If that happens, HMRC will consider your business to have defaulted on its VAT bill. When a   business fails to pay its VAT, it enters into a 12-month period called a ‘surcharge period’. During which time, it will be charged an additional fee on top of its VAT bill based on its annual turnover and past default history. If it still fails to pay VAT, its account will go into arrears and HMRC will take steps to recoup the monies – often through the courts.

PM+M can offer a wide range of services and support to help you become MTD compliant (including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submissions to HMRC and even providing training for your team). Get in touch with our specialist MTD team to find out more by emailing MTD@pmm.co.uk or by calling 01254 679131.

RBS Business Banking Switch – are you affected?

If you are a Royal Bank of Scotland customer, and your business has an annual turnover of less than £25 million, then you may be eligible for incentives to switch your banking to another provider.

Overview

For many years the provision of business current accounts and credit for SMEs has been dominated in the UK by the incumbent ‘big four’ banks (HSBC, Lloyds, Barclays and RBS) who together hold around 85% market share.

As a condition of the government providing financial support to Royal Bank of Scotland (RBS) in 2008, the state-owned bank is now preparing to hand over £6 billion in customer deposits and £4.2 billion in loans to challenger banks, known as the ‘business banking switch scheme’.

The government hopes this will increase competition within the banking sector and provide customers with far greater choice.

However, many business owners are still in the dark about the scheme, here we explain what the new incentive means for SMEs.

What is the business banking switch?

This is an incentivised switching scheme for challenger banks to pick up some of the RBS customer base.

Originally known as the ‘incentivised switching scheme’, it is now better known as at the ‘business banking switch’. Banking Competition Remedies Ltd (BCR) is the organisation tasked with overseeing the implementation of the scheme, independent of RBS and the UK Government.

There is £225 million worth of funding available to challenger banks in the form of dowries to encourage the switch of eligible customers.

The dowries range in size from £750 – £50,000 depending on the customer’s business turnover. Challenger banks will determine how to apply the dowries for the benefit of the eligible RBS customers through preferential offers and incentives.

Eligibility

The scheme is open to eligible RBS SME banking customers. All eligible customers should have already been contacted by RBS. To participate, your turnover must be £25 million or less, and you may not be allowed to apply if your business is in financial difficulty. Those seeking to participate in the scheme will need to be registered on the RBS microsite and will be provided with a unique reference to confirm eligibility.

Who are the challenger banks?

Eleven banks have been approved to join the scheme, including:

  • Arbuthnot Latham
  • CYBG
  • Co-Operative Bank
  • Hampden & Co
  • Metro Bank
  • Monzo
  • Nationwide Building Society
  • Santander
  • Starling Bank
  • Handelsbanken
  • TSB

When is it happening?

BCR has confirmed that the business banking switch will launch via a dedicated switching website on 25 February 2019, but applicants can register their interest now via the RBS microsite.

Should you switch?

As with any big business decision, it’s always better to seek professional advice. Although some of the offers may seem too good to miss, it’s important to consider what your bank can offer you in the long-term.

If you are an eligible RBS customer and would like to talk about the business banking switch, please contact Tim Mills on 01254 679131, or via email at tim.mills@pmm.co.uk.

Employers must change the way they administer payslips to their workforce

From 6 April 2019, new legislation will alter how UK employers provide payslips to their workforce.

Under this new regulation, employers will have to deliver itemised payslips to all workers on their payroll, not just those classified as ‘employees’. Current legislation does not require payslips to be issued to contractors, freelancers, and other types of ‘non-employee’ workers, but this situation will change in April of this year, with obvious implications for payroll departments.

Greater transparency

The new legislation aims to ensure more workers are paid fairly and accurately in industries across the UK. Similarly, those workers will be able to react faster when they are paid incorrectly and become more aware of their rights.

Variable-time employees

Under current provisions, payslips should include details of:

  • The employee’s gross salary/wages
  • Deductions (e.g. tax and NI)
  • Net salary/wage amount received

Under the new legislation, payslips must also include information about the number of paid hours an employee has worked, but only in situations where “the amount of wages or salary varies by reference to time worked”. In these variable contexts, payslips should show hours worked either as:

  • A single, combined amount; or
  • An itemised list of hours worked for different rates of pay

Including this information on payslips means that variable-time employees will not only find it easier to reconcile their pay with their hours worked but will also be able to establish whether they are being paid the national minimum wage by their employers.

Adjusting your payroll

With the April deadline fast approaching, employers should act now to adjust their payroll setups to facilitate the provision of payslips to all workers. As an employer, this means reviewing the infrastructure of your payroll system and ensuring:

  • There is integration between other parts of your organisation (such as HR)
  • That the payroll is not only adjusted, but also able to collect the information required by the new regulations and the payslip format is able to present it
  • Payslips are provided to employees in printed, written or electronic format, delivered on or before the employee’s payday

How we can help

At PM+M, our payroll team will make sure your employees are being paid for the time they work, and your payroll and payslip process is meeting the new requirements, so that you avoid fines and maintain best practice for your employees.

For more information about our payroll services, please contact Julie Mason on 01254 679131 or via email at julie.mason@pmm.co.uk.

Introducing Jon Connor: Our new R&D tax specialist

Research and Development (R&D) tax incentives have been around now for quite some time, but are you making the most of them? According to our newly appointed R&D Tax Credits Manager, Jon Connor, these benefits could give you “a competitive edge”.

Uncovering innovation from within a business can often be complex. It may be buried within different areas of your organisation or even outsourced. Whether you’re a recruitment agency designing a new app or a manufacturer developing new production techniques, innovation can come in all shapes and sizes, and is very rarely bound by industry.

However, around nine out of ten eligible SMEs fail to claim for R&D tax relief, indicating that the hidden value of innovation is not known.

“Companies are missing out on valuable R&D tax credits to the tune of thousands of pounds,” says Jon. “Generally speaking, I find it’s the businesses you typically wouldn’t associate with R&D that are overlooking relief.”

“The very term “R&D” often deters many firms from applying,” Jon explains. “Innovation doesn’t always take place in laboratories with scientists in white coats. On numerous occasions I’ve had business owners tell me “we don’t really do R&D”, often perceiving the scope of qualifying activities to be much narrower.”

If you are developing new products, processes or services there is a strong chance that you are eligible for R&D tax relief. The relief allows a company to deduct an extra 130% of qualifying costs from its yearly profit (as well as the normal 100% deduction) to create a total 230% deduction. Qualifying expenditure can include costs spent on employees, software, transformed / consumed materials and subcontractors.

Here at PM+M have helped clients all over the UK recoup over £3m in R&D tax credits in total. In turn, this has enabled business-owners to reinvest in innovation, future-proof their companies and, most importantly, invest in growth initiatives.

Jon says: “If you’re unsure as whether you could qualify for tax relief, it is absolutely worth having a ten-minute phone call with us. The potential outcomes of making a claim could revolutionise your business and help you achieve your financial goals.”

We can help you to identify eligible R&D projects (historic, current and future), highlight expenditure incurred on qualifying activities, optimise the amount of relief available, draft supporting documentation to HMRC and offer support in defending your claim in the event of HMRC raising queries.

Please do not hesitate to get in touch with Jon to discuss your situation and understand whether or not you may be eligible.

HMRC brings uncertainty surrounding entrepreneurs’ relief to an end

A much welcomed amendment to the Finance Bill 2018-19 is being proposed which should bring to an end to the recent uncertainty surrounding entrepreneurs’ relief, triggered by the 2018 Autumn Budget announcements (as covered in our recent blog).

The change comes following lobbying by the ICAEW and CIOT and is set out in this ICAEW blog post.

The proposed 2018 Budget amendments remain, but with an alternative to the new test where an individual’s shareholding in a trading company will qualify for entrepreneurs’ relief where either or both of the following conditions are met:

  1. By virtue of that holding, the individual is beneficially entitled to at least 5% of the profits available for distribution to equity holders and, on a winding up, would be beneficially entitled to at least 5% of assets so available, or
  2. In the event of a disposal of the whole of the ordinary share capital of the company, the individual would be beneficially entitled to at least 5% of the proceeds.

This new second part of the test should remove the uncertainty surrounding shareholders with alphabet shares as it indicates that where a company with alphabet shares is disposed of, then provided the shareholder receives at least 5% of the sale proceeds, they should qualify for entrepreneur’s relief even if they have not had an entitlement to 5% of dividends.

It is hoped that the amended test is adopted into law and provides an end to uncertainty for the vast majority of private company shareholders.

For further advice or a discussion about entrepreneurs’ relief, please contact our tax director, Claire Astley, on 01254 679131 or via email at claire.astley@pmm.co.uk.

HMRC guidance for businesses to prepare for potential no-deal Brexit

Ahead of Britain’s upcoming departure from the European Union (EU), HM Revenue & Customs (HMRC) is warning businesses about the necessary steps they need to take to prepare for the unlikely event of a no-deal Brexit.

Earlier this year HMRC sent an initial warning to businesses who import or export goods within the EU, warning that should we fail to reach a deal, there would be immediate changes about the way that businesses trade with the EU.

More recently, HMRC has prepared a second letter that will be sent to those businesses, detailing the three steps that businesses should take now to prepare for the possibility of no deal.

  • The first of these steps is to register for a UK Economic Operator Registration and Identification (EORI) number at https://goo.gl/paAobk.

Businesses will need an EORI number to continue to import or export goods with the EU after 29 March 2019, should the UK leave without a deal. They will also need the number to apply for upcoming authorisations that will help to make the customs processes easier for businesses.

  • The second step that businesses will be advised to take is to decide whether to hire a customs agent to make import/export declarations, or if the business would like to make these declarations themselves through software that interacts with HMRC systems.

Whatever the decision it is encouraged that businesses take steps to prepare by either contacting an agent to find out what information they require or contacting a software provider to ensure their product meets the requirements of the business affected.

  • The final action HMRC is encouraging businesses to take is to contact the organisation that moves their goods to find out if they require any additional information to allow them to make the correct safety and security declarations for the goods.

More information on these changes can be found at https://goo.gl/EfgXXS

The international team at East Lancashire Chamber of Commerce have also put together a ‘Brexit Hub’ to look the practical actions internationally active companies can take to prepare and mitigate or manage the impact of Brexit, details can be found here https://www.chamberelancs.co.uk/brexit/

If your business is likely to be affected and you are unsure about the actions required, then it is important to seek specialist advice. Contact us on 01254 679131 and speak with your usual PM+M contact should you need any help or email us at enquiries@pmm.co.uk.

How do changes in entrepreneurs’ relief following the Budget affect me and when do they come into force?

PM+M’s tax director, Claire Astley, examines the changes to entrepreneurs’relief following announcements made in the 2018 Autumn Budget.

Entrepreneurs’ relief allows the individual owners of business assets, including shares in a “personal company” (see definition below), to pay a reduced rate of tax on any capital gain they make when they sell those assets.  Entrepreneurs’ relief applies to individuals only.  It isn’t applicable to any gains made by limited companies.

Key changes following Autumn Budget

The Chancellor announced two key changes to entrepreneurs’ relief which shareholders need to consider now.

The first change announced was the definition of a ‘personal company’ for entrepreneurs’ relief.  Previously, a personal company was defined as a trading company in which the shareholder:

  • is an office holder, director or employee of the company or group company; and
  • holds at least 5% of the ordinary share capital and of the voting rights of the company.

Following the Budget announcements, the shareholder will now also need to hold a 5% interest in the distributable profits and the net assets of the company for the relief to be available on the gain.

As this change will apply to disposals on or after 29 October 2018, the new conditions will need to have been met for a minimum period of 12 months leading up the disposal, this could have an impact on any imminent sales.

The second change, effective from 6 April 2019, is to extend the holding period throughout which the qualifying conditions for the relief must be satisfied before the disposal from one year to two years.

Finally, an individual whose shareholding is below the 5% qualifying threshold due to an issue of new shares will from April 2019 be able to obtain entrepreneurs’ relief on gains made up to the time of the dilution and freeze their entitlement at that point.

Points to note

There has been much discussion in the industry media regarding the impact these changes may have on shareholders with alphabet shares in their personal company and whether such shareholders will meet the new 5% interest in distributable profits condition.  The changes in legislation have led to a great deal of uncertainty in this area and the professional bodies are due to meet with HMRC on 12th December to hopefully clarify the position.

On the bright side these new conditions do not apply to shares issued through the enterprise management investment (EMI) scheme making this an even more attractive option for issuing shares to key employees.

Next steps

Shareholders with alphabet shares should sit tight for now and await the outcome of the discussions with HMRC.  Shareholders with alphabet shares who are in the process of selling their shares please contact us for a review of your position.

Any changes made to share rights without proper advice could result in income tax charges arising for shareholders under the employment related securities legislation, so it is important not to rush into making changes.

For advice on this matter speak to Claire Astley on 01254 679131 or email Claire directly at claire.astley@pmm.co.uk.

Christmas present appeal 2018

 

 

 

 

 

 

In 2010, we launched the first ever PM+M Christmas present appeal where our team, clients and friends were asked to donate Christmas presents for local vulnerable children. Due to the success and generosity over the past eight years we have decided to run the appeal again.

Over the next few weeks we’ll be collecting gifts for Blackburn, Burnley and Bury Children’s Services and want to make it our biggest year ever!

If you are able to spare a little time and money, we know your donations will be greatly appreciated. For some children, this could be the only gift they receive this Christmas. Gifts can be for children of any age or gender and we have included a few guidelines below:

  • Gifts should be to the value of around £10
  • Gifts must be new
  • Gifts can either be wrapped or unwrapped
  • If wrapped, gifts should be clearly marked with gender and age range
  • Gifts should not contain confectionery or alcohol

Gifts can be dropped off at our any of our offices between 8:30am and 5pm. The last day for drop off is Thursday 13 December.

The PM+M team would like to take this opportunity to thank you for your kindness and generosity and we do hope that as many of you as possible will join us in supporting such a worthy cause.

A reminder of our office addresses are below. Should you require any further information, please get in touch with our marketing team on 01254 679131.

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PM+M wins Professional, Legal and Financial award for the second year running at Made in Bury Business Awards

Today all of us here at PM+M are celebrating after winning the Professional, Legal and Financial award for the second year running at the prestigious Made in Bury Business Awards.

The Made in Bury Business Awards (which took place last night – Thursday 22 November) are held to champion local Bury businesses and celebrate their outstanding achievements. This is the sixth year the awards have been staged, and entries were judged by a high-profile panel which included some of the borough’s leading business professionals.

Along with being crowned as best Professional, Legal and Financial firm in Bury, we are pleased to confirm that PM+M was also highly commended in two other categories – Excellence in Developing People (for our dedication and commitment to supporting and encouraging our team to exceed), and Businesswoman of the Year (in which PM+M partner Helen Clayton was shortlisted).

As the leader of PM+M’s Bury office, Helen has played an integral part in PM+M’s success over the past few years, and under Helen’s direction, PM+M has become a leading figure in Bury’s business scene.

Helen said: “As our Bury office goes from strength to strength, I am so proud of the PM+M team and the success we have had in Bury since setting up the new office just over two years ago. Winning this award for a second year really does demonstrate our commitment to the Bury community which we serve. We will of course continue to develop and will hopefully be back to enter Made in Bury Business Awards next year and fingers crossed we will walk away with a third success story!”