Archive for the ‘Uncategorized’ Category

Not so trivial benefits

Wednesday, October 18th, 2017

According to HMRC you don’t have to pay tax or NIC on a benefit provided to an employee if:

  • it costs you £50 or less to provide (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person)
  • 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

Unfortunately, this generous offering does not apply to directors or other office holders or their family. Where the employer is a private company and the benefit is provided to an individual, who is a director or other office holder of the company (or a member of their family or household), the exemption is capped at a total cost of £300 in the tax year.

Even so, by keeping to the rules this does provide a useful tax-free benefit. For directors who pay income tax at higher rates, the £300 annual benefit is equivalent to a taxable income of £500.

It is worth noting the following points:

  • One of the conditions that needs to be satisfied is that the cost of providing the benefit does not exceed £50. If the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.
  • In determining the cost of the benefit for the purposes of the exemption, as for benefits in kind more generally, use the VAT inclusive amount.
  • The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to 1 or more employees can be treated as trivial.
  • Usually it will be obvious what the cost of providing the benefit is. However, on occasions an employer will provide a benefit to a group of employees and it is impracticable to establish what the precise cost is per person. In such cases, when determining whether the monetary limit has been exceeded you should take the average cost per person of providing the benefit.
  • In determining whether the average cost method should be applied, you should apply common sense, bearing in mind the circumstances, in deciding whether it is appropriate.

The following example published by HMRC may be pertinent as we approach the festive season:

Employer D provides each of its employees with a bottle of wine costing £25 at Christmas. However, as an alternative, it provides employees who do not drink alcohol with a £25 gift voucher for a national supermarket chain which they can exchange for an alternative non-alcoholic Christmas gift. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.

Food for thought?

Are you lending money to your company

Tuesday, October 17th, 2017

There is a whole raft of legislation that seeks to penalise directors and shareholders if they borrow money from their company. These regulations include possible benefit in kind charges for the director/shareholder, and additional corporation tax payments of 32.5% for the company.

In effect, the tax system discourages directors from using their company as a private bank account.

But what happens if the reverse situation occurs and a director/shareholder lends money to their company?

If a company requires long-term funding, this “loan” may be secured by the issue of shares in which case the shareholder may be entitled to a dividend. They would also share in the spoils if the company was subsequently sold or wound-up. Essentially, once capital is locked in to a formal shareholding arrangement, it is difficult for the shareholder to recover their investment without undertaking a complicated, and expensive, legal process.

An alternative approach, is to simply lend money to the company. This is best done by agreeing terms and setting up a formal loan agreement between the company and the person lending the funds. It should set out any terms for repayment, security offered by the company, and most important, any interest that will be paid by the company for the use of the funds.

The last point is significant. Many directors of smaller companies simply deposit funds in their company and take it back when it is no longer required, but they may be missing out on a possible tax-free – albeit small – income stream.

For example, depending on other sources of income, the person lending the money could be entitled to the £1,000 or £500 personal savings allowance. A loan of just £16,000, with an agreed interest rate of say 6%, would generate an annual income for the lender of just under £1,000. If the lender was a basic rate tax payer they would be entitled to the £1,000 tax-free allowance, and the company could deduct the interest payment from their taxable profits.

As always, the devil is in the detail. Please contact us for advice if you are considering a loan to your company or formalising any past loans made.

Bookkeeping in the cloud

Friday, October 13th, 2017

Smaller business owners, those with annual turnover below the current VAT registration threshold (£85,000 for 2017-18), will be relieved to know that the impending digitisation of tax by HMRC will not be a requirement when the process starts for business tax from April 2019.

You can register on a voluntary basis, but many smaller businesses may be advised to wait until the perceived benefits of the Making Tax Digital process are clearly demonstrated.

Many one-person businesses keep manual records and some use a spreadsheet to record business transactions. Others may have downloaded accounts software to their PC. In these cases, it would be necessary to take your records with you if you want your advisor to prepare your annual accounts or help you with a bookkeeping problem – where do I record this?

What is bookkeeping in the cloud? And how can it help?

Cloud based accounts software resides on a server that you access via your internet browser. Usually, you pay a small monthly fee for the use of this type of software, and there are significant advantages. They include:

  • The software providers take care of security and backup issues.
  • Your accountant can login and keep an eye on your financials, with your permission. This can vastly improve the speed with which accounts can be prepared and help provided with issues such as cash flow management, profit improvement and solvency.
  • You can access your accounts wherever you can access the internet, this might be your home PC, an iPad or even your phone.
  • There are lots of add-on tools that you can use, for example, the ability to scan receipts with your phone and push the information to your accounts.

Using this type of software is not for everyone, but if you are serious about growing your business having this ability to record and analyse information quickly will be of great benefit.

We can help. If you would like to see a demonstration of the software we recommend, please call for an appointment.

Avoid property fraud

Thursday, October 12th, 2017

Since September 2009, HM Land Registry has prevented 254 fraudulent applications being registered. The most common fraud is when someone pretends to be you and mortgages or even sells your property without your knowledge.

A simple and cost-effective way to counter this activity is to register with the award-winning Property Alert service. This is managed by HM Land Registry. You can:

  • monitor a property already registered with HM Land Registry
  • monitor the property of a relative, you don’t have to own a property to set up an alert
  • you can choose up to 10 properties to monitor.

You can do this online at https://propertyalert.landregistry.gov.uk/

What you need to know about the service:

  • The property you want to monitor must be situated in England or Wales and registered with HM Land Registry.
  • You must create a Property Alert account to use the service
  • You will receive a HM Land Registry email (please check spam inbox) to enable you to verify your email details
  • You must then sign in to your account to add a property
  • Email alerts are sent when official searches and applications are received against a monitored property
  • If you receive an alert about activity that seems suspicious you should take swift action. The alert email will signpost you to who to contact.
  • You don't have to own a property to set up an alert
  • The same property can be monitored by different people.
  • Property, especially flats/apartments, can be registered with two titles. Blocks of flats are often owned by companies (Freehold), and the person owning the individual flat (Leasehold). When registering for this service please choose Leasehold title for individual flats/apartments.

You can also use the service if you are not online. Call the Property Alert team on 0300 006 0478.

 

Once you have registered your properties, HM Land Registry will send you an email alert each time there is significant activity on the property you are monitoring, such as if a new mortgage is taken out against it.

The alert will tell you the type of activity (such as an application to change the register or a notification that an application may be due), who the applicant is and the date and time it has been received.

Not all alert emails will mean fraudulent activity. If you don’t think the alert email is about any suspicious activity, you don’t need to do anything.

Signing up to Property Alert won’t automatically stop fraud from happening. You will need to decide if the activity on the property is potentially fraudulent and act quickly if so. The alert email will tell you who to contact.

Under 18s and tax

Monday, October 9th, 2017

Children (under 18s) can earn up to £11,500 in the current tax year and pay no income tax. This is the maximum that can be earned during 2017-18 and will include earnings from all sources subject to income tax. The most common are:

  • Income from employment
  • Income from self-employment
  • Bank interest and dividends received – although see comments below.

If you are aged 16 and over you may have to pay National Insurance if earnings with a single employer exceed £157 per week.

Parents are advised that if they gift shares in family companies to their under 18s children and then pay dividends on the gifted shares – with the aim of taking advantage of the annual tax-free dividends allowance and the possible lower rates of tax payable by the children – this strategy is unlikely to work as HMRC would seek to treat the dividends as if they had been received by their parent(s).

Once a child reaches the age of 18, then gifting shares in a family company to divert dividends from parents to the child would be possible. A word of caution however, this area of taxation is littered with anti-avoidance regulation so before transferring or issuing new shares, professional advice should be taken.

Parents also need to be clear that if they employ their under 18s in their business, then they need to pay a commercial rate for the job involved. Paying more than market rates would likely attract the attention of HMRC.

Capital Gains

Children under 18 years are entitled to claim the annual capital gains tax exemption of £11,300 for 2017-18, but only on the chargeable disposals of assets in which they have a legal title.

Junior ISAs

The under 18s can save in a tax-free fund by investing in a Junior ISA. The savings limit in these schemes for 2017-18 is £4,128. Parents can open an account but the money invested belongs to the child.

Children can take charge of the investment from age 16 but cannot withdraw funds until they reach 18 years.

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