Since 2016 there has been no charge to tax and NIC on “trivial” benefits provided to an employee. This means that these do not  need to be shown as a benefit on a form P11D but are still tax deductible in the company accounts.

What is a trivial benefit?

It’s a gift to an employee, not linked to their duties.  For example a bunch of flowers, a candle, office ice creams on a sunny day, gift vouchers on their birthday etc.

The rules state:

  • the cost must not exceed £50 (or £50 per person in the case of a benefit provided to several employees at once);
  • the benefit must not consist of cash or a credit token (including the use of a credit card);
  • there should be no salary sacrifice involved; and
  • provision of the benefit can not be linked to any particular services provided by the employee.
  • There is no limit to the number of trivial benefits allowed to staff in the year.
  • However, in the case of directors and their family members the trivial benefits are capped at £300 per year.

 

An example could be buying an employee a gift around the time of their birthday, sending an employee flowers to celebrate an event, giving a gift voucher to show appreciation to a member of staff.

Happy Birthday, Happy Easter, Happy Christmas, Happy Friday, Happy Valentines, Happy Halloween!

Remember if you are the director of your own limited company and you receive a salary via the company payroll then you are also an employee and therefore are entitled to receive trivial benefits from your company.

These are capped at £300 per year, however you could ‘gift’ yourself a John Lewis or Amazon voucher six times throughout the year to enjoy this tax free perk!

The IR35 rules are not new and most people who work as a contractor via a Personal Service Company (PSC) are familiar with this legislation, however from April 2020 there will be a change which is expected to have a huge impact on the contracting sector.

IR35 Recap

To recap, IR35 was intended to deal with the problem of those who were employees in all but name, i.e. they had gone ‘off payroll’ in order to save tax and NI by trading through a PSC.  Employers will have seen benefits too by saving employer’s NI, removing the burden of PAYE admin and avoiding employment rights.

Currently the worker decides if their contract is caught by IR35. There are a number of tests to follow and often working practices and a contract review are sufficient evidence for those outside of the legislation.

Changes

From April 2020, it will be the end client making the IR35 assessment.

There are rumours that banks and other medium and large engagers could take a blanket approach and pull all contractors into IR35.  This means that tax and national insurance will be applied resulting in a significant drop in the contractor’s net take home pay.

The rules state that the end client will need to assess each contractor individually using HMRC’s online Check Employment Status Tool (CEST) and provide them with a Status Determination Statement (SDS).  The problem is that CEST won’t be updated until the end of the year and therefore these assessments cannot truly begin until January 2020.  This leaves many people in limbo until the New Year.

Points to consider:

  • The changes don’t impact ‘Small Business’ (less than £10.2 million annual turnover or less than £5.1 million balance or less than 50 employees).
  • Even if the end client is deemed a Small Business, if there is an intermediary in place, such as a national recruitment agency, then you may still be affected.
  • Use the time now to review your contracts and working practices with your end client to establish if they will consider you caught by IR35 from April 2020.
  • Consider negotiating a higher rate, to compensate the reduction in net take home pay.
  • Establish if your end client would consider offering you a PAYE contract instead (the benefit of this includes paid holiday pay, sick pay, maternity / paternity pay, pension contributions and other employment rights).
  • Review your industry sector to seek new contract opportunities with a ‘Small Business.

It’s good to talk

Prior to a4c, Esther spent many years working within the recruitment industry, specifically working with contractors.  She has an indepth understanding of the PSC market and would be happy to book a call if you wanted to discuss your specific circumstances.

Feel free to make contact to schedule a telephone meeting.

If you have a buy-to-let property, which you intend to dispose of in 2020, then there are three key changes in the Finance Act 2020 which may have a significant impact on the amount of tax you pay and the timing of this payment.

1. Capital Gains Tax (CGT) rule changes

From April 2020 if you sell a residential UK property and there is a Capital Gain to be declared, then you will need to prepare and file a new stand-alone CGT return (previously this calculation was included in your self-assessment tax return).

The main challenge will be that you have 30 days to file the CGT return following the date of completion.  This deadline also applies to paying any tax due!

HMRC anticipates that your solicitor will handle this administration for you however, as they will require agent authorisation, this may not always be possible within the timescales and may result in penalty notices.

To prepare for this a4c will be developing a new stand-alone CGT service to be available from April 2020.

2. Private Residence Relief (PPR) rule changes

The amount of CGT payable on the sale of a second property can often be reduced by applying reliefs.  The first is called Private Residence Relief (PPR) and allows the CGT calculation to give you relief for the period that the property was your main home.  This includes a final period reduction, even if you didn’t live in the property at the end.

If you lived in the home at any point as your main residence then the final period relief is currently 18 months (this was 3 years up until 2015).  From April 2020, the final period relief will reduce to 9 months.  This could have an impact on the amount of CGT due.

3. Removal of Letting Relief

The other change is the removal of letting relief, in most cases.  Until recently if you rented out your second home then you could claim letting relief, which reduced the amount of capital gains tax due.

From April 2020 letting relief will only apply if the property is occupied by the owner at the same time as the tenant.  As the majority of people move out when they rent it (rather than share with a lodger) this letting relief can be considered as effectively abolished.

If you are concerned about how the changes will impact your finances then give the a4c office a call on 01737 652 852.

Xero provides beautiful accounting software and they are fast establishing a reputation of hosting the best annual accounting conference in the UK.

Esther and Jake from a4c attended Xerocon on 13th & 14th November and were impressed with the scale of this event and the volume of useful information available.

There were singers and dancers opening the conference and British astronaut Major Tim Peake giving the closing address.

In between were two days packed with business masterclasses, software product updates and huge amounts of inspiring content.

An exhibition hall also provided the opportunity to meet with Xero’s key add-on partners, such as Receipt Bank, Go Cardless, Stripe, Fluidly etc.

Xero Improvements

In 2020 there are some exciting new features planned for Xero, these include:

  • Xero Pay with Transferwise – this will enable bills to be paid directly from within Xero, rather than needing to login in to online banking to make payments. That will be a significant time saving for so many people!
  • Data processing – Receipt Bank is always improving and the more you use it the faster it becomes, focus within Xero is on processing receipts ‘automagically’, using machine learning and processing rules.
  • Business Snapshot – a new tool coming soon to give business owners a high-level view of business performance, using graphics and key metrics.
  • Short term cash flow – later in the year Xero plans to release a cash flow tool to support business owners with forecasting.

What is measured improves

The key message from Xerocon is the reminder that if you measure how your business is doing then you can make improvements.  The Xero software and add-on partners allow you to interrogate the metrics of your business and from this you can develop a strategy for the future.

In 2020 a4c will be offering a new Xero training and business review service, watch this space for more details!

Your property rental profits are going to increase considerably this year and yet you’ll have no extra money in your pocket.

In fact, you may feel poorer as your tax bill may go up and allowances may go down.  So, what’s happening?

 


Mortgage interest no longer 100% deductible for tax

You may recall, back in 2015, we explained that finance costs were being restricted.  Largely this means that the interest you are charged on your buy-to-let mortgage is no longer 100% deductible as an expense.

Instead the government introduced restrictions to taper the interest relief over a number of years until 6th April 2020 when there will be no relief permitted for finance costs.

The knock-on effect of the interest restriction last year, in the 2017/18 self-assessment tax returns, will have been relatively minor as only 25% of interest was blocked, but in 2018/19 the restriction was 50% and therefore the tax returns we are currently preparing look rather more unpleasant, with next year’s looking highly unattractive.

Profit forecast

The interest restriction means that your property profits will increase.  This means that your taxable income will have grown since last year and therefore your tax bill (and payments on account) may also be going up.

In many cases this is pushing clients into a higher band for tax.  In 2019/20 the tax bands are as follows:

Band Taxable income Tax rate
Personal Allowance Up to £12,500 0%
Basic rate £12,501 to £50,000 20%
Higher rate £50,001 to £150,000 40%
Additional rate over £150,000 45%

An Example

Up to 2017 you could deduct your mortgage interest and other allowable expenses from your rental income to determine your property profits, for example:

  • £10,000 rental income
  • £5,000 mortgage interest costs
  • £1,000 other allowable expenses
  • = £4,000 profit from property rental

 

These profits were combined with your other sources of income and you were then taxed at your marginal rate, so a basic rate taxpayer would pay £800 in tax (£4,000 x 20%) and a higher rate taxpayer would pay £1,600 in tax (£4,000 x 40%).

From 2020 you will no longer be able to deduct mortgage interest from your profits, therefore using the same figures the outcome is as follows:

  • £10,000 rental income
  • {£5,000 mortgage interest costs NO LONGER DEDUCTED}
  • £1,000 other allowable expenses
  • = £9,000 profit from property rental

 

Instead of deducting the mortgage interest HMRC will allow landlords to claim a basic rate allowance for finance costs at 20%. Therefore £1,000 can be deducted from the tax bill (£5,000 x 20%).

So in this example a basic rate taxpayer still only pays £800 (£9,000 x 20% MINUS £1,000).  However a higher rate tax payer now owes £2,600 (£9,000 x 40% MINUS £1,000).

Note that despite the £9,000 ‘profit’ HMRC calculate, you still only have £4,000 in your pocket at the end of the year (£10k rental income less £5k mortgage costs less £1k other expenses).

Unintended consequences

From this example it would appear that a basic rate taxpayer is unaffected, however note that the taxable profit has increased from £4,000 to £9,000.  This is a large jump and when combined with other income from PAYE employment, self employment, dividends etc. may drag the taxpayer into the higher rate band (as their total taxable income has increased).

Remember that it is the amount of taxable income that determines eligibility for many allowances and below are just some of the ways in which clients are feeling the impact of these higher property rental profits.

Tax on Dividends

Possibly the most painful result of the finance restriction on property profits will be in relation to tax on dividends.  As dividends are taxed as the highest slice of income, the interest restriction could push the dividend income into a higher tax band, attracting tax at 32.5% or 38.1% rather than at 7.5%.

Parents hit

The high-income child benefit charge (HICBC) prevents families from receiving child benefit where one parent earns over £60,000 (tapered from £50K).  The finance restrictions may push one of the parent’s earnings above this band therefore removing the child benefit payments for the whole family.

In addition, where one or both parents has taxable income over £100,000, they are not eligible to have a tax-free childcare account. Breaching this income threshold will also mean the family loses entitlement to 30 hours free childcare.

Finally, parents who are liable to pay child maintenance will find they must pay larger amounts based on their taxable income.

Savings income

Taxpayers who have significant savings income may enjoy their interest tax-free where it is covered by their personal savings allowance (PSA).  The PSA is set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, but is withdrawn for those in the additional rate band.

The finance restrictions may reduce the savings allowance to £500 or nil, making some or all of the interest income taxable.

Capital Gains Tax

The rate of CGT payable on the disposal of an asset is dependent on the level of the taxpayer’s taxable income in the year that the asset was sold. The finance restriction could result in the taxpayer paying CGT at 20% rather than at 10%, or at 28% on residential property gains rather than at 18%.

Student loans

Individuals who have outstanding undergraduate student loans have to pay 9% of their taxable income above these thresholds:

  • £18,935 for plan 1 loans
  • £28,725 for plan 2 loans

 

Those who have also taken out a postgraduate loan must pay an additional 6% of their taxable income above £21,000 from 6 April 2019. The finance restriction could easily push a landlord over these thresholds.

Other areas

  • The personal allowance for tax free earnings, is tapered away for those earning over £100,000.
  • Pension annual allowance is reduced for high earners.
  • Marriage allowance is withdrawn where taxable income exceeds the basic rate band.
  • Scottish taxpayers have more tax bands and could therefore be pushed into a higher band sooner than others in the UK

Note.  This restriction does not apply to corporate landlords, or those letting furnished holiday lettings or commercial property.

If you are concerned about how the changes will impact your finances then give the a4c office a call on 01737 652 852.

It’s not the view from the top of the mountain that matters, but the journey to get there…

Last weekend Esther (as part of her Girls Alive group) completed the National Three Peaks Challenge. This is an event in which you challenge yourself to climb the tallest mountain in Scotland, England and Wales within 24 hours. Her report of the event follows:


And they’re off…

We started on Saturday morning with a flight from Gatwick to Glasgow, where we met our guide, who would accompany us throughout the weekend. We were directed to the minibus, which was to become our home for the next 24 hours, and headed up to Fort William, the town located at the base of Ben Nevis.

Scotland

A huge thunderstorm met us with sideways rain, as family at home were sharing photos of Surrey basking in a 30-degree heatwave!  Not put off by the weather we readied our packs, did a group warm-up and made our way to Ben Nevis, the first mountain.

6pm, the clock starts and we cross the bridge to the mountain footpath as the weather breaks and the sun comes out.  Ben Nevis is a beast of a mountain and the climb was relentless, not helped by a 5am start that morning! We reached the summit in around 3 hours, enjoyed lots of group photos and took in the breath-taking scenery, but then it was time to get a shimmy on and descend before darkness.

Sunset views encouraged us back to the minibus as we completed this mountain in a respectable 5 hours 30 minutes, without the need for head torches, result!

No time to celebrate though, we had a quick drink, a pasta pot and then got our heads down to rest as the minibus drove towards England.

Pit Stop

On an organised trip like this the driver must adhere to tacho rules and take regular breaks, plus the minibus has a speed limiter installed, therefore at 3.30am we pulled into a service station for the driver to have a break. This was an ideal opportunity for us to eat, ahead of the next mountain. The only outlet open in the motorway service station was MacDonald’s so at 3.30am we’re having chicken nuggets for breakfast!

Then back on the bus for a quick cat nap as we crossed the border.

England

We arrived in Scafell Pike car park around 6am, had a quick loo break and then set off. This mountain isn’t as high as Ben Nevis but is steeper and the footpath was either large uneven steps or unstable shale. With no sleep the going was tough, not helped by the fact that from the halfway point we were climbing in the cloud and so had no idea where we were going or where we had come from.

At the summit, the wind was howling and so we took the quickest of photos and then scarpered back to the safety of the bus.

Completion time for Scafell Pike was 3 hours 30 minutes, above average and testament to us wanting to get the job done!

Teamwork makes the dream work

By now the minibus is feeling rather cramped, it’s untidy, a little smelly and we’re all feeling exhausted but the Girls Alive ladies share two things in common; a positive attitude and a great sense of humour. The banter is flowing and everyone is buoyed at the prospect of being more than halfway through the challenge with the completion time within our sights.

A quick stop at Chester services was required to change minibus driver, and we took this opportunity to prep our bags so that on arrival at Snowdon we were ready to head straight up the hill – time was tight and we didn’t want faffing to be the reason we failed.

Wales

The car park at the bottom of Snowdon was packed with day trippers so the minibus driver literally chucked us out and we were off.

The start of Snowdon felt easy compared to the other two and at one point (after being left behind to take photos) a few of us were able to run a mile or so to catch up with the group, this wasn’t possible on the other climbs as the paths were too dangerous to run on. Sadly, this running respite gave us a false sense of security, which was then shattered as the Pyg Track we were using to take us to the top turned into a rock climb! With walking poles in one hand and the other hand clinging to the side of the mountain we scrambled over some tricky rock clusters and climbed carefully to the top.

Sadly, the cloud cover stole the view of Wales beneath us and almost gave us a heart attack when, near the top, a large diesel train appeared out of the cloud and chugged past us. If only we’d known about the Snowdon train…. 😉

By now our legs feel like they’re full of lead as we drag our weary bodies to the summit. A gale was blowing and it was difficult to remain upright and so a very quick team snap shot and it’s back down the mountain, this time using the Miners Path back to the minibus.

The time for Snowdon was 4 hours 10 minutes, which we were delighted with.
We finished at 8pm and headed to the hotel for a well-deserved dinner and a good night’s sleep.

Challenge Complete

From the start of the first mountain to the completion of the third took us 26 hours. The Three Peaks Challenge aim is to complete all three climbs within 24 hours. This is split into 14 hours of climbing and 10 hours travelling. Our split was just over 13 hours climbing but 13 hours travelling, due to a delayed flight and road closures and therefore despite not finishing within the targeted 24 hours, we still feel chuffed that we made the climbing element within the challenge parameters.

Every one of the ladies on the trip had a wobble of confidence at some point over the weekend, we all needed to dig deep to keep going and at times questioned if we could make it, but with loads of support for each other we were able to come together as a team to complete the challenge.

This was an epic challenge of physical and mental strength. Each mountain tested our endurance and emotional resilience to the max but with this amazing group of inspiring and impressive women we felt that anything was possible.

  • Did we enjoy it? Absolutely
  • Would we do it again? No way!
  • What’s next? Don’t ask…  although there is talk of an English Channel swim *gulp* !!!!!

The Stats

The total walking distance was 25 miles, total ascent was over 3000 metres:

• Snowdon, in Wales (1085m)
• Scafell Pike, in England (978m)
• Ben Nevis, in Scotland (1345m)

What is Making Tax Digital (MTD)?

Making Tax Digital is a key part of the government’s plans to digitise the tax system.  The objective is to reduce mistakes and streamline the sharing of data with HMRC.

From 1st April 2019, all business with a taxable turnover that exceeds the VAT registration threshold (currently £85,000) are required to store their VAT records digitally and submit VAT returns to HMRC via MTD compliant software.

Note: The ability to submit a VAT return via the HMRC portal is being removed.

When does it start?

The first mandatory MTD VAT returns will be for businesses with a VAT quarter which ends on 30th June 2019.

Most businesses will have received a letter from HMRC about MTD and you may have noticed a high volume of accounting software advertisements in the media.  However, do you realise that it applies to you too?  And what steps do you need to take to be compliant?

This blog aims to resolve some of the concerns you may have.


a4c’s Frequently Asked Questions on MTD

1. Will I automatically be registered for MTD?

No, you will need to sign up for Making Tax Digital for VAT with HMRC.

  • If a4c are already preparing and filing your VAT returns, then we will sign you up in plenty of time to file your next VAT return.
  • If you file your own VAT returns then you need to sign up yourself, see below.

2. How long does it take to sign up for MTD?

If you are signing up yourself, it takes around 1 hour to start the process and then once you’ve made the submission you will receive email confirmation 72 hours later.  This means that you shouldn’t leave it until your VAT returns needs to be filed as you may miss the submission deadline (visit https://www.gov.uk/guidance/sign-up-for-making-tax-digital-for-vat for more information).

3. Does MTD apply to me if I already use accounting software?

Yes, MTD applies to every VAT registered business.  You will still need to sign up for MTD but assuming your software provider is on HMRC’s approved MTD list then the VAT return preparation and submission should be straight forward, once the MTD link is in place.

4. I’ve read about a soft landing; does this mean I don’t have to comply right away?

No, everyone must start to file MTD VAT returns for quarters ending 30th June 2019 onwards.  The soft-landing means that HMRC will be lenient in relation to penalties on returns filed late, where there are technical problems.

5. I understand that MTD is mandatory but are there any benefits to business owners?

Making Tax Digital means that HMRC will only accept VAT returns sent using MTD compliant software, like Xero.

If you haven’t used accounting software before then you’ll be amazed at how much of the heavy lifting can be done for you; automation, intelligent machine learning and streamlined access will enable you to manage your books quickly and be confident in your numbers.

As Gold Xero Partners, a4c are experts in this software and would be very happy to give you a free, no obligation demo.

In the meantime, the key benefits to Xero software are:

  • Automation

From importing bank transactions to sending invoice reminders, with Xero the leg work is done for you.  Plus, because the software is cloud based you can access your records from any device (PC, laptop, tablet or smartphone).  Saving you time and keeping your business moving, even when you’re on the go!

  • Feel confident in your numbers

When Xero is combined with Receipt Bank, automated data extraction from your receipts and supplier invoices will ensure that the correct amount of VAT is reclaimed every time.  Also in Xero you can set up bank rules to ensure that VAT rates and rules are applied correctly and consistently.

  • Proactive accounting support from a4c

Software which is cloud based can be accessed by you and us, as your accountants, throughout the year.  This means we can give real time support and assist you in making key decisions which can help to grow your business or to save you tax.

Act Now!

If you are a VAT registered business and don’t have MTD compliant software in place then now is the time to act!

Speak to a member of the a4c team for more information on how Xero could help you to comply, whilst affording lots of other worthwhile benefits too!

 

Has it been three years already?!

Every three years employers must put certain members of staff back into an automatic enrolment pension scheme. This is called ‘re-enrolment’.

Re-enrolment duties must be completed approximately three years after your automatic enrolment staging date.  You will also need to complete a re-declaration of compliance to tell The Pensions Regulator how you have completed your duties.

Re-enrolment and the re-declaration of compliance are legal duties and if you don’t act you could be fined.


Your re-enrolment steps:

1) Choose a re-enrolment date

You have a six month ‘window’ from which you can choose a re-enrolment date. This window starts three months before and ends three months after the third anniversary of your automatic enrolment staging date.

2) Assess and re-enrol staff

You need to assess staff who have:

  • asked to leave (opted out of) your pension scheme
  • left your pension scheme after the end of the opt-out period
  • stayed in your pension scheme – but chosen to reduce the level of pension contributions to below the minimum level, and who meet the age and earnings criteria to be re-enrolled.

 

You can leave out any staff member who, on your chosen re-enrolment date:

  • is already in the pension scheme you use for automatic enrolment
  • is aged 21 or under
  • is at state pension age (SPA) or over
  • has not yet met the age and earnings criteria for automatic enrolment, or has been postponed.

3) Write to staff you have re-enrolled

You must do this within six weeks of your re-enrolment date.  It is your legal duty to write to each member of staff you have put back into your pension scheme.

4) Complete your re-declaration of compliance

You must do this within five months of the third anniversary of your staging date

Completing and submitting your re-declaration of compliance is a legal duty to show how you have fulfilled your employer duties for re-enrolment. You must complete your re-declaration even if you don’t have any staff to put back into your pension scheme. You can start your re-declaration at any time after you have re-enrolled staff, or as soon as you work out you have no staff to put into your pension scheme.

We recommend that you don’t leave your re-declaration until the last day to complete as some information may take time to prepare.


Ongoing duties after re-enrolment

Each time you pay your staff you should carry out the following ongoing duties:

  • monitor the age and earnings of your staff to see if you need to put any of them into a pension scheme
  • manage requests to join and leave your pension scheme
  • keep accurate records of what you have done
  • pay money into a pension scheme if you have put staff into it.

Re-enrolment is also part of your ongoing duties and you must continue to do this every three years.

Spring is in the air and you’re thinking about fulfilling that new year’s resolution to get fit. What better way than by getting on two wheels and bagging a tax break into the bargain. How should you go about it?

Summer’s here (well nearly)!

These days Britain is a nation of cyclists, perhaps not yet to rival the Dutch but we’re pedalling fast to catch up. And with summer on the way many fair-weather riders are looking forward to getting back in the saddle. But if your bike is looking a bit tired and needs replacing the cycle-to-work scheme is worth considering. It’s a little more flexible than its name suggests.

Cycle to work (and elsewhere)

Broadly, the cycle-to-work scheme means businesses can offer their employees, including directors, use of a bike that it owns or rents as a tax and NI-free perk. Naturally there’s a little more to it than that, but the basic conditions of the scheme are fairly simple:

  • use of bikes must be offered to all employees, although to obtain the tax break it’s not necessary for all employees to take up the offer
  • employees must not own the bikes. But they can be given to the employees or directors after a period of time. Alternatively, the bike can be sold to them at a price that results in no taxable benefit in kind (BiK)
  • the bike must be used mainly for work-related journeys, e.g. to or from a workplace, to or from the station as part of a commute or even between branches, depots, etc.

 

Tip. The tax and NI exemption extends to cycle safety and protective wear provided by employers, e.g. helmets, gloves, etc.

Cycling records

HMRC’s guidance says employees aren’t required to keep detailed records and that tax inspectors should accept that the business use test is met unless there is clear evidence to the contrary.

End of the cycle

After a while you can sell or give the bike to the employee. There’s no set period for which the business must own it, but at least a year seems sensible. While the gift of a bike is a BiK, the tax bill is typically quite small. You can avoid it entirely if you sell the bike for no less than HMRC’s guide price.

Example. Using HMRC’s guide price, a bike which cost £500 (including VAT) when new can be given to an employee after one year and the taxable BiK is 18% of its original price, i.e. £90. For a 20% taxpayer that means a tax bill of just £18. The employer will have to pay £12 in Class 1A NI. If the bike is sold to the employee for at least £90 there’s no taxable BiK.