Expenses and benefits for employees

Until 2015-16, it was possible to apply for a dispensation to exclude certain expenses and benefits provided to employees from the year end returns to HMRC: primarily the submission of forms P11D. These dispensations ceased to be effective from 6 April 2016. From this date many of the expenses covered by dispensations were exempted from the benefits legislation. The sorts of expenses covered include:

  • business travel
  • business phone bills
  • business entertainment expenses
  • uniform and tools for work

To qualify for an exemption, employers must either be:

  • paying a flat rate to your employee as part of their earnings ­ this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC, or
  • paying back the employee’s actual costs

Employers do not have to formally apply for exemption if they reimburse using HMRC’s benchmark rates for allowable expenses. You only need apply if you want to use your own rates as these rates will need to be agreed with HMRC. There must be systems in place to check the payments are as agreed with HMRC.

Filing deadlines:

The filing deadlines for P11D forms and associated returns are:

  • 6 July 2017 – file forms P11D
  • 6 July 2017 – give employees a copy of their P11D
  • 6 July 2017 – submit return of Class 1A NIC due on form P11D(b)
  • On or before 22 July 2017 (19 July 2017 if paying by cheque) – pay any Class 1A NICs due

There is a fixed penalty of £100 per 50 employees for each month or part of a month the P11D(b) return is late. There are also penalties and interest if your payments of Class 1A NICs are paid late.

Don’t forget that the earnings rate of £8,500 pa for a P11D to be required was abandoned from 6 April 2016 so that employees who previously needed a form PD9 will now need a P11D.

A note for driving instructor clients E and learner drivers

The Driver & Vehicle Standards Agency has released its response to a consultation with the industry to “Improve the car driving test”. In their conclusion they say:

“This paper reports the outcome of the Driver and Vehicle Standards Agency’s (DVSA) consultation about changes to the car driving test. The consultation was held between 14 July and 25 August 2016. The consultation paper contained proposals for 4 changes to the way the driving test is conducted.

These are:

 

  • increase the independent driving section of the practical driving test from 10 to 20 minutes
  • provide the option for the directions in the independent driving section to be followed by using a sat nav, in addition to the current practice of following road signs
  • modify the way in which manoeuvres are delivered, so that they are undertaken during the natural course of the drive – the exercises undertaken would be updated for modern driving conditions
  • ask one of the 2 vehicle safety questions while on the move instead of at the start of the test.

 

There was broad support for the proposals. We've received the final presentation with the findings from a trial of the new test undertaken by the Transport Research Laboratory (TRL). This identifies improvements delivered by the new test. Taking into account the outcome of the consultation and the TRL research, the new test will be introduced for learner car drivers from 4 December 2017.”

This will prove to be a busy year for instructors as existing learner drivers try to pass their driving test before the 4 December. And, instructors will need to update their skills to teach drivers the new rules.

New accounts filing regulations for smaller companies

Companies house recently published the following news story.

Changes to UK company law removed the option for small companies to file abbreviated accounts for accounting periods starting on or after 1 January 2016.

Small companies

If you are a small company, you have 4 options for filing your accounts:

1. Micro-entity accounts

  • You must meet at least 2 of the following:
  • turnover is no more than £632,000
  • balance sheet total is no more than £316,000
  • average number of employees is no more than 10

2. Abridged accounts

  • You must meet at least 2 of the following:
  • turnover is no more than £10.2 million
  • balance sheet total is no more than £5.1 million
  • average number of employees is no more than 50

3. Full accounts with us and HMRC

These joint accounts are suitable for small companies who are audit exempt and need to file full accounts to us and HMRC. You can also file your tax return with HMRC at the same time.

4. Dormant company accounts

These accounts are suitable for companies limited by shares or by guarantee that have never traded and can be filed using our WebFiling Service.

How to file your accounts

 

Micro-entity accounts:

To file micro-entity accounts you need to sign-in to our WebFiling service and choose the micro-entity accounts type.

 

Abridged accounts:

We’re working on a replacement service that will enable you to file abridged accounts on Companies House Service. We expect to launch it this year.

 

Currently, there are 2 options for you to consider:

  • Use the Companies House-HMRC joint filing service. You’ll need a Government Gateway account and you can file your tax return to HMRC at the same time.
  • Use third party software. This service benefits those who file regularly.

 

Clients will be relieved to know that we will choose the appropriate filing method and format for them.

What are your responsibilities to pay the National Minimum Wage

The current state defined wage rates are divided between the National Living Wage (NLW) – this is currently set at £7.50 per hour and only applies to workers aged 25 years and over – and the NMW for workers under 25 years.

The NMW hourly rates are currently:

  • Age group 21 to 24 – £7.05
  • Age group 18 to 24 – £5.60
  • Age group under 18 – £4.05
  • Apprentices £3.50

Apprentices are entitled to the apprenticeship rate if they are either:

  • Aged under 19
  • Aged 19 or over and in the first year of their apprenticeship.

Workers are not entitled to the NMW until they reach the school leaving age. This depends on where you live:

England

You can leave school on the last Friday in June if you’ll be 16 by the end of the summer holidays.

You must then do one of the following until you’re 18:

  • stay in full-time education, for example at a college
  • start an apprenticeship or traineeship
  • spend 20 hours or more a week working or volunteering, while in part-time education or training

Scotland

If you turn 16 between 1 March and 30 September, you can leave school after 31 May of that year.

If you turn 16 between 1 October and the end of February, you can leave at the start of the Christmas holidays in that school year.

Wales

You can leave school on the last Friday in June, as long as you’ll be 16 by the end of that school year’s summer holidays.

Northern Ireland

If you turn 16 during the school year (between 1 September and 1 July) you can leave school after 30 June.

If you turn 16 between 2 July and 31 August, you can’t leave school until 30 June the following year.

Tax free capital gains

Is there such a thing as a tax-free capital gain? In fact, there is… Every UK resident tax payer is allowed to make tax-free gains of up to £11,300 during the current tax year, 2017-18.

Additionally, you can sell personal possessions and make a gain of up to £6,000 without paying capital gains tax (CGT). This includes a sale of the following items:

  • jewellery
  • paintings
  • antiques
  • coins and stamps
  • sets of things, e.g. matching vases or chessmen

You’ll need to work out your gain to find out whether you need to pay tax.

Finally, you won’t need to pay CGT on disposals of:

 

  • Gifts to your husband, wife, civil partner or a charity
  • Your car, unless you have used it in your business
  • Anything with a limited lifespan, e.g. household furniture
  • Gains on the sale of ISAs or PEPs
  • Sale of UK government gilts and Premium Bonds
  • Betting, lottery and pools winnings

And your home can be sold free of any CGT consideration as long as you have not let part the property at any time during your ownership, or you have not elected for a second property to be considered your principal private residence for tax purposes during the same period.

Further considerations to bear in mind:

  • When you inherit an asset, Inheritance Tax is usually paid by the estate of the person who’s died. You only have to work out if you need to pay Capital Gains Tax if you later dispose of the asset.
  • You may have to pay Capital Gains Tax even if your asset is overseas. There are special rules if you’re a UK resident but not ‘domiciled’ and claim the ‘remittance basis’.
  • You have to pay tax on gains you make on residential property in the UK even if you’re non-resident for tax purposes. You don’t pay Capital Gains Tax on other UK assets, e.g. shares in UK companies, unless you return to the UK within 5 years of leaving.

Is the State Pension taxable

Short answer, yes it is…

The State Pension is worth between £6,359.60 (the old version), and £8,296.60 (the new version), and many pensioners may receive additional payments based on additional contributions made in prior years. In both cases, this pension income is treated the same as earned income for income tax purposes.

For 2017-18, every person resident in the UK for tax is allowed to earn £11,500 tax free. Accordingly, if your only source of income is the State Pension you will have no tax to pay. A potential problem can arise if you have other income, say taxable investment income or other earnings, that when combined with your State Pension, add to more than your personal allowance.

Your State Pension is paid to you without a deduction of tax. Many pensioners rely on these payments to fund their day to day expenditures so there is a temptation to spend what you get. Unfortunately, if your total income (State Pension plus other earnings and investment income) exceeds your personal allowance, you may end up with a tax bill at the end of the tax year and the first you may hear about this is when the bill from HMRC drops through your letter box.

Our advice, is do the sums. If your estimated income from all sources is likely to exceed £11,500 for 2017-18, you may need to save for any year-end tax due. The sums can be complicated as there are reliefs other than your personal tax allowance that you may need to consider.

Utilising tax losses

We have listed below a few of the ways you can make best use of tax losses. Generally speaking, a tax loss arises when a claim for expenses and other allowances (for example capital allowances for equipment purchases) exceeds the income of the relevant trade.

Many losses arise as a direct result of a difficult period of trading. Accordingly, the loss has in most instances reduced your business working capital and in particular your cash flow.

If possible, it is a good idea to utilise these losses as quickly as possible so that any recovery of tax already paid, generally when trading was better, can be recovered to help re-establish cash flow. The remainder of this post sketches out the choices available.

Ongoing trade losses

These losses can be used in a number of ways:

  • You can set losses against income, or possibly against capital gains, of the same year or an earlier tax year.
  • You can set-off against profits of the same trade in future years.
  • You can set-off against income from a company to which you transferred your trade.

Not all losses may be claimed in all of these ways and sometimes the amount of loss you claim is restricted or limited.

Terminal losses

These arise when a trade finishes and makes a loss in the final period of trading. It is possible to make a claim for losses in the final 12 months of trading to be used in the tax year that you make the loss or the previous three tax years.

There are caps on the amount of loss you can utilise in any one tax year. And care should be taken when making claims to ensure that you do not lose entitlement to your personal tax allowance when making a claim.

If in doubt seek professional advice.

Tax Diary April/May 2017

1 April 2017 – Due date for Corporation Tax due for the year ended 30 June 2016.

19 April 2017 – PAYE and NIC deductions due for month ended 5 April 2017. (If you pay your tax electronically the due date is 22 April 2017)

19 April 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2017.

19 April 2017 – CIS tax deducted for the month ended 5 April 2017 is payable by today.

1 May 2017 – Due date for Corporation Tax due for the year ended 30 July 2016.

19 May 2017 – PAYE and NIC deductions due for month ended 5 May 2017. (If you pay your tax electronically the due date is 22 May 2017)

19 May 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2017.

19 May 2017 – CIS tax deducted for the month ended 5 May 2017 is payable by today.

31 May 2017 – Ensure all employees have been given their P60s for the 2016-17 tax year.

Dividend tax set-back

The final matter we want to showcase for this month is the proposed reduction in the dividend allowance from April 2018. At present, shareholders with dividend income below £5,000 will pay no Income Tax on their dividend income. From April 2018, Mr Hammond looks set to reduce this to £2,000.

The average dividend yield for FTSE 100 shares is anticipated to fall to 3%. Based on this rate of return, investors would need a portfolio amounting to some £167,000 to create an annual dividend income of £5,000. From April 2018, only £67,000 would create tax-free income if the allowance drops to £2,000.

Affected investors should therefore consider other tax advantages options, including ISAs. From April 2017 the ISA limit is creased to £20,000.

Shareholders of non-listed private companies will face a tax increase due to this change. The present advantage posed by the low salary high dividend approach to profit extraction will still apply, but the overall Income Tax due will increase from April 2018.

Combined with changes to the taxation of benefits in kind, shareholder directors of smaller companies would be advised to revisit tax planning options for 2018-19.

Class 4 NICs

The Chancellor announced two increases in Class 4 NI contributions for the self-employed in his budget and in the following week withdrew the increases for the term of the current parliament.

His original notion was to start the process of equalising the NI contributions made by the employed and self-employed now that State Benefits, particularly the new flat-rate State Pension, are available to both groups.

The first rate increase, from April 2018, was set to coincide with the abolition of the self-employed Class 2 contributions on this date. However, it would appear that manifesto promises carry more weight than fiscal necessity and the increases have been abandoned.

Class 2 contributions are still being withdrawn, which means that the scope of Class 4 contributions will need to be adjusted to counter any loss in benefits presently provided by Class 2.

Legislation in this area has been thrown wide open to change by the apparent U-turn since the budget announcements. As and when the intentions of government become more certain we will update readers accordingly.