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Most of us know that income tax is charged at three main rates: 20%, 40% and 45%.

Unfortunately, there are certain levels of income that trigger a loss of benefits or allowances as well as a charge to income tax. Because of this, the percentage rate of tax charged can be higher than the underlying rate of income tax. For example:

Similar, marginal rates apply if:

• your income moves above the threshold where working tax or child tax credits cease to be available,
• a higher paid parent’s income tops £50,000 for the first time, at which point child benefits would be under threat, or
• those with incomes in excess of £150,000, paying income tax at 45%, will find the tax relief they can claim for pension contributions will be reduced.

To avoid or lessen the impact of these marginal rate charges you will need to discuss the possibility of reducing your income below the trigger points. There are various strategies that can be employed to achieve this, including the sacrifice of salary for non-tax benefits such as increased employer pension contributions or longer holidays.

Time to rethink your remuneration strategy?

If you are concerned that you may be drifting towards these higher marginal rates of income tax, now is the perfect time to reconsider the way you structure your remuneration package. Please call if you would like our help to do this.

1 June 2019 – Due date for Corporation Tax due for the year ended 31 August 2018.

19 June 2019 – PAYE and NIC deductions due for month ended 5 June 2019. (If you pay your tax electronically the due date is 22 June 2019)

19 June 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2019.

19 June 2019 – CIS tax deducted for the month ended 5 June 2019 is payable by today.

1 July 2019 – Due date for Corporation Tax due for the year ended 30 September 2018.

6 July 2019 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2019 – Pay Class 1A NICs (by the 22 July 2019 if paid electronically).

19 July 2019 – PAYE and NIC deductions due for month ended 5 July 2019. (If you pay your tax electronically the due date is 22 July 2019)

19 July 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2019.

19 July 2019 – CIS tax deducted for the month ended 5 July 2019 is payable by today.

If you employ students to manage your staff needs over the summer break period, you will need to add them to your payroll and apply PAYE and NIC rules.

Students should be advised that they will pay tax and NIC if:

• they earn more than £1,042 a month on average, and
• pay NIC if they earn more than £166 a week.

Students can also apply for a possible tax refund if they work for part of a tax year.

Students who normally live and study in the UK but work abroad during the holidays will need to pay:

• UK tax on anything they earn above their Personal Allowance, currently £12,500, and
• National Insurance if they work for a UK employer.

If you work for a foreign employer you don’t need to pay National Insurance in the UK, but you might have to pay contributions in the country you’re working in.

It is possible to make small tax-free payments to employees, including directors, and this might be an appropriate time to make a small tax-free bonus in advance of the annual holidays.

Employers and employees don’t have to pay tax on such a benefit if all of the following apply:

• it cost you £50 or less to provide,
• 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.

HMRC describes these payments as a ‘trivial benefit’.

You can’t receive trivial benefits worth more than £300 in a tax year if you are the director of a ‘close’ company. A close company is a limited company that’s run by 5 or fewer shareholders.

Planning note

The only exception to the above is if the trivial benefits are made available as part of a formal salary sacrifice arrangement.

As we are approaching the annual holiday season it would seem to be a suitable time to set out employees’ rights to receive holiday pay.

Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.

Most workers who work a 5-day week must receive at least 28 days paid annual leave per year. This is the equivalent of 5.6 weeks of holiday.

Part-time workers are entitled to less paid holiday than full-time workers. They are entitled to at least 5.6 weeks of paid holiday but this amounts to fewer than 28 days because they work fewer hours per week.

Statutory paid holiday entitlement is limited to 28 days, and so staff working 6 days a week are still only entitled to 28 days’ paid holiday.

Bank holidays or public holidays do not have to be given as paid leave. An employer can choose to include bank holidays as part of a worker’s statutory annual leave. An employer can also choose to offer more leave than the legal minimum. They don’t have to apply all the rules that apply to statutory leave to the extra leave. For example, a worker might need to be employed for a certain amount of time before they become entitled to the additional entitlement.

Paid annual leave is a legal right that an employer must provide. If a worker thinks their right to leave and pay are not being met there are a number of ways to resolve the dispute.

There are a number of tax incentives that you can take advantage of if you own and let a Furnished Holiday Lets property (FHL). They include:

• you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders),
• you are entitled to claim capital allowance deductions for items such as furniture, equipment and fixtures, and
• any profits earned from holiday lets count as earnings for pension purposes.

You will need to account for your holiday lets properties separately from any other rental properties and you will need to comply with the various FHL rules. They include:

• The property must be in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway;
• The property must be furnished. This means that there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture provided.
• The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs, but did not make a profit, the letting will still be treated as commercial.
• All your FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business. You’ll need to keep separate records for each FHL business because the losses from one FHL business cannot be used against profits of the other.

There are also strict rules on occupancy. To secure the FHL tax benefits you will need to let your FHL for a certain, minimum number of days each year. The occupancy rules, set on a tax year basis, are:

• Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.
• You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.

Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.

Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either: falls ill or has an accident and cannot leave on time or has to extend their holiday due to a delayed flight.

If you do not let your property for at least 105 days, you have two options (known as elections) that can help you reach the occupancy threshold.

As you can see, there are a few hoops to climb through to achieve FHL status, but the tax rewards for doing so are significant.

If your employer asks you to use your own car or van to undertake a journey on their behalf, you may be entitled to a payment from your employer to cover your petrol and wear and tear costs.

Let’s say that your employer pays you 35p per mile. You may feel that this is an adequate sum to cover your costs, and indeed this may be so, however, HMRC would have a different opinion.

HMRC would allow you to receive up to 45p per mile tax-free for the first 10,000 business miles you drove in your own car on behalf of your employer, and thereafter at 25p per mile. The clock resets to zero at the beginning of each tax year (6 April).

Additionally, if you take a passenger (a co-worker) on a business trip, you can claim 5p per mile.

What happens if you are paid at different mileage rates?

If you are paid at rates per mile greater than HMRC’s 45p (25p) rates, then any excess over these rates will be taxed as a benefit.

If you are paid less than HMRC’s approved rates, you can claim the difference as an expense on your tax return. For example, if your employer pays you 35p per mile and you claimed for 8000 business miles in 2018-19, you will have received £2,800 (8,000 x 35p) in expenses. HMRC would allow you 8,000 miles at 45p, £3,600, and would allow you claim the difference £800 (£3,600-£2,800) on your tax return for 2018-19. If you don’t submit a tax return you should call HMRC with the details to register your claim.

What if I use my motorcycle or bicycle?

The same principles apply but the rates of mileage are different. They are currently:

In both cases the above rates apply whatever your annual mileage.

There is no doubt that many of us are heartily tired of the drawn-out Brexit debate, and yet we should not ignore this topic completely.

Opinion seems to be hardening for the so-called “hard” Brexit: where we leave at the end of October 2019 with no agreement. Ignoring the political arguments, this would have an impact if you are in business as none of us will be isolated from the changes to our trading terms with the EU after this date.

Businesses that trade directly with EU customers and or suppliers will hopefully have contingency planning in hand based on a thorough risk assessment. This article does not have space to consider the planning options in detail but affected importers and exporters should get their ducks in a row as a matter of some urgency.

And even if you do not trade directly with the EU, your UK suppliers or UK customers may do so, and this may have a direct impact on your business if supply chains are disrupted or prices are increased to account for tariff changes.

It is instructive that the only detailed advice offered by government is to outline what we should do if a “no-deal” scenario occurs. In the conclusion to a publication published December 2018, the Department for Exiting the European Union said:

Our communication with businesses and the wider public about a no deal scenario will increase as we approach our exit from the EU.

As a responsible government we have spent more than two years carrying out extensive preparations for all scenarios, including no deal.

We recommend businesses now also ensure they are prepared and enact their own no deal plans.

The full report “UK government’s preparations for a “no deal” scenario” can be viewed online at https://www.gov.uk/government/publications/uk-governments-preparations-for-a-no-deal-scenario/uk-governments-preparations-for-a-no-deal-scenario#conclusion.

If you need help to revisit this issue and refresh your contingency planning, please call asap. The clock is very definitely ticking.

Readers are reminded that if you profit from a hobby – sell what you produce on a regular basis – you may attract the attention of HMRC.

If your annual sales (income before any costs are deducted) are below £1,000 you will pay no tax as you can claim exemption under the tax-free trading income allowance. If your annual gross income exceeds £1,000 you may need to submit details to HMRC by filing a tax return.

If you doubt HMRC’s resolve in tracking down and enforcing their interest in miscellaneous income streams, consider the plight of tax evading dog breeders outlined in a recent HMRC press release. They said:

HMRC set up the taskforce in October 2015 after discussions with animal welfare groups suggested tens of thousands of puppies were being reared in unregulated conditions and sold illicitly every year.

Officers uncovered fraudsters selling puppies on a mass scale and for a huge profit, but because of the underground nature of the activity – failing to declare their sales.

Using a full range of civil and criminal enforcement powers, HMRC has recovered £5,393,035 in lost taxes from 257 separate cases since the formation of the taskforce.

Of those breeders and traders targeted, they include:

• two unconnected puppy breeders in the west of Scotland who were handed tax bills of £425,000 and £337,000
• a puppy breeder in the Midlands who was former Crufts judge, given a £185,000 bill
• a dealer in Northern Ireland told to pay £185,000 in tax
• a Somerset puppy breeder was given a £114,000 bill
• a puppy dealer in the east of Scotland was handed a tax bill in excess of £400,000
• a Swansea puppy breeder was given a £110,000 tax bill

Several arrests have been made in relation to the taskforce’s work over the past four years.

Whilst these cases involve trading on a large scale, it does demonstrate HMRC’s resolve to bring income from “hobby” type trades into tax. A further example would be buying and selling goods on the internet on a regular basis.

If you have recurring income from sources that are presently not reported to HMRC, and you want to check and see if you need to advise HMRC, please call for more information. It may not be necessary to make a return, but the criteria that determine when tax needs to be paid are fairly involved and will vary on a case by case basis.

If your competitor is a company, there is quite a lot of information you can obtain free of charge. For example, from the Gov.uk website you can obtain the following details:

• company information, for example registered address and date of incorporation
• current and resigned officers
• document images
• mortgage charge data
• previous company names
• insolvency information

You can also set up free email alerts to tell you when a company updates its details (for example, a change of director or address).

You should also make a point of reviewing your competitors’ websites on a periodic basis as this will keep you up-to-date with changes to their service or products including pricing and innovative ideas that might influence your product development planning.

Create a list of sites and factor in your observations into your planning meetings.

When did you last survey your existing customers?

It makes sense to survey your customers from time to time to get objective feedback on your current service levels. This can be invaluable data to factor into your systems development.

In particular, you should tease out the details of any factors that are likely to affect their future buying decisions:

• economic concerns,
• price sensitivity,
• redundancy, are your products keeping pace with those offered by competitors,
• discounts,
• buying experience,
• after sales service,
• loyalty bonuses and so on.

Offer a gift or other inducement to participate in the survey and act on the results.

Our competitors can be a rich source of ideas for our own business development as well as the strategies innovated from within our organisations. Keeping an eye on the competition should be part of your planning options. Ignore them at your peril.