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61 Friar Gate  Derby  DE1 1DJ

 

Registered to carry out audit work Association of Chartered Certified Accountants.

www.auditregister.org.uk under number 8011438

Member of the Association of Chartered Certified Accountants
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01332 202660

Blog

Tribunal finds in favour of Middlesbrough FC

Adrian Mooy - Friday, May 17, 2019
 
In a landmark case, Middlesbrough FC has effectively won the right to pay staff below the minimum wage by providing other benefits to them.

 

In February, an employment tribunal at Teesside Magistrates’ Court overturned a ruling that the Championship football club had broken employment laws by deducting the cost of 2016/17 season tickets over several weeks from the pay of staff receiving the National Minimum Wage (NMW).
 
In both hearings, it was clear that staff were happy with the current arrangements and that the club had been responding to the wishes of employees who requested the arrangement.
 
However, HM Revenue & Customs has continued to argue that the club was in breach of current minimum wage legislation and was, therefore, liable for prosecution and a potential penalty.

 

HMRC has been steadfast in recent years in its refusal to back down and has continued to chase employers who pay less than the minimum wage, even where they have other arrangements in place.
 
The loss for HMRC at the courts comes after a number of actions against employers such as Iceland Foods, John Lewis and Wagamama.
 
During the case, HMRC’s lawyers said that Middlesbrough had the “benefit and use” of the season ticket payments from staff, and was in breach of the legislation.
 
However, the club’s legal team made a successful argument stating that it was “a deduction that has been made on the behest of the employee and for the benefit of the employee”.
 
When assessing minimum wage compliance, employers must take into account certain deductions from an employee’s wages.
These include deductions for expenditure in connection with the worker’s employment. During this process they must also consider whether the deduction is for the employer’s own use or benefit.
 
In the case of staff at the club, the courts found that they were not required to buy a ticket or watch the matches, and the deduction did not count towards the minimum wage.
 
Despite the club’s success in this case, similar cases have ended with prosecution by HMRC and so experts are warning that businesses must be on top of all minimum wage matters, even where employees can opt-in to perks and benefits at the expense of their wages.

Reducing your payments on account

Adrian Mooy - Thursday, May 09, 2019

 

Under the self-assessment system, a taxpayer is required to make payments on account – advance payments towards the eventual tax and National Insurance liability – where the previous year’s self-assessment bill was £1,000 or more, unless more than 80% of the tax liability is deducted at source, for example, under PAYE.

 

The self-assessment return for the 2017/18 tax year was due by 31 January 2019. It is the tax liability for 2017/18 which determines whether payments on account are due for 2018/19, and where they are, the amount of those payments.

 

Each payment on account is 50% of the previous year’s self-assessment tax and, for the self-employed, Class 4 National Insurance liability. Class 2 National Insurance, while payable under the self-assessment system, is not taken into account in working out the payments on account.

 

Where they are due, payments on account must be made by 31 January in the tax year and 31 July after the end of the tax year. Any final adjustment is made by 31 January after the tax year once the self-assessment return has been made, with any balance for the year being due by that date. Where the eventual liability is less than the payments made on account, the excess is refunded or set against the following year’s payments on account. However, HMRC may hold back the repayment where tax liabilities will fall due within the next 45 days until those liabilities have been paid.

 

Reduce your payments on account

 

If you know that your tax liability for the current year is going to be less than the previous year, you can apply to reduce your payments on account. This may be the case if you have suffered a downturn in trade or lost a major customer. If this is known at the time you file your self-assessment return, you can do this at the outset before you make the first payment on account. Alternatively, it can be done later in the year, for example once the accounting period has come to an end and the profit figure is known.

 

An application to reduce payments on account can be made online via the personal tax account.

 

Example

 

Holly had a self-assessment tax and Class 4 National Insurance liability of £1,800 for 2017/18. Based on this, she is liable to make payments on account of £900 for 2018/19 by 31 January 2019 and 31 July 2019.

 

Holly prepares accounts to 31 March each year. She prepares her accounts to 31 March 2019 in April 2019, calculating that her tax and Class 4 National Insurance liability for 2018/19 is £1,400. As a result, she applies to reduce each payment on account to £700.

 

As she has already paid the first payment on account of £900, she claims a refund of £200. She makes the second (reduced) payment on account of £700 by 31 July 2019.

 

By 31 January 2020, she must pay her Class 2 National Insurance liability for 2018/19, together with the first payment on account of £700 for 2019/20 (being 50% of her 2018/19 liability). Beware of reducing the payments on account too much as interest will be charged on any shortfall between the payments made and 50% of the actual liability.

Are you making use of the R&D relief scheme?

Adrian Mooy - Tuesday, May 07, 2019

 

Hundreds of businesses across the UK enjoy tax relief totalling millions of pounds thanks to the Government’s generous R&D relief scheme.

 

Last year nearly 40,000 claims were made for Research and Development (R&D) tax credits in the UK, almost double the amount made in the previous year.

 

Businesses both large and small benefited from £3.5 billion in tax relief during the same period in 2018 from the often-neglected tax credit, which helped contribute towards £24.9 billion of R&D expenditure across the nation.

 

However, many more businesses are potentially missing out.

 

Many smaller businesses can benefit from the small and medium-sized enterprise (SME) R&D relief, which is available to businesses with fewer than 500 staff or a turnover below £87 million.

 

This allows small businesses to deduct an extra 130 per cent of their qualifying R&D costs from their yearly profits, as well as the normal 100 per cent deduction, to make a total 230 per cent deduction – which equates to an additional 33p for every £1 spent on R&D.

 

However, businesses that want to take advantage of this need to meet certain eligibility criteria.

 

In order for a project to be eligible for R&D relief, it must have involved a search for an advance in science and technology or tried to overcome uncertainty using a method or procedure which couldn’t be easily worked out by a professional in the field.

 

Larger businesses can also benefit from Research and Development Expenditure Credit, which is worth 12 per cent of a company’s qualifying R&D expenditure and is offset against a person’s tax liability or, in some circumstances, is payable in cash.

 

The credit is taxable at the normal Corporation Tax rate, which effectively means the benefit is worth 10p for every £1 you spend on qualifying R&D.

 

Naturally, the rules surrounding all types of R&D tax credits are complex and some businesses may find the criteria governing what is and is not eligible confusing.

 

With this in mind, it is always wise for firms to seek specialist advice, as it may be possible to obtain confirmation of the relief prior to major investment in a project.

Businesses get to grips with new employment costs

Adrian Mooy - Thursday, May 02, 2019

 

Employers across the UK are starting April with a sudden increase in employment costs following a rise in workplace pension contributions and minimum wage costs.

 

The sharp increase in expenditure on staff couldn’t come at a worse time for business who are experiencing growing uncertainty over the UK and wider global economy.

 

Minimum contributions for workplace pensions have risen to eight per cent this month, with a minimum contribution of three per cent from employers.

 

The five per cent gap between minimum employer contributions and the minimum overall contributions must be made up by contributions from the employee. However, employers can increase their contribution to reduce the impact on employees, should they wish.

 

The minimum contribution only applies to employees earning £10,000 a year or more and percentage contributions are calculated using only the employee’s earnings between £6,136 and £50,000. This is an increase from 2018’s income threshold of £6,032 to £46,350.

 

Meanwhile, many employers will also see wage costs increase with the introduction of new statutory wage levels. As of 6 April 2019, employers must pay the following hourly rates for staff on the minimum or national living wage:

 

25 and over (national living wage) – £8.21

21 to 24 – £7.70

18 to 20 – £6.15

Under 18 – £4.35

Apprentice – £3.90

 

In some cases, the increase in the statutory minimum wage could push up the additional amount that employers are required to pay towards workplace pensions, meaning that employers with a large number of minimum wage workers, will be hit harder.

Reporting Benefits in Kind - Forms P11D

Adrian Mooy - Friday, April 19, 2019
 
The forms P11D which report details of benefits and some expenses provided to employees and directors for the year ended 5 April 2019, are due for submission to HMRC by 6 July 2019. The process of gathering the necessary information can take some time, so it is important that this process is not left to the last minute.
 
Employees pay tax on benefits provided as shown on the P11D, generally via a PAYE coding notice adjustment or through the self assessment system. Some employers 'payroll' benefits and in this case the benefits do not need to be reported on forms P11D but employers should advise employees of the amount of benefits payrolled.
 
In addition, regardless of whether the benefits are being reported via P11D or payrolled the employer has to pay Class 1A National Insurance Contributions at 13.8% on the provision of most benefits. The calculation of this liability is detailed on the P11D(b) form. The deadline for payment of the Class 1A NIC is 19th July 2019.
 
HMRC has produced an expenses and benefits toolkit. The toolkit consists of a checklist which may be used by advisers or employers to check they are completing the forms correctly.
 
If you would like any help with the completion of the forms or the calculation of the associated Class 1A NIC please get in touch.

ITV presenter Lorraine Kelly wins IR35 appeal

Adrian Mooy - Wednesday, April 17, 2019
 
Lorraine Kelly has won an appeal against HM Revenue & Customs (HMRC) at a First Tier Tribunal (FTT) following a £1.2 million demand for unpaid income tax and National Insurance Contributions (NICs).

 

HMRC claimed that Lorraine Kelly should have been working inside the rules of IR35 at ITV Breakfast Ltd during the relevant period.

 

This would have meant she was effectively an employee of ITV and income tax and NICs should have been paid.

 

HMRC accepted that Kelly’s other assignments charged through her limited company were outside of IR35.

 

Kelly appealed on the basis that the nature and range of her work meant all her assignments should be treated as outside of IR35.

 

Kelly argued that she did not receive sick pay or a pension, she chose her own hours and ultimately there was no guarantee her contracts would be renewed.

 

Although the ITV programmes were aired throughout the year, Kelly was only required to provide her services for 42 weeks each year.

 

She also played an ‘instrumental’ role in helping find substitute presenters for the time she was absent.

 

ITV was not obligated to pay Kelly if she was unable to present the show and additional appearances on ITV would be negotiated under separate contracts.

 

HMRC argued that ITV retained control over Kelly due to OFCOM obligations and that it was the editor of the programmes who exercised that control. However, the tribunal found that OFCOM’s role as a regulator was irrelevant and there was minimal control or supervision of Kelly by the editors.

 

After examining all the evidence, the tribunal decided that the relationship between Kelly and ITV was a contract for services and not that of employer and employee and found in her favour.

 

The FTT also contested whether Kelly was a ‘theatrical artist’; as if she were treated as an entertainer her limited company would be able to deduct her agent’s fees from its income. HMRC claimed she was a current affairs journalist.

 

Ms Kelly stated that she viewed the term “theatrical artist” widely and that she acted every day as a version of herself and was not reliant on ITV for her work.

 

The judge found Kelly’s ITV contract was outside of the rules of IR35 and the deduction of agent’s fees didn’t have to be resolved.

 

A spokesperson for HMRC said: “We are disappointed that the FTT has decided that the intermediary rules (also known as IR35) did not apply in this case. Moving forward, we will carefully consider the outcome of the tribunal before deciding whether to appeal.”

Are you registered for MTD yet?

Adrian Mooy - Friday, April 12, 2019
 
From 1 April 2019, most VAT registered businesses are now required to comply with the new Making Tax Digital for VAT regime, however, many businesses may not be aware that they are required to register to use the new system.

 

If you pay VAT by direct debit you will need to sign up seven working days before sending your first MTD VAT return and you cannot sign up within five working days after sending your last non-MTD VAT return.

 

There will be a ‘soft landing’ period during the first 12 months.
 
HMRC has also launched a new tool that allows businesses to filter certain criteria to find the software package that they require.

Employer childcare vouchers v Government scheme

Adrian Mooy - Friday, April 12, 2019
 
Employees who joined their employer’s childcare voucher or employer-supported childcare scheme before 4 October 2018 can remain in that scheme and benefit from the associated tax relief for as long as the employer continues to offer it. However, this may not always be the best option for the employee – depending on their circumstances they may be better signing up to the Government’s top-up scheme instead.

 

Tax relief for employer-provided vouchers

 

Employees who joined an employer childcare voucher scheme or directly contracted childcare scheme prior to 4 October 2018 can continue to receive the associated tax relief. Vouchers or directly-contracted childcare are tax and National Insurance free up to the exempt amount. This depends on when the employee joined the scheme and, where the employee joined the scheme on or after 6 April 2011, the rate at which they pay tax.

 

The exempt amount is set at £55 per week where the employee joined prior to 6 April 2011; for employees joining after that date, the exempt amounts are £55 for basic rate taxpayers, £28 per week for higher rate taxpayers and £25 per week for additional rate taxpayers (ensuring the relief is worth £11 per week to all taxpayers).

 

Each employee is only entitled to one exempt amount to cover childcare vouchers and directly-contracted care, and regardless of how many children they have. However, each parent can benefit from their own exempt amount.

 

Childcare vouchers and directly-contracted care can be provided via a salary sacrifice or other optional remuneration arrangement without triggering the alternative valuation rules. This means that the tax exemption is preserved where provision is made in this way.

 

Government scheme

 

Under the Government scheme, parents can open an online account and receive a tax-free top up of 20p for every 80p that they deposit into the account. The maximum top up is £2,000 per child per tax-year. The Government scheme cannot be used in conjunction with universal credit or tax credits.

 

Which scheme is best?

 

Parents cannot benefit from both the employer scheme and the Government scheme, so must choose which is best for them.

 

Where the employee joined the employer scheme on or after 6 April 2011, the tax relief from employer scheme is worth £11 per week (£583 per year (based on 53 weeks) if one parent receives the vouchers and £1166 if two parents do.

 

Under the Government scheme, the parents would need to contribute £2332 to receive a top-up of £583 and £4664 to receive a top up of £1166. To benefit from the maximum £2,000 top-up, the parents would need to contribute £8,000.

 

There is no substitute for crunching the numbers – parents should consider both options and decide what is best for them.

Amending your tax return

Adrian Mooy - Wednesday, April 10, 2019
 
The deadline for filing the 2017/18 self-assessment tax return of 31 January 2019 has now passed. You filed your return on time and paid the tax that you thought was due, but you now realise that you have made a mistake. Is it too late to correct it, and if not, how do you go about it?

 

Time limits

 

A tax return can be amended once it is filed – but you only have 12 months from the filing deadline in which to file an amended return. This means that you have until 31 January 2020 to file an amended 2017/18 return where it was filed online. However, if you have found a mistake in your return for 2016/17 or an earlier year, it is no longer possible to file an amended return. Instead, you will need to write to HMRC telling them about the error and advising them of the correct figures.

 

Correcting the return

 

If you are in still in time to file an amended return (for example, you want to amend your 2017/18 tax return), the mechanism for amending the return depends on whether you filed online or whether you filed a paper return.

 

If you filed your return online, you can amend your return online too. To do this, you need to log into your HMRC online account and select the self-assessment from the home ‘at a glance’ page. Under the heading of ‘returns’ it will tell you that you have completed your self-assessment return for the 2017/18 tax year, and provide a number of options, including an option to ‘Amend Self-Assessment return for year 2017 to 2018’. Selecting this option, provides a number of options for amending the already-submitted return, asking the taxpayer if they would like to:
 
 • add a new section to your submitted return;
 • amend figures already submitted;
 • delete a section from your submitted return;
 • add/delete a section and/or amend a figure; or
 • return to tax return options.
 
From there it is simply a case of selecting the appropriate option, amending the return to show the correct figures and filing the amended return.
 
If the return was filed using a commercial software package, check whether is facilitates the filing of amended returns. If this is not possible, contact HMRC.
 
Where a paper return has been filed, the 12-month amendment window runs to 31 October after the filing deadline (as an earlier deadline applies to paper returns). To amend a paper return, download a new return, complete it correctly, and send it to HMRC.

 

Pay more tax or claim a refund

 

Amending your tax return will also change the amount of tax you owe. If it is more, you will need to pay this, plus interest (which runs from the due date of 31 January after the end of the tax year). If your tax bill goes down as a result of the amendment, you can claim a refund – but remember you only have four years from the end of the tax year to which it relates in which to do so.

In-house payroll - common mistakes

Adrian Mooy - Friday, April 05, 2019
 
Payroll is a complex and time consuming process especially with the ever changing legislation and requirements.

 

Problem areas are:

 

 • Incorrect setup of the payroll software

 

 • Employment allowance not claimed

 

 • M rate NI not applied correctly

 

 • Apprenticeship levy not included

 

 • Pensions not calculated correctly

 

 • Incomplete auto enrolment compliance processes

 

A check on your internal processes will help you avoid fines or penalties in the longer term.

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