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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

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.

Is tax payable on tips?

Adrian Mooy - Wednesday, April 03, 2019
 
The question of whether tips and gratuities are taxable and subject to National Insurance Contributions (NICs) often results in a lively debate. Broadly, their treatment will depend on how they are paid to the recipient.

 

Cash tips handed to an employee, or say, left on the table at a restaurant and retained by the employee, are not subject to tax and NICs under PAYE, but the employee is obliged to declare the income to HMRC.

 

Where HMRC believe that employees in a particular employment are likely to have received tips which have not been declared, they will generally make an estimate of the tips earned on the basis of facts available to them. HMRC often make an adjustment to an employee’s PAYE tax code number to reflect the amount likely to be received during a tax year and the tax and Class 1 NICs due will be collected via the payroll.
 
By contrast, if an employer passes tips to employees that are either handed to them (or the employees) or left in a common box/plate by customers, the employer must operate PAYE on all payments made. Tips will also be subject to PAYE if they are included in cheque and debit/credit card payments to the employer, or if they pass service charges to employees.

 

The obligation to operate PAYE remains with the employer where the employer:

 

 • delegates the task of passing the tips or service charges between employees, for example to a head waiter in a restaurant; or
 • passes tips/service charges to a tronc (see below) but the tronc is not a tronc for PAYE purposes.
 
Examples

 

Marcia, a restaurant owner, passes on all tips paid by credit/debit card to her employees. She has made a payment to her staff and must operate PAYE on these payments as part of the normal payroll.

 

Franco, also a restaurant owner, allows all cash tips left on tables to be retained in full by his staff. However, to ensure the kitchen staff receive a share, he collects all the cash tips and shares them out to the staff at the end of each day. Franco is involved in the sharing out of the tips and he must therefore include the amounts received as part of the payroll and operate PAYE on them.

 

Troncs

 

Where tipping is a usual feature of a business, there is often an organised arrangement for sharing tips amongst employees by a person who is not the employer. Such an arrangement is commonly referred to as a ‘tronc’. The person who distributes money from a tronc is known as a ‘troncmaster’. Where a person accepts and understands the role of troncmaster, he or she may have to operate PAYE on payments made. Broadly, under such arrangements the employer must notify HMRC of the existence of a tronc created and provide HMRC with the troncmaster’s name.

 

There are no hard and fast rules regarding how a tronc should operate and HMRC will apply the PAYE and NIC rules to the particular circumstances of each tronc. Where payments made from a tronc attract NICs liability, responsibility for calculating the NICs due and making payment to HMRC rests with the employer. If a troncmaster is responsible for operating PAYE on monies passed to the tronc by the employer and has failed to fulfil his or her PAYE obligations, HMRC can direct the employer to operate PAYE on monies passed to the tronc from a specified date.

 

NICs
 
Legislation provides that any amount paid to an employee which is a payment 'of a gratuity' or is 'in respect of a gratuity' will be exempt from NICs if it meets either of the following two conditions:

 

 • it is not paid, directly or indirectly, to the employee by the employer and does not comprise or represent monies previously paid to the employer, for example by customers; or
 • it is not allocated, directly or indirectly, to the employee by the employer.

 

Review business records

 

It is worthwhile checking that businesses treat tips and gratuities correctly. From time to time HMRC carry out reviews of employers’ records to make sure things are in order for PAYE, NICs and separately for the National Minimum Wage (NMW). Any errors in tax and NICs treatment could prove costly.

 

Abatement of the personal allowance

Adrian Mooy - Monday, April 01, 2019
 
Not all taxpayers are able to benefit from the personal allowance – once income exceeds £100,000 the allowance is gradually reduced until it is eliminated in full. However, there are steps which can be taken to reduce income and preserve entitlement to the personal allowance.
 
The personal allowance is set at £11,850 for 2018/19, rising to £12,500 for 2019/20.
 
When is it abated?

 

Once an individual’s ‘adjusted net income’ exceeds £100,000, their personal allowance is reduced by £1 for every £2 by which ‘adjusted net income’ exceeds £100,000.

 

The measure of income for these purposes is ‘adjusted net income’. This is an individual’s total taxable income before personal allowances and after deducting certain reliefs, such as:
 
 • relief for trading losses;
 
 • donations to charity through the Gift Aid scheme (deduct the grossed-up amount of the donation); and
 
 • pension contributions (deduct the gross amount).
 
Example
 
Polly has taxable income for 2018/19 of £120,000. She makes pension contributions paid gross of £5,000.
 
Polly’s adjusted net income for £2018/19 is £115,000 (£1250,000 - £5,000).
 
As her income is more than £100,000, her personal allowance is reduced. The personal allowance for the year of £11,850 is reduced by £1 for every £2 by which her income exceeds £100,000.

 

The reduction in her personal allowance is therefore £7,500 (1/2(£115,000 - £100,000).

 

Her personal allowance for 2019/20 is therefore £4,350.

 

Assuming her income remains the same for 2019/20 and she continues to make gross pension contributions of £5,000, she will receive a personal allowance of £5,000 for 2019/20.

 

When is the personal allowance lost?

 

With a personal allowance of £11,850 for 2018/19, individuals with income in excess of £123,700 do not receive a personal allowance for that year. For 2019/20, the personal allowance is £12,500, and the personal allowance is lost once adjusted net income exceeds £125,000.
 
Beware 60% tax in the abatement zone

 

Where adjusted net income falls within the zone in which the personal allowance is reducing – from £100,000 to £100,000 plus twice the personal allowance – the marginal rate of tax is 60%. This is the combined effect of the application of the higher rate of tax and the reduction in the personal allowance.
 
Reduce the 60% band and preserve the allowance

 

To reduce the income falling in the abatement zone (taxed at a marginal rate of 60%) and to preserve as much as the personal allowance as possible, it is necessary to reduce adjusted net income.
 
There are various ways in which this can be achieved.
 
The first point to consider is the timing of income – can income be deferred to the next tax year, or, if income for the current tax year is less than £100,000 but is expected to be above £100,000 in the following year, can income be brought forward to the current tax year. In a family company scenario, it may be possible to achieve this by adjusting the timing of dividends and bonuses.
 
Consideration could also be given to putting income earning assets into the name of a spouse or civil partner to reduce income and preserve the allowance.
 
Adjusted net income is income after pension contributions. Making pension contributions is tax effective, both in terms of benefitting from the relief available and reducing net income to preserve personal allowances.
 
Alternatively, a person can make charitable donations under gift aid to reduce their adjusted net income. Although they will lose the benefit of their income, the cost will be offset slightly by the preserved personal allowance, and their chosen charity will be benefit from the donation plus the associated gift aid.

 


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