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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
Phone

01332 202660

Blog

Reporting expenses and benefits for 2018/19

Adrian Mooy - Friday, May 31, 2019

 

 
Where employees were provided with taxable benefits and expenses in 2018/19, these must be notified to HMRC.
 
The reporting requirements depend on whether the benefits were payrolled or not.
 
Benefits not payrolled
 
Taxable benefits that were not payrolled in 2018/19 must be reported to HMRC on form P11D. There is no need to include benefits covered by an exemption (although take care where provision is made via an optional remuneration arrangement (OpRA)) or those included within a PAYE Settlement Agreement. Paid and reimbursed expenses can be ignored to the extent that they would be deductible if the employee met cost, as these fall within the statutory exemption for paid and reimbursed expenses.

 

The value that must be reported on the P11D depends on whether the benefit is provided via an OpRA, such as a salary sacrifice scheme. Where the benefit is provided other than via an OpRA, the taxable amount is the cash equivalent value. Where specific rules apply to determine the cash equivalent value for a particular benefit, such as those applying to company cars, employment-related loans, living accommodation, etc., those rules should be used. Where there is no specific rule, the general rule – cost to the employer less any amount made good by the employee – applies.
 
Where provision is made via an OpRA, and the benefit is not one to which the alternative valuation rules do not apply, namely:

 

 • payments into pension schemes
 • employer provided pension advice
 • childcare vouchers, workplace nurseries and directly contracted employer-provided childcare
 • bicycles and cycling safety equipment, including cycle to work schemes
 • low emission cars (Co2 emissions 75g/km or less)

 

The taxable amount is the relevant amount. This is the higher of the cash equivalent under the usual rules and the salary foregone or cash alternative offered. The taxable amount is the cash equivalent value where the benefit falls outside the alternative valuation rules.

 

Payrolled benefits

 

Payrolled benefits should not be included on the P11D but must be taken into account in calculating the Class 1A National Insurance liability on form P11D(b).
 
P11D(b)

 

Form P11D(b) must be filed regardless of whether benefits are payrolled or notified to HMRC on form P11D. The P11D(b) is the Class 1A return, as well as the employer’s declaration that all required P11Ds have been submitted.
 
Paper or online
 
There are various ways in which forms P11D and P11D(b) can be filed. The simplest is to use HMRC’s online end of year expenses and benefits service or HMRC’s PAYE Online for employers service. Forms can also be filed using commercial software packages.
There is no requirement to file P11Ds and P11D(b)s online – paper forms can be filed if preferred.

 

Deadline

 

Regardless of the submission methods, forms P11D and P11D(b) for 2018/19 must reach HMRC by 6 July 2019. Employees must be given a copy of their P11D (or details of the information contained therein) by the same date. Details of payrolled benefits must be notified to employees by the earlier date of 31 May 2019.

 

Class 1A National Insurance must be paid by 22 July where paid electronically, or by 19 July where payment is made by cheque.

 

Family companies – optimal salary for 2019/20

Adrian Mooy - Thursday, May 30, 2019

 

For personal and family companies it can be beneficial to extract some profits in the form of a salary. Where the individual does not have the 35 qualifying years necessary to qualify for the full single-tier state pension, paying a salary which is equal to or above the lower earnings limit for National Insurance purposes will ensure that the year is a qualifying year.

 

New tax rates and allowances came into effect from 6 April 2019, applying for the 2019/20 tax year. These have an impact on the optimal salary calculation for family and personal companies. As in previous years, the optimal salary level will depend on whether or not the National Insurance employment allowance is available.

 

It should be remembered that directors have an annual earnings period for National Insurance purposes.

 

Employment allowance unavailable

 

Companies in which the sole employee is also a director are not able to benefit from the employment allowance. This means that most personal companies are not eligible for the allowance. Where the allowance is not available or has been utilised elsewhere, the optimal salary for 2019/20 is equal to the primary and secondary threshold set at £8,632 (equivalent to £719 per month and £166 per week).

 

At this level, assuming that the director’s personal allowance (set at £12,500) is available, there is no tax or employer’s or employee’s National Insurance to pay. However, as the salary is above the lower earnings limit of £6,136 (£512 per month, £118 per week), it will provide a qualifying year for state pension and contributory benefit purposes.

 

The salary is deductible in computing the company’s taxable profits for corporation tax purposes, saving corporation tax of 19%.

 

Employment allowance is available

 

It is beneficial to pay a salary equal to the personal allowance (assuming that this is not used elsewhere) where the employment allowance (set at £3,000 for 2019/20) is available to shelter the employer’s National Insurance that would otherwise arise to the extent that the salary exceeds £8,632.

 

Although employee’s National Insurance is payable to the extent that the salary exceeds the primary threshold of £8,632, this is more than offset by the corporation tax deduction on the higher salary.

 

For 2019/20, a salary equal to the personal allowance of £12,500 exceeds the primary threshold by £3,868. Therefore, employee’s National Insurance of £464.16 (£3,868 @ 12%) is payable on a salary of £12,500. However, as salary payments are deductible for corporation tax purposes, the additional salary of £3,868 saves corporation tax of £734.92 (£3,868 @ 19%). This exceeds the employee’s National Insurance payable by £270.46.

 

So, if the employment allowance is available, paying a salary equal to the personal allowance of £12,500 allows more profits to be retained (to the tune of £270.46) than paying a salary equal to the primary threshold of £8,632.

 

If the director has a higher personal allowance, for example, where he or she receives the marriage allowance, the optimal salary is one equal to that higher personal allowance.

 

Director is under 21

 

Where the director is under the age of 21, the optimal salary is one equal to the personal allowance of £12,500 (assuming that this is not used elsewhere) regardless of whether the employment allowance is available. No employer National Insurance is payable on the earnings of employees or directors under the age of 21 until their earnings exceeds the upper secondary threshold for under 21's set at £50,000 for 2019/20. Employee contributions are, however, payable as normal

 

Any benefit in paying a salary above the personal allowance?

 

Once the personal allowance is reached it is not worthwhile paying a higher salary as further salary payments will be taxed and the combined tax and National Insurance hit will outweigh the corporation tax savings.

Are you paying the minimum wage?

Adrian Mooy - Wednesday, May 29, 2019
 
The National Living Wage (NLW) and National Minimum Wage (NMW) increased from 1 April 2019. From that date, the NLW, payable to workers aged 25 and over, is set at £8.21 per hour. Workers under the age of 25 and over school leaving age must be paid the NMW appropriate for their age. From 1 April 2019, this is £7.70 per hour for workers aged 21 to 24, £6.15 per hour for workers aged 18 to 20 and £4.35 for workers above school leaving age and under 18. A separate rate of £3.90 per hour applies to apprentices under 19 and to apprentices over 19 and in the first year of their apprenticeship.
 
Who is entitled to the minimum wage?

 

Workers over the school leaving age are entitled to the minimum wage. This is the last Friday in June of the school year in which they turn 16. Once a worker reaches the age of 25, they are entitled to the NLW.
Payment of the minimum wage is not limited to full-time employees. Workers for NLW and NMW purposes also include:
 
• part-time workers
• casual labourers
• agency workers
• workers and homeworkers paid by the number of items that they make
• apprentices
• trainees
• workers on probation
• disabled workers
• agricultural workers
• foreign workers
• seafarers
• offshore workers
 
However, company directors without a contract of service fall outside the minimum wage legislation, as do the self-employed, volunteers and voluntary workers, workers on a government employment programme or pre-apprenticeship scheme or certain EU programmes, members of the armed services, family members living in the employer’s home, non-family members living in the employer’s home who are not charged for meals or accommodation and treated as a family member (for example, an au pair), higher and further education students on placements of up to one year, people on a Jobcentre Plus Work trial for six weeks, share fishermen and those working and living in a religious community.
It is important to identify which workers fall within the scope of the minimum wage legislation and pay them accordingly.

 

What is included in the minimum wage?

 

Certain items are not taken into account in determining whether a worker has been paid at or above the relevant minimum wage for his or her age. These include payments for the employer’s own use or benefit, items that the worker has bought for the job and which have not been reimbursed, such as tools, a uniform and suchlike, tips and service charges and any extra pay for working unsocial hours on a shift.
However, income tax and National Insurance are taken into account in the minimum wage calculation as are advances of wages or loans, repayment of overpaid wages, items provided for the employee which are not needed for the job, such as meal and penalty charges for a worker’s misconduct.

 

Accommodation

 

Accommodation provided by the employer is taken into account when calculating the minimum wage. The legislation provides for an accommodation offset, set at £52.85 per week/£7.55 per day from 1 April 2019.
If the employer charges more than this for accommodation, the excess is taken off the worker’s pay which counts for minimum wage purposes. Where there is no charge for the accommodation, the offset rate is added to the worker’s pay.

 

Failure to pay minimum wage

 

It is a criminal offence not to pay the National Minimum Wage or National Living Wage to which a worker is entitled. Employers who pay below the minimum wage should pay arrears immediately. Penalties may also be charged.

Employer Compliance Questionnaire

Adrian Mooy - Tuesday, May 28, 2019

 

HM Revenue & Customs is sending out “Employer Compliance Check Questionnaires” without notifying agents, which could land businesses in trouble if the wrong information is provided.

 

The questionnaires are understood to be a replacement or substitute for a PAYE audit, which would typically require a visit from HMRC to ensure that a business’s payroll is compliant and being managed correctly.

 

The series of questions include:

 

What does the business do?

 

Where is the work carried out?

 

What are the names of Directors, how are they paid and what are their responsibilities?

 

Who prepares the payroll?

 

Which payroll package is used?

 

How many employees does the company have?

 

Are employees paid below the national minimum wage?

 

If so why?

 

How many workers are paid off-payroll?

 

The questionnaire is also understood to go into some detail about the expenses of the business including details of staff entertaining, work travel and loans to staff or directors.

 

Alongside the questionnaire, many employers are also asked to provide policies and documents, as well as key data about the business.

 

This new style of compliance checks should not be taken lightly and anyone who receives one should contact the person who manages their payroll to ensure the correct information is provided.

 

Failing to complete the questionnaire or providing incorrect information could lead to additional investigations or a financial penalty.

Additional year to prepare for MTD for taxes other than VAT

Adrian Mooy - Friday, May 24, 2019

 

The Spring Statement contained information for businesses wondering when they will need to be ready for Making Tax Digital (MTD) for taxes other than VAT.

 

Until recently, the official line was that the rollout of the UK’s digital system would be confined to VAT until April 2020 at the earliest.

 

Now, a change to this wording seems to suggest that MTD will not apply to any further taxes until 2021.

 

April saw the launch of MTD for VAT, which requires VAT-registered businesses with a turnover of £85,000 or more to keep digital records and make quarterly digital returns using HM Revenue & Customs compatible software packages.

 

In practice, this means they may need to use a cloud accounting platform for record keeping and filing.

Off-payroll working rules set to change next year

Adrian Mooy - Thursday, May 23, 2019

 

HM Revenue & Customs (HMRC) has published new guidance on the expansion of the IR35 requirements to contractors working in the private sector.

 

IR35 governs the tax status of people working through personal service companies (PSCs) and until now required public sector employers to determine whether contractors working for them should be taxed as employees.

 

From April 2020, the same rules will apply to bodies in the private sector and HMRC has published the following tips to help employers prepare for the change.

 

 - Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.

 

 - Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020.

 

 - Start talking to your contractors about whether the off-payroll rules apply to their role.

 

 - Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.

 

Currently, contractors working for private sector clients are themselves responsible for making sure they pay tax on the correct basis.

Employers must comply with new payslip rules

Adrian Mooy - Wednesday, May 22, 2019

 

More than 300,000 workers have received a payslip for the first time under new rules that came into force in April.

 

However, experts fear that many employers may be unaware of the recent changes and how it could affect them.

 

The new rules require employers to include variable rates of pay and hours worked within their payroll reporting, which will enable workers to easily confirm that they are receiving the minimum wage.

 

Thought to primarily affect those employees on zero-hours contracts or who perform what has been described as ‘casual’ roles within a business, the Department for Business, Energy and Industrial Strategy (BEIS) have said that itemising and clearly identifying hours worked would ensure that staff could check that they are being paid at the correct rate.

 

The new rules will also help the Government to more easily identify where employers are failing to meet their national minimum wage (NMW) and national living wage (NLW) obligations, as well as their contributions to workplace pensions and holiday entitlement.

 

In recent years, the BEIS and HM Revenue & Customs have been taking a tougher approach to those who fail to meet payroll rules, often imposing penalties and naming and shaming the worst offenders.

 

All employees will also be given the ability to request a statement of rights on the first day of their employment, which sets out their annual leave pay and allowance.

Registering for MTD for VAT takes seven days, says HMRC

Adrian Mooy - Monday, May 20, 2019
 
HM Revenue & Customs (HMRC) has warned businesses that the registration process for Making Tax Digital (MTD) for VAT takes seven working days.

 

This means that VAT-registered businesses turning over £85,000 or more need to register more than seven days before submitting a return if they want to pay their tax bill by direct debit.

 

Last month saw the introduction of the requirement for such businesses to keep digital records and make quarterly digital VAT returns using HMRC-compatible software packages.

 

The quarterly nature of MTD for VAT returns means that the first quarterly submissions will not actually become due for most until at least July 2019.

 

Registering involves setting up a Government Gateway user ID and ensuring compatible software is in place.

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.


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