My Blog

Category: Income Tax

  • Cost Of Living – Helping Employees

    Salary Sacrifice For Pension Contributions 👏

    It might surprise you to learn that instead of increasing salaries, one technique is to decrease them before they’re earnt, using the reduction to replace existing employee pension contributions with employer pension contributions.

    With pension auto enrolment many employees already make employee contributions, but they and you still pay national insurance on this salary. Instead, save this national insurance of 13.25% for most employees and 15.05% for employers.

    There can be disadvantages if certain mortgage lenders don’t restore the salary for lending purposes, the lower salary might affect government benefits and it needs to be within the national minumum wage. However, it  might be worth a look particularly with an employer national insurance saving for your business too. 

    Cycle To Work Scheme 🚲

    Provide bikes to employees who are happy to cycle to work or were perhaps thinking of doing so anyway to save fares. They won’t need to buy their own bike from after-tax income. The bikes need to be used more than 50% of the time for commuting or business journeys. They are initally lent to employees who may then buy them from you at a second hand value a few years later.

    Trivial Benefits 🎁

    Occasionally treat your employees to a high street voucher for up to £50. This rule can be used for other things such as birthday flowers, but a voucher allows them to choose what they want. Be sure to keep these occasional otherwise they become taxable.

    Refund Working From Home Costs 🏡

    With increased energy bills, employees additional costs of working from home may need to be refunded beyond the £6 per week. Keep records of these additional costs to ensure they don’t become taxable.

    Provide A Company Mobile Phone Or Two! 📱

    Surprisingly it doesn’t matter how much one company mobile phone is used for private calls, there isn’t a taxable benefit on the employee. You could therefore replace their personal phone with a company mobile contract.

    If your employee needs a mobile phone overwhelmingly for business use, you can even provide two mobile phones, with one entirely for business and one for private use.

    Do not reimburse the employee’s phone contract costs as that doesn’t work in the same way.

    Loans Up To £10,000 📆

    Although eventually repayable, loans of up to £10,000 can be made to staff interest free for as long as needed without a tax cost. A small amount may help some employees to get through a short term problem.

    Profit Related Bonuses 📈

    If your business does well, a bonus becomes affordable. Structure it carefully to ensure it achieves your aims, encouraging the behaviour and results you’re after, as well as incentivising staff.

    A Day Off? ☀

    If your staff finish a project on time and budget, meet cost saving targets, or similar, an additional day off doesn’t cost you any cash and creates a lot of goodwill.

    If you’d like to know more please contact your On The Spot Accountant. 

  • 2022 Spring Statement – Spring Bunny or Alice’s White Rabbit?

    National insurance (NI) threshold increases by £3,000

    To help the lower-paid, but also all of us who are directors/employees/self employed, a much welcome simplification measure of aligning the NI threshold of £9,568 with the income tax free threshold of £12,570 will be introduced from July 2022.

    Why July you ask? This shows that the Chancellor has had to make unplanned changes and is probably the time HMRC needs to updates its IT system. He might even have planned to do this in a year or so and has simply brought it forward.

    The stated saving for 2022/23 of £330 for employees/directors is from applying this increase from July. If it had been for a full year at the current 12% rate of NI it would save £360. For sole traders and partners, the calculated part-year saving is £250 because Class 4 NI is only paid at 9%, instead of the employee 12% rate.

    Interestingly, the threshold at which Class 2 NI is paid is jumping from £6,725 to £12,570. Ensure you are registered with the DWP even if you won’t pay Class 2, otherwise you’ll lose contributory years towards your state pension.

    Above the new annual £12,570 threshold, the NI rates will still be increased to 13.25% for employees/directors and to 10.25% for the self employed. Employees with more than one job will benefit even more. Ordinarily one NI threshold is given to each job, not each person.

    National insurance (NI) employer’s annual allowance increase from £4,000 to £5,000

    And employers will still pay 15.05% on earnings above £9,100, although the £4,000 annual allowance will be £5,000. This £5,000 is equivalent to 15.05% on a £42k salary for one employee, or more employees on lower salaries. It does seem to help small businesses afford to employ one or two staff. 

    Director’s annual salary

    This employee NI saving seems to mean that even sole directors pay should now be £12,570 (£1,047 pcm) for most directors, rather than the planned £9,100 (£758 pcm). We will of course advise you in due course. 

    Income tax rate decrease by 1% from April 2024

    Why, you may ask, is NI increasing by 1.25% now, followed by a 1% income tax cut in two years time? It probably has a bit to do with devolved governments who can only adjust income tax, but also being seen to deal with long term care costs through the NI system rather than the income tax system which affects more people.

    What was missing?

    Business miles rate increase – An increase in the longstanding business mileage rate claim from 45p to at least 50p would have been welcome. Did the government want to encourage company electric vehicles instead where there has been a recent increase from 4p to 5p for business miles claims.

    Working from home continued relaxation – From April 2022 it appears we’re back to claiming for each week, not the whole year, and only in your tax return if your employment contract requires you to work from home.

    Threshold where child benefit starts to be taken away – This is £50,000 and is now noticeably out of line with both the income tax and NI thresholds of £50,270. This is becoming a nice additional background money earner for the government.

    Hospitality VAT decrease – This looks set to increase from 1 April 2022. Check your gross profit margins and ensure you still have a sustainable businesss. You may need to increase your prices.

    Will you have a Spring in your step and get through these cost of living increases? If not, do make sure you take advantage of everything that is on offer within the tax, benefit and grant systems.

       

  • 2022 Tax Year End Planning

    Sole shareholder-director – basic rate taxpayers

    If you’re a sole shareholder-director without any other income, you may be taking an annual salary of £8,832 and dividends of £41,168. This keeps you within the basic rate tax band and helps you keep your child benefit. If so, your personal tax bill for this tax year ended 5 April 2022 is £2,657. 

    For the next tax year ended 5 April 2023, your tax bill will increase by £444 because £35,500 of your income will be taxed at 8.75%, an increase of 1.25% on the current 7.5%. 

    Two shareholder-directors – basic rate taxpayers

    Often, two shareholder-directors each take an annual salary of £12,564 to benefit from saving more corporation tax taking advantage of the £4,000 employment annual allowance. Assuming your total income stays under £50,000, your personal tax bill will also increase by £444 each. 

    Both these examples change slightly where the full £50,270 basic rate band is utilised and account is taken of the increase in national insurance thresholds.

    Higher rate taxpayers

    Where your total income is over £50,270 your dividend tax increases from 32.5% to 33.75%, that is, for every £10,000 of dividend the increase is £125. Where dividends are taken up to £100k to retain your £12,570 tax free personal allowance, your higher rate income tax of £16,162 will increase by £622 to £16,784.

    When added to the increase in the basic rate tax band of £444, the total tax increase is over £1k.

    What could I do to save tax of between £400 to £1k?

    Pay more dividends before 5 April 2022 – You might decide to take a few more dividends before 5 April 2022, taking fewer from 6 April 2022, than you normally would.

    Consider adding your spouse as a shareholder – Depending on your relative incomes, you may save dividend tax from spreading out dividends between you.

    Are there other ways to be more tax efficient?

    To help offset this forthcoming tax increase, you might decide to replace existing dividends with:

    1. A new electric car
    2. Employer pension contributions
    3. Life cover premiums
    4. A commercial home office rent
    5. An annual health care check
    6. Smaller items such as an annual party and trivial benefits

    Where you have staff, you’ll pay more employer’s national insurance, an increase from 13.8% to 15.05%. Employing apprentices or veterans saves employer’s national insurance, providing more of an incentive to  employ these favoured groups.

    What about sole traders and partnerships?

    Where you have profits over £9,880, you’ll pay 10.25% Class 4 national insurance from April 2022 rather than 9%. As the threshold has increased this saves a small amount, £28, on the previous year, but aside from this for £10,000 of profit over £9,880, your national insurance bill will increase by £125.

    If you’re planning to invest in plant and equipment or a vehicle you might want to do this from 6 April 2022, to save 10.25% rather than 9% of Class 4 national insurance. 

    Please discuss the details with us to ensure your plans can be carried out in good time. Thank you.

     

  • Top 10 Client Queries During 2021

        1. What claim can I make for home office costs?

          Depending on whether you’re an employee, self employed or an owner-director, your claim can usually be at least £6 per week up to a market rent charged to your company which is included in your income tax return. 

        2. Should I incorporate my sole trader business? How do I incorporate my sole trader business?

          With the increase in dividend tax in 2022 and corporation tax increases in 2023 for many companies, this needs to be revisited. At about £100k to £150k profits you may be better to remain a sole trader, but only if you need to take all the profit out from your company. If not, the tax advantage of spreading your taxable income over several years, is very valuable, particularly if you want to keep your child benefit or tax free personal allowance.

          Often a good way is for you to set up a new company which buys goodwill and other assets from you. At low levels, the goodwill may be taxfree on you. Your company will owe you for these assets which it can repay you tax free when it has the funds. 

        3. How does one of us exit our company?

          If your company has accumulated profits and cash and several other criteria are met, your company may be able to buy your fellow shareholder-director’s shares and cancel the shares. This means you don’t need to find the cash from your personal funds.

        4. What tax efficient choices are there to reward my staff? 

          Many and varied from an annual Christmas Party for everyone, annual health care checks, cycle to work arrangements and small gifts under £50, through to granting share options to senior staff. 

        5. How do I liquidate my company?

          For some small solvent companies, a simple DIY striking off might be approrpriate, but your company can be resurrected in certain situations. Liquidator fees have become more competitive and may enable you to take more accumulated profits out of your company at a 10% capital gains tax rate, which is better than a 32.5% dividend tax rate but more than the 7.5% dividend tax rate where your total income is under £50k.

        6. I don’t understand my company’s accounts. Would you please take over?

          Recent government grants and loans have focussed minds on the advantage of understanding your accounts at some level. We’re seeing quite a few accounts that don’t agree to software or make little sense, which when rectified helps business owners see what’s going on.

        7. What VAT applies to imports and exports? 

          This depends on whether these are goods or services and whether it’s B2B or B2C. With more businesses providing online services which reach consumers outside of the UK, it’s important to understand that local EU VAT is due and how to register and pay EU VAT.

        8. What capital gains tax do I pay on my property sale? 

          This depends on a few factors, mostly whether you’ve ever lived in the property as your home. If it’s never been your home, the entire profit over £12k per owner, after costs of purchase, sale and any capital improvements will be taxed at 18% or 28% or a combination, determined by whether you’re a basic rate or higher rate taxpayer when the property gain is added to your income. If it’s partly been your home, partly rented, a proportional calculation is required.

        9. What pension contributions can I make? Am I claiming enough income tax relief? 

          Broadly, pension contributions are restricted to £40k per year to include all contributions to all schemes by employer and employee. Some unused maximums can be brought forward from previous years but the annual lifetime allowance of £1m must also be considered.

          On the other hand, we often see employee higher rate taxpayers not claiming enough tax relief due to a misunderstanding about how thier pension contributions are paid. Pensions have never been more complicated and many people should take advice from an IFA.

        10. What income tax is due when I work abroad for a UK employer?

          If you are resident and working in another country, you’re usually required to pay tax in that country. We’re seeing some senior staff moving permanently abroad but retaining their UK employment. Their employers are often unclear as to how to deal with local tax systems, instead continuing to pay UK PAYE tax. If this becomes more common it might get more attention from local tax authorities.

    As always take advice specific to your situation as different answers are likely to be appropriate to different people and companies. 

  • Let The Taxman Contribute To Your Christmas Party

    What are the limits?

    You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited. A location is a bit more blurred this year, so keep your e-invite to show that all employees contractually employed at a certain site are invited.

    In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.

    What is the tax treatment and accounting required?

    The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.

    The £150 includes all costs which this year may be a hamper sent to all attendees to link up on Zoom at the agreed time, possibly with the employer hosting a comedian, musician or quiz for attendees to enjoy.

    Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.

    The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff’s guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.

    Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!

    NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.

    I’m a director and don’t have any staff. Can I benefit from this favourable tax treatment?

    As you are the only director/employee you might think you can’t have a Christmas party – wrong! And it probably won’t need to be virtual if within the general Covid meeting up rules.

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also a guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to an annual value of £300 so check what other company gifts you’ve taken so far. In this case, we would advise that VAT can’t be reclaimed.

    Now you can have a fabulous tax subsidised Christmas party !

  • 2021 Tax Year End Planning – Top Tips

    Easter Monday is not only the end of a long bank holiday, it’s also the end of the tax year. Make sure you plan accordingly, so you can improve your nest egg before Easter 🐤 Please see our top tips below:

    1. Income Tax Thresholds – £50k and £100k

    These are crucially important to understand, to ensure you don’t pay more tax than you need to. Even if you benefit from a 0% tax rate on certain allowances, say the £2k dividend allowance, the £2k still counts towards these £50k and £100k thresholds.

    As a company business owner, you can choose the salary and dividends you take out of your company; profits and cash permitting! You are in control and you don’t need to cross these thresholds unless you do so with knowledge of the consequences.

    Between £50k and £60k, your child benefit starts to get taken away for you or your partner. If your child benefit is an annual £1,820 and your income is £60k, you have to repay (or not claim) £1,820. This amounts to a further tax of 18.2% on top of your dividend tax of 32.5%, just over 50% in total. This is expensive!

    Similarly, if you need to take more than £60k and are close to the £100k threshold, you may want to stay under the £100k threshold where you start to lose your tax free personal allowance. For every £1 of dividend taken between £100k and £125k, the effective dividend tax due is 48.75%, rather than 32.5%. For high earning employees the effective income tax rate is 60%!

    2. The Importance of Pension Contributions and Charitable Gift Aid Donations

    The introduction of the £50k and £100k thresholds has shown how important pension contributions and gift aid donations are to your financial health. Admittedly, you are parting with money so it does cost you, but perhaps not as much as you thought.

    If you’re thinking of paying pension contributions or gift aid donations, pay them at the optimal time to maximise your tax reliefs. Remember they need to be paid on or before 5 April 2021 to save income tax.

    As a company owner, your pension contributions will probably be made as company contributions and to save corporation tax these must be paid before your accounting year end. If your company year end is 31 March 2021, pay them on or before 31 March 2021.

    As a high earning employee, say, on a salary of £110k, paying £8k into a pension scheme saves you £6k of income tax! This is 60% of £10k being the £8k you paid, grossed up by 20%, or £2k, paid direct by the government into your pension pot. The net effect on your income tax return is £4k to allow for this £2k paid in the background.

    As a sole trader or partner, if you have a good year, you’re not able to defer income as easily into another tax year so pensions and gift aid donations may be even more important. Similar considerations apply as above.

    Take IFA advice before deciding if, when and where to invest.

    3. Planning To Expand?

    As a sole trader or partner, if you have some larger costs to incur or equipment to buy, you might want to incur these costs before 5 April 2021 so you can claim tax relief in this tax year.

    If you’ve just started up so you’re making losses and paid tax elsewhere in this tax year or any of the previous three tax years, you should be able to claim an income tax refund. Therefore, if you have some costs to incur or equipment to buy, incur them before 5 April 2021 to increase your tax loss and therefore your tax refund.

    The meaning of ‘incur’ isn’t necessarily paying out cash before 5 April 2021, so check the rules if your cashflow is tight.

    Similarly, as a company owner with a 31 March 2021 accounting year end, bringing forward significant costs will save you corporation tax. However, for plant & equipment, you may save more tax by making the investment in your next accounting period from 1 April 2021 to benefit from the recently announced super-deduction of 130%.

    4. Planning To Invest?

    If you’re planning to support unrelated growing limited companies by investing in shares, remember to consider whether S/EIS income tax reliefs are available to you. Each £10k invested might save you £3k or £5k of income tax. Investing on or before 5 April 2021 should bring forward your tax saved by a year.

    5. Marriage Allowance, Trivial Benefits, Annual Parties

    Ensure you’ve not missed out on these during the tax year. They can add up! For example, marriage allowance can save up to £250. Perhaps even treat your employees to a virtual Easter party, assuming the £150 per person wasn’t used up at Christmas!

    As ever, remember to take appropriate professional advice before taking or refraining from any action so that your tax and business situation may be assessed in full.

  • Budget 2021 – Help To ReGroup & Grow

    Help To ReGroup

    Corporation Tax and Self Employed Losses – Carried Back 3 Years

    A bit like after the financial crisis, the usual 1 year loss carry back is extended to 3 years, meaning that tax paid on previous profitable years, will generate much needed cashflow through a tax refund.

    This applies from 1 April 2020 to 31 March 2022 which helpfully covers the worst of Covid’s effects. Get your 2021 tax returns in early to receive your tax refund as soon as possible.

    SEISS 4.0 & 5.0, Furlough Extension, VAT Rate Cut Extension, Business Rates

    SEISS 4.0 covers February, March, April and will now include those who’ve traded in both 2019/20 and 2020/21 and submitted 2019/20 before today. Claims can’t be made for a while – late April. 

    SEISS 5.0 will look at your turnover reduction in the year April 2020 to April 2021 with a similar £7,500 cap if your turnover reduced by 30% or more, but a much smaller cap of £2,850 if your turnover reduced by less than 30%.

    The furlough extension to the end of September tapered down to 70% for July and 60% for August & September is something for small limited company directors, as well as larger businesses, the main aim to help ensure employees stay in the jobs market.

    The 5% VAT rate extension to the end of September and 12.5% to 31 March 2022 will be valuable to eligible businesses and is another reason to become voluntarily VAT registered! With the current compulsory threshold remaining at £85k, you may need to be registered sooner than you think.

    Continuing with £NIL business rates for April, May, June is a much welcome cashflow saving until all property-based businesses can fully open.

    Help To Grow

    Management Training & Digital, Other Grants, Recovery Loan Scheme

    New management training and digital schemes for businesses with over 5 employees are aimed at improving productivity, an elusive goal for many governments, will be 90% funded by the government. New restart grants were also announced for non-essential retail, hospitality, leisure, personal care and gyms. Plus, picking up from the end of BBLs and CBILs, a new Recovery Loan Scheme will be available with 80% government backing.

    With so many different existing grants around available to all sorts of businesses, it must be worth most  checking whether there might be something available to them. Check the State Aid rules, though. 

    Investment – Super-Deduction – Companies 

    Increasing the tax deduction when purchasing plant & equipment from 100% to 130% from 1 April 2021 to 31 March 2023. At a corporation tax rate of 19%, £1,000 of investment, currently saves £190 of corporation tax, with the 130% super deduction, it saves £247, an increase of £57. Don’t forget to bring in 130% proceeds if you sell that equipment one day!

    If the plant is purchased through hire purchase there will be some further requirements, unlike under the current 100% deduction.

    Corporation Tax Rate Increase – 19% to 25%

    Happily, this is delayed until 1 April 2023 and with a taper from £50k to £250k profits, the effective rate on those profits will be between 19% to 25% for many small businesses. Apart from helping out the country’s finances, higher corporation tax rates arguably encourage investment. The more you invest, the more you save…  Interesting the start date is at the same time as the super deduction mentioned above comes to an end which mathematically seems to come to a similar answer: £1,000 @6% = £60

    It’ll be interesting to see whether fewer sole traders/partnerships will incorporate or at least delay doing so, although the freezing of tax free personal allowances and the higher rate tax bands through to April 2026 might encourage more incorporations. Each case will be different. In any event, ambitious businesses can easily incorporate later.

    Enterprise Management Incentive – EMI and Research & Development – Consultations

    Are these working? Should they be extended? etc etc. Let’s hope these come to quick conclusions so businesses can benefit from any improvements. The maximum repayable credit of £20k plus 3x PAYE bill won’t be disturbed.

    UK Infrastructure Bank, Grants

    There doesn’t seem to be any minimum sized business, so small green or local growth projects might be eligible. 

    What Didn’t We See? 

    Interesting the things that weren’t mentioned:

    • Business rates fundamental reform
    • Long term care funding ideas, perhaps through the national insurance system
    • Capital gains tax changes, but there have been several in recent years!
    • Pension tax relief, ditto! Although freezing the lifetime allowance will affect some.

    The focus has been on growth as the way to pay our way out of the enormous debt, with some important taxpayer help from corporation tax and freezing tax allowances. 

  • Coronavirus Dates To Remember – Just like yesterday’s Valentine date, make sure you don’t miss them!

    BBLs – Loan – apply by 31 March 2021

    Borrow between £2k and up to 25% of turnover up to £50k, very easily with no fees or security and pay annual interest of only 2.5% after 12m, with no repayments due for the first 12m.

    These remain the best loans a small business will ever receive and must be worth considering. We’re seeing the cash give small businesses valuable breathing space so they can focus on re-grouping and re-launching, as restrictions permit.

    Pay As You Grow improvements announced by the British Business Bank on 6 February, appearing to apply to existing BBLs borrowers, allow repayments to be delayed by a further 6m and after making only one repayment the option to pause repayments for up to 6m.

    This is in addition to the existing choices to extend the loan term from 6 to 10 years and/or pay interest-only up to three times during the loan term.

    CBILs – Loan – apply by 31 March 2021

    Designed for small businesses requiring finance for up to £5m, with no personal guarantees required for loans under £250k and even over £250k your home cannot be taken as security. No fees or interest due for the first 12m. These loans may also be extended to a term of up to 10 years.

    Local Authority Grants – current

    There are six schemes currently available:

    • Closed Businesses Lockdown Payment – from 5 January 2021
    • Local Restrictions Support Grant (Closed businesses) – businesses affected by Tier restrictions from 2 December
    • Local Restrictions Support Grant (Open businesses) – hospitality, accommodation and leisure businesses
    • Local Restrictions Support Grant (Closed businesses) – businesses affected by November and from 5 January national restrictions
    • Local Restrictions Support Grant (Sector) – nightclubs, adult entertainment venues and similar
    • Additional Restrictions Grant – discretionary

    For example, a small local authority discretionary Additional Restrictions Grant may be available to a home based business which has been severely impacted throughout, such as an events business.

    Business Rates Holiday (retail, hospitality & leisure) – to 31 March 2021

    Might this be extended in the Budget? We’ll let you know on 3 March…

    Full or Flexible Furlough – to 30 April 2021 – claim within 2 weeks of each month

    The government continues to pay 80% of furloughed non-working hours, the employer paying only employer NIC and pension contributions. Remember to claim within the specified 2 week date of the month end for each claim. 

    SEISS 4.0 – to 30 April 2021 – claim details due by 3 March 2021

    Details of the fourth self employed grant covering February, March and April are due to be announced by Budget day. 

    VAT Deferral – to 31 March 2021 or up to a further 12m – apply from 23 February

    VAT due between 20 March and 30 June 2020 is due by 31 March 2021 unless you apply to join the new interest-free instalment deferral scheme between 23 February to 21 June 2021.

    VAT Rate Reduction (hospitality & tourism) – 20% to 5% – to 31 March 2021

    This increases gross profit margins helping small businesses deal with other aspects of the virus such as bringing in safety measures or adapting their business model. Another one to look out for on Budget Day.

    Income Tax Returns – extension to 28 February 2021

    Apparently there are still quite a few to be submitted! If 28 February is missed, the usual £100 penalty is due, even if no tax is due, escalating after that for continuing delays.

    Income Tax Deferral – apply before 2 March 2021.

    If you’ve missed the 31 January payment deadline make sure you pay or enter an online deferral agreement before 2 March 2021 [EDIT: NOW AMENDED TO BY 1 APRIL 2021], to avoid a 5% surcharge. If you owe more than £30k in total, you’ll need to contact HMRC to agree a bespoke payment plan – known as Time To Pay.

    Other Taxes -Time To Pay – case by case – as early as possible

    This has always existed for taxpayers in difficulty. Approach HMRC as early as possible to agree a realistic payment plan. 

    Businesses have done well to keep going and many have improved their entire business model for the long term. Make sure you get the help for your long term success while you can.  

  • Let The Taxman Contribute To Your Virtual Christmas Party

    What are the limits?

    You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited. A location is a bit more blurred this year, so keep your e-invite to show that all employees contractually employed at a certain site are invited.

    In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.

    What is the tax treatment and accounting required?

    The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.

    The £150 includes all costs which this year may be a hamper sent to all attendees to link up on Zoom at the agreed time, possibly with the employer hosting a comedian, musician or quiz for attendees to enjoy.

    Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.

    The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff’s guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.

    Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!

    NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.

    I’m a director and don’t have any staff. Can I benefit from this favourable tax treatment?

    As you are the only director/employee you might think you can’t have a Christmas party – wrong! And it probably won’t need to be virtual if within the general Covid meeting up rules.

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also a guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to an annual value of £300 so check what other company gifts you’ve taken so far. In this case, we would advise that VAT can’t be reclaimed.

    Now you can have a fabulous tax subsidised virtual Christmas party !

  • WEP WEP WEP? Winter Economic Plan? Or…

    To add to the self employed (SEISS) and employee (CJRS) grant schemes already introduced, the employee Job Support Scheme (JSS) will start from 1 November, to pick up from the end of the CJRS the previous day, and run for the following six months. In addition, your business will receive the previously announced £1k Job Retention Bonus in February for those staff.

    The SEISS will similarly be extended to cover a further six months to end of April 2021, also at lower amounts, for the self employed.

    There are extensions to VAT and income tax payment due dates and improvements to the BBLs and CBILs terms to help yuor business’ cashflow further.

    Job Support Scheme (JSS)

    As long as employees work at least a third of their ‘usual’ hours, the government and employer will each pay one third of their ‘usual’ pay for their unworked hours, with the government contribution capped at £697.92.

    Meaning that the government will pay up to 1/3 of 67%, being 22% of pay (up to the cap) and the employer pays 55%, being 22% plus the 33% for the hours worked.

    You may be keen to know where the specific £697.92 came from. It seems to derive from a maximum annual reference salary of about £38k, not far off the £37,500 used for the CJRS.

    There isn’t anything to suggest that directors will be treated differently, although we’ll have to wait for further details to know for sure, but clearly on the usual low director salary the JSS has limited value.

    Self Employed (SEISS)

    The current version SEISS 2.0, opened in August 2020, pays a 3 month lump sum of up to £6,570 being 70% of £3,125 of your average profits.

    Today SEISS 3.0 and 4.0 were announced covering November-December-January and February-March-April, respectively. The SEISS 3.0 grant will be for 3 months of 20% of average profits up to a maximum of £1,875.

    This is much lower than before, being just under 30% of SEISS 2.0. Interestingly, this is about 90% of the JSS. Perhaps this is some in-built clawback of previously lower national insurance payments? The SEISS 4.0 grant hasn’t yet been announced.

    SEISS 3.0 and 4.0 are NOT dependent on claiming SEISS 2.0 or SEISS 1.0 (but you do need to be currently eligible).

    Presumably if you were adversely affected, say in August, but business has since picked up, you can’t claim SEISS 3.0 or 4.0. But how to measure ‘reduced demand’ isn’t yet clear. Perhaps a turnover comparison will be required for SEISS 3.0 and 4.0?

    Reduced 5% VAT

    Proving to be valuable to the hospitality and tourism sector, this reduced VAT will now continue beyond mid January to the end of March 2021. Remember this applies to sales of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, supplies of accommodation and admission to attractions. Do check the details if making a claim to recover VAT for subsistence when travelling for business.

    You don’t need to pass this reduced VAT onto your customers, as it may be needed to help keep your staff in their jobs.

    VAT Deferral

    If you deferred your VAT and were expecting to pay it in full by next March 2021, you may now spread that payment over 11 instalments during the 2021/22 financial year to end of March 2022.

    If you want to do this, look out for details on the ‘New Payment Scheme’ which you’ll need to opt into in early 2021.

    Income Tax 31 July 2020 Deferral

    Expected to be due by 31 January 2021, these deferrals already made can enter a plan to pay over a further 12 months, with the final payment due by 31 January 2022. This is only available if your income tax is under £30k.

    If you want to do this, look out for details on the ‘Self-service Time to Pay’ facility.

    Bounce Back Loans – Pay As You Grow

    Borrowers will be offered a delay from 6 years to up to 10 years to repay their loan. You can move to interest-only payments for up to 6 months for up to 3 times and pause repayments entirely for up to 6 months but only once during the term.

    Similarly a loan under CBILs can be extended from 6 years to up to 10 years.

    If you’ve not yet applied for one of these loans, you now have two months until 30 November to do so. Not an easy thing to do for many SMEs, so perhaps these extensions will be persuasive and save some businesses from permanently closing.

    At least, there is no Budget this autumn leaving businesses the time and space to focus on surviving the virus and hopefully thriving in the long run. 

    Please ask your usual On The Spot contact for further assistance.