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Tag: Remuneration

Remuneration

  • Let The Taxman Contribute To Your Christmas Party

    You can spend a maximum of £150 per staff member plus another £150 for their other halves or guests. The only condition is that ALL members of staff at that location must be invited.

    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, so everyone gets that holiday feeling!

    Ensure that the costs are called staff entertainment in your detailed Profit & Loss Account.

    Remember it doesn’t have to be AT Christmas; it could be a similar annual function such as a summer BBQ, as long as you spend less than £150 over the whole year.

    The £150 includes VAT and the cost of transport and/or overnight accommodation. Divide the total cost of each function by the total number of people, including non-employees, to arrive at the cost per head.

    The VAT is also fully recoverable when paying for your staff. 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.

    I 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!

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also £150 for your better half even if he/she isn’t a director or employee.

    The cost is fully tax deductible so you save 19% corporation tax.

    Again, ensure that it is called staff entertainment in your detailed Profit & Loss Account.

    In this case we would advise that the VAT shouldn’t be reclaimed.

    Enjoy that Christmas Party a bit more knowing you’ve received a subsidy from ‘The Taxman’.

  • Growing SMEs – The Best Tax Incentive Ever?

    The best tax incentive revolves around the share capital in your company.

    Rather than give away or sell shares up front before the person has proved themselves, you grant an option for him/her to buy shares at a later date. If the person helps grows your company he benefits from that growth by buying the shares at the value they were when s/he joined you.

    S/he makes a profit for no initial cost, and your dividends haven’t been reduced.

    Importantly, there is no tax charge if s/he simply buys the shares and keeps them. More likely, s/he will wait until you sell your higher value company. If s/he has been with you for a year, the tax charge on that gain is only 10%.

    A much improved rate on say 40% income tax if you’d had to pay higher bonuses throughout that period.

    Your company hasn’t taken a risk, and its corporation tax bill is reduced by the gain, so you save 19% corporation tax as IF you had paid him those bonuses.

    How does it work?

    1. You write down a set of EMI share option rules such as what happens if your employee leaves your company.
    2. The company grants share options for no cost and no tax charge.
    3. Eg If your company is worth £90k and you company has issued 90 shares, each share might be worth £1,000. If you grant 10 share options, you’ve immediately given a perceived £10k value to your new person with no cost to you or tax charge to him/her.
    4. You and your new senior executive grow your business over the next, say, 5 years.
    5. You decide to sell your business for, say, £3m. The gain made by your senior executive is £300k less the initial £10k = £290k. After paying 10% capital gains tax of £29k, s/he has received a net £261k over 5 years equating to additional gross salary of over £130k per year. In addition, your company saves 19% corporation tax on the £290k, so its tax bill is reduced by £55k, without incurring any costs.

    Your company has benefitted from employing a senior employee who also benefits, if s/he stays with you and helps grow the company. Your corporation tax bill is reduced as if you’d paid him/her normal taxable bonuses, plus you’ve not paid 13.8% employer NI on top of those bonuses.

    Your senior executive knows that s/he benefits from any incremental value he adds to your company and pays only 10% tax instead of a potential 47% combined income tax and NI rate on bonuses.

  • Autumn Statement – AKA The Pre-Budget Budget

    Today’s Autumn Statement was more of a mini Budget than usual. Presumably due to the recent pressure being applied by the opposition.

    The good news for businesses is that taking on an under 21 year old won’t cost you any national insurance, but only from April 2015. In the meantime, if you can’t wait, you can employ anyone on up about £22k (or more than one person on lower salaries) from April 2014, and, under a previously announced measure, this won’t cost you any national insurance either. Both rules will continue into April 2015, so you could arrange your workforce to cost you no national insurance at all.

    It has at last been recognised that small retailers need help in competing against the Internet. Potentially, the most valuable relief is a 50% reduction in rates when re-occupying an empty property. Being able to pay rates in monthly instalments may also be helpful for some.

    Despite the stated aim to simplify tax, we now have another class of national insurance: Class 3A. This is nothing to do with employment or business, but it’s worth knowing that there’s another route to topping up your additional state pension, if necessary.

    A surprise change to the capital gains rules on homes means that the 3 year rule helping to exempt many homes from some/all of its capital gains tax, is being reduced to 18 months. This means that if you no longer live in your residence and you let it out before selling it, you can only have the last 18 months of the letting period tax free, together with the actual period of your residence. This indicates a certain amount of impatience with second home owners and the reduced tax they pay.

    It’s also worth noting there are now plans to make inheritance tax returns online. This will save executors a lot of time and hopefully speed up the whole process with HMRC.

    HMRC might need this help too, seeing as they are under a lot of pressure to continually find more tax from new anti avoidance measures. Identifying, challenging, and retrieving this tax due isn’t easy, particularly within these time frames. Expect a more aggressive attitude in certain areas.

  • #Tax Myth 13 – Your Income Is The Same For All #HMRC Purposes

    #Tax law is set up by different politicians at different times to achieve different aims, so we often end up with a strange mix of outcomes.

    You may know what your Income is for income tax & national insurance purposes, but what about pension purposes? Child benefit high income charge? Childcare vouchers?

    Here’s a list of the main sources of income and when they’re applicable when dealing with #HMRC:

    Salary, Bonuses & Benefits

    • Income tax
    • National insurance – Class 1
    • Employee pension contributions
    • Childcare vouchers
    • High income child benefit charge
    • Working tax credits

    Sole Trader/Self Employed Profits

    • Income tax
    • National insurance – Class 2
    • National insurance – Class 4
    • High income child benefit charge
    • Pension contributions
    • Working tax credits

    Dividends – Gross

    • Income tax
    • High income child benefit charge
    • Working tax credits (over £300)

    Interest Income – Gross

    • Income tax
    • High income child benefit charge
    • Working tax credits (over £300)

    Property Profits

    • Income tax
    • High income child benefit charge
    • Working tax credits (over £300)

    Pensions Received, Including State Pensions

    • Income tax
    • High income child benefit charge
    • Working tax credits

    Points To Note

    1. The gross dividend is the amount you received plus the tax credit of 1/9. So for a £100 dividend, you use the higher non-cash figure of £111.11.
    2. The £300 is deducted only once from this income added together.
    3. The tax free personal allowance is not deducted when considering thresholds such as the £50k-£60k adjusted net income for the high income child benefit charge.

    Strange Mix Of Outcomes

    1. When calculating your/your partner’s adjusted net income for the high income child benefit charge, or your working tax credit income, remember to deduct self employed losses, gross gift aid and gross pension contributions (a net £100 gift or contribution becomes £125 gross), but not most property losses! And not in the same way as for income tax purposes!
    2. The childcare voucher thresholds ignore dividends, so you may be able to pay more tax free childcare vouchers from your own company than you thought.
    3. Pension contributions paid by employees are restricted according to salary, bonuses and benefits, but employer contributions don’t have the same limitations (there are others). Your own company may therefore prefer to pay employer pension contributions (after seeing an IFA).
    4. With the new simplified cash accounting for unrepresented self employed sole traders effective from April 2013, these cash based profits are presumably the ones to use for working tax credits and other #HMRC purposes? They will probably be the same for the new universal credit system as we already know that requires monthly reporting of cash based profits.
    #taxisfun

  • How does George affect his parents’ after-tax income?

    Meaning the baby, not the Chancellor!

    If his father’s only income was his RAF’s officer income, with a salary under £50k, and with a non-earning mother, they would receive the full child benefit of £20.30 per week, or £1,055.60 per year until as late as 31 August 2033 if he is in qualifying education or in the armed forces by then.

    If his father receives a pay rise in the next 16 to 20 years, taking his income over £50k, child benefit is reduced or if it reaches £60k, becomes £NIL. This assumes the thresholds aren’t increased with wage inflation which is probably the intention.

    If his mother works for her parents’ company for a modest salary below the tax free personal allowance of £9,440 and the company runs a childcare voucher scheme for all its employees paying up to £243 pcm or £2,916 per annum until 1 September 2028, corporation tax of £2,471 (£1,888 + £583) per year is saved with no tax charge on George’s mother. And no loss or reduction in child benefit.

    This childcare can be paid despite a private education if it’s an out-of-hours school club such as rugby practice.

    Before starting school, his father may take George to a workplace nursery paid for by the RAF with no tax cost to him, and with no income limits, this can be very valuable. It could be paid at the same time as George’s mother’s childcare vouchers with no effect on the level of childcare vouchers paid to her.

    In addition, if his mother had shares in her parent’s company and received dividends, they wouldn’t affect the level of childcare vouchers paid, but might affect child benefit if the gross dividends plus salary totalled £50k or more.

    Potentially, child tax credits are available if their combined income, including gross dividends, dropped to £25,798 or less before 1 September 2029. Or if they need to spend spend £175 per week on childcare and their combined income is under £40k, they might receive the childcare element of working tax credits, but only if both of them worked 16 hours per week somewhere.

    Simple enough? Not really. With all the different dates, different income definitions and different thresholds, it’s certainly not child’s play!

  • Why it might pay to furnish your buy-to-let property

    When you spend money on your buy-to-let property, you expect to get a tax deduction against the rents received to help keep your tax bill down.

    For those with children, this is even more important if your rented property might take you into the ‘no-go’ £50,000 – £60,000 income level where child benefit might be reduced or taken away completely.

    With residential properties, costs like agent’s fees and gas certificates are easily deductible. But what about the costs of white goods and furniture?

    The usual (now very valuable) capital allowances for trades, aren’t available for residential properties. Therefore, instead, before April 2013, there was a useful ‘non-statutory’ relief that allowed you to claim the cost of say replacing a cooker (the original cost can’t be claimed). This relief has now been taken away.

    What remains is, instead, claiming a 10% Wear & Tear allowance based on 10% of the rent due on your property. However, this only applies to furnished properties. Furnished means the sort of things you’d expect to see in a home such as a bed, sofa, dining table and chairs.

    With the availability of cheap furniture, you might find this is an investment worth making. You’d get tax relief for replacing white goods in the future. Of course, if the furniture itself gets damaged, you’d need to include its replacement cost within the 10% claim.

    As the Wear & Tear allowance is based on rent due, you can see that this is more of a possibility in higher rent areas.

  • A Guest At The Olympics? Here Are 6 Different Tax Treatments!

    If you are lucky enough to be a guest at the Olympics, what sort are you and what tax is due?

    1. Your client has invited you and your better half to enjoy the men’s 100m final, plus you are wined and dined, all paid for by your client. Your company pays your train fare. You are hardly going to drive after all that free booze!

    This is the E word – Entertaining! But it’s mainly paid for by your client so it’s his problem. What is that? Well, he can’t claim any VAT deduction or any corporation tax relief for the cost. Happily you don’t any suffer income tax. However, you won’t be able to claim corporation tax relief for the train fare as the reason for the trip was Entertaining.

    2. You take the train to meet a client at his business premises in Stratford, London to go through his year end figures. The meeting takes a while and you treat him to tea and sandwiches to keep you going. At the end of the meeting, he receives a call from his wife that she is too ill to go to the men’s 10k final and he asks whether you’d like to accompany him. Of course you do! Afterwards, you buy a beer and pasty at the Olympic Park before making your way home.

    The main reason for your trip to London was a business meeting and you therefore receive corporation tax relief for your train fare and subsistence. In this case it isn’t unreasonable for a whole day out of the office to claim lunch and dinner, including refreshments for the business meeting.  You can claim any VAT charged should you be inclined to get VAT receipts. No income tax or national insurance is due and if you have a PAYE Dispensation in place, there will be no P11D required either.

    3. Instead of the Annual Christmas Party, you decided to treat you and your 4 staff to a day at the Olympics. You managed to get tickets for your staff plus a guest to go to the 800m womens swimming heats. As well as paying for the Venue ticket, your company paid for the train fare and food and drink all day. The average cost was £140 per head Incl VAT.

    You can claim all costs for corporation tax relief as the total cost per person was less than £150 Incl VAT. You can reclaim the VAT for you and your staff but not their guests. If you had charged the guests say £5 for the day, you would have been able to reclaim all the VAT.

    4. Your staff enjoyed the Olympics so much that you get some last minute tickets for the Paralympics basketball heats.

    As the £150 Incl VAT Annual event limit has been pretty much used up, all costs for this day out are now the E word – Entertaining. This doesn’t affect the corporation tax relief or ability to reclaim VAT, but it does mean there is a taxable benefit in kind so that income tax and national insurance is due. This might add 34% or 54% to the total cost of the day if your staff pay the income tax. You decide this will offset any feeling of goodwill you’ve created and decide to pay the income tax on their behalf, but this might add 42% or 89% to the company’s cost for the day. It would have been better to wait another 12 months and treat the staff to something else!

    5. In view of this you decide to get the company to treat you and your spouse to tickets for the closing ceremony for which some extra tickets were suddenly released.

    As you are a director and you have already had the benefit of an annual staff event, this is entertaining. Similar issues arise as for the previous point, except that HMRC are unlikely to allow VAT to be reclaimed.

    6.  The client who treated you to the 100m men’s final had such a good time that he has also sent you and your spouse the full set of cuddly Wenlocks and Mandevilles.

    As the total cost of these mascots is less than £250, there is no income tax or national insurance charge on you. However, as before, your client won’t be able to save corporation tax or recover the VAT on this purchase. If the cost was under £50 and the gift showed his company logo he would have received corporation tax relief and recovered the VAT paid.

    The final true after tax cost of the Olympics events and gifts varies widely, so choose carefully for this event or for the next one!

  • Spend your capital gain and pay no tax – only 170 days to go!

    This is a one off tax relief within the new SEIS introduced in March’s Budget.

    If you have recently exchanged, or expect to before the end of the tax year, eg on a buy-to-let property, and don’t welcome the 28% capital gains tax bill, you could take the view that a government subsidy to encourage you to invest your gain in a new company will help you take a risk.

    For example, if you sell an asset for £250,000 and make a gain of £50,000, the capital gains tax due @ 28% is £14,000.

    If you risk the £50,000 (only 20% of your sale proceeds) and reinvest it in a promising qualifying company, you will save this £14,000.  Not only that, but you will receive a credit for income tax purposes of up to 50% of the gain of £25,000.

    This is a total tax saving of up to £39,000 on an investment of £50,000. The net amount risked by you could therefore be only £11,000 out of your £50,000 gain.

    The income tax saving will be with us for a while and is still valuable. However, the capital gains saving is with us only for this tax year.

    As it isn’t wise to make an investment until the Finance Bill receives Royal Assent in July, there are only approximately 170 working days left to take action to top up your income tax relief by this one off capital gains relief.

    As with many tax reliefs, there are numerous conditions to check before you go ahead. You may find it is worth it.

    SEIS – Seed Enterprise Investment Scheme

  • #Tax Myth 7 – The Highest Income Tax Rate Is 50%

    You may be aware that income of £150,000 and above suffers a tax rate of 50%.

    What is less well known is that at a lower level of income the tax rate is in fact higher than 50%.

    For income of between £100,000 and £116,210, the income tax rate is 60%.

    Why is this?

    From £100,000 the personal allowance available to all taxpayers is gradually taken away at a rate of £1 for every £2 of income. The change from completely tax free income to that income being taxed at 40% causes that income to pay a marginal tax rate of 60%.

    As the tax free personal allowance increases, the band of income which pays a rate higher than 50% (or 45%) will increase. If the tax free personal allowance becomes £10,000, the income level affected will be between £100,000 and £120,000.

    For those who can spread income across different tax years, such as owner-directors, this is a valuable tax saving.

  • #Tax Myth 5 – You have to pay national insurance to earn a state pension

    Employees who earn at least £107 per week or £464 per month for a full tax year will be achieving a credit towards the 30 years they need in order to earn a basic state pension.

    At these earnings there is no national insurance to pay by you or your employer. Your employer may be your own company.

    Therefore, you aren’t paying anything to earn a state pension.

    Earnings up to £144 per week or £624 per month, continue to be free of national insurance. In addition you benefit from a further top up to the basic state pension, called the  S2P. You are deemed to be earning a higher salary but for no cost to yourself or your company.

    Therefore, you or your employer aren’t paying national insurance and you are earning more than a state pension.

    If you are a sole trader, you build up a state pension from paying Class 2 National Insurance of £2.65 per week. A low contribution but not free as for the employees described above.

    You don’t receive any benefits from paying Class 4 National Insurance of 9% on your profits. This is odd bearing in mind that this is by far the most expensive National Insurance element if you are a profitable self employed business.

    If you are near retirement age, transitional provisions may apply, but the general points made above are still likely to remain valid.