Category Archives: Accounting

Salary Sacrifice has been “clarified”, its time to check that you comply Reply

Accounting, Bicknell Business Adviser • Tags: , , ,

Staff Benefits

Salary Sacrifice is a very tax efficient way to give your employees benefits and the most popular benefits are Pensions and Childcare. I wrote a blog back in 2011 which explained how it can save 45.8% in tax and NI

HMRC decided on 9th April 2013 that it was time to “clarify”  in their Manuals what are successful and unsuccessful salary sacrifice schemes and have added some further guidance. Their Staff are instructed not to approve schemes (Employment Income Manual EIM42772)….

You (HMRC) may get requests for advice:

  • on how to set up a salary sacrifice arrangement, or
  • on whether draft documentation will achieve a successful salary sacrifice.

You (HMRC) should not comment on either of these areas. Salary sacrifice is a matter of employment law, not tax law. The nature of an employee’s contract of employment is a matter for the employer and employee.

The specific updates are:

EIM42750 – Salary Sacrifice – updated – this contains the examples of schemes

EIM42777 – Contractual arrangements – this has interesting comments on childcare and pensions

  • If the scheme involves childcare or childcare vouchers then the conditions for exemption must be met. (See EIM21905 and EIM16057). Is the agreement to provide childcare between the employee and the childminder or nursery. If so the employer by paying the cost directly is meeting the employee’s personal liability. (See EIM00580).
  • For a registered pension scheme the amount which can be contributed to the scheme is normally linked to the employee’s chargeable earnings. In consequence if the salary sacrifice results in some of the employee’s income no longer being taxable, then the amount of contribution, which can be made to the scheme, will also drop.

EIM42778 – Exemption from Tax/NIC – basically stating that exemption may require that the sacrifice may be available to all employees but that the sacrifice must not reduce the employees wages below National Minimum Wages

The following is an example of an unsuccessful Childcare Salary Sacrifice:

The pay slip for the month ended 31 July 2006 gives monthly pay as £2000 plus overtime of £100, deductions for tax of £355 and NIC. The pay slip for the following month shows monthly pay of £2000 plus overtime of £100, deductions for NIC, childcare vouchers of £200 and tax of £310. The code number operated on the salary has not changed.

The situation is not clear from the payslip. When asked, the employer explains that for August, because childcare vouchers of £55 a week are exempt, £220 of vouchers has been deducted from the gross pay of £2100 and tax charged on the net figure of £1880. Further information is needed, for example a copy of the employment contract and any variations agreed by the employer and employee to that contract.

It is established that in July the employee bought childcare vouchers. The employer was not involved. The employer accepts that as the childcare in July was not provided by him, no tax exemption is available. In August the employee asked the employer to buy the childcare vouchers to take advantage of the exemption. The employer did this and deducted the cost from the monthly salary. The contract of employment shows that the employee is entitled to a base salary of £24000 to be paid monthly. This contract has not been varied. As the employee’s entitlement has remained the same, this is not a successful sacrifice. (See EIM42766).

If you operate salary sacrifice schemes its worth checking that your schemes comply, the tax consequences of failure to comply could be substantial.

steve@bicknells.net

 

Cash Accounting has arrived, but will it reduce your tax bill? Reply

Accounting, Bicknell Business Adviser • Tags: , , ,

Stress business woman

You can use the cash basis for Self Assessment Tax Returns (starting from 6th April 2013) if you:

  • are a small self-employed businesses (sole traders and partnerships but not Limited Liability Partnerships)
  • have an income of £79,000 or less a year (this is the threshold when you have to register for VAT)

You can choose to record your business income and expenses over the tax year in 1 of the following ways:

  • using cash basis – record money when it actually comes in and goes out of your business (all money counts – cash, card payments, cheque, any other method)
  • using traditional accounting (accruals basis) – record income and expenses when you invoice your customers or receive a bill

Cash basis might suit smaller businesses because, at the end of the tax year, you won’t have to pay Income Tax on money you haven’t received yet.

You must keep records of:

  • business income received
  • business expenses paid

Depending on what you use simplified expenses for, you need to record business miles for vehicles, hours you work at home and how many people live on your business premises over the year.

Sounds simpler so far, doesn’t it.

But what about …..

  • Suppliers – if you have trade accounts with suppliers then you will have creditors, many small businesses get paid quickly for example a shop or a window cleaner, they don’t have debtors, so the cash basis may not be the best option
  • Capital Allowances – many small businesses will claim capital allowances for their car (and claim most of the running costs too), with the cash basis you can only claim a set mileage allowance https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles-
  • Equipment Finance – Under cash accounting money you owe isn’t counted until you pay it (unlike traditional capital allowances) and interest and charges are limited to £500 https://www.gov.uk/simpler-income-tax-cash-basis/income-and-expenses-under-cash-basis

Cash accounting may be simpler but will it reduce your tax bill?

steve@bicknells.net

Tax Planning v’s GAAR and the “Double Reasonableness Test” – Will GAAR stop tax avoidance abuse? Reply

Accounting, Bicknell Business Adviser • Tags: , , , ,

UK tax return form

The general anti abuse rule (GAAR) has now been adopted by many advisers in the UK.

The GAAR will apply to Corporation Tax (and amounts treated as Corporation Tax), Income Tax, Capital Gains Tax, Petroleum Revenue Tax, Inheritance Tax, Stamp Duty Land Tax, and the annual tax on enveloped dwellings.

Heather Self, Pinsent Mason commented.  “Many of the examples are complex and contrived – we need more examples of ‘normal’ tax planning, to help show where the boundary will lie.”

The key changes to the legislation relate to the “double reasonableness test”. Nearly all the respondents to the consultation expressed concern about this test. The stated purpose of the GAAR is to counteract “tax advantages” arising from “tax arrangements” that are “abusive”. The tests of “tax advantage” and “abusive” both use concepts of reasonableness and this has been referred to as the “double reasonableness test”.

Accountancy Age reported on the 3rd April 2013:

A LACK OF CLEAR DEFINITION within the incoming General Anti-Abuse Rule is likely to cause “considerable uncertainty”, advisers have warned.

The GAAR, designed to catch and prevent contrived tax avoidance schemes, was included in the 2013 Finance Bill and will take effect once it has received Royal assent in July, although many practitioners have been treating it as if it came in on 1 April.

Chair of the House of Lords committee on the Finance Bill Lord MacGregor said : “There is a misconception that GAAR will mean the likes of Starbucks and Amazon will be slapped with massive tax bills.

“This is wrong and the government needs to explain that to the public. GAAR is narrowly defined and will only impact on the most abusive of tax avoidance.”

There are other concerns too….

The Institute of Chartered Accountants in England and Wales (ICAEW) has reiterated its criticisms of draft legislation for a General Anti-Avoidance Rule, claiming that the proposed GAAR is confusing and that it could be in breach of international obligations by overriding double taxation treaties.

The ICAEW draws attention to Article 27 of the Vienna Convention, which the UK signed in 1971 and which states that “a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.” ICAEW argues that the GAAR may therefore be unlawful, particularly in the case of around 100 agreements with non-OECD countries.

http://www.tax-news.com/news/UK_Accountants_Warn_On_Legality_Of_General_AntiAvoidance_Rule____60365.html

HMRC will be monitoring for GAAR by:

  1. Reviewing DOTAS (Disclosure of Tax Avoidance Schemes) for abusive schemes, in general DOTAS are reported by the scheme promoter or scheme user – HMRC have a number schemes under the spot light
  2. Intelligence via other sources or disclosure
  3. Records of successfully litigated or settled by agreement GAAR cases
  4. Regular communication with taxpayers and their advisers

DOTAS penalties fall into three categories:

  • Disclosure penalties: apply to failure to disclose a scheme. There are variations in cases where a Tribunal has issued a disclosure order.
  • Information penalties: apply to other failures to comply with DOTAS.
  • User penalties: apply to failure by a scheme user to report a Scheme Reference Number (SRN) to HMRC.

In all cases apart from user penalties (which are up to £1,000) the initial and daily penalty is determined by a Tribunal and could be up to £5,000 per day. Ross Martin have full details on penalties and reasonable excuses.

Its important to note:

Tax avoidance is not the same as tax planning. Tax planning involves using tax reliefs for the purpose for which they were intended. For example, claiming tax relief on capital investment, saving in a tax-exempt ISA or saving for retirement by making contributions to a pension scheme are all legitimate forms of tax planning.

So will GAAR work? does it need to be clarified so that we can understand it? I am sure we all agree that everyone should pay their fair share of tax but is GAAR the best way to achieve this?

steve@bicknells.net

HMRC have a surprise for your sleeping partner…. it’s a bill for National Insurance Reply

Accounting, Bicknell Business Adviser • Tags: , , , ,

sleeping partner

Until now if you were a sleeping partner – that is, you took no active part in running the business and only supplied capital and took a share of the profits then you were exempt from National Insurance.

But HMRC have changed their mind, in an announcement on 4th April 2013 they said:

HMRC now considers that Sleeping and inactive Limited Partners are—and have in the past been—liable to pay Class 2 National Insurance contributions (NICs) as self employed earners and Class 4 NICs in respect of their taxable profits. “Inactive Limited Partners” are Limited Partners who take no active part in running the business. This view represents a change from that previously held by HMRC and the Department for Work and Pensions.
Sleeping or inactive Limited Partners who have not paid Class 2 or Class 4 NICs for a past period will not be required by HMRC to pay those contributions.
Sleeping and inactive Limited Partners who are not already paying Class 2 NICs should register on form SA401. Such partners should record the nature of the business being carried out at box 15 on the form as either Sleeping Partner or inactive Limited Partner.
Not good news if you’re an investor who wants a share of the profits, sounds like a good reason to convert to a limited company and pay dividends.
steve@bicknells.net

New reporting regime for Micro Companies – is it a crazy idea? 4

Accounting, Bicknell Business Adviser • Tags: , , , , , ,

A donut store, bakery, fish and chips store and a pet shop

On the 21st February 2012, the European Union defined a new category of company, the ‘micro-entity’. Micro-entities are very small limited liability companies and qualifying partnerships.

Micro companies are those not exceeding two out of three of:
  1. Balance sheet total: £289,415 (€350,000)
  2. Net turnover: £578,830 (€700,000)
  3. Average number of employees during the financial year: 10 (or fewer)
Subject to certain conditions, the Micros Directive permits Member States to relieve micro-entities, from the obligations to:
  •  present “prepayments and accrued income” and “accruals and deferred income”
  •  recognise certain types of “prepayments and accrued income” and “accruals and deferred income”
  •  draw up notes to the accounts
  •  prepare an annual report
  •  publish annual accounts provided the financial data information contained in balance sheet items is filed with a designated competent authority.
The UK Government (Department for Business Innovation and Skills) issued a consultation document ‘Simpler financial reporting for micro-entities: the UK’s proposal to implement the ‘Micros Directive” the consultation period closed on 22nd March 2013.
The Government is seeking to make changes to the Companies Act 2006, and to the accounting regulations made under that Act and under EU law to implement the EU Directive 2012/6/EU of the European Parliament and of the Council (“the Micros Directive”). It would also make comparable changes to the accounting framework for Limited Liability Partnerships.

The ICAEW believes the lack of transparency and dearth of financial data would lead to more rejections of credit to these smaller organisations.

“We have a number of concerns about the suggested changes, as they may result in less transparency and less useful financial information. This, in turn, can over time have a negative impact on market confidence and on micro businesses’ ability to access finance, at least at the margins,” says Dr Nigel Sleigh-Johnson, head of the ICAEW’s Financial Reporting Faculty.

What do you think?
steve@bicknells.net

Goodbye UK GAAP, bring on FRS 102…. Reply

Accounting, Bicknell Business Adviser • Tags: , , , ,

Accounting Standards

Generally Accepted Accounting Practice in the UK, or UK GAAP, is the overall body of regulation establishing how company accounts must be prepared in the United Kingdom. This includes not only accounting standards, but also UK company law. (Wikipedia)

UK GAAP was over 3,000 pages, but in March 2013 the new Financial Reporting Standard – FRS 102 – was finalised. It’s a mere 342 pages and will succeed UK GAAP and bring the UK closer to International Financial Reporting Standards (IFRS).

FRS 102 will be mandatory for periods beginning on or after 1st January 2015 but you can adopt it for periods ending after 31st December 2012.

It will apply to all entities with the main exceptions being:

  • Those small companies who have adopted FRSSE (Financial Reporting Standard Small Entities)
  • Those companies applying IFRS (International Financial Reporting Standards)

The Financial Reporting Council (FRC), in an article in Financial Director Magazine April 2013, claim:

  1. UK GAAP provided inadequate guidance on accounting for financial instruments
  2. There were inconsistencies in standards between IFRS and older standards
  3. Trainee accountants now learn IFRS so knowledge of UK GAAP is being lost
  4. FRS 102 allows for benchmarking which could lead to reduced borrowing costs

There are a number of key areas which you should start to consider now so that you can prepare for FRS 102:

Financial Instruments (FI) – FRS 102 deals with FI in two chapters:  Chapter 11 deals with basic FI such as debtors, creditors and simple loans, chapter 12 deals with more complex FI such as forward contracts, interest rate swaps and derivatives.  Basic FI will continue to be recognised at amortised cost, however, the more complex transactions that fall into Chapter 12 will need to be measured at fair value with movements being recognised in P&L a/c.

Business Combinations – For most acquisitions accounted for under FRS 10 intangible assets such as brands, customer lists etc are mainly rolled into the goodwill figure rather than recognised separately.  Under FRS 102 it is more likely that intangible assets will be recognised separately from goodwill and each might well be amortised over different useful lives.

Investment Property – FRS 102 requires revaluation gains and losses on investment properties are recognised directly in P&L a/c rather than the current procedure under UK GAAP which is for gains and losses to be held in the Statement of Total Recognised Gains and Losses (STRGL) until realised.  This is likely to lead to more volatility in the P&L a/c.

Deferred Tax - changes to the deferred tax treatment of revaluations of property, plant, equipment and investment property, fair value adjustments under business combinations, unremitted earnings of overseas associates and joint ventures are likely to result in more deferred tax entries in the future.

http://community.cimaglobal.com/blogs/nick-topazios-blog/key-changes-uk-accounting-requirements

steve@bicknells.net

Budget 2013 – Directors and Staff Loans Reply

Accounting, Bicknell Business Adviser • Tags: , , , , ,

Bank loan

Good news, the exemption threshold for employment-related loans has been increased for 2014/15 from £5,000 to £10,000, as long as the balance is below this level there is no tax charge for employees or employers.

But there could be bad news for participators (Directors/Shareholders) who have been using one of these techniques to avoid the 25% temporary Corporation Tax charge:

1. Using a Partnership or LLP where the company is a partner or member as a way to get loans

2. Making arrangements that did not qualify as loans but the where value ended up in the hands on a participator

3. Making loans repaying them within 9 months and getting a new loan, the Bed and Breakfast approach

4. Transfers of assets

5. Loans channelled through third parties

New anti avoidance rules are coming, a consultation paper  is planned for later this year aimed at minimising the scope for abuse and there will be new legislation in the Finance Bill 2014 and Finance Bill 2015.

Be warned!

steve@bicknells.net

 

 

Budget 2013 – £30m in Vouchers for Small Businesses 1

Accounting, Bicknell Business Adviser • Tags: , , , ,

Help Us Reach Our Goal Speedometer Fundraiser Support

In yesterday’s Budget you might have missed this announcement

Growth vouchers for small businesses

£30 million will be made available over two years. This will address a gap in the market for providing external business advice such as making a successful loan application to a bank or taking on an employee.

Back in September 2012 the British Chambers of Commerce were asking for £100m in vouchers of £5,000 per Business, open to up to 20,000 small and medium-sized businesses, but £30m is good start.

To test the approach, “a new marketplace for external business advice” will be created.

Advice could be focused on the following areas:

  1. Legal, HR, accounting advice: As businesses expand, accounting and HR systems become more complex, and small businesses in particular can struggle to make sense of employment law and tax systems. Advice would help businesses understand these complex functions, allowing them to be more efficient, and focus on growth.
  2. Access to finance advice: Smaller, younger, and high-growth businesses often have more difficulty accessing finance than more established firms, and some are unaware of the options available outside traditional debt finance. Advice could also address the problem of discouraged demand, and may result in more businesses obtaining finance to boost investment plans.
  3. Marketing advice and training: Helping businesses with marketing their products and services here and importantly in overseas markets could lead to more sales, and growth opportunities for many firms.
  4. Planning support: The complexity of the planning system means many businesses need to hire in external consultants at a high cost. The costs will often put firms off expansion, so offering companies free advice would help motivate businesses to grow and expand their premises.
  5. Staff training: Workforce skills consistently rank among the top three concerns among Chamber members across the country. As businesses expand and develop their goods and services, increased staff training is often needed to help firms grow.
  6. Export advice: Urgent action is needed to support the UK’s potential and current exporters to help rebalance the UK economy towards exports. Many businesses do not have the advice or skills they need to break into new markets. Export training and access to market intelligence and trade shows and missions, could help many businesses take the first step to exporting, and open new markets for current exporters.

steve@bicknells.net

The UK 2013 Budget – Some things you might need to know…. 2

Accounting, Bicknell Business Adviser • Tags: , , , , , ,

Big Ben with city bus and flag of England, London

First the Good News……

Income tax

The personal allowance for under-65s will rise by £560 to £10,000 in 2014/15.

Housing

From 1 April, the Help-to-Buy scheme will give people who have a 5% deposit a 20% interest-free loan on homes worth up to £600,000. The qualifying period for people looking to purchase their home under the Right-to-Buy scheme has gone down to three years.

Childcare

Working families will benefit from a 20% tax relief on childcare costs, offering an annual saving of £1,200 per child under 12. The scheme will be phased in from autumn 2015.

An additional £200 million will be provided to increase childcare support in Universal Credit, with the commitment being introduced from April 2016.

Corporation Tax

Corporation tax will be reduced by a 1% to 20% in April 2015.

Employers National Insurance

Employers’ national insurance payments will be cut by £2,000 from April 2014

To take advance of the allowance, firms will simply have to inform HM Revenue & Customs, and the Treasury says it will be “delivered through standard payroll software”.

Mr Osborne added: “For the person who’s set up their own business, and is thinking about taking on their first employee – a huge barrier will be removed.”

“They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax.”

450,000 small firms will pay no employer National Insurance.

So who are the overall winners and losers – overall we are losers!

Budget 2013

Based on Treasury analysis, the middle income families have done better than the bottom quartile and top quartile, but overall we are all worse off (based on all households).

The Economy and Borrowing are in worse shape than previously predicted

Growth forecast for 2013 halved to 0.6% from 1.2% in December

Office for Budget Responsibility (OBR) watchdog predicts UK will escape recession this year

Growth predicted to be 1.8% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017.

The OBR predicts borrowing of £121bn this year, the same as last year, and £120bn for 2014-5

George Osborne says borrowing as a share of GDP will fall from 7.4% in 2013-14 to 5% in 2015-16

Debt as a share of GDP to increase from 75.9% in 2012-13 to 85.6% in 2016-17

http://www.bbc.co.uk/news/uk-politics-21851965

You can read the full Budget Report by clicking on this link http://cdn.hm-treasury.gov.uk/budget2013_complete.pdf

steve@bicknells.net

If you work from home and claim mileage, you could be in for a shock 1

Accounting, Bicknell Business Adviser • Tags: , , , , ,

Highway Robbery

Its probably fair to say that most contractors who have an office at their home claim business mileage when they visit clients, but things could be about to change for the worse….

In what could become a landmark decision in the interpretation of “wholly and exclusively” allowable expenditure, a doctor has lost a protracted battle with HMRC over his business mileage claims.

After an enquiry lasting more than seven years and three tribunal hearings, the First-tier Tribunal led by Judge Kevin Poole acknowledged Dr Samad Samadian had a dedicated office in his home which was necessary for his professional activity.

However, the panel did not accept that the home office could be treated as the starting point for calculating private practice business mileage involving habitual journeys.

Potentially, the decision has wide implications for all professional self-employed activity, where the business owner undertakes substantive work at home, but also has another business base at which they deliver their expertise regularly.

http://www.taxation.co.uk/taxation/Articles/2013/02/13/53821/way-go-home

It is understood that Dr Samadian will be appealing.

But this could lead to Consultants paying back thousands of pounds in tax.

Phil Stunell spotted this article with the full details http://www.independent-practitioner-today.co.uk/news_story.php?r=1605&a=public

steve@bicknells.net