Its been a long time coming, back in 2011 HMRC gave employers the chance to settle amounts owed in relation to Employee Benefit Trusts.
So what were EBT’s and how did they work…
The employee benefit trust (EBT) was used for many years as a way of avoiding corporation tax and income tax for employees.
Basically, any cash that was moved from the company account into the employee benefit trust was treated as an expense for the company, thus reducing corporation tax liability. The company could even then loan the cash back from the EBT as required in the future and additionally interest was charged on the employee benefit trust loan creating even further expenses for corporation tax avoidance. The key employees were then able to also either get an employee benefit trust loan, which was constructed so that it was never paid back, or they could take cash bonuses, which were taxed.
Scottish businesses involved in EBT’s could now face a tax bill of £400m
Scottish EBT schemes reportedly received letters warning them that the taxman is pursuing cases against EBTs, adding they had a 20% chance of winning any court case outright, a 60% chance of partial victory and 20% risk of an HMRC victory. A partial victory is likely to see businesses paying around £400,000 for every £1m ring-fenced, while a negotiated settlement would likely lead to payments of £412,000 for every £1m.
Choosing the right Business Structure can have a significant impact on how much tax you pay and it is possible to change from one structure to another.
So why are some Companies changing back to Partnerships/Limited Liability Partnerships?
LLP’s can provide an alternative method of remuneration for key employees, rather than the traditional routes of dividends or salary. Such employees could terminate their employment contract, form an LLP and provide consultancy services to the business. The individual would then save an element of national insurance, as rates are lower for the self employed than for the employed. In addition, the business will benefit from a tax deduction on the charges made by the LLP, and save employer’s national insurance at a rate of 13.8%, potentially a significant saving. IR35 regulations would need to be considered in this plan.
Alternatively, an LLP could be used to remunerate all employees. They could all resign and become members of a “service“ LLP. This would have the advantages of national insurance savings as above. There are non tax areas to consider, for example the individuals will lose their employment rights on becoming self employed (this could be a huge advantage to the employer). Clearly this risk would have to be appropriately managed and considered throughout.
Generally sponsorship is subject to VAT because normally the organisation you sponsor will be making taxable supplies to you because in return for sponsorship, they are obliged to provide the sponsor with a significant benefit. Typically this might include any of the following:
naming an event after the sponsor;
displaying the sponsor’s company logo or trading name;
participating in the sponsors promotional or advertising activities;
allowing the sponsor to use your name or logo;
giving free or reduced price tickets;
allowing access to special events such as premieres or gala evenings;
providing entertainment or hospitality facilities; or
giving the sponsor exclusive or priority booking rights.
Donations and gift are not normally subject to VAT.
A business can recover input tax on their legitimate costs when it:
promotes its business; or
provide facilities to its staff.
When a business only makes sporting or recreational facilities available to:
the proprietor
the partners
the directors of a company
the relatives and friends of the proprietor, partners or company directors
it is unlikely that this expense can be treated as being for the purpose of the business. Therefore, the VAT incurred would not qualify as input tax.
In the case of smaller businesses there is an increased risk that the sponsorship is conducted for a private purpose so the VATman has come up with a set of tests:
VIT44300 – Specific issues: test for sporting and recreational activities
If your employees receive tips directly from your customers and are allowed to keep them, then you do not need to do anything for PAYE tax or NICs. There are no NICs due on the money, and the tax due is the employee’s responsibility. Your employees should declare the money to HMRC, who will usually adjust their tax code to collect any tax due.
A tronc is an arrangement for pooling and distributing tips and service charges and the person who operates the tronc is known as a troncmaster. If your employees use a tronc you must tell HMRC who the troncmaster is so that they can set up a PAYE scheme for the tronc.
Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:
• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.
Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore
standard rated.
If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.
Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food
Research and Development (R&D) tax relief (or credit) is a company tax relief that can either reduce a company’s tax bill or, for some small or medium sized (SME) companies, provide a cash sum. It is based on the company’s expenditure on R&D.
For there to be R&D for the purpose of the tax relief, a company must be carrying on a project that seeks an advance in science or technology. It is necessary to be able to state what the intended advance is, and to show how, through the resolution of scientific or technological uncertainty, the project seeks to achieve this.
These are the key questions that you will be asked when requesting an R&D Tax Credit from HMRC:
How was it decided that R&D had taken place
A description of the scientific & technological advance sought
The uncertainties involved
How and when the uncertainties were resolved
Why the knowledge being sought was not readily deducible by a competent professional
Were any grants, subsidies or contributions received for the project within the claim
Who owns the Intellectual Property of the products resulting from the R&D
Was the R&D carried out for others ie clients, this could mean your claim is rejected
Amount of relief
For expenditure incurred up to and including 31 July 2008 SMEs can deduct 150% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24 for every £100 of actual R&D expenditure. For expenditure incurred on or after 1 August 2008 SMEs can deduct 175% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24.50 for every £100 of actual R&D expenditure. The rate is further increased from 1 April 2011 to 200%, and a payable credit of £25 for every £100 of spend.
Large companies can deduct 125% in respect of qualifying expenditure incurred up to and including 31 March 2008 and can deduct 130% thereafter.
Here is a template (originally created by HMRC but updated by me) to help you calculate the value of your claim it has references to relevant HMRC guidance.
The claim is made on your corporation tax return (CT600) if you discover that you should have made a claim in a prior year its not too late, follow this link to find out how to correct prior year returns http://www.hmrc.gov.uk/ct/managing/company-tax-return/amend.htm
Software could be tool to enable the R&D or a goal in its own right, but simply modifying existing software isn’t R&D. It has to follow the same rules as other R&D and be an advance in science and technology.
Construction companies have claimed R&D for developing new building systems and new building technologies.
R&D could be a new process rather than an invention.
It doesn’t have to have a patent but there could be advantages to having one, such as patent box tax relief.
Apart from Business Mileage, what can you claim and what counts as a business trip?
Assuming your employer or supplier or customer aren’t reimbursing your costs….
If you’ve got to make journeys for business purposes you can deduct your travelling expenses from your taxable income – so you’ll pay less tax.
In addition, there is no restriction on the standard of travel and accommodation, provided the main purpose of the trip is that of business, you can travel first class and stay at the best hotels.
But what if the trip is partly business and partly pleasure, in this case you will need to apportion the costs and only claim for the business element.
You can only get tax relief on the cost of business journeys. These are when, as part of your job:
you have to travel from one workplace to another – this includes travelling between your main ‘permanent workplace’ and a temporary workplace
you’ve got to travel to or from a certain workplace because your job requires you to
But business journeys don’t include:
ordinary commuting – when you travel between your home (or anywhere that is not a workplace) and a place which counts as a permanent workplace
private journeys – which have nothing to do with your job
If you’re not sure if a place you travel to counts as a permanent workplace telephone HM Revenue & Customs for advice.
Travel expenses include the actual costs of travel and also the subsistence expenditure and other associated costs that are incurred as part of the cost of making the journey.
The cost of business travel includes
the cost of any necessary subsistence costs incurred in the course of the journey
the cost of meals necessarily purchased whilst an employee is at a temporary workplace.
If an overnight stay is needed then the cost of the accommodation and any necessary meals is part of the cost of business travel. Even where an employee stays away for some time and the travel expenses are deductible, the cost of meals and accommodation is part of the overall cost of the business travel.
Travel expenses that qualify for relief
You can get tax relief on the necessary costs of business travel like:
public transport fares
hotel accommodation
meals
tolls
congestion charges
parking fees
business phone calls, fax or photocopying costs
But you can’t get tax relief for things that aren’t directly related to the business journey.
So far so good, but what about…..
Alcohol – claiming for a few drinks with your meal will be fine but other than with meals they would generally be considered a personal expense
Your Family – if you take your wife, husband or partner on a business trip their costs will be taxable unless they are on the trip for a business reason
Newspapers, Laundry and Phone Calls Home – HMRC allow claims for incidental overnight expenses up to £5 per night in the UK and £10 per night outside the UK
How does it work for Cashback claims? (launched 28th January 2013)
To qualify for the Cashback householders must:
• have a Green Deal assessment carried out on the property
• get and agree quotes from a Green Deal Provider (this could be directly with a national brand or through a local tradesperson linked with a Provider)
• apply for Cashback voucher online or by phone.
Your Provider may be able to do this for you – ask them
• complete works within three months (six months for solid wall).
Householders can fund improvements through a Green Deal Plan, or pay in other ways, and get the Cashback but they must use a Green Deal Provider to arrange the work. The more improvements a householder makes, the bigger the Cashback.
Householders can only make one claim for the Cashback, but it may cover a package of improvements recommended by the Green Deal assessment. The Government Cashback is separate and additional to any similar offers that may be made by Green Deal Providers.
Customers will receive a cashback payment once Providers have confirmed work has been carried out and the Energy Performance Certificate has been updated. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/65572/6715-the-green-deal-cashback-for-energy-saving.pdf
Tax is made up of bizarre and complicated rules and for accountants that’s a good thing, keeps us in work, but why tax can’t be simplified is beyond me, its a crazy tax world out there.
If a guest stays in your establishment for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.
A guest’s stay must be continuous to qualify for the reduced value rule. For example, if a guest stays for three weeks every month, you must always charge them VAT in full. If another guest stays for five weeks, leaves for a week, and returns to stay for five more weeks, the reduced value rule applies only to the fifth week of each separate stay.
However, a guest’s departure is not seen to end their stay provided the guest:
is a long-term resident and leaves for an occasional weekend or holiday,
is a student who leaves during the vacation but returns to the same accommodation for the following term, or
pays a retaining fee
In these cases the time away is ignored and you only have to charge VAT in full for the first 28 days of the overall stay.
It does not matter whether the guest returns to the same room or not.
VAT Exempt Meeting Rooms and Refreshments
Hiring a room for a meeting, or letting of shops and display cases are generally exempt, but you may choose to standard-rate them by opting to tax, see Notice 742A Opting to tax land and buildings.
If you make an exempt supply such as providing a room for a meeting or a conference and you provide minimal refreshments such as tea, coffee and biscuits, the room and the incidental catering will be treated as a single exempt supply. But, if you serve substantial refreshments such as a meal or buffet, the catering should be treated as a separate supply and you must account for VAT based on the normal charges you would make for such catering.
VAT on Deposits
Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.
Reclaim Overpaid VAT
If you have overpaid VAT you can now go back up to 4 years and reclaim it.
ONE OF THE UK’s largest charities was acting as a front for a tax avoidance scheme which abused Gift Aid incentives in order to help donors avoid £46m in tax.
The Cup Trust, a registered charity, raised around £176m over two years from 2010 – more than the Royal Society for the Protection of Birds, the British Heart Foundation and the Salvation Army – yet only £55,000 was put towards its stated cause of “improving the lives of young children and adults”.
For example, someone donating £1m to the Cup Trust could expect to recoup most of their money and still be entitled to between £250,000 and £375,000.The Cup Trust – which has not acted illegally – would purchase huge annual quantities of gilts, or government bonds. Those bonds were then reportedly sold on for a nominal sum through third parties to investors. The investors then sold them on at market value and donated the proceeds to the charity.
The head of Britain’s charity regulator will be hauled before MPs next month to explain how wealthy investors were able to use a charity scam to avoid £46 million in tax.
William Shawcross, the new head of the Charity Commission, will be questioned by the Public Accounts Committee about the Cup Trust, a charity exposed by The Times yesterday as a front for massive tax avoidance. MPs are also expected to ask him about other examples of charity rules being abused for tax purposes.
Personally I have always found this box a little odd as its not taken from invoices its calculated by you.
Box 2 Acquisition Tax is calculated as UK VAT due on VAT free purchase of goods from other Member States, i.e. 20% x Box 9 figure, the same amount is then entered in Box 4 (as noted below by HMRC) so the net effect is Zero.
Box 9 Total EU Purchases are the value of goods bought from other EU Member States on a VAT free basis.
The following are HMRC’s instructions:
Box 2: VAT due from you (but not paid) on acquisitions from other EU countries
You need to work out the VAT due – but not yet paid by you – on goods that you buy from other EU countries, and any services directly related to those goods (such as delivery charges). Put the figure in Box 2. You may be able to reclaim this amount, and if so remember to include this figure in your total in Box 4.
Box 4: VAT reclaimable on your purchases
This is the VAT you have been charged on your purchases for use in your business. You should also include:
VAT due (but not paid) on goods from other EU countries and services directly related to those goods (such as delivery charges) – this is the figure you put in Box 2
