Top 5 useful things I have learnt about RTI Reply

Payroll

Real Time Information (RTI) has now been with us for a few months and once you get used to Full Payment Submissions (FPS) and Employer Payment Summaries (EPS) its not too bad.

HMRC recently reported:

With over 1.4 million PAYE schemes successfully reporting in real time, the launch of PAYE Real Time Information (RTI) continues to go well. The vast majority of employers (83% of small & medium size employers and 77% of more than 1 million micro employers) have started reporting in real time, but we are aware that there are still some employers who have not started yet.

Given time you might even get to Love doing your RTI Payroll as much as Suzie Humphreys…

Here are some things that I have learnt that you might find helpful:

Split FPS Submissions

You can only submit each employee once for each payment period but you can make more than one Full Payment Submission, this is useful if you have Monthly and Weekly payrolls, or a late starter you have process after the FPS has been submitted, or if you split your payroll by seniority and different staff process sections.

Hashtag and Paying by BACS

At the moment if you pay employees by Direct BACS using systems such as Nat West Payaway the Direct BACS submission needs to include a Hashtag to enable HMRC to match the payment with the FPS, however, if you don’t use Direct BACS and you just pay by Online Banking, Bankline, BACS or CHAPS or any other method you don’t need the Hashtag. I am sure that will change!

Starters and Leavers

When you enter a new employee HMRC are notified on the first FPS that they appear on and you must no longer use a P46 to get starter information you need to us the new HMRC Starter Checklist

P45’s are just for the Employee to refer to and are useful to show to their new employer, don’t send them to HMRC. HMRC are notified of leavers on the FPS.

CIS

If you have deductions under the Construction Industry Scheme you need to enter them on the EPS to reduce the amount of tax payable.

NI Holiday

NI Holidays for new companies end in September 2013 but until then need to be entered on the EPS. Form E89 is used to keep track of how much has been claimed.

Here are some more useful tips and facts on RTI:

Relaxation of Rules for Small Companies

HM Revenue & Customs (HMRC) recognise that some small employers who pay employees weekly, or more frequently, but only process their payroll monthly may need longer to adapt to reporting PAYE information in real time. HMRC have therefore agreed a relaxation of reporting arrangements for small businesses.

HMRC is planning to extend the temporary relaxation for employers with fewer than 50 employees to April 2014. This relaxation means that these businesses are still required to report through the new system, but are able to do so once a month (but no later than the end of the tax month (5th)), rather than each time they pay their employees. This gives small businesses that pay weekly (or more frequently), but who only run their payroll at the end of the month, some extra time to adjust to the new requirements.

Annual Schemes

Many micro businesses such as one person companies are switching to annual payrolls.

An annual scheme must meet all of the following requirements:

  • all the employees are paid annually
  • all the employees are paid at the same time/same date
  • the employer is only required to pay HMRC annually

Once a business is registered as an annual scheme, an Employer Payment Summary (EPS) is not required for the 11 months of the tax year where no payments are made to the employees.

But currently HMRC are unable to process requests to become Annual.

HMRC are working to rectify this position and will publish a further ‘What’s New’ message to announce when this is ready.

Late Filing Penalties

If you do not report the final payment made to an employee, for the tax year 2013-2014, by 19 May in the following tax year you will be charged a late filing penalty.

Penalties are calculated on the basis of £100 per 50 employees and accrue for each month (or part month) that a return remains outstanding after 19 May.

If you fail to report this information by 19 May, or tell HMRC no return was due by sending an EPS, they will write to you (and your authorised agent if you have one) advising that a penalty may already have been incurred and that you must report this information as soon as possible to prevent the penalty building up any further.

steve@bicknells.net

Everybody has to pay tax but what if HMRC get it wrong? Reply

 

Tax Return Due Now

If you don’t file your tax returns HMRC will assess the amount of tax due but it will probably not be the correct amount. So what can you do to correct the tax payable?

Overpayment Relief

A person can claim overpayment relief to recover overpaid income tax, CGT, Class 4 NIC or corporation tax or to reduce an excessive assessment. A person can claim overpayment relief to recover overpaid bank payroll tax or to reduce an excessive assessment.

This includes amounts paid under a contract settlement.

Special Relief

This is an important ‘relief of last resort’ for taxpayers who have missed all other deadlines and face a tax bill from HMRC, where there is no statutory right to amend the actual legal liability because the relevant time limits have passed.

Special relief is intended as a final and exceptional remedy where it would be unconscionable for HMRC to pursue tax that is legally due. HMRC has a duty to both Parliament and taxpayers generally to collect the tax due under relevant tax law and to ensure the tax system is operated fairly. This means that HMRC cannot simply disregard the time limits for making a self-assessment if it appears that a determination might be excessive. There must be further circumstances which make it unconscionable to recover the full amount due under the determination or not to repay an amount already paid.

Such circumstances might be where a person

  • is suffering from a temporary or sporadic illness, including mental illness, and consequently finds it particularly difficult to engage with the tax system
  • has not received our notices or other communications for reasons outside their control
  • is insolvent. Where the debt is based on determined sums, and the late submitted evidence (or returns) prove that a different amount would have been due if returns had been made in time, we would consider using this relief. Relief would be considered where doing so is fair to other creditors – so the unconscionable element would be that pursuing the amount in the determination would be to the detriment of other creditors.

For a claim to special relief to be successful, it must, among other things, explain why the person considers that it would be unconscionable for HMRC to recover the full amount charged by a determination. Unconscionable means “completely unreasonable” or “unreasonably excessive”. SACM12240

Penalty Mitigation

HMRC may in their discretion mitigate any penalty, or stay or compound any proceedings for recovery thereof, and may also, after judgment, further mitigate or entirely remit the penalty. TMA70/S102.

Mitigation will be considered in three circumstances.

  1. Where some sort of HMRC maladministration, usually delay, has caused or contributed to the size of the penalty – where delay and/or lack of co-operation by the taxpayer have caused the department additional costs that will weigh against mitigation.
  2. Where to enforce payment of the penalty would cause the taxpayer genuine and absolute hardship.
  3. Other exceptional circumstances such as the penalty or penalties being wholly disproportionate to the offence – for example a large tax-geared failure penalty under S93(5) following upon very large S93(3) daily penalties for the same offence, or belated information revealing the type of situation set out at EM5212 (“In-built” penalty).

There is no appeal against HMRC’s decision on S102 mitigation and a taxpayer wishing to litigate would need to seek Judicial Review.

steve@bicknells.net

 

 

Disincorporation Relief – its not just for Window Cleaners 2

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

Discorporation Relief is new, it came in to effect from 1st April 2013 and is currently available until 31st March 2018.

HMRC estimate that 610,000 businesses are eligible to use the Disincorporation Relief.

Here is the HMRC example from the Consultation document:

Window Cleaners Ltd a one man company that incorporated on 1 April 2004 and the shareholder, Mr Smith, had previously carried on the business as a self employed individual before 1 April 2002. Turnover is below the VAT threshold. The business has an established repeat customer base. The only significant business assets are a van, equipment and goodwill. The van and equipment are worth around £3,000 and the goodwill is valued at £15,000, together worth £18,000. The goodwill was acquired from Mr Smith for £5,000 on 1 April 2004. The Capital Gains rules apply and Corporation Tax is payable @ 20 per cent.

 Tax chargeable on goodwill:

If the assets are distributed back to the shareholder (Mr Smith) on 1 February 2012 the following charge would arise on the goodwill:

· Corporation Tax on goodwill gain £8,540 (£15,000 – £5,000 less indexation £1,460 (£5,000 x 0.292)) @ 20 per cent = £1,708

 There is no Corporation Tax to pay on any gains made on the transfer of the van and equipment because these are chattels worth no more than £6,000.

Shareholder charges:

Mr Smith will also have to consider what tax he will have to pay on the value of the distributed assets of £18,000. The amount of charge will depend on whether the assets are treated as income or capital.

 If distributed as capital, the actual amount of Capital Gains Tax that Mr Smith will have to pay will depend on a number of factors, including how much was paid for the shares, whether incorporation relief was claimed, whether Entrepreneurs’ Relief conditions are satisfied and availability of capital loss relief.

 Assuming £100 was paid for the shares, that Mr Smith has no other gains in the tax year (and so the annual exempt amount of £10,600 can be used against the gain) and that he is entitled to Entrepreneurs’ Relief, then the amount of Capital Gains Tax to pay would be:

· (£18,000 – £100 – £10,600) x 10 per cent = £730

 If the assets are distributed as income (i.e. a dividend) Mr Smith will only have to pay Income Tax if any part of the dividend is liable to Higher Rate Tax.

Criteria to qualify for disincorporation relief

Below is a basic summary of the main qualifying criteria:

  • The company must have been operational for 12 months and the shareholders must have held their shares for 12 months
  • The business must be transferred as a going concern to the existing company shareholders
  • The transfer must become effective before 31st March 2018
  • All assets, including goodwill, capital assets, trading stock and cash, must be included in the transfer. The value of those assets must be no greater than £100,000
  • Recipients of the new “disincorporated” entity must either be individuals or partnership members (not members of an LLP)

Why would you want to disincorporate?

  • Reduced compliance – Company Accounts, Corporation Tax Returns, PAYE, Annual Returns
  • Reduced Costs – Accountancy Fees
  • Cash Based Accounting

steve@bicknells.net

Why you should maximise borrowings on your Buy to Let 2

Investment House Meaning Investing In Real Estate

If you own a Buy to Let property as an individual rather than in a limited company it is worth maximising your borrowings against the Buy to Let because the interest will be a tax deductible expense.

It doesn’t matter how you borrow:

  • Mortgage on the Buy to Let
  • Personal Loan
  • Overdraft
  • Re-mortgage of your main residence to invest in your Buy to Let

The rules allowing this are covered in http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm

So, for example, if you had a Buy to Let property with low borrowings against it and a mortgage on your main private residence, you could increase your borrowings on the Buy to Let and pay off your private residence mortgage.

But you need to be aware that the maximum you can borrow on the Buy to Let is the market value when it was first let.

Here is an example from Tax Cafe – How to save property tax

Property investors are often unsure whether their interest is deductible. This depends on how the money is used. Use it to buy investment property and the interest is tax deductible. Use it for personal reasons and the interest is not deductible.

There is an exception to this rule: you can generally remortgage an investment property up to its original purchase price and the interest will be tax deductible, whatever you use the money for. For example, let’s say you bought a buy-to-let for £100,000 and the current mortgage is £60,000. You can borrow up to another £40,000 (if the bank will let you!) and all the interest will be tax deductible, no matter how you use it.

 

You will need to keep detailed records of the borrowing and interest for your tax returns.

Alternatively you might focus on paying off your main residence mortgage first to leave the borrowings high on the Buy to Let.

steve@bicknells.net

The tax benefits of goodwill on incorporation? 6

Business people

Lets start with a typical scenario:

  • Mr Smith has been running a small garage for a few years
  • he decides to incorporate his business and sets up Smiths Garage Limited with himself as the sole director and shareholder
  • he transfers the goodwill of the business and its other assets and liabilities to Smiths Garage Limited but does not claim incorporation tax relief under Taxation of Chargeable Gains Act (TCGA) 1992, s162, nor does he claim hold-over relief under TCGA s162
  • at the time of incorporation, the goodwill of the business is valued at £100,000
  • Mr Smith makes a chargeable gain on the transfer of the goodwill, which is deemed to be at market value, of £100,000 which, after deducting the annual CGT exemption (£10,900 2013-14), will be taxable at 10% due to the availability of entrepreneur’s relief (note rules changed 3rd December 2014 and ER is no longer available normal rates of CGT now apply)
  • the company will pay Mr Smith £100,000 for the acquisition of goodwill and this is done by way of a credit to Mr Smiths director’s loan account. Mr Smith is able to draw down on this account without any further tax charges.

In addition Mr Smith started his Sole Trader business after the 1st April 2002 so he can claim a corporation tax deduction for amortisation of the goodwill in the company accounts. Small Companies pay Corporation Tax at 20%, so being able to deduct Goodwill on £100,000 will save £20,000 in Corporation Tax. (note rules changed 3rd December 2014 and Section 849C CTA2009 prevents this on related party goodwill)

However, please bear the following in mind:

  1. If the business started before 1st April 2002, Corporation Tax Act 2009 s895 prevents the company from claiming a deduction against corporation tax, also refer to HMRC Spotlight 1: Goodwill – companies acquiring businesses carried on prior to 1 April 2002 by a related party
  2. Where a trader transfers his business to a limited company of which he is a ‘substantial shareholder’, the parties are treated as ‘related parties’ and the transfer must be at market value, but you can ask HMRC to carryout a post transaction valuation check by submitting form CG34
  3. Goodwill relating to personal services is not normally considered to have a market value as it can not be transferred
  4. In general it is expected that intangibles will have a useful life of no more than 20 years (note new rules – FRS102 states
    “If an entity is unable to make a reliable estimate of the useful life of goodwill, the life shall not exceed five years.”)
  5. Get professional advice to help you to prepare the valuation, disclose the capital gain and claim the tax relief

steve@bicknells.net

Is Greed Good – 12 years on from Enron and Sarbox? 1

Millionaire

It was December 2001when Enron filed for Chapter 11 bankruptcy.

In just 15 years, Enron grew from nowhere to be America’s seventh largest company, employing 21,000 staff in more than 40 countries.

But the firm’s success turned out to have involved an elaborate scam.

Enron lied about its profits and was accused of a range of shady dealings, including concealing debts so they didn’t show up in the company’s accounts.

Enron was followed by scandals at Global Crossing and WorldCom, John ‘Bernie’ Ebbers co-founded WorldCom and made this statement in his defence

“I know what I don’t know. To this day, I don’t know technology, and I don’t know finance or accounting”

These companies all had the same auditors, Arthur Anderson which was once one of the top 5 accounting firms in the world.

The scandals lead to the creation of The Public Accounting Reform and Investor Protection Act as a result of work done by Senators Sarbanes and Oxley and is general referred to as Sarbox or SOX and applies to US publicly listed companies and their subsidiaries.

Some of the key items in the Act include:

  • Auditor Independence (s201,202)
  • Audit Partner Rotation (s203)
  • Forfeiture of Bonuses (s304)
  • Disclosures (s401,409)
  • Internal Controls (s404)
  • Personal Loans to Executives (s402)
  • Whistleblower Protection (s806)

But despite this it failed to prevent the Global Financial Crisis of 2008 .

So is Greed Good?

Common themes in all these scandals were:

  • Greed/Personal Ambition
  • Attitude of Senior Management
  • Failure to report ‘wrong doing’

Tax Avoidance is now in the spot light will that lead to new scandals coming to light?

steve@bicknells.net

How do you define Value? 2

Value

The simple answer is you don’t, its your client that decides what Value is and what it means to them.

We can give it mathematical definition its

Value = (Tangible and Intangible Benefits) less (Price plus Usage plus Disposal Cost)

There is a theory that Value is made up of 3 elements

  • Revenue Gain
  • Cost Reduction
  • Emotional Contribution

These are the elements that determine the value to the client.

These elements became the Value Triad documented by Harry Macdivitt, Mike Wilkinson here is a link to their work on Value Based Pricing

http://www.best-marketing.ee/images/publicationimages/77d2d798-26c2-44a5-ba2d-c0cf49a35e51/sessionfiles/4b4f4f4f-4373-4a9c-b883-02dc848f6bbc/Harry%20Macdivitt.pdf.pdf

Once you understand what value is, then you can prepare your Value Proposition.

A business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings.

http://www.investopedia.com/terms/v/valueproposition.asp

The question for us is: what are the critical differences between us and the competition and how does this influence the value we offer? Our success in meeting those requirements is based on the differential value of our product or service offering.

CIMA list the following ideas about how to differentiate in their article Building Value Through Differentiation

  • Consistency
  • Convenience
  • Customised Services
  • Combinations (collaboration and package deals)

How do you determine the value of your products and services?

steve@bicknells.net

Do you accept Bitcoins? you could be missing out 2

Three Bitcoin digital currency coins

Bitcoins (BTC) are a digital currency that can be bought and sold for cash.

Watch this Video which explains how Bitcoins work

Here is a link to a UK Bitcoin Exchange

https://bitbargain.co.uk/

According to Bitcoin the current market price is $109.74 and currently 50,000 transactions are done per day using bitcoins.

These rules are enforced collectively by the Bitcoin network.

  • Hard limit of about 21 million bitcoins.
  • Bitcoins are divisible to 8 decimal places, yielding a total of approximately 21×1014 currency units.
  • Transactions are cheap and mostly free.

Before you dismiss it as another crazy idea, both the BBC and Institute of Directors have commented on Bitcoins, in this months  (June 2013) Director Magazine, page 17, 60 Second Expert, the IoD gave an excellent summary of key points including this comment on system safety:

US security expert Dan Kaminsky referred to the system as an ‘alien technology’ written to a standard of quality you don’t see in most software.

Bitcoin transactions are secured by military grade cryptography. Nobody can make a payment on your behalf or charge you money without having a copy of your wallet.

Mobile payments can be made too…

Bitcoin on mobiles allows you to pay with a simple two step scan-and-pay. No need to swipe your card, type a PIN, or sign anything. And all you need to do to receive Bitcoin payments is to display the QR code in your Bitcoin wallet app and let your friend scan your mobile, or touch the two phones together (using NFC radio technology).

International payments are quick…

Bitcoins can be transferred from Africa to Canada in 10 minutes. There is no bank to slow down the process, level outrageous fees, or freeze the transfer. You can pay your neighbors the same way as you can pay a member of your family in another country.

So should you accept payment by bitcoins?

steve@bicknells.net

Tax Break for Racehorses Reply

Horse racing.

There are around 8,215 racehorse owners in the UK, ranging from gentry to plumbers united in their love of the sport.

But this is not an investment for the faint-hearted. You are unlikely to make a fortune and could end up losing a huge amount of money. The Racehorse Owners Association says that for every £100 of annual outlay (not including the purchase cost of the horse), a racehorse owner is likely to see a return of just £21.

As reported in the Telegraph (12th February 2013)

Some times it can pay off….

Rugby star Mike Tindall was branded an “idiot” by his wife Zara Phillips when he splashed out £12,000 on a racehorse.

But Mr Tindall is now looking far from stupid as his impulse purchase won last month’s Welsh National. Monbeg Dude, which Mr Tindall owns with four others, is now said to be worth more than £200,000.

VAT Tax Break for Racehorses

Following an agreement with the Thoroughbred Horseracing and Breeding Industry a scheme known as the VAT registration scheme for racehorse owners was introduced on 16 March 1993. If you meet the conditions of the scheme HMRC will accept that racehorse ownership is a business activity. You can therefore register for VAT and recover some of the VAT you are charged on your expenses as input tax.

Owners may include:

  • breeders;
  • dealers;
  • trainers; and
  • racing clubs.

You can apply for VAT registration under the scheme if you are registered as an owner at Weatherbys and you:

(a) own a horse or horses covered by a sponsorship agreement registered at Weatherbys; or

(b) own a horse or horses covered by a trainer’s sponsorship agreement registered at Weatherbys; or

(c) can show you have received, and will continue to receive, business income for example from appearance money or sponsored number cloths (SNC’s) from your horseracing activities.

You can recover as input tax the VAT you are charged on the purchase, training and upkeep of a racehorse and any overhead expenses used for the purpose of your business.

steve@bicknells.net

 

P11D – should the employee pay NI on Private School Fees Reply

Schoolchild writting on blackboard.

As with so many tax issues, the paperwork will determine the answer.

Let’s assume your childs school fees are £10,000 a year that means you will need to earn £17,241 per year (based on paying 40% tax and 2% NI) over 10 years that’s £172,414 per child, that’s a lot of fees.

So its no surprise that some parents ask their employer to pay the bill and try to save the employees NI but this can go badly wrong as demonstrated in Ableway Ltd v IRC SpC 294….

Mr W and his wife B were directors and major shareholders of Ableway Ltd. The company’s registered office was the home address of W and B. They arranged for the company to pay their two sons’ school fees, although in an undated letter, they undertook to pay the fees in the event of the company failing to do so.

The Revenue argued that the liability belonged to W and B, and that they had accepted this liability by signing the school entry form. Furthermore, the discharge by an employer of an employee’s pecuniary liability was earnings. The school bursar also confirmed that the parents were liable to pay the fees. He said that the invoice was sent to the person responsible for the fees, but that the parents remained liable to pay them. In the event that the school ever had to take action to recover payment of fees, it would sue the parents, relying on the signed entry form and signed deposit form.

HMRC have guidance on the following situations:

Basically if the company contracts directly with the school and the school confirms in writing that the company is responsible for all fees in all circumstances then the employee will not have to pay employees NI.

This is explained clearly by Indicator – Paying for Education

This saves the employee the 2% NI in our earlier example.

Another idea from Indicator is to have the benefit against the spouse with the lowest tax rate.

steve@bicknells.net