Is your Expense Checking System up to scratch? Reply

Angry tax inspector looking serious and determined

HMRC have guidance in EIM30275 and EIM30270 which set out what they expect, so for example, this is what they expect the expense checking process to be for a one man company

Model D – One man company

Single employee of a one man company working at a series of temporary workplaces. Claiming benchmark scale rates.

Employee maintains a diary and time sheet to confirm occasions when travelling in the performance of their duties and retains receipts in respect of subsistence costs.  An independent third party performs regular monthly checks on a sample of the employees’ records to confirm that the relevant conditions for the exemption were met on each occasion. Checks are performed at random and the employee does not know in advance which journeys will be checked.

Independent third party would generally mean your accountant, but as HMRC encourage people to file themself many One Man Companies won’t have an accountant, so who does the checking then?

Lets see what bigger companies need to do?

Model C – Small employer

Small employer with less than 100 employees who regularly travel in the duties of their employment. Employer pays benchmark rates

Employer checks a random 10% of all claims.  Checks to be independently checked and authorised, and vouched by reference to employee diaries, work schedules and time sheets to confirm that employees were travelling in the performance of their duties on the date of the claim, and receipts to demonstrate that employees had in fact incurred costs whilst travelling. Employees should be aware that they might be subject to review at any time, and not be given notice that any particular claim will be subject to review.

The employer will have to be able to satisfy HMRC that their 10% sample really is a random one – for example, every 10th claim received.  HMRC will accept the evidence produced by such an exercise as being random for the purposes of confirming that employees meet the qualifying conditions for payment of the scale rate.

Employees required to retain receipts for a period of twelve months from the date of expenditure.

I think for small employers this would probably work and is achievable.

What system do you use? Do you think HMRC would accept your system?

steve@bicknells.net

The future is Digital, but we aren’t ready to Make Tax Digital yet! Reply

b1854df8-4af2-474b-b2ae-fd20bfa3f1bb

On 14 December 2015, HMRC published a “roadmap” showing that the new process known as ‘MTD Making Tax Digital’ would be mandatory for most businesses:

“By 2020 most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. These changes will be introduced for some businesses from April 2018, and will be phased in by 2020, giving businesses time to adapt.”

Accountant’s have been saying for sometime that 2018 is too ambitious and the £10,000 threshold is too low.

The House of Commons Treasury Committee now agree that 2018 is too soon and feel it should be 2019 or later.

One of the big areas of concern has been over the quarterly tax reporting requirements and concerns over data accuracy.

Data accuracy is going to be critical, are most businesses up to providing data in real time? RTI has worked for payroll but could it really work for accounting information? many businesses rely on their accountants and book keepers to get the information correct.

The relationship between UK Taxpayers and HMRC is a good one, the vast majority of UK taxpayers want to pay the right amount of tax and the UK tax gap is already one of the lowest in the world. HMRC could lose that trust by rushing MTD.

Software is also a big issue, with the threshold at £10,000 even very small businesses will need specialist software to cope with MTD and spreadsheets will not be able to cope.

It’s time to take a slower more considered approach.

steve@bicknells.net

What if you can’t afford to pay your tax bill? Reply

No money concept

Some tax payers are great at saving up and keeping money aside to pay their tax bill, but many aren’t!

What can you do if you can’t pay?

You could ask HMRC for help

You may be able to either:

  • get more time to pay
  • pay your bill in instalments by direct debit
  • Telephone: 0300 200 3835
  • Opening times:

    8am to 8pm, Monday to Friday
    8am to 4pm, Saturday and Sunday

Another option might be to use Credit Cards, you may be able to get a 0% credit card or pay and then transfer to 0%

https://www.uswitch.com/credit-cards/credit-card-balance-transfers/

This might be easier, better and cheaper than spreading payments with HMRC.

steve@bicknells.net

 

Are my costs Capital or Revenue expenditure? Reply

Stress business woman

It makes a big difference to your tax whether you can offset costs as revenue expenditure or remove costs because they are capital expenditure

HMRC published a guide on this in September 2016 and have circulated in in their Agent Alert Self Assessment Special January 2016.

https://www.gov.uk/government/publications/hmrc-capital-vs-revenue-expenditure-toolkit

The Toolkit is really useful and covers lots of problem areas:

  • Acquisition, improvement and alterations to assets – highly relevant to property investors
  • Legal and Professional – including how to handle unsuccessful property purchases – which are a capital cost – and Business Owner Training Costs
  • Finance Costs
  • IT Costs – including websites
  • Intangible assets – such as Goodwill

steve@bicknells.net

Should I worry about a tax investigation? Reply

Tax Investigations can happen to anyone, around 7% are estimated to be random.

Even if your accounts and tax affairs are in totally up to date and correct investigations will take up your accountants time and incur fees.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

According to the FSB

The average duration of a full investigation is circa 16 months whereas an aspect investigation can last between 3 – 6 months, but can take longer.

We are currently putting in place a solution for our clients with Taxwise  better to be safe than sorry, letters will be sent to our clients before Christmas

taxwise

steve@bicknells.net

Will your Flat Rate VAT bill be going up in April? Reply

omg man

The Flat Rate VAT scheme is very popular with small businesses.

The Flat Rate Scheme is designed to simplify your records of sales and purchases. It allows you to apply a fixed flat-rate percentage to your gross turnover to arrive at the VAT due.

Fixed-rate percentages vary depending on the type of business. [HMRC VAT Notice 733]

The scheme is for businesses with a turnover no more than £150,000 a year, excluding VAT.

The problem is that HMRC feel the scheme has been abused and used as a way to pay less VAT especially by businesses with virtually no costs.

A Low or Limited Cost Trader would spend less than 2% on gross turnover, or less than £1000 on the purchase of goods.

From April 2017 they will get a special 16.5% flat rate.

Here are some of the businesses likely to be affected

  • Accountancy and legal services 14.5%
  • Journalism or entertaining 12.5%
  • Computer or IT consultancy 14.5%
  • Business services not listed elsewhere 12%
  • Estate agents and property management 12%
  • Management consultancy 14%

There are lots of other VAT schemes to choose from

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

They will all produce different answers!

Now might be a good time to make comparisons.

steve@bicknells.net

It’s time for a Tax and NI free Trivial Benefit Reply

hand holding christmas voucher isolated over white

Christmas is definitely a time when you can give your employees and yourself a trivial benefit worth up to £50.

Section 323A ITEPA 2003 sets out a statutory exemption for trivial benefits. Under this exemption, if an employer provides a benefit to its employees, the benefit is exempt from tax as employment income if all the following conditions are satisfied:

  • the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person) (see EIM21865)
  • the benefit is not cash or a cash voucher (see EIM21866)
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements) (see EIM21867)
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services) (see EIM21868)

Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household) the exemption is capped at a total cost of £300 in the tax year (see EIM21869).

Here is an example

The Employer provides each of its employees with a bottle of wine costing £25 at Christmas. However, as an alternative, it provides employees who do not drink alcohol with a £25 gift voucher for a national supermarket chain which they can exchange for an alternative non-alcoholic Christmas gift. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.

In fact all shop vouchers that can’t be cash in will count provided the value is less than £50.

So why not make a list of special occasions:

Birthday

Christmas

New Year

Anniversary

Holiday

Easter

Buy a stock of vouchers and give them out.

This is a fantastic tax free benefit.

steve@bicknells.net

Will Making Tax Digital (MTD) make life easier for you? Reply

mtd

 

One of the big areas of concern has been over the quarterly tax reporting requirements and concerns over data accuracy, as a result, the government has given exemptions for small businesses which will mean 5.4 million small businesses won’t now need to report quarterly.

Data accuracy is going to be critical, are most businesses up to providing data in real time? RTI has worked for payroll but could it really work for accounting information? many businesses rely on their accountants and book keepers to get the information correct.

steve@bicknells.net

HMRC – please don’t leave me hanging on telephone! Reply

genervte frau am telefon

Taxpayers have 3 main ways to contact HMRC:

  • Online
  • Phone
  • Post

Often taxpayers want to ask questions and get quick answers, which is why they like to use the phone. The NAO have published a report and the key facts are below.

https://www.nao.org.uk/wp-content/uploads/2016/05/The-quality-of-service-for-personal-taxpayers.pdf

hmrc-nao

We also know that taxpayers often leave things till close to the deadline

sa-monthly-online-figures-2011-12

So if you don’t want to spend 47 minutes waiting to speak to HMRC only to find out they can’t answer your question because its too specific or requires an opinion why not use an accountant?

Accountants

steve@bicknells.net

How do you share property ownership income between spouses? Reply

OUR NEW HOME

Just focusing on income tax, HMRC assume that when you buy a property/investment property its owned 50/50 between husband and wife or civil partners living together, this set out in the Income tax Act s 836.  However, this rule will not apply in any of the following instances:

  • the income is from furnished holiday lettings;
  • there is actually a partnership in which case the income is divided according to the terms of the partnership agreement;
  • both husband and wife, or both civil partners, have signed a declaration stating their beneficial interests in both the property and the income arising from it.

When you make a declaration it must apply equally to ownership and income and a couple must be married or civil partners, you can’t be separated or divorced or joint tenants.

Form 17 is used to make the declaration
You can use this form to declare a beneficial interest if you hold property jointly and:
• you actually own the property in unequal shares, and
• you are entitled to the income arising in proportion to those shares, and
• you want to be taxed on that basis.

Form 17 must be submitted with in 60 days of completion, in addition a Declaration of Trust is likely to be required.

If there is a change, even a minor change, after submitting the Form 17 it will be invalid and revert to 50/50.

If the property is held in a single name it may be possible to use a declaration of trust to confirm joint beneficial interest.

Income Tax and Capital Gains Tax will be be based on the beneficial interest in the property, so if one spouse is a higher rate tax payer and the other a lower rate tax payer changing the proportion of ownership could have a significant tax advantage.

There is no default ownership for unmarried property owners.

Property owners may also need to agree the split with their mortgage lender.

For more detailed guidance read this advice from HMRC https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9000

steve@bicknells.net