How Troncmasters can keep your tips NI and VAT Free

Tip jar

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.

http://www.hmrc.gov.uk/paye/payroll/special-pay/tips.htm

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.

http://www.hmrc.gov.uk/helpsheets/e24.pdf

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

steve@bicknells.net

Controlling Persons more IR35 rules planned for 2013

HMRC has issued a consultation paper setting out proposals to tighten IR35 compliance by requiring organisations engaging “controlling persons” through personal services companies to deduct income tax and national insurance from fees paid to their companies.

A controlling person will be defined as someone from the contracting organisation who is able to shape the direction of the engaging organisation during the year. “This would be someone who has managerial control over a significant proportion of the organisation’s employees and/or control over a significant proportion of the budget of the organisation,”

http://www.accountingweb.co.uk/article/deductions-source-planned-controlling-persons/527907

This is a response to the 2000 senior civil servants employed through Personal Services Companies and the consultation period ends on 16th August.

It will interesting to see what tests will be applied and whether all income must be paid in this way or if it only applies to part of the income of the consultant? as its planned for 2013 the government may even change their mind as they did with Pastie Tax and Mobile Homes.

steve@bicknells.net

Ways to Save National Insurance

I have always thought that National Insurance (NI) is a strange tax compared to PAYE because:

  1. For normal employees it isn’t cumulative its based on their earnings in a month or week (although Driectors can opt for Cumulative)
  2. It only applies between the ages of 16 and retirement
  3. Its applied at different rates to the Self Employed and there are 4 classes of NI

But the thing that seems totally bizarre to me is that for each job you have you get new NI limits, so if you had a variety of part time jobs you might not pay any National Insurance because your earnings were below the threshold in them all.

This also applys if you are Director, you get a new cumulative limit with each employer.

The current main Class 1 rates are 12% for employees and 13.8% for employers

http://www.hmrc.gov.uk/rates/nic.htm

If you’re employed you pay Class 1 National Insurance contributions. The rates are:

  • if you earn more than £146 a week and up to £817 a week, you pay 12 per cent of the amount you earn between £146 and £817
  • if you earn more than £817 a week, you also pay 2 per cent of all your earnings over £817

http://www.direct.gov.uk/en/moneytaxandbenefits/taxes/beginnersguidetotax/nationalinsurance/introductiontonationalinsurance/dg_190048

Apart from having multiple jobs or changing jobs here are a few ways that you can save NI:

  1. Salary Sacrifice http://stevejbicknell.com/2011/10/22/salary-sacrifice-could-save-45-8-in-tax-and-ni-how-does-it-work/
  2. Special NI Holiday Schemes http://stevejbicknell.com/2011/10/15/holiday-pay-without-any-national-insurance-to-pay/
  3. Regional Employer NI Holiday – save up to £50,000 http://stevejbicknell.com/2011/10/08/reduce-your-ni-bill-by-50000/
  4. Benefits in Kind – for example Gym membership or Assets placed at the employees disposal – Tax and Class 1A NI is payable but the employee doesn’t pay NI – basically any of th brown boxes on the P11D http://stevejbicknell.com/2011/11/07/tax-free-fitness/http://stevejbicknell.com/2012/04/14/directors-loan-vs-private-use-of-company-assets/

steve@bicknells.net

So you think you are self employed, does HMRC agree?

As everyone probably already knows there are tax and national insurance advantages to being self employed and to employing casual workers on a self employed basis.

As an employee, on most of your income (assuming you aren’t a higher rate tax payer) you will pay 20% tax, 12% employees NI and your employer will pay 13.8% employers NI, so thats 45.8% in tax and NI.

If you are self employed the equivalents are 20% tax, 9% Class 4 NI and £2.50 per week Class 2 NI, plus you can claim business related expenses that you probably wouldn’t get as an employee.

Whether employed or self employed you will get a tax free allowance of £7475.

For full details follow these links:

http://www.hmrc.gov.uk/rates/it.htm

http://www.hmrc.gov.uk/rates/nic.htm

So why isn’t everyone self employed?

Why not start by taking the HMRC test known as the ‘Employment Status Indicator’?

https://esi2calculator.hmrc.gov.uk/esi/app/index.html

You can take the test as many times as you wish and record the answers but if the result says you are really an employee then you need to speak to your employer and discuss the risks and liabilities that they will potentially face.

The most recent HMRC case on Employment Status relates to Weight Watchers and because HMRC successfully argued that their leaders were employees and not self employed it will cost Weight Watchers an estimated £23.5m in back taxes. When employment status goes wrong its the employer that gets the bill and often can’t recover the back taxes from the ’employees’.

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8501230/Weight-Watchers-to-employ-its-1700-slimming-leaders.html

http://www.telegraph.co.uk/finance/yourbusiness/7346758/Taxman-forces-slimmers-to-put-on-weight.html

One possible solution is to use Limited Companies, because a Limited Company can never be treated as an employee. Plus there are tax advantages in Dividends. But be careful of the IR35 Rules, follow my blog links to find out more.

Consultants beware of IR35 – use the QDOS Model Contract (Free)

Salary v’s Dividend – how much money could I save?

Things you need to know about Dividends…..

IR35 came into existance in 1999,  it was created to prevent workers previously employed from creating a limited company and then benefiting from lower taxes and national insurance through the use of dividends and expenses.

Follow my blog for more useful facts, tips, suggestions and ideas.

steve@bicknells.net