Tag: tax

BBC questioned about the employment status of celebrities

This Monday (18th July), the BBC’s CFO, Zarin Patel and its head of employment tax, David Smith, were quizzed about the use of personal service companies (PSC’s) within the corporation by the Commons Public Accounts Committee. It emerged that out of the Beeb’s 467 presenters, 148 broadcasters, i.e. nearly a third, were being paid via PSC’s. These 148 are not unique, however, as the BBC engages 25,000 freelancers.

http://www.contractorweekly.com/contractor-news/tax-a-ir35-news/512-bbc-ir35-witch-hunt

This has been under discussion for a while and back in 2010 Accountingweb reported

Amongst those appearing as freelancers are: Jeremy Paxman (earning about £1m a year); Fiona Bruce (with annual earnings of around £500,000); and Fearne Cotton (who rakes in around £200,000 per annum)*.

However, not all presenters have fled the broadcaster’s payroll, with the likes of Huw Edwards (Ten O’Clock News presenter); Nick Robinson (political editor) and Evan Davis (presenter of the Today programme) still prepared to suffer good old fashioned PAYE.

http://www.accountingweb.co.uk/topic/tax/ir35-and-celebrities-big-bucks-contracting/428140

It is hard to see on the face of it why a TV presenter would not be an employee based on:

  • Control
  • Personal Service/Subsititution
  • Mutuality of Obligation
  • Financial Risk

A BBC spokesman stated that the corporation provides HMRC with a detailed annual report of all payments made to PSC’s.

In response HMRC has now announced that it will increase its investigations into PSC’s. After admitting that HMRC had only enquired into 23 PSC’s, the department’s chief, Lin Homer, vowed to increase such investigations ‘ten-fold’ over the next year.

steve@bicknells.net

Did you hear about the case of the lap dancer and the night club? employment status

Miss Quashie, who has a daughter, began work as a stripper at Stringfellows in June 2007. She earned thousands of pounds to provide for her child.

But she was dismissed from the Central London nightspot in December 2008 following allegations of drug use, which were changed to an allegation of dealing after she took a test. She denied both allegations.

Read more: http://www.dailymail.co.uk/news/article-1319609/Face-lapdancer-used-womens-rights-campaigner-suing-sacking.html#ixzz20aX6oMIj

At Tribunal the the judge ruled she was an employee, but now the contract could be rendered illegal because of Miss Q’s dealings with HMRC.

Stringfellows argue that even if Miss Q was employed she acted illegally by representing to HMRC that she was self employed.

A key point in the case now is that ‘ any illegal act by a worker in the context of the job they do for you might invalidate the contract’ this could include misleading HMRC. [Indicator Tips&Advice Tax 28-06-12]

http://www.accountingweb.co.uk/article/stringfellows-stripper-goes-back-tribunal/527059

Employment status is complicated area that seems to continue to become more complicated.

steve@bicknells.net

Did you have fun on your corporate day out? you could be in for a tax bill

Small businesses across the UK will soon see HM Revenue & Customs (HMRC) clampdown on corporate away days.

That is according to law firm Pinsent Masons, which said that the department will now ask for tax and National Insurance on the cost of such events.

Joe Quinn, the company’s Director, explained: “If tax inspectors think that there is too much of a fun or social element to a company’s offsite event then they should be treated as though they are a taxable treat for employees.”

http://www.taxassist.co.uk/francksidon//?pg=news.php&article=12790

Staff Parties and Annual Functions costing less than £150 per head are exempt if open to staff generally but Corporate Hospitality is another minefield

Her Majesty’s Revenue and Customs (HMRC) make it quite clear that members of staff, such as sales representatives, who would be expected to attend corporate hospitality events in order to entertain clients as part of their role within the company, would be exempt from any potential charge on benefits in kind. Other members of staff, who were present purely as a perk of the job, would be deemed as being in receipt of a benefit and therefore would be liable for a charge. Visitors, not employed by the hosting company would be exempt. The company paying for the corporate hospitality would also be able to treat the expenditure as entertaining clients, for which they could claim tax relief.

http://ukmoneymarket.co.uk/other/corporate-hospitality

steve@bicknells.net

 

 

Should my Assets be Revalued – How are assets revalued? (IAS16)

Most assets decrease in value over time with usage and should be depreciated over their useful economic life. However, some assets increase in value for example Land & Buildings and some Metal based assets.

Under the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. [IAS 16.31]

If an item is revalued, the entire class of assets to which that asset belongs should be revalued. [IAS 16.36]

Revalued assets are depreciated in the same way as under the cost model.

If property, plant, and equipment is stated at revalued amounts, certain additional disclosures are required: [IAS 16.77]

  • the effective date of the revaluation
  • whether an independent valuer was involved
  • the methods and significant assumptions used in estimating fair values
  • the extent to which fair values were determined directly by reference to observable prices in an active market or recent market transactions on arm’s length terms or were estimated using other valuation techniques

Revaluing Assets will not create a tax charge because:

1. If the asset value increases, the revaluation creates a balance sheet revaluation reserve – Debit Assets, Credit the Revaluation Reserve – in does not create a profit, it increases the Net Worth of the business

2. Revaluing an Asset does not affect Capital Allowances these are based on the Cost of the Asset

3. Revaluing an Asset will not generate a Deferred Tax Charge because although it will affect depreciation, it should be excluded from the Deferred Tax computation as it is excluded from Capital Allowances (IAS 12) – Revaluing the asset increases its carrying value without altering its tax base (since revaluations have no immediate tax consequences)

4. Revaluing an Asset does not create a Capital Gain, Capital Gains will only crystalise if the asset is sold

steve@bicknells.net

Should my Work in Progress be classified as a Debtor (UITF40)

It’s a common issue and area of confusion and it has tax implications. WIP is valued at the lower of cost or net realisable value but Debtors whether invoiced or not are valued at Sales Value, uninvoiced Sales are shown as Amounts Recoverable on Contracts within Debtors.

Here is an example from HMRC

A joiner contracts to create fitted bookcases in an office for a total price of £15,000. He purchases the timber (materials cost £6,000) and builds the doors in his workshop. He also prepares the timber for the rest of the structure in his workshop. He then builds the skeleton of the bookcases on the customer’s premises and attaches thereto the timber that he has already prepared in his workshop. What is the accounts treatment if his year end occurs after he has prepared the timber and the doors but before he has gone to the customer’s premises to build the skeleton and fit them?

The contract is a single contract and the joiner should recognise revenue according to the stage of completion of the work. It is not relevant whether the work is done at his workshop or at the client’s premises. Neither is it relevant that part of the contract can be regarded as ‘goods’ and part as ‘services’: both are treated in the same way for accounting purposes.

Let us assume the joiner assesses that he has done 1/3 of the work by the year end and he has used half of the timber and other materials. The calculation would be: total price £15,000 less materials at cost (£6,000) leaves £9,000. Assuming the profit attaches only to the labour, accrued income is £3,000 (1/3 complete) plus materials at cost of £3,000 ( a half used), a total of £6,000. The remaining half of the total cost of the materials (£3,000) is work in progress. These figures should then be adjusted to reflect any likely losses, discounts, delay in payment or cost of difficulties expected to arise in completing the contract. Any progress payments received should be treated as creditors in accordance with SSAP 9.

http://www.hmrc.gov.uk/manuals/bimmanual/bim74270.htm

Also further guidance at

http://www.hmrc.gov.uk/helpsheets/hs238.pdf

http://www.icaew.com/en/technical/tax/tax-faculty/~/media/Files/Technical/Tax/Tax%20news/TaxGuides/TAXGUIDE-8-06-UITF-40-and-Taxation.ashx

So do you have Work in Progress or Amounts Recoverable on Contracts?

steve@bicknells.net

How De-pooling Short Life Assets can reduce your tax

In the Finance Bill 2011 the period over which expenditure on plant or machinery can be given “short life assets” (SLA) treatment was extend from 4 year to 8 years.

The change will have effect for expenditure incurred

• on or after 1 April 2011 for businesses within the charge to corporation tax (CT); and

• on or after 6 April 2011 for businesses within the charge to income tax.

If a business elects for plant or machinery to be treated as a short life asset, capital allowances are calculated individually on the asset until a “cut-off” point. This ensures that, if the asset is sold or scrapped before the cut-off point, the total allowances given over the period of ownership equal the actual net cost of the asset to the business.

An election will be beneficial if the asset depreciates faster than the rate at which capital allowances are given, and it is sold before the cut-off date.

Expenditure incurred on an asset given SLA treatment is allocated to a ‘single asset pool’ for the cut-off period. The current four-year cut-off period is four years from the end of the chargeable period in which the expenditure is incurred.

Writing-down allowances are given on the reducing-balance each year, currently at 18 per cent. If the item is scrapped or sold within a ‘four-year cut-off’ period, the remaining balance of expenditure in the pool is compared with the disposal proceeds. A further allowance, or charge, is made for the difference. This ensures that allowances given to this point match the actual net cost of the SLA.

If the Asset was placed in the Main Pool the tax relief would come through in future years through the WDA. So using the SLA will speed up Tax Allowances.

If the asset is not disposed of within the ‘four-year cut-off’ period, the remaining expenditure in the single asset pool is transferred to the main capital allowances pool, where writing-down allowances will continue to be available in the normal way.

The exceptions to SLA treatment are listed in section 84 CAA 2001 and include most cars and all expenditure on ‘long-life assets’ (assets with a useful economic life of at least 25-years) and ‘integral features’ of a building or structure.

A SLA election must be made for corporation tax within two years of the end of the relevant chargeable period in which the expenditure is incurred. For income tax the time limit is normally the anniversary of the 31 January following the tax year in which the end of the relevant chargeable period occurs.

Assets that cannot be treated as SLAs are:

  • assets that were provided for some other purpose including leasing under a long funding lease before being brought into use for a qualifying activity CA23030;
  • assets received as a gift CA23040;
  • assets used for special leasing CA20040;
  • cars apart from cars hired out to people in receipt of certain disability allowances CA23510;
  • long life assets CA23700;
  • special rate expenditure assets CA20150;
  • assets provided for leasing except:
    • those used in the designated period for a qualifying purpose and for no other purpose; and
    • cars provided for disabled people in receipt of certain allowances;
  • assets leased overseas that qualify for WDAs at the 10% rate CA24200;
  • assets leased to two or more persons jointly where at least one lessee is a non- resident who does not use the asset exclusively for earning profits chargeable to tax and the leasing is not protected leasing CA24400;
  • ships CA25000;
  • assets used partly for a qualifying activity and partly for other purposes CA27000;
  • assets that receive a partial depreciation subsidy CA27100.

http://www.hmrc.gov.uk/manuals/camanual/CA23620.htm

steve@bicknells.net

RTI and the Universal Credit

Under the new rules companies submitting payroll payments to BACS will need to include additional information along with the BACS transaction including the payee’s tax code, pay to date and tax to date amongst other items of information. These new rules have been named RTI or Real Time Information by HMRC.

Migration started in April 2012 with an aim to have all companies migrated by the end of 2013.

RTI will:

  • make the PAYE process simpler and less burdensome for employers and HMRC; for example by removing the need for the end of year return (P35 and P14) and simplifying the employee starting and leaving processes
  • make PAYE more accurate for individuals, over time reducing the number of bills and repayments sent after the end of the tax year
  • enable HMRC to pursue late payments more effectively
  • support the payment of Universal Credits
  • reduce Tax Credits error and fraud

http://www.hmrc.gov.uk/rti/employerfaqs.htm

To enable RTI payroll providers and BACS providers are currently rolling out new software and applications.

The Universal Tax Credit will be launched in 2013 and will replace:

  • income-based Jobseeker’s Allowance
  • income-based Employment and Support Allowance
  • Income Support
  • Child Tax Credits
  • Working Tax Credits
  • Housing Benefit.

What’s different about Universal Credit?

The main differences between Universal Credit and the current welfare system are:

  • Universal Credit will be available to people who are in work and on a low income, as well as to those who are out of work
  • most people will apply online and manage their claim through an online account
  • Universal Credit will be responsive, as people on low incomes move in and out of work, they’ll get ongoing support – giving people more incentive to work for any period of time that is available
  • most claimants on low incomes will still be paid Universal Credit when they first start a new job or increase their part-time hours
  • claimants will receive just one monthly payment, paid into a bank account in the same way as a monthly salary
  • support with housing costs will go direct to the claimant as part of their monthly payment.

http://www.dwp.gov.uk/policy/welfare-reform/universal-credit/

steve@bicknells.net

Did you issue shares to Employees or Directors? Form 42 due 6th July

HMRC F0rm 42 – Employment-related securities – covers most situation where you issue shares to employees or directors, however, you may not need to complete the form in some circumstances:

  1. On Company Formation
  2. Allotment of shares prior to starting to trade
  3. Shares issued to Directors before the company starts to trade
  4. Transfers of shares in the normal course of the domestic, family or personal relationships
  5. Flat Management Companies
  6. Members’ clubs (formed as companies)
  7. Share for share exchange
  8. Rights Issues
  9. Bonus Issues
  10. Scrip Dividends
  11. Dividend reinvestment plans (DRIPs)
  12. Shares acquired independently by employees

Examples of what you must report:

  • The gift or purchase of shares by employees or directors.
  • The grant or exercise of options granted to employees or directors.
  • Anything that changes the value of the shares held by employees or directors.
  • The sale of employees’ or directors’ shares for more than their market value.
  • Cash cancellation payments to employees or directors.

Penalties

Penalties are not imposed automatically, the company is warned of their failure to make a report on a minimum of two occasions before the case is referred to the tribunal. The penalties can be £300 per responsible person and £60 per day outstanding.

Here is a link to the 2012 Form 42 http://www.hmrc.gov.uk/shareschemes/form42-2012.pdf

 

steve@bicknells.net

Capital Gains Tax for Companies

Capital Gains can occur in many circumstances, for example, when the company:

  • sells, gives away, exchanges or otherwise disposes of (cease to own) an asset or part of an asset
  • receives money from an asset – for example compensation for a damaged asset

Sometimes it can be hard to establish the value of the gain and HMRC can carry out a post valuation check which is requested using http://www.hmrc.gov.uk/forms/cg34.pdf

Example – calculating the chargeable gain on the sale of a shop
Calculation step Result
Step 1: amount received for the asset in May 2011 £200,000
Step 2: deduct £120,000 (the cost of the asset in November 1997) £200,000 − £120,000 = £80,000
Step 3: deduct expenses on improving the asset (£10,000 spent on building an extension in June 2006) £80,000 − £10,000 = £70,000
Find the inflation factor for November 1997 0.474
Calculate the Indexation Allowance £120,000 × 0.474 = £56,880
Deduct the Indexation Allowance £70,000 − £56,880 = £13,120
Step 4: look up the appropriate inflation factor and calculate the Indexation Allowance for the extension 0.185
£10,000 × 0.185 = £1,850
Deduct the Indexation Allowance for the extension to arrive at the chargeable gain £13,120 − £1,850 = £11,270

http://www.hmrc.gov.uk/ct/managing/company-tax-return/returns/chargeable-gain.htm

You can get a full list of indexation allowances at http://www.hmrc.gov.uk/rates/cg-indexation-allowance/apr12-ct-cgains.pdf

If the losses don’t exceed the gains, put the total gains in Box 16 on your Company Tax Return and the total losses, if any, in Box 17. Deduct Box 17 from Box 16 and put the result in Box 18 – this is your ‘net chargeable gain’.

If the losses do exceed the gains, leave Box 16, Box 17 and Box 18 blank but put the amount of the net loss in Box 131. You can then ‘carry forward’ those capital losses to offset against any capital gains you make in a future Corporation Tax accounting period(s). You would include those losses in Box 17 of a future Company Tax Return. You can carry forward capital losses indefinitely.

If you intend to replace the asset you may be able to apply Business Asset Rollover Relief, this is most commonly use for Land and Buildings.

steve@bicknells.net

 

 

 

 

 

HMRC – The odd case of Coffey Builders – Employment Status

I was reading Tips & Advice Tax – Issue 17 and they highlight an unusual piece of new case law T Coffey/Dr Selvarajan and HMRC.

TC was a retired builder who was asked by S to manage and supervise the refurbishment of his medical clinic, the project lasted over 2 years. No substitutes were allowed, S guaranteed payment, there was no contract, TC worked regular hours and he was paid a rate of £500 per week. Sounds a lot like employment doesn’t it?

But HMRC decided to argue that he was self employed and undermined the importance of the factors that would make him employed.

Very interesting.

Steve@bicknells.net