Some Employee Perks Are Being Lost and It Could Be Costly

Green & Co

Green & Co feature in the South Wales Argus discussing the tax changes for employee perks.

The new tax year has seen a raft of changes, with more legislative reform scheduled to come into effect over the next few years.

From changes in dividends, stamp duty, and national insurance (with a U-turn thrown in for good measure) the way that people are taxed is an ever-evolving landscape. However, it’s not just directors, landlords and the self-employed who have been targeted with new legislation.

Barrie Kenyon, partner at Green & Co Accountants and Tax Advisors said: “From 6th April, the tax and employer national insurance advantages of a salary sacrifice or salary exchange scheme was removed. This means that any employees who have swapped their salary for benefits, which typically include additional holiday days, will now pay the same tax as if they were buying them out of their post-tax income. The Chancellor, Philip Hammond, announced the changes in the autumn statement believing the previous schemes were unfair. From earlier this month, they have started to come into effect.

“However, these changes do not affect those employees who have reduced their salary for pension contributions, childcare purposes such as vouchers, workplace nurseries or directly contracted childcare, the cycle to work scheme and ultra-low emission company cars with co2 emissions of or less than 75g/km.

“The schemes were seen as attractive to both employees and employers, with reduced tax liabilities benefiting both parties.”

Mr Kenyon stressed that there were some caveats that accompany the changes: “If any arrangements which were in place before April 2017 relate to cars with co2 emissions over 75g/km, accommodation or school fees: these arrangements will be protected until April 2021. Also, other arrangements agreed prior to April 2017 that do not fall into the aforementioned categories will be protected until the end of the current tax year in April 2018.”

It is estimated that millions of workers from across the UK will pay more tax due to these changes, with the Treasury believing that these schemes are costing too much in lost tax receipts and national insurance contributions. It is estimated that the reform will cost employers in the UK around £85M this tax year, whilst increasing another £260M by April 2021 when the full changes will come into effect.

If you are worried about any of these forthcoming changes, please contact us at Green & Co for further help and guidance.

Green & Co Accountants and Tax Advisors specialise in business growth and tax minimisation for businesses across Wales and the South West of England.

For proactive advice, contact Green & Co Accountants and Tax Advisors on 01633 871 122, follow @Green_and_Co on Twitter or email barrie@greenandco.com.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Some employee perks are losing their tax breaks.

Salary sacrifice.jpg

From 6 April 2017 the tax and employer national insurance advantages of a salary sacrifice or salary exchange will be removed, with the exception of:

  • Pensions
  • Childcare (Vouchers, workplace nurseries or directly contracted childcare)
  • Cycle to work
  • Ultra-low emission cars with co2 emissions of or less than 75g/km.

Any employees who have swapped their salary for benefits, for example, additional holiday days, will now pay the same tax as if they were buying them out of their post-tax income.

If any arrangements which were in place before April 2017 relate to cars with co2 emissions over 75g/km, accommodation or school fees, they will be protected until April 2021. All other arrangements (arranged before April 2017) that are not detailed above will be protected until April 2018.

If you are worried about any of these forthcoming changes, please contact us at Green & Co for further help and guidance.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

Deadline Dates – April 2015

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1 April 2015

  • Payment of corporation tax liabilities for SMEs account period ended 30 June 2014 where payment is not made by instalments.
  • Reduction in main rate of corporation tax to 20%. Small profits rate is abolished except for ring-fence profits.
  • Change to emission thresholds for business cars (zero rate ends).
  • Application to defer Class 2 or 4 NICs for 2014/15 or claim exception for 2015/16.
  • Multiple contractors to advise HMRC that they wish to be treated as a single contractor for 2015/16.

5 April 2015

  • 2014/15 tax year-end.
  • Ensure personal allowances, exemptions and tax bands are efficiently used.
  • Deadline to pay previously unpaid Class 3 NICs for 2008/09.

6 April 2015

  • Start of the 2015/16 tax year. Ensure payroll and other systems are updated.
  • Personal allowances increased to £10,600.

7 April 2015

  • Electronic filing and payment of VAT liability for quarter ended 28 February 2015.

14 April 2015

  • Forms CT61 for quarter ended 31 March 2015.
  • Quarterly CT instalment for large companies (depending on accounting year-end).
  • EC sales list deadline for monthly paper return.

19 April 2015

  • Payment of PAYE/CIS liabilities for month ended 5 April 2015 if not paying electronically.
  • Payment for PAYE liability for quarter ended 5 April 2015 if average monthly liability is less than £1,500.
  • File monthly CIS return.

21 April 2015

  • File online monthly EC sales list.
  • Submit supplementary intrastate declarations for March 2015.

22 April 2015

  • PAYE liabilities should have cleared HMRC’s bank account.

30 April 2015

  • Companies House should have received accounts of private companies with 31 July 2014 year-end and plcs with 31 October 2014 year-end.
  • HMRC should have received Corporation Tax Self A returns for companies with accounting periods ended 30 April 2014.

If you have any questions regarding these deadlines, please contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Photo credit: freedigitalphotos.net

Nick Park analyses the Budget on BBC Radio Wales

To find out what other announcements were made in  the Chancellor’s Budget, read our Budget Summary.

‘Tis The Season To Be Jolly…

Champagne

In the spirit of seasonal cheer, it’s that time of year again to remind you all that HMRC has a festive loophole that means businesses pay no tax on corporate Christmas parties.

Businesses of all sizes are allowed to spend a tax-free amount of up to £150 (inc. VAT) per member of staff each year. The limit includes a whole host of items such as accommodation and transport, not only food and drink. What’s more, as long as the cost per head stays under the limit, employees can bring their significant others along.

After a busy year of work, what better way to reward your employees than with a chance to let their hair down? A Christmas party can be an excellent way of boosting staff morale as days get colder and shorter, and can make your employees feel valued for their hard work, as well as encouraging productivity.

This tax-free limit applies for a whole tax year, so an employer can actually put on both a summer and winter party, as long as the total cost is less than £150 per head.

A word of caution, however, as if you spend as much as one penny over this limit, you will be liable for income tax and National insurance on the whole amount.

This is a rare gift from the taxman, so make sure you take advantage and deck the halls for your tax-free office Christmas party!

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of suphakit73 at FreeDigitalPhotos.net

Company Director – A Position Of Responsibility

There are several reasons why you and your business may benefit by trading as a corporate entity.  These include tax efficiency, prestige or credibility within the business world and, of course, limited financial liability.

In all cases however, you should remember that being a director of a company carries with it certain obligations and you as an individual can be penalised if those responsibilities are not met.

What is a Director?

A director is a person who has been appointed to take charge of the running of a company.  There is no limit to the number of directors who can hold office, but there must be at least one, and they must be over 16 years of age.  Individuals who are un-discharged bankrupts are not permitted, nor can anyone who has been previously disqualified as a director.

What are the Statutory Responsibilities of a Director?

A director is responsible for preparing and filing certain documentation relating to the company’s activities.  Companies House requires that directors file by a given deadline:

  • Annual Returns – giving details of the directors, company secretary, shareholdings and registered office.
  • Annual Accounts – showing the company’s financial position and trading activities (even if none have taken place).
  • Reports of any change in details such as allotment of shares, change of address, appointment or resignation of directors or company secretary.

It is possible to delegate these duties to someone else but the ultimate responsibility for them still lies with the director.

What are the Legal Responsibilities?

Company law states that a director MUST:

  • Ensure the company complies with the terms set out in its Article of Association.
  • Act with the intention of making the company a successful enterprise, using his skills to benefit the company and not himself.
  • Ensure that the company complies with Employment Law, Health and Safety Regulations and that it meets its obligations to HMRC with regard to Taxation, VAT, National Insurance, etc.
  • Declare any beneficial interest in any activity undertaken by the company.
  • Keep adequate records of the company’s activities including trading transactions, monies withdrawn from company funds, and declaration of dividends paid to shareholders.
  • Hold director’s meetings and keep minutes of any decisions made on any matter concerning the company or its shareholders.

What if I Don’t Carry Out These Duties?

There are legal and financial penalties for directors who fail in their duties.  These depend on the circumstances and the severity of the non-compliance but can range from fines to criminal charges and can result in disqualification at court or even being made personally liable for company debts, if they are deemed to be as a result of a director’s negligence.

Green & Co are always happy to advise and assist directors in the course of their duties and offer company secretarial and registered office services for all corporate clients. For more information contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Do You Want To Maximise Your Claim For Childcare Costs?

Childcare

If you are currently paying childcare costs or will do in the near future, are you aware that the scheme for claiming tax relief is changing in the Autumn of 2015?

Currently you may be claiming relief through the childcare voucher scheme. The childcare voucher scheme enables the parent to claim £55 per week of childcare vouchers if entering the scheme before April 2011, reducing to £28 or £25 depending on whether you are a higher rate taxpayer for those joining the scheme after this date. These vouchers are tax and NI free, providing savings of £933 on £55 per week reducing to £623 for the lower amounts.

The tax credits system pays up to 70% of childcare costs but is, of course, dependent on the claimants’ income.

The new system will give tax relief at 20% on childcare costs of up to £10,000 per child.

Both parents need to be working and neither parent must be an additional rate taxpayer.

Parents who already receive child care vouchers don’t have to switch to the new system unless they want to. So the question is “do I switch or do I not switch?” There is no easy answer to this as it will vary from person to person depending on their individual circumstances. Factors such as how many children you have, coupled with the level of childcare costs involved, will feature heavily in any decision.

It is important to note:

  • Once a claimant leaves the childcare voucher system he/she cannot rejoin it.
  • In Autumn 2015 the scheme will be closed to new entrants who will only be able to participate in the new scheme

For anyone in receipt of childcare vouchers or considering the scheme, it is important to review which option is the most beneficial to you.

For more information contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

National Insurance – A Class Act

National Insurance was introduced in the UK as long ago as 1911, initially as a contributory fund to provide benefits in the event of incapacity due to sickness or unemployment. Over the years, the scheme has been broadened to include provision of a wide range of social security benefits, and, in particular, as a way of securing a state pension on retirement.

The working population pays contributions according to their employment status, as follows:

CLASS 1 NIC –  IN EMPLOYMENT

Employees pay Class 1 NIC, based on a given percentage (currently 12%) of their wage or salary over the Primary Earnings Threshold (currently £149 per week).  Contributions are deducted automatically from pay, alongside PAYE income tax, although they are not calculated on a cumulative basis as income tax is.  Contributions are also paid on benefits in kind where appropriate.

Employers must also pay a secondary contribution for each employee on earnings over the Primary Threshold (currently 13.8%), and the whole amount is remitted to HMRC through the Employer’s PAYE scheme. Late payments to HMRC are subject to interest and penalties, payable by the Employer, but do not affect the employee’s payment record.

Class 1 contributions are not payable by the employee if:

  • The employee is under 16 years of age.
  • The employee has reached the state pension age.

Contributions count towards eligibility and amounts awarded to each individual employee in respect of State Pension, Jobseeker’s Allowance, Incapacity, Maternity and Bereavement Benefits.

CLASS 2 NIC – SELF-EMPLOYED

Class 2 NIC is a flat rate contribution (currently £2.70 per week) payable by all self-employed individuals, whether trading alone or in a partnership, regardless of size of turnover or level of profits -although it is possible to apply for a Small Earning Exception if profits are below a certain level (currently £5,725). Registration is automatic when informing HMRC of self-employment which is compulsory within 3 months of commencement of trade.

Payment is made usually by monthly direct debit, although it can be made 6 monthly on or before 31 January and 31 July of each year. There is currently no penalty system in force for late payment, but from April 2014 HMRC can opt to collect arrears through an individual’s tax code.

Class 2 NIC is not payable if:

  • The individual is under 16 years of age.
  • The individual has reached the state pension age.
  • The individual is a married woman or widow who is entitled to reduced rate contributions.
  • The individual holds a Certificate of Small Earning Exception.

Contributions count towards Basic State Pension and Maternity Allowance, and eligibility may be affected by late payment, or indeed no payments, because a Certificate of Small Earnings Exception is in force. Contributions do not grant eligibility to Additional State Pension, Incapacity Benefit or Jobseekers Allowance, so it is wise for individuals to consider making their own provision/insurance to cover circumstances in which they would normally wish to claim those benefits.

If self-employment is ceased, HMRC should be advised as soon as possible to avoid receiving demands for unpaid contributions.

CLASS 3 NIC – VOLUNTARY

If an individual has a gap in their contributions, for whatever reason, which might affect their eligibility to State Pension and Bereavement benefits, they can opt to pay voluntary Class 3 NIC  (currently £13.55 per week) to maintain their contribution record.

Class 3 contributions cannot be paid by:

  • Married women or widows who have already chosen to pay reduced NIC during the same tax year.
  • Individuals who have reached State Pension Age during the same year.
  • Individuals who  are entitled to NIC Credits (although there are exceptions to this).

Payment can be made by direct debit monthly or quarterly, but must normally be paid within 6 years of the end of the year in which there is a shortfall in contributions.

Before undertaking to make voluntary contributions, it is important to establish how much actually needs to be paid voluntarily for any given year, and the advantages of doing so. HMRC grants NIC credits to individuals who are unable to work due to illness or caring for someone, so regular contributions do not always have to be made in the normal way to maintain a complete contribution record.

Self-employed individuals are usually better off paying voluntary Class 2 NIC.

More information can be found here: http://www.hmrc.gov.uk/nic/ca5603.pdf

CLASS 4 NIC – SELF-EMPLOYED

These contributions are made by self-employed individuals as a percentage of profits (currently 9%) between the lower and upper thresholds (currently £7,755 to £41,450). A further 2% is payable on profits above the upper threshold.

The liability is calculated alongside Schedule D income tax with which it is included for collection purposes – and is thereby subject to the same deadlines for payment. Likewise, late payments can attract  interest and penalty charges.

Class 4 contributions do not count towards any benefits for the individual, the proceeds being included in the Treasury “pot” to help fund the social security system. In essence, this is another form of income tax.

Class 4 NIC is not payable on profits if:

  • The individual is under 16 years of age.
  • The individual reached the state pension age in the previous tax year.
  • The individual is not normally resident in UK for tax purposes.

Many people will fall under more than one category and so may be paying more than one class of National Insurance in the same tax year.

There are special rules and exceptions for Mariners, EEA Nationals working on UK-flagged vessels and UK nationals working abroad, details of which can be found on HMRC website: http://www.hmrc.gov.uk/ni/index.htm.

 

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Part time employees – the full time benefits

During the past few years employing part-time workers has become more popular. With the governments proposed plans for flexible parental leave part-time employees may be seen as an easy way to cover the possibility of parents interchanging periods of leave with their partners i.e. mum taking leave, then dad and then mum again which could otherwise be an administrative headache to coordinate and cover for.

But what are the other advantages of having part-time employees in your team?

  • It is possible to save money by hiring part-time staff, as each employee’s national insurance (NI) allowance means that employer’s NI doesn’t kick-in until you pay your employee £148 per week, and at 13.8%, this could be a considerable cost saving.
  • Part time staff can bring flexibility to your business. During peak periods, it could be possible to increase their hours so that more work can be completed. This would also mean more staff available for holiday, parental or sick cover.
  • Part time employees may enable you to have a greater diversity of skills. For example, if you could afford one full-time employee you could decide to hire a part-time bookkeeper and a part-time administrator for example. Rather than limiting yourself to just one type of employee that you require you get both, and as your business grows you have the option of increasing their hours as required.
  • It may also mean you can retain valued employees, for instance after they have been on maternity leave, and have a wider pool from which to recruit from. There are many well qualified people out there who would be prepared to work, and to work hard, if they could only work on a flexible part-time basis.

If you plan and consider carefully which jobs in your organisation may be appropriate for either a part-time employee, or a job share then you may find that part-time staff can bring a huge benefit to your business.