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.

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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.

 

New Allowance for Pension Advice

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A new allowance which will enable people to access pensions advice in a tax efficient way will commence in April 2017.

Under existing rules, if you require advice regarding pensions you will normally have to pay a fee to a Financial Adviser. A new allowance being introduced in April will mean that you will be able to use funds saved in a defined contribution type pension fund to pay for the advice instead. The ability to access the advice in this manner essentially means that the cost of the advice is tax free.

The amount which can be accessed is £500. It can be accessed up to 3 different times provided it is in different tax years.

Be aware that the allowance can only be used to pay for regulated advice and cannot be used by those in final salary schemes unless they also have a defined contribution pension plan at the same time.

If you would like further information or would like to discuss your situation please contact our tax team.

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

2017 Budget Review

Following on from the Chancellor’s first and last Spring Budget, we are pleased to provide you with our summary of the key announcements, along with our tax tables for the 2017/18 tax year:

Budget Summary

Tax Data
The main changes include:

  • The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018.
  • Class 4 national insurance contributions for self-employed workers will increase to 10% in April 2018 and rise again, to 11%, from April 2019.
  • Unincorporated businesses and landlords with a turnover below the VAT threshold will have until April 2019 before they are required to implement ‘Making Tax Digital’.

Among the key changes to note for this year are:

  • The Chancellor confirmed that corporation tax will be cut to a rate of 19% from April 2017 and it will be further reduced to 17% in 2020.
  • The personal allowance will rise to £11,500 in April 2017 and to £12,500 by 2020 and the higher rate income threshold will rise to £45,000, although special rules will apply in Scotland.
  • Individual landlords’ tax relief for finance costs will be restricted to basic rate tax – to be phased in over four years from April 2017.

More information on the Budget is available on our website or if you would like to speak to one of our team please contact us.

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

Year End Tax Planning

Business man holding TAX

The end of the tax year is fast approaching, but there is still time before 5 April to save tax for 2016-17. Below are some points you may wish to consider.

MAXIMISE CAPITAL ALLOWANCES

Businesses may be able to write off the cost of capital assets by making the most of capital allowances. The Annual Investment Allowance allows businesses to claim a deduction of up to £200,000 of the year’s investment in plant and machinery (with the exception of cars). Most business structures can make use of the AIA.

UTILISE YOUR FULL ISA ALLOWANCE

Individuals may invest up to £15,240 for the current tax year. A saver may only pay into a maximum of one cash ISA, one stocks and shares ISA and one innovative finance ISA per year. Savers have until 5 April 2017 to make full use of their 2016-17 ISA investment allowance. ISAs can offer a very useful tax-free way to save.

TAX EFFICIENT RETIREMENT PLAN

Pension contributions have to be paid by 5 April 2017 for them to be relieved against 2016-17 income. Annual contributions cannot exceed the greater of £3,600 (gross) or the amount of your UK relevant earnings eligible for tax relief. However, the contributions are subject to the annual allowance, currently £40,000. This is further reduced for those with net income of over £110,000 and adjusted annual income (i.e. your income plus both your own and your employer’s pension contributions) over £150,000. For every £2 of adjusted income over this figure, a person’s annual allowance is reduced by £1 (down to a minimum of £10,000).

For further information please contact our tax team here at Green & Co.

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

 

Tax Return Deadline is Approaching

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It comes around almost as fast as Christmas, and here we are again. The 31 January 2017 marks the deadline for filing of the 2015/16 Self-Assessment Tax Return (SATR).

Individuals who are required to submit a SATR include, the self-employed and some landlords, investors, company directors, high earners and people who have worked overseas.

Those taxpayers who fail to file their Return online by midnight on Tuesday 31 January will be subject to an automatic penalty of £100. This applies even if there is no tax to pay, or the tax is paid on time.

Tax Returns which are not filed after a further three months will be subject to daily penalties, and additional penalties will apply to Returns which remain unfiled after six and 12 months, adding up to a potential penalty of £1,600 or more.

Penalties and interest charges also apply for the late payment of tax, and these will continue to be applied until HM Revenue & Customs receives payment.

Green & Co can help with all your tax planning needs, including filing your Tax Return – please contact us for further assistance.

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

Self Employed Landlords: What you need to know about Digital Accounting

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By 2020 most businesses, self-employed individuals and landlords will be required to use software or apps to keep their business records and to report their income and expenditure on a quarterly basis to HM Revenue & Customs. This new regime will commence on 6 April 2018 for most small businesses. Self-Assessment tax returns will no longer be completed from 2018/19 onwards.

What records will I need to keep?

HMRC will expect businesses to scan paper invoices and receipts into software using a smartphone camera. For many businesses it is expected that the scanned evidence of income and expenditure will be automatically processed by the software into the relevant accounting entries. HMRC prefers that the following data fields are completed for each receipt or expense item:

  • Invoice date and payment received date, if cash basis being used
  • Invoice value and payment received value, if cash basis being used
  • Income or expenses category, and
  • Deducted amount/percentage for expenses.

The above is the minimum required data which will be needed to enable software to identify and categorise each transaction.

Landlords

Landlords will need to provide the following:

  • The full address of each property
  • Income and expenses attributable to each property.

Quarterly Updates

The data of income and expenditure will have to be reported quarterly, although the reports will only be summary data. Businesses will be able to see an estimate each quarter of what their liability will be, based on the summary data provided.

End of year return

A final fifth submission will be made which will incorporate a correct and complete declaration. It is proposed that this final account will have to be submitted within 9 months of the end of a period of account.

The above is subject to a period of consultation due to end in November and final details are due to be announced in December. Green & Co will keep you informed as further details/changes are announced.

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

Update on Tax Free Childcare

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Further detail has been released on the new tax free childcare scheme that HMRC are set to debut in early 2017.

Under the scheme eligible parents open an online account, which they can use to pay a registered childcare provider. HMRC top up the account with £2 for every £8 paid in, up to a limit of £2,000 per child per year, or £4,000 for disabled children.

Parents will have to be in work to qualify with each earning around £115 a week. However, they will be ineligible if they earn in excess of £100,000 a year.

Parents who are enrolled in an employer operated childcare voucher scheme can continue in that scheme or switch to the new scheme. They are advised to consider which scheme is more beneficial to them before making a decision. Childcare voucher schemes will be open to new entrants until April 2018.

If you’d like to discuss this further please contact Green & Co.

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

HMRC Not So Fine with Parking Fines

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HMRC’s position on parking fines is reinforced in the recent case of G4 Cash Solutions (UK) Ltd v HMRC [2016] TC5015. The first tier tribunal decided in favour of HMRC and disallowed tax relief for car parking fines imposed.

The issue arose as the company’s drivers incurred parking fines which G4S claimed were due to the awkward location of the customer’s premises. Rather than lose the custom, G4S accepted the fines and claimed them as an expense in their accounts.

G4S argued that the fines were incurred when exercising the trade; they were unavoidable and it was a commercial decision to pay them.

The tribunal countered that although breaching the law was as a result of the trade’s activities, it was not part of the trade and the fines incurred were therefore not tax deductible. G4S received 10,000 penalty notices per year from 2008 to 2010 which had resulted in tax relief of £580,000. One would hope that G4S has a “back-up” plan.

Green & Co have a dedicated tax department who can advise on allowable expenses, to speak to one of our team, contact us on 01633 871122.

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

Tax Relief When Home is The Office

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When a business is operated through premises that are owned or let by the business, claiming for rent, rates and utilities, etc., is all relatively straightforward. However, when the business is run from the home of the proprietor or director (if a limited company), then the expense claim requires a little more thought.

If you wish to claim an apportionment of the household bills, as opposed to the flat rate allowance set by HMRC, then a number of factors should be considered for the calculation.

The area of the home used for business purposes (this can be expressed in terms of floor space or number of rooms) and the time in which that area is used for work should be established in order to apportion the bills.

If a room is used exclusively for the business, then it will not qualify for private residence relief so capital gains tax could be due when the house is sold. Therefore the room should also be used for domestic purposes to ensure the capital gains exemption.

Directors cannot claim any proportion of rent, mortgage interest, or council tax.  However, they can charge the company rent for using their home and claim allowable, apportioned expenditure against the rental income. The rental income would have to be declared on the director’s self-assessment tax return.

Certain occupations have specific allowances and thresholds which have been agreed with HMRC, for example child minders, and these should be observed where applicable. For help and advise on this, please contact our tax team on 01633 871122.

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