Christmas Tax Tips

Christmas is a time for… parties
You can lay on a party or social function for your employees tax-free provided that the cost does not exceed £150 per head, per year. The event must be held for the main purpose of entertaining staff - the cost will become a taxable benefit if it is designed to entertain only directors or management, or if some members of staff are excluded.

In order to work out the cost per head you need to add together the VAT inclusive cost of the event together with any costs of transport and accommodation. You then divide this by the number of people attending.

The £150 is not an allowance, so if the cost is £151, the whole benefit is treated as a taxable benefit for your higher paid employees. For lower paid employees (those earning less than £8,500 per year) this benefit is tax free.

The cost to you the employer of laying on the event is deductible for tax in your business’ accounts. However, if you are using the event for entertaining customers or clients too, then you must remember to disallow a proportion of the cost for tax. You can claim back input VAT but only a proportion if the event is also to entertain customers.


Christmas is a time for…giving

You can give an employee a gift at Christmas, or on a special occasion such as marriage or a birthday and there will be no taxable employment benefit providing the gift is trivial.

The sort of gifts that are treated as “trivial” by HM Revenue & Customs (HMRC) are:
• A box of chocolates
• A bottle of ordinary wine
• A turkey
• Flowers
The cost is tax deductible in your business accounts too.

If a gift is not trivial there will generally be a tax charge on the employee. This will need to be reported on form P11D at the end of the year. You can alternatively settle up with HMRC by using a PAYE settlement agreement.

If you make a gift to a customer the cost may be deductible in your accounts providing it is not alcohol and that it advertises your business. If you make gifts to customers consider the tax treatment very carefully. If you are VAT registered you can reclaim VAT on the cost of the gift. If you make a gift in excess of £50 or makes a series of gifts to one person exceeding £50 you should account for output VAT on the value of the gifts.

The European court recently ruled that when a business makes gifts of its own products as samples it does not need to account for VAT.

VAT: the rate change

The standard rate of VAT increases from 17.5% to 20% on 4 January 2011. This means that businesses will need to adjust their bookkeeping methods as well as their software and it will make reconciliation of VAT more complicated in the quarter in which the change takes place.

The VAT fraction changes to 1/6.
• So, if a supplier charges you a VAT inclusive price of £120 multiply by 1/6 to calculate the VAT of £20, or by 4/5 to calculate the net price of £100.

There are special rules for sales that span the change in rate:

• If you sell goods or services before 4 January 2011 and do not raise a VAT invoice until after that date: you can choose to account for VAT at 17.5% (all of your non-VAT registered customers will appreciate this).

• If you started work for a customer before 4 January 2011 but did not finish it until afterwards you may account for the work done up to 4 January 2011 at 17.5% and the remainder at 20%. If you choose to do this you will have to be able to demonstrate that the apportionment is fair.

• If you provide a continuous supply of services, such as leasing of equipment you account for the VAT due whenever you issue a VAT invoice or receive payment, whichever is the earlier. So, you must charge 20% on invoices you issue and payments you receive on or after 4 January 2011. You may, if you wish, charge 17.5% on the services you've provided in the period up to 4 January 2011 and 20% on the remainder. If you choose to do this you will have to be able to demonstrate that the apportionment is fair.

• If you issued a VAT invoice or received prepayment before 4 January 2011 for goods or services which you provided on or after that date VAT will normally be due at 17.5%.

Problem areas
If you use bookkeeping software you will need to ensure that you have set up the correct VAT codes so that you can post transactions against the right rate. This can be a problem if you are Cash Accounting; you will need to be able to identify payments received after 4 January 2011 that relate to supplies made before that date.

The Flat Rate Scheme percentages have also been re-calculated to reflect a standard rate of VAT of 20%.

VAT and tax penalties: HMRC may change tax penalties on any taxpayer who makes an error in a return of document. It will operate a “light touch” on taxpayers who take reasonable care to account for VAT correctly as a result of the VAT change.
“Reasonable care” means “asking if you think there is a problem”. If you have any queries about VAT, the change in rate, or any other taxing matter, please give us a call on 0800 63 444 76.


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Tax Investigations - Be Afraid!

This is just the first of many steps to increase the amount of tax from investigations.

Watch the video here

If you want to find out how you can help protect yourself from a tax investigation please call us on 0800 63 444 76 or email taxsorted(at)googlemail.com for a free report on what you can do to help protect yourself.

You have been warned!

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Are you ready for online VAT filing?

You may be aware that the Government is moving forward with the plan to implement online filing for most business tax returns. The next phase of this it to require businesses to file their VAT returns online from April next year. This requirement will apply to all businesses with annual turnover of more than £100,000, which means that your business will be affected by this change.

Your first return which will be affected by the new rules must be filed online and paid by electronic payment, which includes BACS,Billpay and Direct Debit. It would be wise to start thinking about how you intend to move to online filing for VAT in the run up to that date.

Read more........

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Are you completing your dividend paperwork?

Did you know that if you don't complete the proper paperwork each time you vote a dividend the taxman can argue it was actually a bonus and NIC's are payable on the amount?

If your limited company has made a profit, you are entitled to distribute these profits to shareholders as dividends.

When you do decide to declare a dividend, you must not only record the event in Company minutes, but also create a dividend voucher for each shareholder.

The voucher is a "receipt" of sorts, and is kept by the recipient for self assessment purposes.

For more details about what dividends are, how to account for them, and for template vouchers and meeting minutes please send an email to taxsorted(at)googlemail.com and we will be happy to send you the templates you need.

Post 101! Tax-efficient employment benefits-in-kind

Wow! I just realised I have made over 100 posts!

On to the next one..................................

Tax-efficient employment benefits-in-kind

There are still some tax free perks available to employees and if you really DO care about your staff take a look at these:-

· Childcare vouchers. Provided the benefit is made available to all employees, vouchers to a value up to £55 per week can be provided to pay for (non-family provided) childcare for employees. This benefit is free of tax and national insurance, and thus provides a significant saving for employer and employee if it is given on a salary sacrifice basis. Care is required in respect of the impact of vouchers on tax credit claims and their continued availability during maternity leave.

· Mobile phones. These can be provided free of tax and national insurance to selected employees, although it may be advisable to cap the level of bills that the employer will meet!

· Medical check-ups. These can again be provided tax and national insurance-free to selected employees.

· The cycle to work scheme allows the tax-free provision of cycles and cycle safety equipment by employers to employees – the facility must be made available to all employees. In theory the bicycle must be mainly for home to work use, but given that employers are not required to monitor the use of bicycles it is difficult to see how this can be enforced in practice.

· The alternative to the above approach is for the employee to provide his or her own bicycle, for which they can be paid a tax and NI-free mileage rate of 20p per mile for business mileage, on a similar basis to the fixed profit car scheme rates of 40p and 25p per mile.

· Before leaving the subject of bicycles, employers can also provide tax-free cyclists’ breakfasts to employees who cycle to work. We have so far waited in vain for the introduction of joggers’ breakfasts and walkers’ breakfasts!

· Pension contributions by employers are in general a tax-free benefit for employees, although the above regime for those with income in excess of £150,000 must now be taken into account in this respect, as well as the annual pensions allowance (currently £245,000).

· Outplacement counselling provided to help employees to adjust to cessation of employment or to find a new job is a tax-free benefit. It is important to note that this can be provided on retirement as well as on redundancy etc.

· Loans of up to £5,000 can be made tax and NI free to employees. This is a de minimis relief, so if the loan exceeds £5,000 the whole loan is subject to an income tax (and employers’ NI) charge, currently based on 4.75% per year of the amount lent. Care also needs to be taken about making loans to shareholders, as these can give rise to a different tax charge under the corporation tax regime.

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