Archive for February, 2014

National Minimum Wage (NMW) penalties to increase

Wednesday, February 26th, 2014

Employers have been warned recently that schemes setting out to avoid payment of wages to employees at the minimum rates set by the National Minimum Wage regulations will be penalised. Currently, employers found lacking in this area will be required to make up the unpaid wages and pay fines which can be up to 50% of the total arrears, capped at £5,000 for each notice of underpayment issued by HMRC.

These penalties are due to be increased. If new regulations being debated in Parliament are approved the penalties payable for non-observance of the NMW rules will be:

  • Fines amounting to 100% of the unpaid wages.
  • The maximum penalty for each notice of underpayment increased to £20,000

 Further legislation is proposed to ensure that the £20,000 fine is applied to each underpaid worker.

 As of October 2013, the current NMW rates are:

  • Apprentices under age 19 or those in the first year of their apprenticeship: £2.68 per hour.
  • Under 18: £3.72 per hour.
  • Between 18 and 20 years: £5.03 per hour.
  • Age 21 and over: £6.31 per hour.

Employers should also keep an eye on the rulings of Employment Tribunals. A recent case, for instance, has determined that certain classes of employees should be paid for travelling time.

With the proposed increases in the penalty regime it is now imperative that employers review their pay rate structures to ensure that they are compliant with NMW requirements. Take professional advice now if you are at all unsure of your obligations. Don’t wait for the grey suits to turn up on your doorstep requesting to audit your pay records.

Possible VAT bonanza for golf clubs

Monday, February 24th, 2014

Since the 1990s fees for playing at not-for-profit sports clubs has been exempt for VAT purposes. However, HMRC has asserted that only club members’ playing fees are exempt for VAT purposes. Any visiting players have paid VAT included in their green fees. Clubs who have charged the same amount to members and visitors have therefore suffered a loss of revenue (the amount of VAT included in visitors’ fees that has been paid to HMRC).

The EU court has now ruled that the VAT exemption should also apply to visiting players.

This opens up the possibility that clubs can recover the VAT they have paid over to HMRC that was included in their charges to visiting players.

No doubt it will be necessary to demonstrate that clubs have borne the cost of the VAT themselves – that their charges were inclusive of VAT for visiting players. For clubs that do qualify refunds can be claimed back to 31 March 2009. This will be a welcome cash flow injection for many clubs who have suffered during the recent recession.

Clubs should act immediately, take professional advice, and lodge an appropriate claim.

Certain PPI victims should declare interest received on compensation payments

Thursday, February 13th, 2014

Many victims of miss-sold Payment Protection Insurance are unaware that they need to declare any interest they received as part of their settlement on their tax return. HMRC have commented:

"The interest may or may not have had tax already deducted depending on the type of company making the payment of the interest.

"If banks and building societies are paying the interest then there is no obligation on them to deduct tax because the interest is not interest on a deposit and there are specific exemptions for banks and building societies from the need to deduct tax from yearly interest.

"All other companies have an obligation to deduct tax from yearly interest when it is paid. If a company does deduct tax then there is a statutory requirement that it advises the customer when making the payment that tax has been deducted and the gross and net amounts of interest."

So if you have received compensation, particularly during the tax year to 5 April 2013, make sure you advise HMRC asap – the deadline for notification was 31 January 2014.

Cash rich company shareholders may lose out on IHT and CGT relief

Tuesday, February 11th, 2014

There has been significant press coverage recently suggesting that companies are hoarding cash. It would seem that this is one of the contributory factors affecting low levels of business investment. Directors are loath to part with their hard won cash reserves.

For private company shareholders and shareholders with a significant stake in Plcs this may have a detrimental effect on their ability to claim inheritance tax Business Property Relief (BP), or capital gains tax Entrepreneurs’ Relief (ER); if they gift (BP) or otherwise dispose of their shareholding (ER).

The problem arises as cash rich companies may disqualify their shareholders from claiming these reliefs as they are considered to be investment rather that trading companies. The Institute of Chartered Accountants recently sought clarification on this point from HMRC. Here’s a record of their exchanges:

The Institute’s representations were:

‘Where a company holds an amount of cash which is in excess of the amount which it “normally holds” and there is no evidence of any given project upon which the funds will be expended, then BP relief will be denied as the excess will be treated as an excepted asset.

Members are aware of the HMRC guidance… and this has proved sufficient in demonstrating the position of HMRC.  It clarifies that cash balances should be viewed in light of the business’s trading cycle and that businesses should keep evidence of discussions surrounding the intended use of cash balances.

However, in the light of the current economic climate and in order to weather the financial adversity faced by many businesses within the UK, it is widely recognised that businesses are retaining increased cash buffers in case of any further downturn in their trade.  This is a widely accepted tactic in surviving a recession to ensure that businesses succeed and reverts to the cliché that “cash is king”.

In this regard, confirmation from HMRC that they are aware of this change in mind-set of business owners and company directors, and look favourably on surplus cash held in this regard, would be extremely useful to our members.’

 And HMRC’s response:

‘We understand that due to the financial circumstances in which businesses find themselves, they may choose to hold more cash in case of a potential downturn in trade.  We can also confirm that in recent times we have seen this on a more frequent basis where businesses hold cash in excess of what they would traditionally require.

However, our guidance remains the same, and unless there is evidence which directs us to the fact that the cash is held for an identifiable future purpose, then it is likely it will be treated as an excepted asset.  Therefore the holding of funds as an “excess buffer” to weather the economic climate is not a sufficient reason for it not to be classed as an excepted asset.’

Law Society warning on LLP tax reform

Thursday, February 6th, 2014

The Law Society is concerned that if the present changes to LLP taxation are enshrined in the forthcoming Finance Act 2014, decisions will have to be made for tax, rather than commercial reasons.

For example members may be required to introduce capital purely to comply with changes in tax law. There are also fears that the tax changes will make UK based LLPs less competitive than overseas LLP partnership structures.

There is an argument that HMRC are demonising the loss of National Insurance revenues that result from the reclassification of salaried employees as LLP members, and ignoring the real benefits that LLP structures offer the development and prosperity of our financial services and legal sectors. After all it is this sector that is presently “buoying up” our economic growth.

It will be interesting to see if the representations made by the Law Society and other affected groups will impact HMRC’s guidance on LLP tax changes that are due to be published on 17 February 2014.

CBI champions use of equity finance

Wednesday, February 5th, 2014

According to a recent CBI report UK companies rely too heavily on debt finance. It said that 50% of small and medium sized businesses used bank loans and more than one-third used overdrafts. Of the remainder only 3% use equity finance: the European average is 7%.

 Smaller UK businesses seem to associate equity funding with loss of control. Kaja Hall, CBI chief policy director is quoted as saying:

 “We need to shatter the equity finance glass ceiling and encourage growing firms across the UK to use this largely untapped resource. It’s a myth that using it results in loss of control and decision-making. Equity finance is one of the most effective ways for small and medium-sized firms to access investment capital and there are plenty of investors who take a minority stake.”

 It does appear that UK business owners are drawn to shorter term solutions offered by their banks: overdrafts and loans. The main problem with this sort of short-term approach to investment funding is that in today’s slow moving economic conditions businesses may need to borrow for longer periods in order to achieve their investment and growth goals.

 There is talk that building societies should be given rights to lend to the business community. Perhaps Government could step in to make the present, temporary, Seed Enterprise Investment Scheme a permanent feature of the UK tax system? Time for a rethink. UK businesses need to be able to invest for long term development and the present trend towards short term fixes does not really hit the spot.

Tax Diary February/March 2014

Monday, February 3rd, 2014

 1 February 2014 – Due date for Corporation Tax payable for the year ended 30 April 2013.

 19 February 2014 – PAYE and NIC deductions due for month ended 5 February 2014. (If you pay your tax electronically the due date is 22 February 2014.)

 19 February 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2014.

 19 February 2014 – CIS tax deducted for the month ended 5 February 2014 is payable by today.

 1 March 2014 – Self Assessment tax for 2012/13 paid after this date will incur a 5% surcharge.

 1 March 2014 – Due date for Corporation Tax due for the year ended 31 May 2013.

 19 March 2014 – PAYE and NIC deductions due for month ended 5 March 2014. (If you pay your tax electronically the due date is 22 March 2014.)

 19 March 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2014.

 19 March 2014 – CIS tax deducted for the month ended 5 March 2014 is payable by today.

Make sure your record keeping is up to scratch

Monday, February 3rd, 2014

In a recent tax tribunal case a tax payer was denied Capital Gains Tax relief for the cost of improvements to a property as he could provide no evidence of his expenditure to the court.

The court came to the conclusion that the taxpayer had made improvements and were somewhat dismayed by his inability to provide evidence.

This is a timely reminder that it is not only trading businesses that need to keep documentary evidence. Property owners should also ensure that they keep records of property purchases and sales together with copy invoices or other evidence of expenditure to improve their property.

Electric bill that won’t cause tax problems

Monday, February 3rd, 2014

Employers that provide a company car and pay for the employees’ private fuel create tax, NIC and administrative issues for both parties.

  1. Employers will be liable for Class 1A National Insurance charges on the taxable benefit created by the provision of the car and payment of private fuel; unless the employee fully reimburses the private fuel costs, and
  2. Employees will suffer a benefit in kind charge for the use of the car and the private fuel provided. The car fuel charge can be reduced, or eliminated, if the private fuel costs are reimbursed.

But what happens if the fuel provided by the employer for private use is electricity?

Electricity does not count as fuel for this purpose. So, for example, where an employer enables an employee to recharge his car at work, or at home, and the employer pays the bill, there is no taxable benefit even if the car is available for private use. 

Best to be informed

Monday, February 3rd, 2014

If you are self-employed, as a sole trader or in partnership, and if we assume that your business year end is 31 March, then the profits you earn in the year to 31 March 2014 will form the basis of your tax payments on account for the tax year 2014-15 (unless the year to 31 March 2014 was your final year of trading).

Problems may arise if profits, year on year, fluctuate significantly; either up or down.

Your tax payments as a self-employed person consist of two payments on account and a final settlement on the 31 January following the end of the relevant tax year. For example you will make equal payments on account for the tax year 2013-14 in January and in July 2014. If this is insufficient to cover the total tax and Class 4 NIC due then you will have a top up payment to make in 31 January 2015.

Payments on account are initially based on your Self Assessment liability for the previous tax year – in the above example, the January and July 2014 payments will be based on your actual taxes due for 2012-13.

If your trading profits have not increased or reduced significantly, the payments on account will usually cover tax due and there will be perhaps a small difference, under or overpaid, that will need to be sorted out in the following January.

However, if your profits have significantly increased or reduced, then cash flow considerations need to be taken into account.

If your profits for the year to 31 March 2014 are likely to be higher than the previous year:

In this case any payments on account you make January and July 2014 are unlikely to cover taxes due for 2013-14 and a balancing payment will arise on 31 January 2015.

If your profits for the year to 31 March 2014 are likely to be lower than the previous year:

In this case any payments on account you make in January and in July 2014 are likely to be more than you need to make to cover taxes due for 2013-14 and a balancing overpayment will arise on 31 January 2015. This can be addressed by making an election to reduce the payments on account to a more appropriate amount.

If either of these scenarios is likely to apply to your self-employed business profits, we advise you to have your accounts drawn up as soon as possible after your year end. The tax advantages can be summarised as:

  • If your profits have been increasing, you will have the maximum period to create a cash reserve to cover any shortfall in taxes due on 31 January 2015.
  • If your profits have been reducing, you can make an election to reduce the second payment on account for 2013-14, due on 31 July 2014.