Archive for July, 2014

Inheritance Tax

Thursday, July 31st, 2014

Inheritance Tax (IHT) is due when a person’s estate (their property and possessions) is worth more than £325,000 when they die. This is called the ‘IHT threshold’.

The current rate of IHT is 40% on anything above the threshold. The rate may be reduced to 36% if more than 10% of the estate is left to charity.

Who pays Inheritance Tax

Usually the executor or personal representative for the person who has died pays IHT using the funds from the estate.

Trustees are responsible for paying IHT on trusts, which are a way of looking after assets (money, investments, land or buildings) for people. A trustee is a person who looks after the trust.

If you’ve got an inheritance or a gift from someone who has died you only owe IHT if their estate is more than £325,000 and either:

  • it says in the will that you should pay Inheritance Tax
  • the deceased’s estate can’t pay it

There are certain reliefs from IHT. These include estates that include certain business assets or agricultural property.

 

It is also possible to reduce any IHT due on death by reorganising your estate while you are alive. This can be done with the use of trusts or by gifting assets. As you can imagine there are complicated rules that set out how these strategies can be used. Additionally, any assets left to your spouse or civil partner (providing they are UK domiciled) are exempt from IHT.

Trade marks

Tuesday, July 29th, 2014

Ever wondered how you can register a trade mark that makes your brand recognisable, for example a logo or a sound?

Registering a trade mark lets you stop other people from using it without your permission. A trade mark registration lasts 10 years and is only valid in the country of registration. You can renew it every 10 years. Company names and domain names aren’t automatically trade marks. Company names are registered with Companies House (so no-one else can register a company with the same name at the same registry). Domain names for internet use are registered with a domain registrar and are similarly protected.

If you want to protect your brand name or image you will have to go through a different registration process.

Register a trade mark in the UK

  1. Firstly, you will need to check that your brand qualifies as a trade mark – you can’t change it after you’ve submitted an application.
  2. Find out if an identical or similar trade mark already exists – it’s your responsibility to do a thorough search.
  3. If a similar mark does not exist you can proceed to register your trade mark.
  4. The Intellectual Property Office (IPO) checks your application.
  5. The IPO makes your application public to give other people the chance to oppose it.
  6. The IPO accepts or refuses your trade mark application – they’ll send you a certificate if they accept it.

If you are establishing a recognisable brand image the last thing you want is a competitor to capitalise on your hard work by plagiarising your trade mark. The best way to protect your investment is to register your trade mark. The IPO website explains how this can be done or you can employ a registration firm to do the form filling for you. http://www.ipo.gov.uk/types/tm/t-applying/t-apply.htm

National Minimum Wage (NMW) rates and penalties

Thursday, July 24th, 2014

Last week we published details of who is, and who is not, entitled to payment at National Minimum Wage rates. This week we have listed the current rates of NMW that apply.

There are currently three aged based national minimum wage rates and an apprentice rate, which are usually updated in October each year. The rates that apply from 1 October 2013 are as follows:

  • for workers aged 21 years or more: £6.31 per hour
  • for workers aged 18 to 20 inclusive: £5.03 per hour
  • for workers aged under 18 (but above compulsory school age): £3.72 per hour
  • for apprentices aged under 19: £2.68 per hour
  • for apprentices aged 19 and over, but in the first year of their apprenticeship: £2.68 per hour

Apprentices aged 19 or over who have completed one year of their apprenticeship are entitled to receive the national minimum wage rate applicable to their age.

Note for employers:

 

Don’t forget that it’s a criminal offence not to pay someone the National Minimum Wage or to falsify payment records. Employers who discover they’ve paid a worker below the minimum wage must pay any arrears immediately.

 

HMRC officers have the right to carry out checks at any time and ask to see payment records. They can also investigate employers, following a worker’s complaint to them. If HMRC finds that an employer hasn’t been paying the correct rates, any arrears have to be paid back immediately. There will also be a penalty and offenders might be named by the government.

It’s the employer’s responsibility to keep records proving that they are paying the minimum wage – most employers use their payroll records as proof. All records have to be kept for 3 years.

Exporters data to be released by Government

Tuesday, July 22nd, 2014

 UK businesses should be aware that the Government are consulting on the possible release of data held by public departments, particularly, HMRC. We have reproduced extracts from a recent press release that sets out the scope of the present consultation.

 

“The data held by the public sector is among the most useful and valuable anywhere. This is why the UK Government is at the forefront in making a step change in the availability of data held by the public sector, with the potential to deliver significant public benefits.

 

… some of the customs data that HMRC holds has the potential to be used in ways which could generate real public benefits if made more widely available, without compromising the core principle of taxpayer confidentiality. In particular, the ability for HMRC to share and publish certain export data would enable HMRC to more effectively support and contribute to public and private sector initiatives to help UK exporters compete and prosper in the global market place.

 

This consultation proposes the release by HMRC of a limited set of exporter data alongside similar data that HMRC already makes available in respect of importers. Release of some exporter data would provide a number of potential benefits such as:

  • greater visibility of UK exporters to new customers in the global market place;
  • assisting developers to create exporter registers and online shop fronts to advertise and showcase UK exporters and their products;
  • enabling those who provide export services to more easily identify their customers;
  • helping importers to locate alternative UK suppliers.

 

There are likely to be further positive uses which emerge only once the data is available.”

A new look to benefits in kind regime?

Tuesday, July 15th, 2014

HMRC are currently consulting with interested parties (the accounting profession and associated professional organisations) to re-vamp the UK’s system for taxing employee benefit in kind and expenses. Changes are planned to simplify this process in accordance with recommendations made by the Office of Tax Simplification.

Consultations commenced 18 June 2014 and due to be completed 9 September 2014.

The four areas of consultation are:

  • The abolition of the £8,500 threshold. The government believes that this threshold adds unnecessary complexity to the tax system and is consulting on who would be affected and how to mitigate the effects of abolition on vulnerable groups of employees.
  • Introducing a statutory exemption for trivial benefits in kind. The government believes that a clear and simple statutory exemption will make administering such benefits substantially easier for employers. The government will therefore consult on the design of such an exemption.
  • Replacing the current system of dispensations for reporting non-taxable expenses with an exemption for expenses paid or reimbursed by employers. The government believes that an exemption would be simpler, more transparent, consistent and easier to use for employers than the current system. This consultation will cover the design features of such an exemption and its administration.
  • Introducing a system of voluntary payrolling for benefits in kind. The government believes that payrolling benefits in kind instead of submitting forms P11D can offer substantial administrative savings for some employers and wishes to create a system that will enable employers to do so if they wish. The government will consult on the design and scope of a payrolling model and is also interested to hear from employers who are already payrolling benefits on an informal basis.

Exchequer Secretary to the Treasury, David Gauke, said:

“Following the valuable work the Office of Tax Simplification has carried out in reviewing employee benefits and expenses, the government is now consulting on changes that will deliver real improvements for businesses and individual and their experience of the tax system.

“We want to make sure we get the structure and detail absolutely right and each consultation will allow us to engage with and learn from those who will be directly affected.”

Tax free capital gains – private residence relief

Thursday, July 10th, 2014

If you dispose of a dwelling house (which can include a house, flat, houseboat or fixed caravan) which is your home, or part of a dwelling house which is your home, or• part of the garden attached to your home , you would normally have to pay Capital Gains Tax (CGT) on any gain you make.

However, you will be entitled to full relief from any capital gains tax liability where all the following conditions are met:

  • the dwelling house has been your only or main residence throughout your period of ownership, and
  • you have not been absent, other than for an allowed period of absence or because you have been living in job-related accommodation, during your period of ownership
  • the garden or grounds including the buildings on them are not greater than a specified area, and
  • no part of your home has been used exclusively for business purposes during your period of ownership.

If you meet all of these conditions, you will not have to pay CGT on the disposal.

Consideration of the tax position if you own more than one property which you have occupied in a tax year, or if the above conditions are only partly met, will need to be considered in some detail.

Relief for the disposal of a private residence can also be complicated when owners marry, divorce or permanently separate.

A new range of apprenticeships under the Trailblazer scheme.

Wednesday, July 9th, 2014

Skills and Enterprise Minister Matthew Hancock announced a new range of apprenticeships that will be developed by employers under the Trailblazer scheme on 27 June 2014. He also called for expressions of interest from groups of employers to become part of the third phase of Trailblazers.

The Apprenticeship Trailblazers, launched in October 2013, have gone from strength to strength. The first phase of Trailblazer sectors includes energy & utilities, digital industries, financial services, life sciences and industrial sciences. Businesses from each sector worked together and produced new concise employer-led standards for key apprenticeship roles in their industry. These were launched in March 2014 and the first apprenticeships under the new standards will be delivered in 2014/15.

Building on their success, the businesses involved will now work on standards for more occupations that they see as crucial to developing their workforce and that will provide new opportunities for young people. The new range of occupations includes:

  • workplace pensions
  • aerospace machinist
  • IT practitioner
  • laboratory and healthcare science
  • investment operations

Skills and Enterprise Minister Matthew Hancock said:

The apprenticeship Trailblazers have already made great strides in developing a simpler and more rigorous system which works for employers and apprentices. Their commitment to develop more apprenticeship standards demonstrates the support our reforms have from employers.

Equipping all young people with the skills they need to begin prosperous and productive careers is a vital part of our long-term economic plan. Apprenticeships give young people the chance to fulfil their potential while helping to drive business growth.

We want to give more employers in more sectors the chance to lead the development of apprenticeship standards for their industries. That is why we will launch a third phase of Trailblazers later this year and I would encourage groups of employers to step forward and take this opportunity.

Please call if you would like to discuss the possibility of developing an apprenticeship scheme for your business.

Prepare for auto enrolment

Monday, July 7th, 2014

The law on workplace pensions has changed to make it easier for people to save for their retirement. Automatic – or auto – enrolment means every employer must enrol eligible staff into a qualifying pension scheme.

Both you and the employee contribute to the pension, as does the government in the form of tax relief.

Find out your staging date

Your start date, known as a staging date, will depend on the number of employees in your PAYE scheme on 1 April 2012. You can find out your exact staging date on the Pensions Regulator website using your PAYE reference but the table below gives an outline:

Number of employees in largest PAYE scheme Staging date
250+ 1 October 2012 – 1 February 2014
50-249 1 April 2014 – 1 April 2015
Fewer than 50 1 June 2015 – 1 April 2017
New employers set up after 1 April 2012 1 May 2017 – 1 February 2018

Create an action plan

The Pensions Regulator website has a chart that sets out each step and the appropriate time schedule for each step and staging date. You’ll have to nominate a contact on the website, who will receive monthly reminder emails and guidance from the Pensions Regulator.

Identify eligible staff

Although your staging date is based on the size of your PAYE scheme, not all your employees will necessarily qualify for auto enrolment.  You have to automatically enrol all staff who:

  • are between 22 and state pension age;
  • work or ordinarily work in the UK; and
  • earn more than £10,000 (2014/15).

Part-time workers, employees on short-term contracts and those on maternity, parental or carer’s leave will have to be automatically enrolled if they meet the above requirements.

Some staff who do not meet this criteria are eligible to opt in to an auto enrolment pension scheme if they wish. These include staff who:

  • are between 16 and 74;
  • work or ordinarily work in the UK; and
  • earn above £5,772 but not more than £10,000 (for the 2014/15 tax year).

Or those who:

  • are between 16 and 21, or state pension age and 74;
  • work or ordinarily work in the UK; and
  • earn above £10,000 (for the 2014/15 tax year).

If employees who fit these requirements ask to join your auto enrolment pension scheme, you must enrol them.

In addition, certain other staff can ask to join a pension scheme. If they ask, you must put them in a scheme. However, the rules are not the same as auto enrolment and you don’t have to pay an employer contribution.

Annual earnings (2014/15)

Age

 

16 – 21

22 – state pension age

State pension age – 74

Less than £5,772

Has a right to join a pension scheme

(referred to as ‘entitled worker’)

£5,772 – £10,000

Has a right to opt in

(referred to as a ‘non-eligible jobholder’)

Over £10,000

Has a right to opt in

Automatically enrol

(referred to as an eligible jobholder)

Has a right to opt in

 

Choose a pension scheme

Once you know which employees are eligible, you can choose a pension scheme suitable for auto enrolment.

You may be able to use an existing defined contribution pension scheme if it satisfies the Pensions Regulator’s auto enrolment criteria.

There are 3 sets of requirements that a pension scheme must meet:

  • minimum requirements
  • qualifying criteria
  • automatic enrolment criteria.

Minimum requirements

Minimum requirements vary according to pension type. Minimum requirements for defined contribution occupational pension schemes are based on contribution rates.

Qualifying criteria

Schemes must:

  • be an occupational or personal pension scheme;
  • be tax registered; and
  • meet minimum requirements.

Automatic enrolment criteria

In addition to meeting minimum requirements and qualifying criteria, schemes must not:

  • prevent you from making arrangements to automatically enrol, opt in or re-enrol staff; or
  • require staff to express a choice or to provide information to remain in the pension scheme.

There are additional criteria concerning consultancy charges for money purchase schemes. 

You can use a non-UK scheme based within the European Economic Area but there are additional requirements for these schemes, so it is important to seek professional advice.

Enrol staff

Once you have assessed who is eligible and chosen a pension scheme, you will need to give your pension provider information about eligible employees. This includes basic personal information, national insurance number and auto enrolment date. You will also need to give enrolment information to eligible employees.

It is important to keep records of this process to demonstrate that you are complying with your auto enrolment duties. You’re still legally responsible for ensuring records are kept even if you outsource your pension administration to a third party.

Level of contributions

Auto enrolment requires employers to make a minimum contribution, which is usually a percentage of an employee’s qualifying earnings (earnings between £5,772 and £41,865 for the 2014/15 tax year).

Date Employer minimum contribution Minimum total contribution
Employer’s staging date to 30 September 2017 1% 2%
1 October 2017 – 30 September 2018 2% 5%
1 October 2018 onwards 3% 8%

Register with the Pensions Regulator

You must register your scheme online with the Pensions Regulator within 5 months of your staging date. You will have to provide details of your pension scheme, including the number of people enrolled.

Inform employees

The next step is to write to all employees to tell them how they will be affected by auto enrolment. This includes:

  • when enrolment starts
  • the pension operator
  • the type of pension
  • the level of contributions from employer and employee
  • how to opt out.

You will also need to provide this written information to employees who start after your staging date and any employees who become eligible for auto enrolment. 

Opting out

Employees can choose to opt out of your pension scheme after they have been enrolled. Usually, employees who want to opt out complete a form from the pension scheme provider and give it to you.

You will need to refund contributions of staff who opt out within 1 month of enrolment.

You will have to re-enrol any employees who have previously opted out every 3 years (assuming they still qualify for auto enrolment).

Monitor changes in employee status

You will need a process to monitor when employees move categories as they may become eligible for auto enrolment. This is particularly important when:

  • employees reach the age of 22
  • employees who earn less than £5,772 or less than £10,000 change salary.

     

    Getting auto enrolment right is vital. Seeking expert advice can help, so please contact us to discuss auto enrolment and your specific business needs.

Is my State Pension taxable or not?

Friday, July 4th, 2014

The State Pension is part of a pensioner’s taxable income. The problem is, it is paid gross, without deduction of tax.

If your sole source of income is the State Pension then this should cause no problem as the State Pension is usually below the annual tax-free personal allowance. What can, and does, cause a problem is if you have other sources of income that combined with your State Pension exceed your personal tax-free allowance.

The assumption most pensioners make is that they can spend their State Pension. Unfortunately, this can lead to cash flow problems if a tax bill drops through your door. This should only happen if you have other income sources and any tax stopped on those additional income streams is insufficient to cover your total tax liabilities: based on all your income including State Pension receipts.

If you have additional income and receive a State Pension, it is necessary to crunch the numbers and see if you should be saving to meet a future tax bill. Readers concerned about their position should talk to the tax office or their professional tax advisor.

Reduce your company tax liability

Thursday, July 3rd, 2014

Don’t let tax be a problem this year. Stay ahead of developments and make sure you take advantage of ways to legitimately reduce your company’s liability to tax. Here are some of the allowances and planning tips directors and company owners should know about this year.

Research and development

The research and development (R&D) rules offer tax opportunities for SMEs. R&D expenditure carries a substantial 225% deduction against profits for SMEs. The rate of relief is 130% for large companies.

An additional tax credit system allows non-profit making companies to relieve the R&D expenditure or the trading loss – whichever is the lower – in exchange for a cash sum. There is a great deal of flexibility regarding what can be claimed for. Ask for our advice if you are incurring R&D costs.

Pension contributions

Pension contributions offer tax savings, including reducing national insurance contributions (NICs) for both the employee and the employer. Some employees and employers agree to a ‘salary sacrifice’, whereby a portion of salary is exchanged for a pension contribution by the employer. However, where the employer and employee’s annual contributions exceed £40,000, the employee may be subject to an annual allowance tax charge. An individual may carry forward any of the annual allowance that they have not used in the previous 3 years.

Entrepreneurs’ relief

Entrepreneurs’ relief can result in only a 10% tax rate on the first £10 million of qualifying business asset disposals, giving rise to a maximum reduction of £1,800,000. This is a lifetime allowance that reduces the gain for owners of limited companies on the disposal of shares and securities in a trading company. Conditions apply so please ask for further advice.

Cars

The tax treatment of cars in a company is complex due to recent changes that have affected both the capital allowances that the company can claim on the purchase of a car and the benefit in kind that employees will pay tax on (and the company will pay NICS on). The changes were designed in part to encourage both companies and employees to choose more fuel-efficient vehicles, by linking both taxes to the official emissions rating of the car. Choosing a fuel-efficient car can benefit both the employee and the business, with the lowest emission cars attracting 100% tax relief on purchase and carrying a benefit in kind as low as 0%.

‘Green’ capital allowances

It’s not only some cars that are eligible for 100% first year capital allowances. Any investment in approved environmentally friendly or energy saving equipment also qualifies.

Capital allowances

Getting the maximum in capital allowances for your business is an important part of minimising the net cost of the entrepreneur’s investment. The Annual Investment Allowance is 100% for the first £500,000 of expenditure on most types of plant and machinery from 1 April 2014 to 31 December 2015 – up from £250,000 between 1 January 2013 and 31 March 2014. The writing down allowance on unrelieved expenditure brought forward or in excess of this limit is 18%. A rate of only 8% is available for expenditure on ‘integral features’.

Extracting profit: dividend or salary?

Consider how much you might save if, as an owner-director, you wanted to extract the £10,000 profit your company makes in 2014/15 by way of a dividend rather than a bonus. We assume that you are paying higher rate tax at 40%, so your earnings exceed the so called ‘upper limit’ for NICs. There are many matters to be considered when deciding whether directors should be paid by dividend or salary and bonus.

Bonus or Dividend?    
  Bonus £ Dividend £
Profit to extract 10,000 10,000
Employers’ NIC -1,213 0
Gross bonus 8,787 0
Corporation tax @ 20%   2,000
Dividend   8,000
Employee’s NIC -176 0
Income tax @ 40% -3,515 0
Additional tax 0 -2,000
Net amount extracted £5,096 £6,000

 

In this case declaring a dividend increases the net by £904, or by more than 15%. For a 45% tax payer the saving is marginally lower at approximately £900.

In practice, a combination of each is usually appropriate. Remember that dividends are usually payable to all shareholders. If you have outside shareholders who are not involved in the day to day running of the company, you will need to consider your dividend strategy carefully. Although it is possible for shareholders to waive their entitlement to dividends, this can result in tax complications.

A better option may be to have different classes of shares, on which different rates of dividend can be paid. However, if this technique is used as part of a scheme to avoid tax or NICs for employees, it may not be effective and could even result in a higher tax liability. Finally, you may need to consider the effect that regular payment of dividends will have on the valuation of shares in your company.

As you can see in the case study, the net amount withdrawn is increased by more than 15% by opting to declare a dividend. But be sure to discuss this with us before you act as this is a very complex area of tax law.

We can help you:

  • Manage debt and cash flow
  • Plan to take account of future changes in the rate of corporation tax
  • Plan your business start-up
  • Find finance options
  • Comply with government regulations and avoid fines, surcharges, penalties and interest
  • Time capital and revenue expenditure to maximise the tax advantage
  • Improve your invoicing and debt recovery systems
  • Involve family members in the business
  • Develop a plan for tax-efficient profit extraction
  • Improve profitability
  • Sell your business or prepare your business for sale
  • Value your business
  • Minimise employer and employee NIC costs
  • Minimise tax costs, enabling you to keep more of the profit you earn
  • Identify and value unpaid bills and unbilled work at the year-end
  • Prepare yourself and your business for your exit, succession or retirement.

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