INSIDER FEBRUARY. Digital tax accounts to replace annual tax return. Early pension exit fees capped. Accessing digital accounts

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Isabella Bryan
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1 For more information and full details of our office network please visit the website or alternatively contact us INSIDER FEBRUARY 2016 Digital tax accounts to replace annual tax return HMRC has launched a digital accounts system for businesses and individual taxpayers. The new system will allow people to see their tax details and make payments at any time during the year. HMRC plans that by 2020, most taxpayers including individuals, businesses and landlords will track and submit information to HMRC digitally every quarter. Uncertainty over quarterly system The Low Incomes Tax Reform Group (LITRG) has expressed concern that non-digital literate businesses may face charges from HMRC due to the introduction of the new quarterly system. These people could become accidentally noncompliant and face penalties. Older taxpayers, people with disabilities and those living in remote areas are most at risk from failing to comply with the new system. Anthony Thomas, LITRG chairman, said: It is very harsh that small businesses with the lowest profit margins may be required to undertake significant investment and training in computer technology simply in order to comply with HMRC s reporting requirements, and for no other purpose. Accessing digital accounts Taxpayers can access their digital accounts at any time during the year. Once you have logged in online you can do the following: view and update your personal details calculate your PAYE income tax and estimate how much tax you owe see tax effects on changes in estimated pay inform HMRC of any changes and benefits access forms such as national insurance, pensions and benefits find out about marriage allowance entitlement and making claims online. We can advise you on managing your account. Early pension exit fees capped The Financial Conduct Authority (FCA) will be given the power to cap excessive early exit fees on pension pots. The new FCA responsibility will be introduced through legislation and the government will be publishing a formal response. The proposals will see the FCA being independently responsible for determining what the level of the cap on early exit fees will be. The FCA is due to launch a consultation on what this should be.

Around 700,000 (16%) customers in contract-based schemes could face some form of early exit charge for accessing their pot.

So far, 400,000 pension pots have been accessed under the new pension freedoms.

2 Around 700,000 (16%) customers in contract-based schemes could face some form of early exit charge for accessing their pot. Furthermore, a significant minority were potentially looking at charges high enough that could effectively put them off accessing their pension flexibly. So far, 400,000 pension pots have been accessed under the new pension freedoms. Further FCA investigation found that of the 670,000 consumers aged 55 or over that have faced an early exit charge: 358,000 were charged between 0-2% 165,000 were charged 2-5% 81,000 were charged 5-10% 66,000 were charged 10% and over. The chancellor George Osborne, said the government was not prepared to stand by and see people either ripped off or blocked from accessing their own money : We re determined that people who ve done the right thing and saved responsibly are able to access to their pensions fairly. The Association of British Insurers has responded to the announcements by emphasising that 80% of customers do not currently face the possibility of early exit charges: Where they do, most fees are below 5% and were put in place decades before the freedom and choice reforms were introduced. Contact our team about your pension today. Lack of flexible working hampers employers Employers may be missing out on the best skilled workers by not offering flexible working. A report by the Joseph Rowntree Foundation argues that the current lack of quality part-time and flexible jobs is holding back the labour market by: cutting businesses off from a proportion of skilled workers ensuring some employees get stuck in inflexible jobs and end up trading down to get the flexibility they need. The report highlights a gap between the now relatively common flexible working and flexible hiring, which is still comparatively rare. The foundation carried out surveys with workers and looked at current vacancies. While 6.2% of quality vacancies advertise the ability to work flexibly, 47% of surveyed workers want to be able to do so. It is estimated that the number of flexible positions would have to increase eight-fold to meet the demand. This would primarily affect parents, older workers and people with disabilities. Introducing flexible working By offering more flexible jobs, businesses could not only have a positive impact on individual people s earnings, career progression and job mobility, but it would also allow them to get the best workers for each vacancy. Any employee who has been working for the same employer for more than 26 weeks has the right to request flexible working arrangements. This is known as making a statutory application. If you want to introduce flexible working, you first need to decide what kind of flexibility you want: flexible location people can work at the office, at home or other locations flexible time people can move their contracted hours around to suit their schedules flexible contract could include the above as well as outsourcing, use of agency labour or temporary and fixed contracts. You may want to opt for all of these options. There are 3 main types of flexible hours arrangements that employers can utilise: part-time employees work less than a full 9 to 5 working week flexitime employees can come in earlier/later each day as long as they complete their contracted hours at the end of each week overtime workers can work extra hours that then translate to time off in lieu. Talk to us about setting up flexible working.

ACTIVE PRACTICE UPDATES FEBRUARY 2016 Minimising corporation tax A look at the strategies available to companies that are looking to minimise their corporation tax bill.

3 ACTIVE PRACTICE UPDATES FEBRUARY 2016 Minimising corporation tax A look at the strategies available to companies that are looking to minimise their corporation tax bill. The UK has one of the lowest rates of corporation tax in the developed world. Additionally the infrastructure of corporation tax reliefs available to any company or organisation based in the UK is one of the more straightforward to navigate. Tax rates The rates for corporation tax on any company s proi ts prior to April depends on the amount of proi t achieved by a company. The small proits rate applicable on proi ts of less than 300,000 per annum is 20%. This tax rate is applicable to proi ts earned from 1 April 2012, 1 April 2013 and 1 April The main proit tax rate levied on proi ts above 300,000 per annum differs according to the year in which the proi ts were achieved. The rate from 1 April 2012 is 24%, from 1 April 2013 is 23% and from 1 April 2014 is 21%. The corporation tax rate from 1 April 2015 is a l at rate of 20%. This rate is applicable to main and small proi ts. Tax threshold reductions The small and main tax rates are based on a full year. The tax thresholds are reduced in line with the length of a company s accounting period. For example - if a company s accounting period is for 6 months rather than 12 months the proi t threshold is reduced by 50% to 150,000. Shared tax thresholds Associated companies where one company may own and control others will share the appropriate tax thresholds. If one company owns 3 other companies then the tax threshold of 300,000 will be divided by 4, equalling a small proi t threshold of 75,000 for each company. More than one tax rate in a single accounting period If a company s accounting period straddles 2 different tax years then it will have to pay the different tax rates for those years. For example, if a company s accounting year commenced on 1 March 2014 and i nished on 28 February 2015 the company would pay the tax rate applicable for the corporation tax year starting 1 April 2013 for 31 days and the rate applicable for the corporation tax year starting 1 April 2014 for 334 days. Get in touch to i nd out more about corporation tax. Reliefs and allowances A company may deduct the cost of running the business from its proi ts before tax when its accountants are preparing the end of year accounts. However, anything the company owner or employees gain any personal benei t from has to be treated as a benei t. Employee benei ts can include: company cars health insurance childcare. Some expenses may not be set against company proi ts pertaining to corporation tax. Examples of this are non-work related travel costs and the majority of entertainment expenses, For more information and full details of our office network please visit the website or alternatively contact us

4 Minimising corporation tax which must be added back to company proits when a company tax return is prepared. Capital allowances Any company can claim back capital allowances if it purchases things that will be utilised by the business or its employees. These assets include: business vehicles such as cars, vans or lorries equipment machinery. These assets are referred to as plant and machinery. A company may deduct some or all of the value of these assets. Capital allowances cannot be claimed on: leased assets buildings including ixtures, ittings and utilities systems land and structures items only used for business entertainment. The company must initially work out the value of the assets, which is usually based on what the company paid for the item. However, if the item was a gift or was owned by the company owner before it was used by the business then the value is what it could be reasonably expected to sell for on the open market. Other business costs A company may claim for the cost of items which are not business assets using a different method. This will include: a company s day-to-day running costs items that a company trades in inance costs and interest costs for purchasing assets. These costs can be claimed as business expenses if the company is run by a sole trader or is a partnership. These costs must be deducted from a company s proits if the company is a limited company. Other capital allowances In addition to plant and machinery, a company can also claim capital allowances for the following: renovating business property in disadvantaged areas of the UK (This allowance will end on 1 April 2017 for corporation tax) extracting minerals dredging research and development patents intellectual property. We can help you with allowances and deductions. Maintaining corporation tax records It is vitally important to maintain accurate records in order to calculate any corporation tax payable. These records should include all receipts, expenses, and all sales and purchases of goods by the company. Records of all company assets and liabilities should be kept up to date at all times. If a company is engaged in the sale of goods then stock records should also be kept. Business and personal expenditure records must be kept separate at all times. Corporation tax records must be retained for 6 years after the tax year for which they were prepared. Corporation tax returns All corporation tax returns must be iled online along with a company s tax calculation and inancial accounts. If a company needs to adjust the return, this can be done up to 12 months after the corporation tax iling deadline. HMRC must be informed if any errors are discovered after this. Reducing corporation tax There is a long list of allowances that are potentially available, so it is worth taking a long and considered look at them to see how many, if any, are applicable to the business. A company can claim deductions on share options and awards; relief is available on employee share options. The deduction is available for an amount equal to the market value of the shares and how much employees paid for them. Pension contributions are tax deductible when they are paid. Thus it is advisable to pay into pension schemes prior to the end of a company s inancial year in order to maximise the deductions and accelerate the tax relief. Checking and ensuring that a company is paying the correct amount of tax is essential. Large companies usually have to pay their corporation tax in instalments based on forecast proits. If a company regularly and accurately forecasts its proits these instalments can be reduced and tax payments will reduce accordingly. There is also potential scope for companies to claim back instalment over-payments. Losses can also be offset against corporation tax. A company whose accounts show a loss one year can secure a tax refund by carrying back losses to the previous year or by carrying losses forward against subsequent proits until the loss is distinguished. If a company pays its corporation tax bill early then HMRC will return some of the amount in the form of interest. There is no great secret to reducing corporation tax. If a company s accountants practice due diligence at all times corporation tax will be paid at the lowest amount possible. Contact us to talk about business taxation today.

ACTIVE PRACTICE UPDATES FEBRUARY 2016 Travel and subsistence The system of employee beneits and taxes for those who travel for the purposes of work is undergoing change.

5 ACTIVE PRACTICE UPDATES FEBRUARY 2016 Travel and subsistence The system of employee beneits and taxes for those who travel for the purposes of work is undergoing change. Every day the roads and railways of this country are illed with employees travelling as part of their jobs, and incurring a host of costs and expenses along the way. The system of beneits and taxation that has built up around this essential economic activity is grouped together under the name travel and subsistence. are season tickets bought for employees or reimbursed season ticket costs. Exemptions There are certain kinds of travel costs that are exempt and therefore do not need to be reported, such as: non-regular taxi journeys bicycle costs To save individual employees from bearing the costs that can come from bringing in new customers, servicing existing ones or attending events, courses and conferences, employers will often pay for them. This in turn will have implications for a company s tax, national insurance and reporting requirements. temporary taxi replacements for car-share schemes that are unavailable a work supplied bus service travel to work when public transport is disrupted by industrial action. The basics So the costs of daily journeys of a delivery service driver, a travelling salesperson or an electrician should be covered. When it comes to travel and subsistence not all costs are equal and not all will count as expenses for tax purposes. The 2 rules The current travel and subsistence system is based around 2 main rules. The irst rule is that relief should be given for travel that is an intrinsic part of a person s job so that the employee does not have to bear the cost. This rule can also be applied to regular travel between 2 different workplaces such as head and regional ofices. Travel expenses are those that involve providing travel or accommodation to workers or reimbursing them for these things at a later date. The second rule gives tax relief to necessary journeys to places that a person must attend as part of their job that is distinct from ordinary commuting. Ordinary commuting is a journey from home to a permanent workplace (a place they attend regularly). Subsistence expenses are those relating to meals as well as other costs such as parking charges. a place a person is expected to go to for less than 24 months (the 24 month rule ) they spend less than 40% of their time there. Public transport costs are also included if they This second rule is concerned with travel to temporary workplaces which can be deined as: Contact us today to talk about employee beneits. For more information and full details of our office network please visit the website or alternatively contact us

6 Travel and subsistence A changing framework The travel and subsistence framework remained largely unchanged since 1998 until the Ofice for Tax Simpliication (OTS) began to examine it closely in the early part of this decade. The OTS concluded that while the system was reasonably well understood, there were a number of important issues: the deinitions permanent and temporary workplaces are unclear currently, the 24 month rule is based on an employee s intention rather than the amount of time they actually spend in a workplace what makes a journey of the same length substantively different from an ordinary commute? how does homeworking it into the equation? Moving forward, the OTS has identiied a number of principles that should be driving the travel and subsistence system forward: tests should be objective and based on measurable facts the terms permanent and temporary workplaces should be disregarded as much as possible relief should not be available where subsistence is essentially the same as private expense. What the new system ends up looking like remains to be seen, but for now the current rules must be adhered to. The government has already legislated to remove the 8,500 threshold below which employees do not pay income tax on certain kinds of beneits. The government also announced in Budget 2015 that travel and subsistence relief will be restricted for workers who are employed by an umbrella company or a personal service company (and under the supervision, direction and control of the end user). This restriction will come into force in April Talk to us about travel and subsistence today. Reporting Until the new framework is fully in place, the current reporting and paying system has to be adhered to. And, if you or your employees take advantage of travel and subsistence beneits, you will need to deduct or pay national insurance. Business travel If you want to apply for a dispensation which will mean that you do not have to include your business travel expenses in your end of year reports, you can do so at any time. The dispensation will usually start on the issue date and can be backdated to the beginning of the current tax year. Travel and subsistence expenses should be reported using a P9D if the employee in question earns at a rate of less than 8,500 a year and P11D for those that earn over that amount and directors. It is important to note that any reimbursement to employees over the necessary cost of travel is counted as earnings and must be treated as such. Private travel For travel that is classed as non-business, private travel (which includes a person s commute to and from work), different rules apply. If the travel is arranged by the company on behalf of its workers, it is reported largely the same as business travel. If the employee arranges the travel and is later reimbursed for it, the money is counted as earnings and added to the rest of their earnings and PAYE and national insurance deducted. Public transport If the public transport costs are not exempt, they should be reported based on individual employee earnings in the same way as business travel. The cost of season tickets, whether the business or the employee is paying the upfront cost, is treated as employee earnings and should be put through the payroll system. The travel and subsistence framework is an important way to make sure that businesses and employees are not burdened with the costs of traveling to do business, but it is also a framework that is undergoing change. We can help you keep up to date with the changes. Contact us to talk about benefits in kind.

EMPLOYMENT BENEFITS.

EMPLOYMENT BENEFITS. EMPLOYMENT BENEFITS Employment Benefits Today the remuneration of many directors and employees comprises a package of salary and benefits. Essentially two tests must be applied in determining the tax implications