Unwrapping Christmas tax gifts

Christmas is a time for giving, but many businesses may not be aware that their gifts can be made in a tax-efficient manner, which could make raising festive spirits that little bit cheaper.

While Christmas parties may not be for everyone, HM Revenue & Customs (HMRC) does provide an allowable tax deduction of up to £150 per head per year for events.

This means companies could hold one big Christmas blow out or spread their allowance over the year to improve staff engagement.

Of course, there are restrictions to this allowance. Under the rules, you must invite all employees to the event for it to qualify for the exemption and the cost per head must include VAT and take into consideration the cost of the entire event, including food, drinks and a venue.

If you are feeling generous this year, you could also give gifts to your employees at Christmas or any other special occasions. Thanks to the relief on offer, there will be no taxable employment benefit, providing the gift is trivial, such as a box of chocolates or a bottle of bubbly. However, the costs must not exceed £50 and must not be in the form of cash or a cash voucher.

Finally, you can spread the Christmas cheer even further by providing gifts to your clients. As long as the gift is less than £50 and includes a “prominent” advertisement for your business, then you can receive a tax deduction.

Gifts of food, drink, tobacco or vouchers are unfortunately not allowable, but items such as stationary would fall within the rules.

House of Lords calls for a delay to Making Tax Digital

The House of Lords Economic Affairs Committee has criticised HM Revenue & Customs (HMRC) for its handling of Making Tax Digital (MTD) and called for a delay to some of the regime’s mandatory requirements.

The majority of VAT-registered businesses with taxable turnover above the VAT registration threshold of £85,000 will need to keep digital records and file their VAT returns using HMRC-compliant software or methods on a quarterly basis from April 2019.

However, having reviewed the requirements for MTD and its promotion by HMRC to businesses, the committee has recommended that the new rules for VAT should not be made mandatory next year and should instead allow businesses to ‘go digital’ at their own pace.

The Lords also recommended that the Government wait until April 2022 to apply MTD to other taxes to give HMRC time to learn lessons from the implementation of digital taxation on VAT.

Within its report, Making Tax Digital for VAT: Treating Small Businesses Fairly, the committee was also highly critical of HMRC’s public promotion of the new regime, which only began in any significant way several months ago.

Lord Forsyth of Drumlean, Chairman of the House of Lords’ Economic Affairs Committee that authored the report, said: “HMRC has neglected its responsibility to support small businesses with MTD for VAT.

“Small businesses will not be ready for this significant change to their practices, especially with Brexit taking place three days earlier,” he added.

The committee’s report has already gained the backing of a number of leading accountancy organisations, including the Institute of Chartered Accountants in England and Wales (ICAEW), the Chartered Institute of Taxation (CIOT) and the Association of Tax Technicians (ATT).

Link: Making Tax Digital for VAT: Treating Small Businesses Fairly

180,500 first-time buyers benefit from relief on Stamp Duty Land Tax (SDLT)

Figures released by HM Revenue & Customs (HMRC) have revealed that 180,500 first-time buyers have benefited from the Government’s changes to Stamp Duty Land Tax (SDLT).

HMRC estimates that first-time buyers have saved a total of more than £426 million since Chancellor Philip Hammond announced the First-Time Buyers’ Relief (FTBR) in November 2017.

At Budget 2018, the Chancellor announced an extension of the scheme to first-time buyers purchasing through approved shared ownership schemes that choose to pay SDLT in stages, rather than on the market value of the property. This relief is available retrospectively to eligible property transactions since November 2017.

Mel Stride MP, Financial Secretary to the Treasury, said: “These statistics show that the Government was right to offer a helping hand to first-time buyers. Without this investment, more than 180,500 new homeowners may have struggled in getting onto the property ladder. Maintaining the status quo was not an option.”

FTBR is becoming increasingly popular, with the relief claimed in 58,800 transactions between July and September 2018, representing a 12 per cent increase on the previous quarter.

Link: 180,500 new homeowners benefit from stamp duty tax relief

Public pilot of Making Tax Digital for VAT opens

HM Revenue & Customs (HMRC) has opened a public pilot of Making Tax Digital (MTD) for VAT.

The pilot is open to sole traders and companies that are up-to-date with VAT, who have not received a default surcharge in the last two years.

Some other groups will need to wait to join, including those:

  • trading with the EU;
  • based overseas;
  • submitting VAT returns annually;
  • making payments on account;
  • using the VAT Flat Rate Scheme; or
  • who have never submitted a VAT return in the past will need to wait to join.

HMRC has also announced that a small number of the most complex businesses will have a six-month deferral to October 2019 before they need to comply with the requirements of MTD for VAT.

MTD for VAT will require businesses with turnovers of £85,000 or more to keep digital records and make quarterly digital submissions to HMRC using ‘designated software packages’ from next April.

Link: MTD for VAT shifts to public pilot

Payee names to be required for bank transfers in effort to combat fraud and errors

From next year, payee names will be checked when making bank transfers in order to ensure that funds are being sent to the correct recipient.

Currently, only the sort code and account number are checked when making a transfer, something which has been exploited by fraudsters to trick people into transferring tens of thousands of pounds into the wrong account.

In cases where such fraud has occurred, banks have often been unable or unwilling to retrieve the funds or to accept any liability.

Under the plans unveiled recently by Pay.UK, the UK’s payment operator, the person making the payment will need to include a payee name alongside the sort code and account number from July 2019.

If the correct name is entered, the funds will be transferred. If a name that is similar to the correct name is entered, the correct name will be displayed for the account holder to check. If an entirely incorrect name is entered, the account holder will be referred back to their intended payee.

Paul Horlock, Chief Executive at Pay.UK said: “Sending a payment with an incorrect sort code or account number is like addressing a letter with the wrong postcode.

“Even if you have used the correct name, it won’t reach the intended destination – and fraudsters have become increasingly sophisticated in using this to trick people into sending money to the wrong account.

“Confirmation of Payee will let you check you have the correct name for the person or business you are paying, giving better protection against certain types of fraud, and helping to stop accidental mistakes too.”

In the first six months of this year, £145 million was stolen from account holders through scams relating to account numbers.

Link: Name checks to begin on bank payments

HM Revenue & Customs to review and rework some 2016-17 self-assessment tax returns following error

The Chartered Institute of Taxation (CIOT) has warned that HM Revenue & Customs (HMRC) is to review and potentially rework as many as 30,000 self-assessment tax returns that were filed online for 2016-17 owing to concerns that its tax calculator may have wrongly computed the tax liability.

The review will begin on 19 November 2018 and HMRC will provide a new SA302 calculation where that individual’s liability has changed. However, it will not provide a copy to that individual’s agent or accountant.

Anyone receiving a new SA302 should pass this to their agent or accountant to ensure they are paying the correct amount of tax.

R&D Tax Credit system to be reviewed in light of fraudulent claims

According to figures released in the Autumn Budget, HM Revenue & Customs (HMRC) has prevented around £300 million of fraudulent R&D tax credit claims since the relief was introduced.

In a bid to prevent further abuse of this tax relief, Philip Hammond has promised to clamp down on fraudulent claims by reintroducing a Pay As You Earn (PAYE) restriction for the small and medium-sized companies scheme.

This is part of a wider promise by Mr Hammond to clamp down on avoidance, evasion and unfair outcomes in the tax system, which the Treasury estimates will raise an additional £2 billion over the next five years.

Under the new rules, due to be enacted from 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and National Insurance Contributions liability for that year.

While this may upset some SMEs, the Chancellor did offer some alternative incentives to businesses, including a two-year increase in the Annual Investment Allowance from £200,000 to £1 million from January 2019 and a commitment to invest £1.6 billion in advanced technologies in the UK.

Link: Budget 2018

Research reveals Inheritance Tax hotspots across the UK

New research has revealed that the affluent area surrounding Guildford in Surrey has the highest proportion of people paying Inheritance Tax (IHT).

The study showed that 658 estates were subject to the tax the town in 2015/16, paying on average £231,000 each.

In comparison, Wigan in Greater Manchester saw just 31 estates liable for IHT during the same period.

After Guildford, families living in South West London were the next most likely to pay Inheritance Tax (IHT), primarily as a result of higher property prices.

While the largest average bills for estates came from affluent families living in West London, who on average were liable for an IHT bill of £390,000.

Jane Morgan, Business Manager at Direct Line Insurance, the company behind the research, said: “If you are concerned about the amount of tax that may be payable on your estate when the time comes, you could seek independent advice and investigate transferring money to beneficiaries early as a gift, or placing assets into trust to reduce your liabilities.”

Link: Inheritance Tax Hotspots

Entrepreneurs’ Relief rules to be tightened

Despite rumours that the Chancellor might scrap Entrepreneurs’ Relief (ER) all together in the Autumn Budget, Philip Hammond decided to retain the tax relief but has made fundamental changes to who qualifies for it.

Mr Hammond said that “encouraging entrepreneurs must be at the heart” of the Government’s strategy but he recognised the relief as it stood was open to abuse.

To ensure ‘genuine’ entrepreneurs continue to benefit from ER, the Government has announced an extension of the qualifying period from 12 months to two years from April 2019.

This will ensure that directors and shareholders of a business have owned the asset for at least two years before they benefit from the 10 per cent cut to Capital Gains Tax (CGT) enjoyed under ER.

However, a further sting in the tail revealed in the Budget documents, means that shareholders must now be entitled to five per cent of the net assets and distributable profits, as well as five per cent of the ordinary share capital, in order to qualify for the relief.

This differs from the previous rules, which specified that the shareholder only needed to hold five per cent of the ordinary share capital and is part of a wider campaign by the Government to reduce the abuse of the CGT regime.

The Government estimates that these changes will generate an additional £5 million in tax revenue from 2019/20 rising to £90 million by 2023/24.

Link: Budget 2018

National Living Wage to rise in April 2019

In his latest Budget speech to the Commons, Chancellor Philip Hammond announced that the National Living Wage and National Minimum Wage would increase from April next year.

However, despite many employees across the UK welcoming this sudden pay rise, small business owners across the UK are being left to pick up the bill.

From April 2019, employers will be required by law to pay their employees the following minimum wages:

Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice
Current rate £7.83 £7.38 £5.90 £4.20 £3.70
April 2019 £8.21 £7.70 £6.15 £4.35 £3.90

It is thought this increase in the UK’s statutory wage requirements will benefit around 2.4 million workers and means that the annual earnings of a full-time minimum wage worker will have increased by over £2,750 since the introduction of the National Living Wage in April 2016.

For businesses though the increase in the wage has not only affected their wage bill but has also led to an increase in their workplace pension contributions for staff.

With workplace pension contributions set to rise yet again in April 2019 to three per cent, this double whammy of costs is likely to affect their cashflow if they are unprepared.

The Government has said it will set out the Low Pay Commission’s goal for the years beyond 2020 next year, with a view to reviewing the potential impact on employment and economic growth of subsequent wage increases.

Link: National Minimum Wage and National Living Wage rates