Home » Articles posted by Steve Bicknell (Page 38)
Author Archives: Steve Bicknell
The tax advantages of Troncmasters
If your employees receive tips directly from your customers and are allowed to keep them, then you do not need to do anything for PAYE tax or NICs. There are no NICs due on the money, and the tax due is the employee’s responsibility. Your employees should declare the money to HMRC, who will usually adjust their tax code to collect any tax due.
A tronc is an arrangement for pooling and distributing tips and service charges and the person who operates the tronc is known as a troncmaster. If your employees use a tronc you must tell HMRC who the troncmaster is so that they can set up a PAYE scheme for the tronc.
http://www.hmrc.gov.uk/helpsheets/e24.pdf
Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:
• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.
Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore standard rated.
If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.
Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food
steve@bicknells.net
Odd VAT rules for Hotels
Tax is made up of bizarre and complicated rules and for accountants that’s a good thing, keeps us in work, but why tax can’t be simplified is beyond me, its a crazy tax world out there.
Here are some VAT examples for Hotels – HMRC Reference:Notice 709/3 (October 2011) :
The Long Stay Rule
If a guest stays in your establishment for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.
A guest’s stay must be continuous to qualify for the reduced value rule. For example, if a guest stays for three weeks every month, you must always charge them VAT in full. If another guest stays for five weeks, leaves for a week, and returns to stay for five more weeks, the reduced value rule applies only to the fifth week of each separate stay.
However, a guest’s departure is not seen to end their stay provided the guest:
- is a long-term resident and leaves for an occasional weekend or holiday,
- is a student who leaves during the vacation but returns to the same accommodation for the following term, or
- pays a retaining fee
In these cases the time away is ignored and you only have to charge VAT in full for the first 28 days of the overall stay.
It does not matter whether the guest returns to the same room or not.
VAT Exempt Meeting Rooms and Refreshments
Hiring a room for a meeting, or letting of shops and display cases are generally exempt, but you may choose to standard-rate them by opting to tax, see Notice 742A Opting to tax land and buildings.
If you make an exempt supply such as providing a room for a meeting or a conference and you provide minimal refreshments such as tea, coffee and biscuits, the room and the incidental catering will be treated as a single exempt supply. But, if you serve substantial refreshments such as a meal or buffet, the catering should be treated as a separate supply and you must account for VAT based on the normal charges you would make for such catering.
VAT on Deposits
Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.
Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation. This includes amounts debited from credit cards using details provided at the time of the booking. Where the cancellation charge takes the form of a retained deposit, you can reclaim any VAT already accounted for as an adjustment to your next return.
Reclaim Overpaid VAT
If you have overpaid VAT you can now go back up to 4 years and reclaim it.
steve@bicknells.net
What is a Pool Car? can you reclaim VAT? will it be tax free to drive?
Pool cars must meet the following conditions:
- used by more than one employee
- not ordinarily used by one employee to the exclusion of others
- not normally kept at or near employees’ homes
- used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)
Provided all these conditions are met, you have:
- no reporting requirements
- no tax or NICs to pay
To back this up it would be worth having:
- A written ‘no private use policy’
- Business Only insurance
- A mileage log to show that there’s no private mileage
When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:
- a taxi
- for driving instruction
- for self-drive hire
If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:
- exclusively for a business purpose
- a taxi, for driving instruction or self-drive hire
http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm
The following are VAT cases relating to Pool Cars and support the reclaiming of VAT Input Tax:
Masterguard Security Services Ltd VTD 18631
A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.
Peter Jackson Jewellers Ltd VTD 19474
A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.
http://www.hmrc.gov.uk/manuals/vitmanual/VIT64690.htm
What counts as private use?
Private use that is not merely incidental to business use should in practice be ignored in deciding whether the vehicle comes under the protection of either Section 167 ITEPA 2003 (cars) or Section 168 ITEPA 2003 (vans) where such private use is:
- small in extent and infrequent and
- consists of either or both of:
-
- use limited to meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds
- use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit.
Small in extent and infrequent will generally be not more than 5% of the vehicle’s annual mileage on occasions that are neither regular nor protracted.
Use meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds covers the kind of case where an employee is taken ill at work, or learns at work that a member of his or her family has been involved in an accident. It does not apply where an employee’s normal vehicle breaks down and the pool vehicle is used as a substitute.
Use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit might apply in a number of different situations. One example would be the use of a pool vehicle to take employee-provided equipment, such as a table tennis table, to an employer-provided sports facility. (Subject to various conditions, employer provided recreational facilities do not give rise to a tax charge.)
http://www.hmrc.gov.uk/manuals/eimanual/eim23460.htm
Type of Car
You could have any car as a Pool Car and some businesses might decide to have a luxury car as the Pool Car befitting of the company image, but makesure you can prove that it hasn’t had more the a small (5%) amount of private use (as noted above).
So you could have a personally owned car to get to and from the office and then use the Company Pool Car during business hours.
Change of Use
If the car stops being a Pool Car and gets allocated to an employee you will need to do a self-supply charge for VAT at the time of change. Basically this means you account for the VAT on the ‘current value’ of the car at the time of change.
VAT Act 1994 Section 56 (9) – Fuel rules
(9)In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—
(a)in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and
(b)in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and
(c)it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.
steve@bicknells.net
I’ve won a prize, is it taxable?
HMRC doesn’t regard lottery winnings as income, so all prizes are tax free, hooray!
But the problems start when you give the money away, as reported in the Guardian in 2012
The cash will form part of your estate and be liable for 40% inheritance tax (IHT) if it takes the value of your estate above the current threshold of £325,000.
Gifting millions will not save you from paying IHT either: HMRC will tax you on a sliding IHT scale should you die within seven years of gifting any cash to friends and relatives – a 20% reduction in tax if you die between three and four years after gifting, a 40% reduction between four and five years, etc). You can get around this by making sure the recipient signs an agreement that they will pay any IHT due if you do die within seven years.
The IHT issue also applies where you have a syndicate without a syndicate agreement.
The solution to this is to have a syndicate agreement , then you can look forward to spending your fortune.
The reasoning behind HMRC’s thinking goes back to the case of Graham v Green [1925] 9TC309 and concerned a man whose sole means of livelihood came from betting on horses at starting prices.
The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green [1925] 9TC309:
A bet is merely an irrational agreement that one person should pay another person on the happening of an event.
This shows that having expertise or being systematic (“studying form”) is not enough to create a trade of being a ”professional gambler”.
Some ”professional gamblers” do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward. Whether their gambling winnings are proceeds of that trade would depend upon the facts. BIM22017
The other problem for HMRC is that if you tax ‘winnings’ you would have to allow tax deductions for ‘losing’ and there are more losers than winners.
Things get complicated when it comes to sporting events, in general, amateur sporting prizes are tax free, here are HMRC’s examples for Community Amateur Sports Clubs:
Clubs may wish to arrange prize competitions where the nature of both the competition and the prize is such as to promote participation in the sport. In strictness there is nothing to permit this but where the value of prizes, are commensurate with amateur participation in the particular sport these would not prevent club from being registered. Competition prizes of sufficient value to attract professionals or such frequency that could be equated with payment to players would preclude qualification as a CASC.
Example 1 A Cycling club promotes races in which members and others, particularly local juniors, are encouraged to participate. Modest cash prizes are awarded and funded from entry fees and local sponsorship. This would be acceptable.
Example 2 A Golf club holds regular competitions for members throughout its season. Although individual events may be limited by gender or handicap, all members are able to participate in some of the competitions. Prizes of golf equipment, for example bags, shoes, balls or vouchers redeemable at the club shop are awarded. Again, this would be acceptable.
Example 3 A Bowling club organises frequent competitions for club members with cash prizes subsidised by a brewery. Senior players derive significant benefit from these arrangements. A club that subsidised its members in this way would be unlikely to qualify as a CASC.
When it comes to professional sporting events the tax can be significant and has led to problems attracting sporting stars.
Like most countries, the UK charges tax on appearance fees and prize money when non-resident athletes compete in Britain but, unlike many other countries, it also seeks to tax the athlete’s global endorsement income.
Based on the number of days spent competing in the UK, Her Majesty’s Revenue and Customs charges tax on a percentage of the athlete’s income earned elsewhere.
“It’s like me asking you to come to work today and pay three times in tax what you’re getting”
As reported in the Telegraph in February 2013.
steve@bicknells.net
Are you ready for an HMRC Employer Compliance Check?
HMRC check 30,000 UK businesses each year for Employer Compliance Checks, will it be your turn next. HMRC usually find something wrong, lets face it with the best will in the world mistakes happen – HMRC have collected £20.7bn overall in record compliance as shown in this infographic.
Why not ask a CIMA Accountant to check on Status/Employer Compliance matters we can:
- Discuss areas of concern with you
- Prepare new procedures
- Apply for Dispensations
- Help you disclose errors and reduce penalties
- Carry out a Full Risk Assessment & provide Recommendations
You never know you we might even find errors in your favour and be able to get a refund.
steve@bicknells.net
Does your accountant understand Construction?
![fotolia_1931265[1]](https://business-accountant.com/wp-content/uploads/2013/09/fotolia_19312651.jpg)
Perhaps one of the most important things an individual can do when self-employed is to keep meticulous accounts. This means not only keeping a record of income and expenditure, but also work in progress at the end of the tax year. The case of Mark Smith v HMRC [2012] TC02321, which was an appeal heard in the First Tier Tribunal of the Tax Chamber illustrates the potential ramifications of failing to keep one’s accounts in sufficient order.
The appellant in this case was trading as a builder. He sought to appeal against assessments to tax and amendments to self-assessments in respect of the years ending 5 April 2001 to 5 April 2007 inclusive.
The central issue before the tribunal related to the appellant’s computation of profits. It was admitted that his accounts understated the profits gained in a particular tax year. However, it was his contention that this was a “one-off”. Nevertheless, in following years, his assessments were raised in an effort to make good the profits previously understated. The question was whether these assessments were justified.
In the construction industry, building projects can last for several months or years, generally, each month the contractor will submit an application for payment to the client based on their assessment of the work. When and if the client agrees they will certify the work and make payment, if they disagree a lower amount will be certified. The certification process can often take up to 3 weeks.
The Contractors Quantity Surveyor will prepare a report known as a Cost Value Reconciliation (CVR) or Cost Value Comparison (CVC). These will show the value of the work completed to a set date (whether certified or not) and the profit, here is an example
http://www.online-templatestore.com/store/Free/Cost%20vs%20Value%20Report.pdf
Often a CVR will list every sub-contract package and the materials ordered in great detail compared to the tender and stage of completion.
The underlying principle is that of ‘matching’ costs and revenue to allow the accountant to accrue for costs and adjust revenue (accruing Income).
The decision
The tribunal held that HMRC’s assessments were in fact justified. In relation to quantum, the tribunal confirmed that the burden of proving the amount assessed lay with the taxpayer. In this case, the appellant failed to adduce evidence sufficient to displace the assessments made by HMRC. Accordingly, the assessments were confirmed and the appeal was dismissed. The appellant therefore remained liable in the amount as assessed by HMRC.
The reason why HMRC were successful was that in the case of Mark Smith he based his income on certified revenue, this meant that the profit was understated, within Construction “UK GAAP” requires revenue to be reported on application based on the CVR matching approach.
The details of the additional profits and tax for each year are as follows:
(1)2000/01: additional profits of £43,189 giving rise to tax of £17,275.60
(2)2001/02: additional profits of £65,205 giving rise to tax of £24,972.02
(3)2002/03: additional profits of £73,889 giving rise to tax of £27,737.86
(4)2003/04:additional profits of £70,023 giving rise to tax of £27,503.41
(5)2004/05: additional profits of £70,000 giving rise to tax of 27,704.18
(6)2005/06: additional profits of £65,240 giving rise to tax of £26,735.44
(7)2006/07: additional profits of £45,541 giving rise to tax of £18,671.81
Who bears the burden of proving excessive assessments?
In establishing discovery assessments, HMRC bears the burden of demonstrating that they are valid. However, if an individual taxpayer believes the assessment to be excessive, the burden then shifts to that individual to prove that is the case.
Section 50(6) of the Taxes Management Act 1970 provides that:
“If, on an appeal notified to the tribunal, the tribunal decides—
[…]
(c) that the appellant is overcharged by an assessment other than a self- assessment, the assessment shall be reduced accordingly, but otherwise the assessment shall stand good.”
In other words, once HMRC makes an assessment, the amount of that assessment stands unless the individual taxpayer can prove on the balance of probabilities (through the production of evidence) that the assessment should be different.
In this instance, HMRC had substantially underestimated the appellant’s profits for the year 2004/05. The appellant submitted that his underestimation for profits in 2004/05 was a ‘one-off’, and therefore did not warrant any adjustment for other years. It was for him to prove this. He was unable to do so and failed to adduce any evidence. HMRC concluded that the appellant had been gravely negligent in the conduct of his tax affairs and that further assessments were therefore justified.
Additionally, the appellant seemed to provide no explanation to the Tribunal to account for the under-declaration. There may have been a legitimate reason for this, and had his accounts been kept consistently throughout the period in question, he would have perhaps had evidence capable of proving to the tribunal that the error was in fact a sole incident.
This is a joint blog between Rebecca Broadbent (Practice Manager, Chambers of Jason Elliott [Barristers]) and Steve Bicknell
How to account for 50,000 members eating breakfasts 4 times a week
For anyone running a large networking or membership organisation coping with thousands of transactions of the same value is a challenge. In the case of 4Networking, Tuesday to Friday thousands of members are booking breakfasts online for £12 each (they all need a VAT receipt) [note in addition to breakfasts its £499 plus VAT to join and there is an annual membership fee after the first year], so what information do they analyse, well they need to know, which member or visitor, which group/venue, which area leader, for visitors they need to know the number of visits (so that they can charge when the maximum is reached), when membership renewals are due. Thats a lot of information and to run an efficient network you need to quickly see the results and take action if attendees drop.
The solution that we used was to have a description made up of numbers separated with a # so that you could quickly extract results for any data group or multiple groups.
The other challenge faced is that Memberships cover a future period and to comply with revenue recognition rules the revenue must be phased over the period to which it relates.
steve@bicknells.net
Can you reclaim the VAT on Sponsorship? Probably but not always
Generally sponsorship is subject to VAT because normally the organisation you sponsor will be making taxable supplies to you because in return for sponsorship, they are obliged to provide the sponsor with a significant benefit. Typically this might include any of the following:
- naming an event after the sponsor;
- displaying the sponsor’s company logo or trading name;
- participating in the sponsors promotional or advertising activities;
- allowing the sponsor to use your name or logo;
- giving free or reduced price tickets;
- allowing access to special events such as premieres or gala evenings;
- providing entertainment or hospitality facilities; or
- giving the sponsor exclusive or priority booking rights.
Donations and gift are not normally subject to VAT.
The rules are in HMRC Reference:Notice 701/41 (March 2002)
A business can recover input tax on their legitimate costs when it:
- promotes its business; or
- provide facilities to its staff.
When a business only makes sporting or recreational facilities available to:
- the proprietor
- the partners
- the directors of a company
- the relatives and friends of the proprietor, partners or company directors
it is unlikely that this expense can be treated as being for the purpose of the business. Therefore, the VAT incurred would not qualify as input tax.
In the case of smaller businesses there is an increased risk that the sponsorship is conducted for a private purpose so the VATman has come up with a set of tests:
VIT44300 – Specific issues: test for sporting and recreational activities
Does the proprietor, partner or director actively take part in the sport?
If the proprietor, partner or director cannot take part because of injury or business commitments is another (independent) person employed to drive?
Does a member of the proprietor, partner or director’s family actively take part in the sport?
Is there a connection between the sport and the business?
Where does the sporting activity take place?
Is there extra advertising at the racing venue or in programmes?
Is there related advertising or promotional material?
Does the business name appear on the sporting vehicle, transporter or clothing?
For companies and partnerships is there a record of a decision to use sporting facilities for advertising?
Can the business produce any evidence of research into the benefits to be gained from the advertising?
Are the benefits of the advertising monitored?
Is the car or boat an asset of the company?
What other forms of advertising are there?
Has HMRC given a ruling for direct tax purposes?
Could the business cope with an expansion of trade?
steve@bicknells.net
How do taxi businesses account for VAT?
Generally taxi businesses use self employed taxi drivers and the taxi business provide the back office admin, radios and sometimes the cars.
There are two key types of work:
- Cash work – the passenger pays the driver when they reach their destination
- Account work – the client pays the taxi business on a periodic basis
If the taxi firm directly employs its drivers, then VAT is due on all fare income.
Where the drivers are self employed, the taxi business will often collect the income from the account work and deduct the costs for car rental, insurance, administration and radio hire (known as ‘settles’) and then pay the balance to the self employed driver.
A common mistake is that the taxi business then only accounts for VAT on the amount it retains.
HMRC will argue that the full VAT should be accounted for on the Account work and the driver should be charged VAT on the ‘settles’.
You may, depending on the terms of any written or oral contract between you and the drivers and the actual working practices of your business, be acting as an agent for the drivers for the cash work they perform, and as a principal for the work done for account customers. However, if you are to account for VAT on this basis you must be able to satisfy us that:
-
the arrangements are reflected in the terms agreed with your drivers and
-
there is a genuine difference in the operation of the cash and account sides of your business.
HMRC Reference:Notice 700/25 (May 2002)
steve@bicknells.net
The tax advantages of cycling to work
Summer is nearly over but cycling could be just the thing help you keep fit, save money and be kind to the environment.
HMRC like cyclists too, so what do you need to do to qualify for tax savings.
First you will need to get your employer to participate in the scheme, they can do this either by setting up their own scheme or by using www.cyclescheme.co.uk or http://www.bike2workscheme.co.uk/ there are lots of other similar sites too.
The basic rules are:
You must use the bike and/or safety equipment mainly (more than 50 per cent of the time) for ‘qualifying’ journeys. This means a journey or part of a journey:
- between your home and workplace
- between one workplace and another
- to and from the train station to get to work
Taking part in the scheme means that you don’t have to pay a lump sum up front to buy a bike and/or safety equipment. Instead, you could loan the bike and/or equipment from your employer, usually up to the value of £1000.
Making loan repayments
Your employer may want to recover all or part of the cost of loaning you the bike and/or safety equipment. If so, you would then make loan payments back to your employer over an agreed period (typically 12 to 18 months) to spread the cost.
The loan payments are usually taken out of your salary through a ‘salary sacrifice’ arrangement. This means you agree to accept a lower amount of salary in return for a benefit – the loan of a cycle and/or safety equipment.
Example of savings using Salary Sacrifice
Cost of bicycle: £500
Cost of accessories £100
Total cost £600
Income Tax 20% £120
Employee National Insurance 12% £72
Total Employee Saving £192
Your employer will save Employers National Insurance of 13.8% on the salary sacrificed
The Employee can buy the Cycle from the company for a price set using the HMRC valuation table below
| Age of cycle | Acceptable disposal value percentage | |
| Original price of the cycle less than £500 | Original price £500+ | |
| 1 year | 18% | 25% |
| 18 months | 16% | 21% |
| 2 years | 13% | 17% |
| 3 years | 8% | 12% |
| 4 years | 3% | 7% |
| 5 years | Negligible | 2% |
| 6 years & over | Negligible | Negligible |
In addition you can claim an HMRC mileage allowance for Cycling of 20p per mile and if you employer doesn’t pay the allowance you can claim back the tax on the allowance using form P87 http://www.hmrc.gov.uk/forms/p87.pdf
So as the saying goes ‘get on your bike’
steve@bicknells.net
Business Accountant 