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Tax free mobile phones
You are allowed to provide your employees with one tax free mobile phone each. But you have to do it the right way otherwise it could cost you and your employee tax and national insurance.
The tax free mobile phone
- The contract must be between the employer and the mobile phone company.
- There are no reporting requirements
- There is no tax or NI to pay
- Tablets are not included but smartphones are.
Employee’s own phone – employer pays supplier direct
- The contract is between the employee and the phone company
- You have to report on a P11D
- Add the value of the benefit to earnings through the payroll
- Employer pays class 1 NI
- Employee pays NI, but no tax
- No NI is payable if it was acquired for business use only but still have to report
Employee’s own phone – employer reimburses monthly contract
- The contract is between the employee and the phone company
- You reimburse the monthly tariff so this is just earnings.
- Employer pays NI
- Employee pays NI and tax.
Employee’s own phone – pay as you go
- You only reimburse identified business calls
- You must report on a P11D unless you have a dispensation or the employee earns less than £8,500
- There is no tax or NI to pay.
It’s a good day when the sun shines!
How many of us are thrilled that the sun is finally starting to put in an appearance. I certainly am!
Don’t we feel better about our businesses when the sun shines?
But what tangible effect does the weather really have on most of our companies?
Unless you are involved in tourism, swimming pool construction, or possibly seasonal clothing, there is really no reason for sudden optimism when the weather is good – the economy is unlikely to change overnight just because it isn’t raining. Nor are customers, which weren’t there yesterday, suddenly going to materialise today because they won’t get wet coming to your office – although being in Somerset they might have more luck getting to you once the floods a gone!
And yet we do feel more positive and can often see a change in our business fortunes. Whether this is because, in feeling better about the world, we are more open to opportunities or because good weather encourages us to take a more proactive view, is difficult to say.
Actually it does not matter. In my view anything which encourages us to get out of bed with a spring in our step, ready to face the challenges we will inevitably face in our working week, is a good thing.
So maximise the benefits of this positivity: walk to meetings where possible; take a stroll at lunchtime so you can re-energise; and generally get out! We Brits know the sunshine won’t last for ever so make the most of it whilst it’s here.
Fiona 🙂
Loans to Directors of Close Companies
New rules announced in Budget 2013 discourage participators in close companies from taking loans from their own companies, previously legislated under s.419 ICTA 1988, currently s.455 CTA 2010.
The basis of s.455 CTA 2010 is that, where a close company makes a loan to a participator (or associate of a participator) then it is required to pay to HMRC a tax equal to 25% of the value of the loan. The tax is due for payment 9 months and 1 day after the end of the accounting period in which the loan was made. However, if the participator repays the loan before that date, then the requirement to account for the ‘s.455 tax’ is cancelled, by virtue of s.458 CTA 2010. Where the loan is repaid after that date then HMRC repay the ‘s.455 tax’ 9 months and 1 day after the end of the accounting period in which the loan is repaid.
This brings us to one of the measures brought in by budget 2013. With effect from budget day (20th March 2013) ‘bed and breakfasting’ is no longer possible. ‘Bed and breakfasting’ is a commonly used loophole where the loan is repaid to the company before the day 9 months and one day after the year end to prevent the ‘s.455 tax’ charge becoming due, then soon after the trigger date has passed, the participator re-loans the money from the company. Or indeed, where loans are repaid after the ‘s.455 tax’ has been paid to HMRC, but again the participator soon afterwards re-loans the money from the company and reclaims the ‘s.455 tax’ from HMRC.
HMRC have long tried to challenge these cases. Their manual instructs inspectors to “obtain as much factual evidence of the transactions and the accompanying arrangements as possible” where they think they have found a case of ‘bed and breakfasting’ for referral to the Corporation Tax International and Anti-Avoidance technical team.
However, the new rules now give HMRC a statutory basis to deny relief in circumstances where s.455 tax has been paid if, within a 30 day period, repayments of more than £5,000 are paid to the close company in respect of amounts which have given rise to a charge which are then redrawn either via a loan, advance or ‘extraction of value’ – something else new to watch out for!
In addition, where the 30 day rule does not apply, relief will also be denied if there are amounts outstanding of at least £15,000 and, at the time of the repayment, there are arrangements or there is an intention to redraw an amount again through a loan, advance or an extraction of value.
There has been some discussion amongst tax commentators over whether there is a possibility that ‘s455 tax’ may never be repaid in the circumstances where a participator makes regular withdrawals from their company which are treated as debits to the director’s loan account and then are cleared via a payment of salary or a dividend before the nine-month cut off because there is an intention to continue withdrawing funds in this way in future; a common practice in many owner-managed companies. However our view is that s464C(5) will, in almost all cases, overcome this problem, as it is clear from the draft legislation that the restriction on repayment of ‘s455 tax’ will not apply in relation to a repayment which gives rise to a charge to income tax on the participator (or associate) by reference to whom the loan, advance or benefit was a chargeable payment i.e. where they are charged to income tax on the dividend or salary used to clear the outstanding loan account balance. Without the inclusion of s464C(5) this new legislation could have caused an awful lot of headaches for accountants, tax advisers and owner-managed companies the length and breadth of the UK, so this sensible, well thought through paragraph is really a saving grace in what could have been an extremely burdensome piece of legislation.
Watch out for the references to “extractions of value” in the revised s455 rules. This is an extension of the rules to cover less traditional arrangements where, instead of providing loans the close company seeks to extract and transfer value to a participator in some other way which would have been neither chargeable to tax nor within the s.455 charge before the introduction of this new wording.
Finally, there is a further new rule which puts beyond doubt that fact that loans made via a partnership, LLP or trustees of a settlement are caught by the s.455 tax charge!
For further advice – see your local CIMA qualified accountant.
Ref CCH
martin.pope@theaccountingfactory.co.uk
Not another accountant!
I was asked by a prospective client, “Why should I hire another accountant to work with me on this transaction when my firm already employs a qualified accountant and retains a firm of auditors?”
It was a good question and probably one that many SME owners would ask under similar circumstances. I was pretty sure of the answer, but wanted to avoid the usual clichés, such as “you only sell your business once”, “you have to get it right first time” and “there is too much money at stake to take a chance on inexperienced advice”, however they are the main reasons why and they did form part of the response.
I explained that not all accountants are experienced in all matters. An accountancy qualification provides an excellent introduction to the world of business, but accountants tend to specialise like any other profession, and this is one of my key areas of expertise.
The owner in question knew that his in-house accountant did a great job of running the day-to-day finances of the business, handling the sale and purchase transactions, managing the payroll and producing monthly reports. He also looked after most other things relating to the administration of the business, such as property and insurance, but the owner also knew in his heart that his accountant had never sold a business before and had no idea what it entailed. He also knew his auditors were competent at producing year-end accounts and preparing his tax returns, but they had no direct experience of preparing a business for sale or making important presentations to maximise its sale value from prospective acquirers.
The owner had talked to his corporate finance advisor and had listened carefully to the advice offered – the extraordinary workload, the amount of detail, the intrusive due diligence that would examine every part of the business, the negotiation of terms with seasoned acquirers and the potential impact of all of these on his time, the day-to-day running of the business and how much he might get out of the transaction.
The bottom line was that the owner knew that he needed to strengthen his team for the duration of the project and that was the reason he and I were having the discussion.
He listened carefully whilst I gave him my estimate of the value of the business based on its current earnings and the sort of multiples he could expect from trade and private equity buyers.
I compared and contrasted the different acquisition rationale of trade buyers and private-equity buyers, and I talked about the process and timescales, including the possibility of an extended timescale if the acquirer needs more time to make certain, i.e. to get another month’s or quarter’s trading on the slate.
I also explained how the owner might secure more money through an earn-out if the business did better than expected and I highlighted what the potential acquirers would be looking for, i.e.
- the quality of earnings,
- the relationships with customers,
- the market potential,
- the possibility for vertical or horizontal expansion,
- the geographic reach,
- the white space around existing markets and sectors
- the strength of the business model,
- the size of the pipeline,
- the skills of the people,
- the integrity of the business processes,
- the control over cash management,
- the robustness of financial forecasts,
- the performance against budgets,
- the treatment of expenditure,
- the cash conversion of sales and profits,
- the level of investment required to sustain and grow the business
We discussed these at length and I felt comfortable that we were having a fruitful discussion about important aspects of his business and I sensed that he was reassured by what I said and how I could help him address these issues.
I also said that I had looked at the company’s website and noted job vacancies, details of contracts secured, strategies for expansion etc., and I asked how these were going. I explained that everything in the public domain needed to be verified, so that there were no inconsistencies and no empty promises – everything needed to withstand scrutiny.
The owner made meticulous notes throughout, after all – it was sound advice – and free!
Business owners are savvy people, they know that good advice is important and a trusted advisor is something very special.
However, returning to the story.
Did I get the job? Yes, I did.
Did he make a lot of money? Yes, he did. He is a very happy client!
If you found the article interesting then maybe you would like to share it, or if you would like to comment then I would be delighted to hear from you either on this site or at mjones@finexec.co.uk
On-line Professional Service – the elephant in the room?
The internet is the greatest social and educational breakthrough since the printing press. This is of course, debatable, but I think most would be hard pushed to argue the contrary. Naturally, where there is great social change there is someone trying to make money from it. How long do you think it took for the first advertising leaflet to be made on a printing press?
We live in a world of constant connection to, well, just about everything. Communities are created from across the globe as people share insights, knowledge and (importantly) goods. And yet every step of the progression has been met with scepticism and incredulity. It wasn’t that long ago when the idea of people selling cars on the internet seemed absurd. You would be just as baffled now if you couldn’t find a price for your car on your phone in a few seconds.
Despite this, there is an interesting omission in our global community trends. The traditional, professional, business to business service provider is still something that most people expect to find within their locality. There are certain situations where you require a service and it makes sense to find it nearby. If I need a mechanic I’ll happily search google for “mechanic Belfast”, because there is a physical transfer of tangible items (too big to post). But why should I search for a web designer, advertiser, accountant or lawyer in my city? There is no technical requirement for these professions to be in my proximity for them to provide their services. But this type of search and assumption happens every day.
This will change, slowly. As some businesses start the movement others will follow, because in many cases business owners simply haven’t considered it an option. What we’re finding out is that it’s not only feasible to remotely deliver these kinds of services, it’s also cost saving. Video conference calls are not a luxury for the mega corporations any more, most of us have the technology casually rattling around in our pockets already.
Technology is the key here. There is a sea of useful, productivity driven apps and online resources that make working remotely a breeze. The really astonishing thing is how you may not have heard of them yet. You’ll read the description of these tools and think “But of course that exists! It’s so simple. Why hasn’t it been in front of me for years?” This is the beauty of the situation: there’s still so much room for growth.
This isn’t the 90’s website bubble when the general public didn’t understand how someone could stand to make money from the internet never mind set up a website. The technology becomes more advanced but the tools to utilise it is becoming easier to use. Here at Baxterworld we’ve taken part in a government supported programme that trained one of our office members to create an API (Application programming interface) that allowed quick translation from Point One (POS system) to Xero (Cloud Accountancy System). These are both international big hitters in the software world now and it took our small firm in Belfast to find a way to link the two. Links like this will be a big plus in the near future.
The way we do business is finding its next logical extreme, and right now that seems to be cloud computing. Many aspects of day to day business life have become electronic, it’s almost an inconvenience to receive a printed invoice these days. With so many services based in the cloud, location specific offices are becoming unnecessary. It’s incredible that businesses can function with each member of the “office” tagging in from across continent, while Joe Blogs searches for a web designer who lives within his bus route. We have an astonishing capability to work more quickly and efficiently with emerging technologies, but how long will it take people to spot the Elephant?
This article is from the Baxterworld office. We are an accountancy and admin practice based in Belfast and serving Ireland, the UK, Germany and South Africa.
The Parent Subsidiary Directive
The EU puts out its Directives and not much notice is taken until an issue drives it out for debate and scrutiny. This Directive was intended to prevent same-group enitities based in different states from being taxed twice or even thrice, yet it has been turned on its head and ignited furious debates and streams of hysterical wailing and gnashing of teeth by politicians who signed us up to the Directive, nodded all its gold-plated UK provisons through and now find it is not doing what they thought it would do.
Trade Union chieftains routinely accuse global companies of dodging taxes by trading across legal jurisdictions in exact accordance with the provisions and various national statutes based on the Parent-Subsidiary Directive. These same blockheads didn’t utter a single word of caution or advice when their political comrades devised, gold-plated, kept secret and craftily nodded through the mother of all Parliaments in the good old days when Antony Blair of that ilk ruled in conjunction with the Marxist Scotsman economist-of-note Gordon Brown, also of that ilk.
Just why the Unions should hold the present Government responsible for cross jurisdictional tax avoidance, when it is in accordance with statutes which they helped put in place, is not clear. Perhaps big Bob Crow or wee Len MaCluskie could explain their turncoat tactics in time for the Euro elections in May. If there are people in politics, the Church and high places who resent the big corporations and how they pay tax, they should have the guts and honesty to own up to their own stupidity and complicity in accepting the Directives that underpin it to this day!
Directives are issued in various formats. It is usually instructive to consult the versions issued in French and which are adopted for French domestic use. These are more likely to indicate the original true and fair intention and actual content of the Directives. It is well established that the British versions of Directives often end up almost totally different to those that are adopted by the French in their simplified format as proper working statutes and discussion documents designed to help and facilitate compliance and effect rather than to baffle, confuse and destablilise the issues they are intended to clarify and improve.
Lawyers do well out of the British Directives, Regulations and Interpretations that dog so many of our industries, commercial undertakings and ordinary people who get caught up in their toils and misrepresentations. It is time to take stock.
VAT on sponsoring amateur sports clubs
As accountants we learn the various concepts that ensure that accounts are correctly presented & we learn tax legislation that helps us to keep our clients compliant. Then something comes out of the blue which seems odd, but appears to be common. A case in point is sponsorship on clothing in non VAT registered sports clubs.
In reality what should happen is that the clubs buy clothing & sell sponsorship. There is an expense & there is income. But then a helpful sponsor volunteers to pay the clothing cost direct & so claim the VAT. But think about the implications:
- The accounts of the club could become misrepresented, with income from sponsorship being offset against the costs of clothing.
- As a result of (1) the sports club could be running at above the VAT threshold without realising.
- The organisation reclaiming the VAT has effectively purchased the sponsored clothing, eventhough they may not have been invoiced.
- Given the above the sponsoring organisation should then make a gift of the clothing to the club, where VAT will need to be declared . . . thereby closing the loop. However, it may not do so. Therefore, it may be under-declaring its VAT.
When something seems too good to be true, it often is!
Whistleblowing & tip offs – fight against occupational fraud
Tip-off is by far the most effective way of uncovering a fraud & this goes hand in glove with establishing a clear fraud policy & stating this in the staff handbook. But how is the employee protected & what about non employees?
Whistleblowers are protected by the Public Interest Disclosure Act 1998 (PIDA) if they make a disclosure which is in the public interest, which includes reporting:
- Where someone’s health & safety is in danger.
- There is damage to the environment.
- A criminal offence has been committed.
- The company isn’t obeying the law.
- The company is covering up a wrongdoing.
Employees should tell their HR department or manager, if they can. Otherwise they should report the incident to a prescribed person – such as governing body. A list is available from www.gov.uk.
Employees & workers are protected if they make a qualifying disclosure (see above) which they believe is in the public interest. Employees rights are covered by claiming constructive dismissal. However, workers who are not employees are also protected & can claim “detrimental treatment”.
Encouraging tip offs is important in combatting occupational fraud & all businesses should be open to the fact that fraud doesn’t just happen to others. In many businesses it is a significant yet invisible overhead.
Partially-exempt Businesses
If your business supplies some goods or services which carry VAT, and other items which are exempt from VAT (such as charitable events and financing), the business is likely to be partly-exempt for VAT purposes. Being partly-exempt means you may not be able to reclaim all of the VAT on your purchases (input VAT).
Where the input VAT that relates to your exempt sales is no more than £625 per month, and it is also less than half of your total input VAT, you can reclaim all of the input VAT. In other cases you can only reclaim the input VAT which relates to the supplies that carry VAT. There are various methods to apportion input-VAT which can be agreed individually with HMRC, or you can use the standard method.
Whichever method you use to allocate input VAT, this should be reviewed at least once a year, to see if it still gives the best outcome for your business. We can help you with this.
If you pay VAT on road fuel used for private journeys, based on the road fuel scale charges published by HMRC, you need to be aware that the concession for partly-exempt businesses is withdrawn from 1 January 2014. Under this concession the business is permitted to reduce the output VAT due on the road fuel scale charges in line with its partial-exempt position. If you have been using this concession we definitely need to review the methods you use to apportion input VAT from 1 January 2014.
New RTI Relief
Have you been struggling to send full payment summary (FPS) reports under RTI to HMRC on or before the days on which your employees are paid? This is particularly difficult when your workers receive irregular amounts of pay on varying dates. In such cases you may not know the amounts of wages and deductions to report until the workers have finished their shifts.
The concession for small employers with fewer than 50 employees has helped. This allows you to submit all the figures on one FPS report when you make your last payroll run in the month, but this must be no later than the end of the tax month. However, this concession is due to end on 5 April 2014.
The good news is that until 5 April 2016, employers with fewer than 10 workers will be able to send in the FPS covering all payments by the last pay day of the tax month. This new relaxation will only apply to existing employers. Any new PAYE scheme commencing on or after 6 April 2014, or any scheme with 10 or more employees will have to report all the wages and deductions on or before each day the employees are paid, even if that is multiple times in the month.
If you have 10 to 50 employees on your payroll, and have been using the small employer concession to cope with multiple pay dates in a month, you need to talk to your CIMA Accountant about how to adjust your systems from April 2014.
Business Accountant 